SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1994
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-10720
ILLINOIS CENTRAL CORPORATION
(Exact name of registrant as specified in its
charter)
Delaware 13-3545405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois
(Address of principal executive offices)
60611-5504
(Zip Code)
Registrant's telephone number, including area code:
(312) 755-7500
Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, (or for
such shorter period that the Registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.
YES X NO
As of March 31, 1994, 42,615,839 common shares were
outstanding.
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
FORM 10-Q
Three Months Ended March 31, 1994
CONTENTS
Part I - Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash
Flows 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information:
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 6. Exhibits and Reports on Form
8-K 12
Signatures 13
Exhibit 11 E-1
<PAGE>
<TABLE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions, except share data)
(Unaudited)
<CAPTION>
<S> <C> <C>
Three Months
Ended March 31,
1994 1993
Revenues $ 147.5 $ 142.7
Operating expenses:
Labor and fringe benefits 49.0 47.1
Leases and car hire 12.7 18.2
Diesel fuel 7.8 7.7
Materials and supplies 10.8 9.5
Depreciation and amortization 6.5 5.6
Other 10.1 8.2
Operating expenses 96.9 96.3
Operating income 50.6 46.4
Other income, net 0.6 0.6
Interest expense, net (7.3) (10.1)
Income before income taxes and cumulative effect
of changes in accounting principles 43.9 36.9
Provision for income taxes 16.2 12.9
Income before cumulative effect of changes
in accounting principles 27.7 24.0
Cumulative effect of changes in accounting
principles - (0.1)
Net income $ 27.7 $ 23.9
Income per share:
Income before cumulative effect of changes
in accounting principles $ 0.65 $ 0.56
Cumulative effect of changes in accounting
principles - -
Income per share $ 0.65 $ 0.56
Weighted average number of shares
of common stock and common stock
equivalents outstanding 42,794,150 42,734,552
</TABLE>
The following notes are an integral part of
the consolidated financial statements.
<PAGE>
<TABLE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
<CAPTION>
<S> <C> <C>
ASSETS March 31, 1994 December 31, 1993
Current assets:
Cash and temporary cash investments $ 19.1 $ 10.7
Receivables, net of allowance for doubtful accounts
of $2.6 in 1994 and $3.1 in 1993 58.9 80.3
Materials and supplies, at average cost 20.5 20.1
Assets held for disposition 9.1 9.1
Deferred income taxes - current 22.1 22.8
Other current assets 3.7 3.6
Total current assets 133.4 146.6
Investments 15.8 15.7
Properties:
Transportation:
Road and structures, including land 951.9 947.9
Equipment 118.7 118.1
Other, principally land 40.4 40.4
Total properties 1,111.0 1,106.4
Accumulated depreciation (20.1) (20.9)
Net properties 1,090.9 1,085.5
Other assets 11.1 10.9
Total assets $ 1,251.2 $ 1,258.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 24.0 $ 24.3
Accounts payable 56.2 54.4
Dividends payable 9.0 9.0
Income taxes payable 9.9 1.5
Casualty and freight claims 24.7 24.7
Employee compensation and vacations 18.6 15.8
Taxes other than income taxes 11.3 14.0
Accrued redundancy reserves 6.9 6.8
Other accrued expenses 26.4 28.5
Total current liabilities 187.0 179.0
Long-term debt 324.0 360.3
Deferred income taxes 208.1 202.3
Other liabilities and reserves 135.7 139.7
Contingencies and commitments
Stockholders' equity:
Common stock, par value $.001, authorized
65,000,000 shares, 42,838,564 shares issued
and 42,615,839 shares outstanding - -
Additional paid-in capital 164.5 164.2
Retained income 235.2 216.5
Treasury stock (222,725 shares) (3.3) (3.3)
Total stockholders' equity 396.4 377.4
Total liabilities and stockholders'
equity $ 1,251.2 $ 1,258.7
</TABLE>
The following notes are an integral part of the
consolidated financial statements.
<PAGE>
<TABLE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
1994 1993
Cash flows from operating activities :
Net income $ 27.7 $ 23.9
Reconciliation of net income to net cash provided
by (used for) operating activities :
Cumulative effect of changes in accounting
principles - 0.1
Depreciation and amortization 6.5 5.6
Deferred income taxes 6.5 7.9
Equity in undistributed earnings of affiliates,
net of dividends received (0.2) -
Net gains on sales of real estate 0.1 -
Cash changes in working capital 29.9 (0.1)
Changes in other assets (0.3) (1.1)
Changes in other liabilities and reserves (4.7) (11.1)
Net cash provided by (used for) operating
activities 65.5 25.2
Cash flows from investing activities :
Additions to properties (12.4) (17.0)
Proceeds from real estate sales 0.2 0.2
Proceeds from single track sales - -
Proceeds from equipment sales 0.3 0.6
Proceeds from sales of investments 0.2 -
Other 0.2 (0.5)
Net cash provided by (used for) investing
activities (11.5) (16.7)
Cash flows from financing activities :
Proceeds from issuance of debt 48.6 4.5
Principal payments on debt (60.1) (4.9)
Net proceeds (payments) in commercial paper (25.1) -
Dividends paid (8.9) (6.4)
Proceeds from exercise of stock options and warrants - 0.1
Purchase of subsidiary's common stock (0.1) (0.1)
Net cash provided by (used for) financing
activities (45.6) (6.8)
Changes in cash and temporary cash investments 8.4 1.7
Cash and temporary cash investments at beginning of
period 10.7 34.6
Cash and temporary cash investments at end of
period $ 19.1 $ 36.3
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount capitalized) $ 9.7 $ 10.0
Income taxes $ 3.1 $ 2.6
</TABLE>
The following notes are an integral part of the
consolidated financial statements.
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Except as described below, the accompanying
unaudited consolidated financial statements have
been prepared in accordance with accounting
policies described in the 1993 Annual Report on
Form 10-K and should be read in conjunction with
the disclosures therein.
In the opinion of management, these interim
financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary
to present fairly the financial position, results
of operations and cash flows for the periods
presented. Interim results are not necessarily
indicative of results for the full year.
Certain 1993 amounts have been reclassified to
conform with the presentation used in the 1994
financial statements.
Income Per Share
Income per common share of the Company is based on
the weighted average number of shares of common
stock and common stock equivalents outstanding
during the period.
2. Sale of Accounts Receivable
In the first quarter of 1994, the Railroad entered
into a revolving agreement to sell undivided
percentage interests in certain of its accounts
receivable, with recourse, to a financial
institution. The agreement, which expires March
1997, allows for sales of accounts receivable up to
a maximum of $50 million. The Railroad services
the accounts receivable sold under the agreement.
During the first quarter, the Railroad received
cash proceeds of $25.0 million as a result of
such sales of accounts receivable. The Railroad
retains the same exposure to credit loss as existed
prior to the sale. Costs related to the agreement
will vary generally in correlation with changes in
prevailing interest rates. These costs, which are
included in Other Income, Net, were $.4 million for
the quarter ended March 31, 1994.
3. Common Stock and Dividends
On February 10, 1994, the Board of Directors
approved a quarterly dividend of $.21 per share
which was paid April 7, 1994. The Board intends to
continue its policy of quarterly dividends. Future
dividends may be dependent on the Railroad's
ability to pay cash dividends to the Company.
Certain covenants of the Railroad's debt agreements
restrict the level of dividends it may pay to the
Company. At March 31, 1994, approximately $81
million was free of such restrictions.
4. Certain Investments in Debt and Equity
Securities
Effective January 1, 1994, the Company adopted the
Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS No. 115"). SFAS No.
115 expands the use of fair value accounting for
certain investments in debt and equity securities
but retains the use of the amortized cost method
for investments in debt securities that the
reporting enterprise has the positive intent
and ability to hold to maturity. All of the
investments held by the Company are temporary and
held for less than 10 days. They are included in
the Consolidated Balance Sheet as part of Cash and
Temporary Cash Investments. For the periods
presented, all investments were in U.S.
Corporate demand rates. It is the intent of the
Company to hold all debt securities to maturity,
therefore, the following is provided in accordance
with SFAS No. 115 ($ in millions):
3-31-94 1-1-94
Aggregate fair value $ 14.6 $ 5.6
Gross unrealized holding
gains $ - $ -
Gross unrealized holding
losses $ - $ -
Amortized cost $ 14.6 $ 5.6<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion below takes into account the
financial condition and results of operations of
the Company for the periods presented in the
consolidated financial statements.
Results of Operations
Three Months Ended March 31, 1994 Compared to Three
Months Ended March 31, 1993
Revenues for 1994 increased from the prior
year quarter by $4.8 million or 3.4% to $147.5
million. The increase was a result of a 3.2%
increase in the number of carloads coupled
with increases in other revenue, other than gross
freight revenue, which were partially offset by a
decrease of 1.5% in gross freight revenue per
carload. For the quarter, the Company experienced
carloading increases in coal (13.9%), intermodal
(27.7%) and chemicals (4.0%), offset by decreased
grain loads (16.3%).
Operating expenses for 1994 increased $.6
million, or .6% as compared to 1993. Increases in
labor, materials and supplies and depreciation were
offset by decreased lease and car hire expense.
Lease and car hire expense was reduced 30.2%
primarily as a result of the Company's shift from
leasing to ownership of its fleet. Severe weather
throughout the Railroad's service territory caused
significant labor and material costs to be
incurred.
Operating income for 1994 increased 9.1% ($4.2
million) to $50.6 million from $46.4 million in
1993, primarily as a result of increased revenues
cited above.
Net interest expense decreased by 27.7% to
$7.3 million as compared to $10.1 million in 1993,
primarily as a result of the 1993 refinancing of
the Company's debt.
Effective January 1, 1993, the Company adopted
both the Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS
No. 106") and the Statement of Financial
Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS No.
112"). SFAS No. 106 requires that future costs
associated with providing postretirement benefits
be recognized as expense over the employees'
requisite service period. The pay-as-you-go method
used prior to 1993 recognized the expense on a cash
basis. SFAS No. 112 establishes accounting
standards for employers who provide postemployment
benefits and clarifies when the expense is to be
recognized. As a result of adopting these
two standards the Company recorded a decrease to
net income of $84,000 (net of taxes of $46,000) as
a cumulative effect of changes in accounting
principles.
<PAGE>
Liquidity and Capital Resources
Operating Data: Three Months Ended March 31,
1994 1993
($ in millions)
Cash flows provided by
(used for):
Operating activities $ 65.5 $ 25.2
Investing activities (11.5) (16.7)
Financing activities (45.6) (6.8)
Net change in cash
and temporary cash
investments $ 8.4 $ 1.7
Operating activities in 1994 provided $65.5
million in cash, primarily from net income before
depreciation and deferred taxes, and the $25
million proceeds from the sale of accounts
receivables.
During 1994, additions to property of $12.4
million included approximately $7.2 million for
track and bridge rehabilitation and approximately
$1.8 million for equipment upgrades. The Company
anticipates that base capital expenditures for 1994
will be approximately $60 million and will
concentrate on track maintenance, renewal of track
structures such as bridges, and upgrading the
locomotive fleet. If additional opportunities such
as lease conversions or market-driven expansion
occur in 1994, the total capital spending could be
approximately $80 million. These expenditures are
expected to be met from current operations and
other available sources.
Over the last three years, management has
concentrated on reducing leverage, expanding
funding sources, lowering funding costs and
upgrading the debt ratings issued by the rating
services. The latest steps in this process are a
first quarter of 1994 agreement with a financial
institution whereby the Railroad sells certain of
its accounts receivables and the initiation in
November 1993 of a public commercial paper
program.
In the first quarter of 1994, the Railroad
entered into a revolving agreement to sell
undivided percentage interests in certain of its
accounts receivable, with recourse, to a
financial institution. The agreement, which
expires March 1997, allows for sales of accounts
receivable up to a maximum of $50 million. The
Railroad services the accounts receivable
sold under the agreement. During the first
quarter, the Railroad received cash proceeds of
$25.0 million as a result of such sales of accounts
receivable. The Railroad retains the same exposure
to credit loss as existed prior to the sale.
Costs related to the agreement will vary generally
in correlation with changes in prevailing interest
rates. These costs, which are included in Other
Income, Net, were $.4 million for the quarter ended
March 31, 1994.
The commercial paper, issued by the Railroad,
is rated A2 by S&P, F2 by Fitch Investors Service,
Inc. ("Fitch") and P3 by Moody's and is supported
by a $100 million Revolver with the Railroad's bank
lending group. At March 31, 1994, $13.0 million of
commercial paper was outstanding with an interest
rate of 3.92%. During the quarter, the amount
outstanding ranged from $13.0 million to $47.7
million. The Railroad views this program as a
significant long-term funding source and intends to
issue replacement notes as each existing issue
matures and accordingly issuances are classified as
long-term.
At March 31, 1994, no amounts had been drawn
under the Railroad's Revolver and $30 million was
outstanding under the Bank Line at an average
interest rate of 3.5%. The $100 million available
under the Revolver was limited to $83.0 million
because $13.0 million in commercial paper was
outstanding and $4.0 million in letters of credit
had been issued. The Bank Line was structured as a
364-day renewal instrument and the Company intends
to renew it on an on-going basis. The $30 million
borrowed at March 31, 1994, has therefore been
classified as long-term.
The Railroad also has an uncommitted $25.0
million floating rate Credit Facility. At March
31, 1994, no amounts were outstanding, and the
maximum outstanding in the quarter was $23.0
million.
Certain of the Company's financing/leasing
subsidiaries have approximately $14.1 million of
outstanding debt incurred in the acquisition of 61
locomotives during 1993 and 1991. One subsidiary
used a short-term bridge financing of $21.7
million to acquire 1,522 box cars in December 1993.
Such borrowings are secured by the equipment
acquired. The bridge financing must be repaid or
refinanced prior to June 1, 1994. The Company
expects to refinance this debt with a combination
revolving facility and term loan with a floating or
fixed rate and a combined seven-year term. The
Company believes that its available cash, cash
generated by its operations and cash available via
commercial paper, the Revolver, the Bank Line
and the Credit Facility will be sufficient to meet
foreseeable liquidity requirements.
Various borrowings of the Company's
subsidiaries are governed by agreements which
contain financial and operating covenants. All
entities were in compliance with these covenant
requirements at March 31, 1994, and management does
not anticipate any difficulty in maintaining such
compliance.
The Company paid its ninth consecutive
quarterly cash dividend on April 7, 1994. The
Board intends to continue a policy of quarterly
dividends. Future dividends may be dependent on
the Railroad's ability to pay cash dividends to
the Company. Certain covenants of the Railroad's
debt agreements restrict the level of dividends it
may pay to the Company. At March 31, 1994,
approximately $81 million of Railroad equity was
free of such restrictions.
The Company has paid approximately $1.5
million in the first quarter of 1994 for costs
associated with the various labor agreements signed
in 1992 and 1991. The Company anticipates that an
additional $5.1 million will be required in 1994
related to all such agreements. These requirements
are expected to be met from current operating
activities or other available sources.
The Railroad has entered into various hedge
agreements designed to mitigate significant changes
in fuel prices. As a result, approximately 93% of
the Railroad's short-term diesel fuel requirements
through March 1995 and 46% through June 1995 are
protected against significant price changes.
The Railroad is and will continue to be
subject to extensive regulation under environmental
laws concerning, among other things, discharges
into the environment and the handling, storage,
transportation and disposal of waste and
hazardous materials. Inherent in the operations
and real estate activities of the Railroad and
other railroads is the risk of environmental
liabilities. As discussed in Item 3. "Legal
Proceedings," in the Company's definitive Annual
Report Form 10-K for the year ended December 31,
1993, dated March 16, 1994, Commission File No.
1-10720, several properties on which the Railroad
currently or formerly conducted operations
are subject to governmental action in connection
with environmental damage. In the opinion of
management, the Company has adequate reserves to
cover the costs for investigation and remediation.
However, there can be no assurance that
environmental conditions will not be discovered
which might individually or in the aggregate have a
material adverse effect on the Company's financial
condition.
Recent Accounting Pronouncements
In May 1993, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No.
114").
SFAS No. 114 requires that impaired loans be
measured based on the present value of expected
future cash flows discounted at the loan's
effective interest rate. This statement applies to
financial statements for fiscal years beginning
after December 31, 1994, with earlier adoption
encouraged. The Company is currently evaluating
the impact of this statement, if any, on its
reported results. Early adoption is not
anticipated.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders On April 21, 1994, the Registrant held its
Annual Meeting.
At the meeting, the stockholders' were asked to
vote on four (4) proposals. A brief description of
each proposal and the results of the votes cast is
provided.
Description Vote Recap
(I) Proposal
No. 1 The election of For 35,172,417
George D. Gould, Against 571,961
Gilbert H. Lamphere,
Alexander P. Lynch
and F. Jay Taylor as
Class III directors
until 1997
(II) Proposal
No. 2 Increase number of For 34,262,600
shares of common Against 1,395,736
stock from Abstain 86,042
65,000,000 to
100,000,000
(III) Proposal
No. 3 Approve Illinois For 34,563,806
Central Against 1,075,829
Corporation Abstain 104,743
Executive
Performance
Compensation Program
(IV) Proposal
No. 4 Approve Management For 35,165,226
Employee Against 413,152
Discounted Abstain 166,000
Stock Purchase Plan
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11
(b) Reports on Form 8-K:
None
ILLINOIS CENTRAL CORPORATION
Signatures
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the
undersigned hereto duly authorized.
ILLINOIS CENTRAL CORPORATION
/S/ DALE W. PHILLIPS
Dale W. Phillips
Vice President & Chief Financial Officer
/S/ JOHN V. MULVANEY
John V. Mulvaney
Controller
Date: May 11, 1994<PAGE>
<TABLE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
($ in millions, except share data)
<CAPTION>
<S> <C> <C>
Three Months
Ended March 31,
1994 1993
Income before cumulative effect of changes in
accounting principles $ 27.7 $ 24.0
Cumulative effect of changes in accounting
principles - (0.1)
Net income $ 27.7 $ 23.9
Calculation of average number
of shares outstanding:
Primary:
Weighted average number of common shares 42,615,456 42,633,815
outstanding
Effect of shares issuable under stock options 178,694 100,737
42,794,150 42,739,425
Fully diluted:
Weighted average number of common shares 42,615,456 42,633,815
outstanding
Effect of shares issuable under stock options 178,694 105,610
42,794,150 42,739,425
Income per common share:
Primary:
Before cumulative effect of changes in
accounting principles $ 0.65 $ 0.56
Cumulative effect of changes in accounting
principles - -
Net income $ 0.65 $ 0.56
Fully diluted:
Before cumulative effect of changes in
accounting principles $ 0.65 $ 0.56
Cumulative effect of changes in accounting
principles - -
Net income $ 0.65 $ 0.56
</TABLE>
(1) Such items are included in primary calculation.
Additional shares represent difference between
average price of common stock for the period
and the end of period price.
