<PAGE>
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, 1994
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 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:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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 ....
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 2, 1995, the aggregate market value of the common
stock held by non-affiliates of the registrant was approximately $1,363
million. For purposes of the foregoing statement only, directors and
executive officers of the registrant have been assumed to be
affiliates.
As of March 2, 1995, there were 42,330,191 shares of the
registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by
reference information (to the extent specific sections are referred to
herein) from the Registrant's Proxy Statement for its 1995 Annual
Meeting of Stockholders.
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
Year Ended December 31, 1994
INDEX
PART I
10-K Page
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 4A. Executive Officers of the Registrant 16
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the
Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial
Owners and Management 27
Item 13. Certain Relationships and Related
Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 28
SIGNATURES 29
<PAGE>
PART I
Item 1. Business
Background
Illinois Central Corporation (the "Company") was incorporated
under the laws of Delaware on January 27, 1989. The Company, through
its wholly-owned subsidiary, 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 has been significantly downsized and restructured
from its peak of nearly 10,000 miles of track operated in 13 states,
rebuilding its main line and converting to a single-track main line
with a centralized traffic control system and divesting major east-west
segments. In addition to the Railroad, the Company's other direct
subsidiary conducts railroad related financing operations.
The principal executive office of the Company is located at 455
North Cityfront Plaza Drive, Chicago, Illinois 60611-5504 and its
telephone number is (312) 755-7500.
General - 1992 Four-Year Plan
In late 1992, the Company announced a four-year plan designed to
increase its revenues and lower its operating ratio and interest costs.
With 1992 as its base, the plan focuses on taking advantage of the
Company's leading operating ratio (operating expenses divided by
operating revenues) among Class I railroads. The components of the
plan are:
- increase annual revenues by $100 million by the end of 1996
- reduce the operating ratio by one percentage point per year for a
total of four (4) points below the 1992 base of 70.7%
- reduce annual interest expense by $10 million
To accomplish this plan management identified three sources of
planned revenue growth -- economic expansion, new and expanded plants
on line and market share growth. Economic expansion is the combination
of industrial production improvement and freight rate increases.
Market share growth is volume gained from competition, (i.e., other
railroads, trucklines and barges) facilitated by being a low cost
producer. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the
significant progress in achieving these goals through 1994.
Having completed two years of the four-year plan, management is
developing a new five-year plan which uses 1994 as a base. The new
plan covers the period 1995 through 1999 and features $200 million in
revenue growth, a significantly lower operating ratio, and a
stockholder-driven long-term equity enhancement program.
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 1994, two customers
accounted for approximately 7% and 6%, respectively, of revenues (no
other customer exceeded 5%) and the ten largest customers accounted for
approximately 37% of revenues.
In 1994, approximately 74% of the Railroad's freight traffic
originated on its own lines, of which approximately 28% was forwarded
to other carriers. Approximately 17% of the Railroad's freight traffic
was received from other carriers for final delivery by the Railroad,
and the balance of approximately 9% represented bridge or through
traffic.
In order to address more effectively the diversity of the
Company's customer base and attain the four-year growth plan, the
Railroad's marketing department was re-organized in 1993 along major
commodity groups. The Railroad now focuses on these units - chemicals
and bulk, grain and grain mill, forest products, coal and coke and
metals, and intermodal. 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, to
attract customers who previously used trucks or barges for their
service needs, 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 has enhanced relations
with shippers. Further refinements to the new marketing organization
in 1994 included the hiring of a new Vice President-Marketing and Sales
with 33 years experience in the transportation industry and a new
Assistant Vice President for the Chemicals unit.
The formation of the Intermodal Business Unit underscores the
Company's commitment to intermodal through long-term relationships with
major participants in this strategic market. In each of the three
years ended December 1994, the Railroad entered into joint operating
agreements with trucklines and other railroads. By forming a separate
business unit and entering into these agreements, the Railroad has
fully integrated its intermodal hub operation with sales and marketing
for enhanced control of this highly specialized and competitive
service. Management anticipates that the result will be better service
to customers and seamless transportation of goods for shippers and
their customers.
To effectively compete in the intermodal market the Railroad has
acquired 900 trailers over the last two years, constructed its newest,
state-of-the-art terminal, just south of Chicago at the intersections
of major expressways and completed a major expansion at the Memphis
facility.
To address the needs of the bulk chemical and intermodal markets
a bulk transfer facility (a storage track, easily accessible by truck,
where carloads of plastic pellets and other dry products can be stored
in bulk and transferred to truck for delivery) was opened in the
Company's Chicago intermodal facility in 1994. The 11 acre bulk facility,
which can be expanded if volume warrants, provides track capacity for 52
railcars and is designed to serve customers in a five-state region.
This transfer facility concept may be expanded to other sites.
<PAGE>
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
1994 1993 1992 1991 1990
Chemicals 24.8% 25.0% 24.3% 24.5% 25.3%
Coal 15.2 12.8 15.3 15.0 15.3
Grain . . . . . . 10.2 14.0 12.2 11.7 10.7
Paper . . . . . . 12.2 12.4 12.1 11.2 10.7
Grain mill &
food products 8.5 9.8 8.8 8.7 9.5
Intermodal 6.6 5.4 5.4 5.2 5.0
All other 22.5 20.6 21.9 23.7 23.5
Total . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Contribution to Revenue Ton Miles by Commodity Group(1)
Commodity
Group 1994 1993 1992 1991
Chemicals 15.8% 15.9% 15.1% 16.0%
Coal 24.0 15.1 18.2 17.0
Grain 20.0 27.9 27.3 27.7
Paper 9.8 9.6 9.0 8.4
Grain mill &
food products 9.3 9.9 9.0 8.3
Intermodal 5.5 3.7 3.1 2.9
All other 15.6 17.9 18.3 19.7
Total 100.0% 100.0% 100.0% 100.0%
(1) A new car tracking system was installed in late 1990. As a result
pre-1991 ton mile data is not comparable, and therefore is not
presented.
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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.
<PAGE>
Operating Statistics
Set forth below is certain information relating to the Railroad's
freight traffic during the past five years:
1994 1993 1992 1991 1990
Carloads (in thousands) 915 848 852 866 853
Freight train
miles(in thousands)(2) 7,179 5,659 5,149 5,445 5,496
Revenue ton miles
of freight traffic
(in millions) (1)(3) 21,160 20,334 18,734 19,357 NM
Revenue tons
per carload 76.3 79.1 76.6 79.0 77.7
Average length of haul
(in miles) 286 293 284 286 270
Gross freight revenue per
ton mile (1)(4) $.027 $.027 $.029 $.028 NM
Net freight ton miles
per average route mile
(in millions) (1) 7.9 7.5 6.8 7.0 NM
Gallons per
ton mile(5) .00248 .00251 .00269 .00276 .00292
Active locomotives 328 322 331 361 375
Track resurfacing
(miles) 1,397 1,293 1,465 940 618
Percent resurfaced 33.0% 29.8% 32.0% 19.6% 12.7%
Ties laid in replacement
(including switch
ties) 346,994 323,764 296,536 255,283 240,968
Slow order miles 275.79 152.32 135.42 194.62 149.74
1 A new car tracking system was installed in 1990. As a
result pre-1991 ton mile data is not comparable, and
therefore is not meaningful (NM).
2 Freight train miles equals the total number of miles
traveled by the Railroad's trains in the movement of
freight.
3 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.
4 Revenue per ton mile equals net freight revenue divided by
revenue ton miles of freight traffic.
5 Gallons per ton mile equals the amount of fuel required to
move one ton of freight one mile.
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The following tables summarize operating expense-to-revenue
ratios of the Company 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 Interstate Commerce Commission ("ICC") functional
groupings.
Ratio 1994 1993 1992 1991 1990
Operating(1) 66.3% 68.2% 70.7% 73.5% 75.4%
Labor and
fringe benefits 33.1 33.7 35.0 35.8 37.3
Leases and car hire 8.2 11.9 12.9 14.0 14.8
Diesel fuel 5.3 5.4 5.5 6.0 5.9
Materials and
supplies 6.5 6.5 6.0 5.7 4.8
Depreciation and
amortization 4.6 4.2 4.0 3.8 4.0
Other 8.6 6.5 7.3 8.2 8.6
1994 1993 1992 1991 1990
Operating(1) 66.3% 68.2% 70.7% 73.5% 75.4%
Transportation (2) 28.9 29.6 31.6 34.8 35.3
Maintenance of way(3) 7.7 7.2 7.0 6.4 7.1
Maintenance of
equipment(4) 19.2 20.7 22.5 23.9 23.7
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 are subject to extensive
governmental regulation under the Railway Labor Act. Railroad industry
personnel 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.
The Railroad is a party to several national collective bargaining
agreements which, until 1994, establish the wages and benefits of its
union workers -- 90% of all Railroad employees are represented by a
union. 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. Despite being part of the national
bargaining group, the Railroad has expressed a desire to negotiate
separate distinct agreements with each of its unions on a local basis.
To date, discussions with all eleven union organizations have been
initiated. Three unions, representing 29% of the Railroad's represented
workforce have ratified agreements which cover wages and work rule issues
through 1999. During the term of the agreements wages will rise
approximately 3%-4% per year on average. In reaching these agreements
approximately $.8 million was paid in signing bonuses. It is too early to
determine if separate agreements will be reached with the other crafts.
The following table shows the average annual employment levels of the
Railroad:
1994 1993 1992 1991 1990
Total employees 3,250 3,306 3,421 3,611 3,688
A significant portion of the decline from the 1992 level is the
result of a separate agreement between the Railroad and the United
Transportation Union, 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 dramatically.
Management believes that over the next several years attrition
and retirements would 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 the four year plan.
Regulatory Matters; Freight Rates; Environmental Considerations
The Railroad is subject to significant governmental regulation by
the ICC and other federal, state and local regulatory authorities with
respect to rates, service, safety and operations.
The jurisdiction of the ICC encompasses, among other things,
rates charged for certain transportation services, issuance of
securities, 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. Current
congressional proposals to eliminate the ICC are still unclear as to
what regulatory scheme might remain and thus the potential impact of
the proposals on the Company are unknown.
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 Company.
The Company 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 500 miles. While deregulation of freight rates under the
Staggers Act has greatly increased the ability of railroads to compete
with each other and alternate forms of transportation, changes in
governmental regulations (particularly changes to the Staggers Act)
could significantly affect the Company'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.
All of the Railroad's operations are conducted between points
served by one or more competing carriers. The consolidation in recent
years of major midwestern and eastern 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.
Liens on Properties
Most of the locomotives and rail cars owned by the Company's
financing/leasing subsidiaries are subject to liens. See Note 9 of
Notes to Consolidated Financial Statements.
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Liability Insurance
The Company is self-insured for the first $5 million of each
loss. The Company carries $295 million of liability insurance per
occurrence, subject to an annual cap of $395 million in the aggregate
for all losses. This coverage is considered by the Company's management
to be adequate in light of the Company's safety record and claims
experience.
Item 2. Properties
Physical Plant and Equipment
System. As of December 31, 1994, 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, 1994,
the Railroad has spent $348.7 million on track structure to maintain
its rail lines, as follows ($ in millions):
CAPITAL
EXPENDITURES MAINTENANCE TOTAL
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
1990 34.6 20.0 54.6
Total $230.8 $117.9 $348.7
These expenditures concentrated primarily on track roadway and
bridge rehabilitation in 1994, 1993 and 1992. Approximately, 1,400
miles, 1,300 miles and 1,400 miles of road were resurfaced in 1994,
1993 and 1992, respectively. 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"). Over the last three years, a total of $11.4 million
was spent to construct new or expanded intermodal facilities in Chicago
and Memphis. Expenditures in 1991 and 1990 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. Future capital
expenditures for track structures are expected to average $52 million
to $60 million annually.
Fleet. The Railroad's fleet has undergone significant
rationalization and upgrading from its peak in 1985 of 862 locomotives
and 28,616 freight cars. Over the last two years older, less efficient
locomotives were replaced with newer larger horsepower and more
efficient equipment. In 1993, the Company implemented a lease
conversion program to increase ownership of locomotives and freight
cars to become less dependent on the leasing market as a source of
equipment. The program resulted in 118 locomotives and 4,228 freight
cars either being acquired outright or leased under more favorable
lease terms by the Company. 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.
Since 1992, the Railroad acquired 4 SD-40-2 locomotives and also
upgraded its highway trailer fleet with 900 newly built trailers. Of
this amount, 800 replaced 880 older leased trailers and 100 were for
expanded volume. The locomotives are leased to the Railroad for seven
and one-half years. Approximately 1,800 of the cars acquired are
leased to the Railroad as well. The remaining cars are leased to other
non-affiliated railroads. When those leases expire, the Railroad has
first right of refusal to lease the equipment. As these cars are
leased to the Railroad other leased equipment will be returned to the
independent, third-party lessors or short-term car hire agreements will
be terminated.
In 1995, the Company will replace 31 older smaller locomotives
with 20 new SD-70's with an option to acquire an additional 20 SD-70's
in 1996.
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: 1994 1993 1992 1991 1990
Locomotives(1) 417 468 449 470 471
Freight cars 16,498 16,634 15,877 16,381 16,526
Work equipment 625 745 902 881 934
Highway trailers (2) 898 898 203 124 67
1 Approximately 89 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 48, 23 and
66 surplus locomotives in 1994, 1993 and 1992,
respectively. The active fleet is 328 as of December 31,
1994.
2 Excludes trailers being accumulated for return to lessors.
<PAGE>
The components of the fleet by subsidiary and in total for
1994 and in total for 1993 are shown below:
Leasing Railroad
Subsid- Long-
iaries Owned Term 1994 1993
Description: Total (2) Lease(3) Total Total Total
Locomotives:
Multi-purpose 60 224 41 265 325 368
Switching - 50 42 92 92 100
Total 60 274 83 357 417 468
Freight Cars:
Box (general
service) 1,130 235 97 332 1,462 1,221
Box (special
purpose) 386 2,560 155 2,715 3,101 3,510
Gondola - 935 427 1,362 1,362 1,094
Hopper (open top) 320 2,096 2,301 4,397 4,717 4,955
Hopper (covered) - 2,792 940 3,732 3,732 3,777
Flat - 251 529 780 780 851
Other - 1,191 153 1,344 1,344 1,226
Total 1,836 10,060 4,602 14,662 16,498 16,634
Work Equipment 617 8 625 625 745
Highway trailers(4) - 898 898 898 898
1 In addition, approximately 1,744 freight cars were being
used by the Railroad under short-term car hire agreements.
2 Includes 65 locomotives and 1,762 freight cars under
capital leases.
3 Excludes equipment listed under Leasing Subsidiaries.
4 Excludes trailers being accumulated for return to lessor.
<PAGE>
Environmental Conditions
The Railroad faces potential environmental cleanup costs
associated with approximately 20 contaminated sites and various
fueling facilities for which a total of $13 million has been
reserved as of December 31, 1994. 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 Company has constructed a groundwater
remediation system and enrolled the site in Illinois' Pre-Notice
Site Cleanup Program. See Item 3. "Legal Proceedings."
Fueling Facilities
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 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.
<PAGE>
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 Environmental 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
Potentially Responsible Parties 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.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
security holders during fourth quarter.
Item 4A. Executive Officers of the Registrant
The executive officers of the Company are identified in
the table below. Each executive officer of the Company currently
holds an identical position with the Railroad. Executive
officers of the Company and the Railroad serve at the pleasure of
the respective Boards of Directors.
Name Age Position(s)
Gilbert H. Lamphere 42 Chairman of the Board of Directors
E. Hunter Harrison 50 President and Chief Executive Officer,
John D. McPherson 48 Senior Vice President - Operations
Gerald F. Mohan 54 Senior Vice President - Marketing
James M. Harrell 42 Vice President - Human Resources
David C. Kelly 50 Vice President - Maintenance
Ronald A. Lane 44 Vice President and General Counsel and
Secretary
Dale W. Phillips 40 Vice President and Chief Financial Officer
Donald H. Skelton 51 Vice President - Marketing and Sales
John V. Mulvaney 44 Controller
Biographical Information
The following sets forth the periods during which the executive
officers of the Company and the Railroad have served as such and a
brief account of the business experience of such persons during the
past five years.
Mr. Lamphere has been a director of the Corporation and the
Railroad since 1989. He has been Chairman of the Board since 1993, and
Chairman of the Executive Committee of the Board since 1990. Mr.
Lamphere is Managing Director of the Fremont Group, a diversified
investment company. He was Co-Chairman and Chief Executive Officer of
The Noel Group, Inc. from 1991 until 1994 and was the Chairman and
Chief Executive Officer of The Prospect Group, Inc. until 1994, for
which he had served in various capacities since becoming a director in
1983. Mr. Lamphere also is a director of and Chairman of both
Recognition International Inc. and Belding Heminway, Inc. He also
serves as a director of Fremont and Prospect.
Mr. Harrison was appointed President, Chief Executive Officer and a
Director of the Company and the Railroad in February 1993. He joined
the Company and the Railroad as Vice President and Chief Transportation
Officer in 1989. In November 1991 he was appointed Senior Vice
President - Transportation and was named Senior Vice President -
Operations in July 1992.
Mr. McPherson joined the Company and the Railroad in July 1993. He
was named Senior Vice President - Operations in 1994. He also serves
as a Director of the Railroad. Prior to joining the Company and the
Railroad, he held various positions with the Atchison, Topeka and Santa
Fe Railway Company from 1966 to 1993, most recently as Assistant Vice
President - Safety.
Mr. Mohan was appointed Senior Vice President - Marketing of the
Railroad in 1986. In April 1993 he was elected a Director of the
Railroad. He was appointed to his present position with the Company in
December 1989.
Mr. Harrell joined the Company and the Railroad in his current
position in 1992. He served as Director of Labor Relations for The
Atchison, Topeka and Santa Fe Railway Company from 1989 to 1992.
Mr. Kelly joined the Company and the Railroad as Vice President and
Chief Engineer in 1989. In January 1994, he was appointed Vice
President - Maintenance.
Mr. Lane joined the Company and the Railroad as Vice President and
General Counsel and Secretary in 1990. In April 1993 he was elected a
Director of the Railroad. He was previously employed by The Atchison,
Topeka and Santa Fe Railway Company and Santa Fe Pacific Corporation
serving as Assistant Vice President - Personnel and Labor Relations,
1987 to 1990.
Mr. Phillips was appointed to his present position in the Company
and the Railroad in April 1990. He joined the Railroad in 1988 serving
as Controller from April 1989 to April 1990. In April 1993 he was
elected a Director of the Railroad. Mr. Phillips also serves as a
director of Rail Association Insurance, Ltd.
Mr. Skelton joined the Company and the Railroad as Vice President
Marketing and Sales in October 1994. He was previously employed by
Mark VII Transportation and as an independent consulting specialist in
international transportation. From 1987 to 1993 he was employed by
the Atchison, Topeka and Santa Fe Railway Company holding various
executive positions including Vice President Marketing and Sales and
Vice President International/Domestic Customer Development.
Mr. Mulvaney joined the Company and the Railroad as Controller in
June 1990. He was previously employed by Navistar International
Transportation Corp., serving as Director of Accounting, 1987 to 1990.
No family relationship exists among the officers of the Company or
the Railroad.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Common Stock is listed on the New York Stock Exchange, Inc.
under the symbol "IC."
The following table sets forth, for the periods indicated, (i) the
high and low sale prices of the Common Stock as reported on the New
York Stock Exchange Composite Tape and (ii) the per share amount of
dividends paid.
Stock Price Dividends
High Low Per Share
1993
First Quarter $27.250 $23.625 $ .15
Second Quarter 30.125 25.375 .15
Third Quarter 32.750 26.625 .17
Fourth Quarter 36.000 29.250 .17
1994
First Quarter $38.625 $32.375 $ .21
Second Quarter 37.875 30.500 .21
Third Quarter 31.750 29.250 .21
Fourth Quarter 31.500 28.625 .21
1995
First Quarter
(through March 2) $34.875 $30.750 $ .25
As of March 2, 1995, there were approximately 15,000 stockholders based
on estimates of beneficial ownership. The closing price of the Common
Stock as reported on the New York Stock Exchange Composite Tape on
March 2, 1995 was $33.875 per share.
Item 6. Selected Financial Data
The following table sets forth selected historical consolidated
financial data of the Company for the five years ended December 31,
1994, all derived from the consolidated financial statements of the
Company which were audited by Arthur Andersen LLP. Arthur Andersen LLP
has included an explanatory paragraph in its report on the
consolidated financial statements and schedules for the three years
ended December 31, 1994, to describe the Company's change in its
methods of accounting for income taxes and for postretirement health
care and postemployment benefits in 1992 and 1993, respectively. This
summary should be read in conjunction with the consolidated financial
statements included elsewhere in this Report and the schedules and
notes thereto.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
($ in millions, except share data)
Years Ended December 31,
1994 1993 1992 1991 1990
Income Statement Data:
Revenues $593.9 $564.7 $547.4 $549.7 $544.2
Operating expenses
before special charge 393.6 385.2 387.0 404.1 410.4
Special charge - - 8.9 - -
Operating income 200.3 179.5 151.5 145.6 133.8
Other income, net 1.0 1.7 2.0 5.7 6.2
Interest expense, net (28.4) (33.1) (43.6) (55.1) (71.4)
Income before income
taxes, extraordinary
item and cumulative
effect of changes in
accounting principles 172.9 148.1 109.9 96.2 68.6
Provision for
income taxes 59.0 56.4 37.4 30.8 22.4
Income before extraordinary
item and cumulative
effect of changes in
accounting priciples 113.9 91.7 72.5 65.4 46.2
Extraordinary item, net - (23.4) - - -
Cumulative effect of
changes in accounting
principles - (0.1) 23.4 - -
Net income 113.9 68.2 95.9 65.4 46.2
Preferred stock dividends
requirements - - - - 5.1
Income applicable
to common stock $113.9 $68.2 $95.9 $65.4 $41.1
Income per share(1):
Before extraordinary
item and accounting
changes $2.67 $2.14 $1.70 $1.64 $1.31
Extraordinary item - (0.55) - - -
Accounting changes - - 0.55 - -
Net income per share $2.67 $1.59 $2.25 $1.64 $1.31
Weighted average number
of common shares
outstanding (in
thousands)(1) 42,726 42,680 42,600 39,830 31,460
Cash dividends declared
per common share $0.88 $0.70 $0.50 - -
Operating ratio (2) 66.3% 68.2% 70.7% 73.5% 75.4%
Years Ended December 31,
1994 1993 1992 1991 1990
Balance Sheet Data:
Total assets $1,308.7 $1,258.7 $1,206.1 $1,183.5 $1,152.0
Long-term debt 328.6 360.3 367.3 413.5 486.1
Stockholders' equity 454.1 377.4 338.8 260.3 128.4
Working capital (deficit) (65.4) (32.4) (2.9) (3.4) (44.9)
1. Amounts for the years 1991 and 1990 have been restated to give
effect to a 3-for 2 stock split effective in February 1992.
2. Operating ratio is the ratio of operating expenses before special
charge to operating revenue.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Four-Year Growth Plan
With two years of the 1992 four-year growth plan completed, the Company
has achieved two key goals and is on track in the third. Announced in
the fall of 1992 the plan was to reduce interest expense by $10 million
annually and lower the already lowest operating ratio in the industry
to 66.7%, while raising total revenue $100 million. As of December 31,
1994, the Company's interest expense had declined from $44 million to
$28 million well ahead of the planned $10 million reduction. The
operating ratio for 1994 was 66.3%, approximately one-half percentage
point lower than the four year goal. During the last two years
revenues rose 3.1% and 5.2%, respectively, and at $594 million are 8.5%
higher than 1992. This revenue growth was accomplished despite the
impact of two major unplanned events in 1993. In May 1993, the United
Mine Workers struck against several companies affecting six mines
served by the Railroad. As a result, approximately 35,000 carloads of
coal were lost. The strike was settled in December 1993, and full
production resumed in January 1994. Partially offsetting the lost coal
loads was a gain of approximately 15,000 carloads of grain and grain
mill products. This traffic was diverted to the Railroad as a result
of the flooding of the upper Mississippi River in July and August 1993.
Additionally, over 500 trains from several other Class I railroads were
detoured over the Railroad's system. The result was a significant
temporary increase in traffic density over the Company's routes.
Contributing to 1994's gain in revenue was a resurgence in chemical
traffic and sharp growth in intermodal. Intermodal traffic increased
53% benefiting from strength across the board plus two partnerships
with other carriers, one of which was in effect for only the last half
of 1994.
The tender offer for and retirement of $145 million 14-1/8% debentures
of the Railroad, in the second quarter of 1993, was the most
significant contributor in the achievement of the interest expense goal
of the growth plan.
Having completed two years of the four-year plan, management is
developing a new five-year plan which uses 1994 as a base. The new
plan covers the period 1995 through 1999 and features $200 million in
revenue growth, a significantly lower operating ratio, and a
stockholder-driven long-term equity enhancement program.
Results of Operations
The discussion below takes into account the financial condition and
results of operations of the Company for the years presented in the
consolidated financial statements.
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 Company 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 Company'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 $8.4 million or 2.2%. Labor and
fuel expenses increased reflecting the increased loadings experienced
in 1994 over 1993. Depreciation expense was higher in 1994 because of
the Company'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 $14.0 million. Partially offsetting the increased
expenses was a $18.4 million decrease in lease and car hire expense
which resulted from the Company's shift from leasing to owning, more
effective turnaround of cars and lower export grain.
Operating income increased $20.8 million or 11.6% to $200.3 million for
the reasons described above.
Net interest expense for 1994 decreased 14.2% ($4.7 million) to $28.4
million compared to $33.1 million in 1993. The sales of accounts
receivable under a revolving agreement allowed the Company 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 two unusual transactions. The first
was the terminated merger discussions with the Kansas City Southern
Railroad Company which resulted in a $2.7 million pretax charge ($1.7
million after tax), and the second was a $5.0 million after tax gain on
the favorable resolution of prior period tax issues.
1993 Compared to 1992
Revenues for 1993 increased from the prior year by $17.3 million or
3.1% to $564.7 million. The increase was a result of a 2.9% increase
in average gross freight revenue per carload, resulting from an
improved commodity mix and modest rate increases. The 1993 revenue
increase was attributable in part to the gain in carloads when the
upper Mississippi River flooding affected barge traffic and also
disrupted rail operations of other carriers who diverted traffic to the
Company's system. Additionally, chemical loads were up 6% and paper
was up 3%. Intermodal was up 5%, reflecting the Company's commitment
to increase this aspect of operation, as evidenced by the new Chicago-
area intermodal facility and expansions in Memphis. These gains were
offset by lost carloads of coal resulting from the United Mine Workers
strike of certain coal producers. For the year, carloadings declined
.5% (or 4,400 carloads) to 847,900 carloads.
Operating expenses for 1993 decreased $1.8 million, or .5% as compared
to 1992, excluding the special charge recorded in 1992. Labor expense
decreased $1.1 million as a result of on-going cost control programs,
including the reduction in train crews, and an overall improvement in
efficiency. This decrease was accomplished despite the additional
expense incurred because of the flood-related detours of other
railroads' trains over the Railroad's track and a 3% wage increase
which was effective July 1, 1993 for union employees. Fuel expense
reflects the increased traffic in 1993 and 1992 coupled with a total of
$1.5 million for increased fuel taxes resulting from the Omnibus Budget
Reconciliation Act of 1993 and for the costs associated with fuel
hedges. The more fuel efficient locomotives acquired over the last two
years partially offset the rise in fuel costs. Materials and supplies
increased $3.6 million primarily as a result of track material
purchases. The surplus from the single track project was substantially
depleted necessitating purchase of new materials.
Operating income for 1993 increased 18.5% ($28.0 million) to $179.5
million compared to $151.5 million for 1992, as a result of increased
revenues cited above and decreased expenses (including the 1992 special
charge). Excluding the special charge, the increase in operating
income was 11.9% ($19.1 million).
Net interest expense decreased by 24.1% to $33.1 million compared to
$43.6 million in 1992. The issuance of new notes at 6.75% to replace
the 14-1/8% Senior Subordinated Debentures (the "Debentures") and lower
interest rates on floating debt account for the reduced interest
expense in 1993. The Debentures were retired via a tender offer which
resulted in an extraordinary loss of $23.4 million, net of $12.6
million in tax benefits. The extraordinary loss covers the costs
associated with the tender (i.e., premium on repurchase, the write-off
of unamortized financing fees and debt discount and the costs
associated with calling the untendered Debentures).
In August 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.
<PAGE>
Liquidity and Capital Resources
Operating Data:
1994 1993 1992
Cash flows provided by
(used for):
Operating activities $205.3 $124.3 $124.4
Investing activities (80.4) (89.0) (46.6)
Financing activities (111.4) (59.2) (75.9)
Net change in cash and
temporary cash investments $ 13.5 $(23.9) $ 1.9
Cash from operating activities in 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 and 1992 ($6.3 million and $26.4
million, respectively) 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. Only $.5 million was received in 1994.
During 1994, additions to property of $90.1 million included
approximately $44.7 million spent on track and bridge rehabilitation,
approximately $13.8 million on communications and signal work
(including the conversion to CTC on the Yazoo district), approximately
$28.3 million on equipment purchases and betterments and approximately
$3.0 million on expansion and rehabilitation of intermodal facilities,
primarily Memphis. During 1993, additions to property of $90.7 million
included approximately $36.6 million for track and bridge
rehabilitation and approximately $31.4 million for the purchase of 21
locomotives and 1,522 freight cars. In 1994 and 1993 capital
expenditures exceeded original estimates as several opportunities to
acquire equipment were acted upon in accordance with the Company's
strategy of owning more of its equipment. During 1992, additions to
property of $50.8 million included approximately $46.4 million for
track and bridge rehabilitation including approximately $5 million for
the construction of a new intermodal facility in the Chicago area.
Proceeds from the sales of excess materials generated by the single-
track project ($4.1 million in 1992) partially offset the cost of
property additions. Property retirements and removals unrelated to the
single-track project generated proceeds of $8.2 million, $5.3 million
and $3.5 million in 1994, 1993 and 1992, respectively.
The Railroad anticipates that base capital expenditures for 1995
will be approximately $65 million and will concentrate on track
maintenance and renewal of track structures such as bridges. In
February 1995, the Railroad placed a $25.8 million order for 20 new
SD70 locomotives to be delivered in the fourth quarter of 1995, to
upgrade the locomotive fleet. If additional opportunities such as
lease conversions or market-driven expansions occur in 1995, the total
capital spending could be approximately $100 million to $110 million.
These expenditures are expected to be met from current operations or
other available sources.
Since 1990, management has concentrated on reducing leverage,
expanding funding sources, lowering funding costs and upgrading the
debt ratings issued by the rating services. During 1994, several
events continued this process. The Railroad's commercial paper program
was expanded. A total of $100 million can be issued and outstanding
under the program which is supported by a $150 million Revolver with
the Railroad's bank lending group (see below). Standard & Poor's
Corporation ("S&P"), Moody's Investor Services ("Moody's") and Fitch
Investors Service ("Fitch") have rated the commercial paper A2, P3 and
F2, respectively. At December 31, 1994, $15.0 million was outstanding.
For the year the rates ranged from 3.365% to 6.25%. 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.
In the first quarter of 1994, the Railroad entered into a
receivables purchase 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 at any one time.
The Railroad services the accounts receivable sold under the agreement.
At December 31, 1994, $50 million in accounts receivable had been sold
pursuant to the agreement. The Railroad retains the same exposure to
credit loss as existed prior to the sale. Costs related to the
agreement vary in correlation with changes in prevailing interest
rates. These costs, which are included in Other Income, Net, were $2.2
million for the year ended December 31, 1994.
In November 1994, the Railroad concluded negotiations with its
bank lending group whereby the Railroad's $100 million Revolver was
amended and restated to a $150 million Revolver expiring in 1999. Fees
and interest rates are predicated on the Railroad's long-term credit
ratings. Currently, the annual fee is 25 basis points and borrowings
under this agreement are at LIBOR plus 50 basis points. This amended
facility replaced the $100 million revolver due in 1996 and a $50
million 364-day facility due in October 1994. The new 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, 1994, the $150 million was limited to $132.6 million because $15.0
million in commercial paper was outstanding and $2.4 million in letters
of credit had been issued. Since April 1993, when a tender offer for
the Railroad's $145 million 14-1/8% Senior Subordinated Debentures
("Debentures") was completed, the agreements with the bank groups and
the $160 million senior secured notes ("Senior Notes") issued in 1991
have been unsecured. The Senior Notes are callable with a make-whole
provision in April 1995. No decision has been made to prepay
these notes.
In 1994, in order to facilitate the stock repurchase program, the
Company entered into a $50 million 364-day floating-rate revolving loan
agreement which charges a 20 basis point annual fee, interest between
LIBOR plus 62.5 basis points to LIBOR plus 100 basis points, expires in
August 1995 and was not drawn upon during 1994. The Company's
financing/leasing subsidiaries have approximately $31.0 million in
long-term borrowing agreements which were used to acquire a total of 61
locomotives during 1993 and 1991 and 1,522 freight cars in 1993.
The Company 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.
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
December 31, 1994, and management does not anticipate any difficulty in
maintaining such compliance.
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 the Debentures and the costs associated with calling the
$10.3 million untendered portion.
In connection with the tender offer for the Debentures, the
Railroad issued $100 million of 6.75% non-callable, 10-year notes due
2003 (the "Notes") 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. At December 31, 1994,
the Railroad's public debt was rated Baa3 by Moody's and BBB by S&P.
On March 2, 1995, Moody's raised their rating to Baa2 and raised the
commercial paper program to P2.
The Railroad has entered into various hedge agreements designed
to mitigate significant changes in fuel prices. As a result,
approximately 92% of the Railroad's short-term diesel fuel requirements
through March 1995 and 46% through June 1995 are protected against
significant price changes. See Note 7 of the Notes to Consolidated
Financial Statements.
The Company declared its twelfth consecutive quarterly cash
dividend which was paid on January 6, 1995. The Board intends to
continue a policy of quarterly dividends with a target of 33% of
expected earnings, subject to existing conditions. 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 December 31,
1994, approximately $44.9 million of Railroad equity was free of such
restrictions.
The Company has paid approximately $6 million, $8 million and $10
million in 1994, 1993, and 1992, respectively, for severance, lump sum
signing awards and other costs associated with the various agreements
signed in 1994, 1992 and 1991. The Company anticipates that an
additional $7 million will be required in 1995 related to all such
agreements. These requirements are expected to be met from current
operating activities or other available sources. As the Company
continues to negotiate with its 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.
Stock Repurchase Program
In 1994, the Board of Directors adopted an ongoing plan to target
approximately 75% to 150% of projected free cash flow after capital
expenditures and dividends, subject to maintaining a target debt-to-
capital ratio of not more than 45%, for the repurchase of Common Stock.
The Board will review annually the appropriate levels of repurchases
for the following year. For 1995, the Board authorized the purchase of
$60 million of Common Stock. Such purchases under the program are to
be funded by a special $60 million dividend from the Railroad which was
declared in 1994 and will be paid as requested by the Company. At
December 31, 1994, the Company had spent $.2 million to acquire 8,000
shares of Common Stock under the plan. Further purchases are dependent
on market conditions, the economy, cash needs and alternative
investment opportunities.
Environmental Liabilities
The Company's operations are subject to comprehensive
environmental regulation by federal, state and local authorities.
Compliance with such regulation requires the Company 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 Company is potentially liable for the cost of
clean-up of various contaminated sites. The Company 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
Company is primarily responsible. The Company 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 Company can be held jointly and severally
liable for all environmental costs associated with such sites.
The Company is aware of approximately 20 contaminated sites and
various fueling facilities at which it is probably liable for some
portion of the clean-up. The Company paid approximately $3.0 million
in 1994 toward the investigation and remediation of those sites, and
anticipates similar expenditures annually in the future. During 1994,
the Company spent an additional $.6 million remediating environmental
spills resulting from derailments and other operating activities.
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 Company
loss or liability is probable, the Company has recorded an estimated
liability at the time when a reasonable estimate of remediation cost
and Company liability can first be determined. Adjustments to initial
estimates are recorded as necessary based upon additional information
developed in subsequent periods. Estimates of the Company`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, 1994, the Company
estimated the probable range of its estimated liability to be $13
million to $48 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 Company 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 Company 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
Company 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 Company`s financial position, results of operations, cash flow
or liquidity.
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, if any, this statement
will have on its reported results when it is adopted in the first
quarter of 1995.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements on page 31 of this
Report.
Item 9. Changes in and Disagreement with Accountants in Accounting
Financial Disclosures
NONE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions.
The information required by these items is incorporated by
reference to the sections of the Company's definitive proxy statement
for its 1995 Annual Meeting of Stockholders (which is expected to be
filed with the Securities and Exchange Commission on or before March
16, 1995) entitled Nominees for Election as Class I Directors who would
hold office until 1998, Class II Directors continuing in office until
1996, Class III Directors continuing in office until 1997, Committees
of the Board of Directors, Compensation of Executive Officers and
Directors, Ownership of Common Stock and Certain Transactions-Certain
Transactions and General-Compliance with the Securities Exchange Act.
However, the Compensation Committee Report and the Performance Graph
are specifically not incorporated by reference.
<PAGE>
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 31 of
this Report.
2. Financial Statement Schedules:
See Index to Financial Statement Schedules on page F-26 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 1994 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.
<PAGE>
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 CORPORATION
By: /s/ DALE W. PHILLIPS
Dale W. Phillips
Vice President and Chief Financial Officer
Date: March 8, 1995
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.
/s/ GILBERT H. LAMPHERE Chairman of the March 8, 1995
Gilbert H. Lamphere Board and Director
/s/ E. HUNTER HARRISON President and Chief March 8, 1995
E. Hunter Harrison Executive Officer
(principal executive
officer), Director
/s/ DALE W. PHILLIPS Vice President March 8, 1995
Dale W. Phillips and Chief Financial
Officer (principal
financial officer)
/s/ JOHN V. MULVANEY Controller March 8, 1995
John V. Mulvaney (principal accounting
officer)
Director
Thomas A. Barron
/s/ GEORGE D. GOULD Director March 8, 1995
George D. Gould
/s/ WILLIAM B. JOHNSON Director March 8, 1995
William B. Johnson
/s/ ALEXANDER P. LYNCH Director March 8, 1995
Alexander P. Lynch
/s/ SAMUEL F. PRYOR, IV Director March 8, 1995
Samuel F. Pryor, IV
/s/ F. JAY TAYLOR Director March 8, 1995
F. Jay Taylor
/s/ JOHN V. TUNNEY Director March 8, 1995
John V. Tunney
/s/ ALAN H. WASHKOWITZ Director March 8, 1995
Alan H. Washkowitz
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
F O R M 10-K
FINANCIAL STATEMENTS
SUBMITTED IN RESPONSE TO ITEM 8
ILLINOIS CENTRAL CORPORATION 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, 1994 F-2
Consolidated Balance Sheets at December 31, 1994 and 1993 F-3
Consolidated Statements of Cash Flows for the three years ended
December 31, 1994 F-4
Consolidated Statements of Stockholders' Equity and Retained
Income for the three years ended December 31, 1994 F-5
Notes to Consolidated Financial Statements for the three years ended
December 31, 1994 F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Illinois Central Corporation:
We have audited the accompanying consolidated balance sheets of
Illinois Central Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated statements of
income, cash flows and stockholders' equity and retained income for each
of the three years in the period ended December 31, 1994. These financial
statements and the schedules referred to below are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules 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 Corporation and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes 11 and 12 to the consolidated financial
statements, effective January 1, 1992, and January 1, 1993, the Company
changed its methods of accounting for income taxes and for postretirement
health care and postemployment benefits, respectively.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the
index to financial statement schedules herein are presented for purposes
of complying with the Securities and Exchange Commission's rules and are
not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 17, 1995
F-1
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions, except share data)
Years Ended December 31,
1994 1993 1992
Revenues $593.9 $564.7 $547.4
Operating expenses:
Labor and fringe benefits 196.2 190.2 191.3
Leases and car hire 48.8 67.2 70.4
Diesel fuel 31.5 30.4 30.0
Materials and supplies 38.6 36.7 33.1
Depreciation & amortization 27.4 23.6 22.1
Other 51.1 37.1 40.1
Special charge - - 8.9
Operating expenses 393.6 385.2 395.9
Operating income 200.3 179.5 151.5
Other income, net 1.0 1.7 2.0
Interest expense, net (28.4) (33.1) (43.6)
Income before income taxes,
extraordinary item and
cumulative effect of changes in
accounting principles 172.9 148.1 109.9
Provision for income taxes 59.0 56.4 37.4
Income before extraordinary
item and cumulative effect
of changes in accounting
principles 113.9 91.7 72.5
Extraordinary item, net - (23.4) -
Cumulative effect of changes
in accounting principles - (.1) 23.4
Net income $113.9 $68.2 $95.9
Income per share:
Before extraordinary item
and cumulative effect of
changes in accounting
principles $2.67 $2.14 $1.70
Extraordinary item, net - (.55) -
Cumulative effect of changes
in accounting principles - - .55
Net income per share $2.67 $1.59 $2.25
Weighted average number
of shares of common
stock and common stock
equivalents outstanding 42,725,739 42,679,683 42,600,107
The following notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
ASSETS
December 31,
1994 1993
Current assets:
Cash and temporary cash investments $24.2 $10.7
Receivables, net of allowance for doubtful
accounts of $2.1 in 1994 and $3.1 in 1993 33.9 80.3
Materials and supplies, at average cost 15.7 20.1
Assets held for disposition 9.1 9.1
Deferred income taxes - current 21.8 22.8
Other current assets 3.3 3.6
Total current assets 108.0 146.6
Investments 13.5 15.7
Properties:
Transportation:
Road and structures, including land 994.9 947.9
Equipment 165.6 118.1
Other, principally land 40.8 40.4
Total properties 1,201.3 1,106.4
Accumulated depreciation (30.0) (20.9)
Net properties 1,171.3 1,085.5
Other assets 15.9 10.9
Total assets $1,308.7 $1,258.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $11.1 $24.3
Accounts payable 54.5 54.4
Dividends payable 10.7 9.0
Income taxes payable 0.9 1.5
Casualty and freight claims 24.9 24.7
Employee compensation and vacations 16.5 15.8
Taxes other than income taxes 16.2 14.0
Accrued redundancy reserves 6.8 6.8
Other accrued expenses 31.8 28.5
Total current liabilities 173.4 179.0
Long-term debt 328.6 360.3
Deferred income taxes 218.2 202.3
Other liabilities and reserves 134.4 139.7
Contingencies and commitments (Note 15)
Stockholders' equity:
Common stock, par value $.001,
authorized 100,000,000 shares,
42,853,564 shares issued and 42,609,591 shares
outstanding - -
Additional paid-in capital 165.1 164.2
Retained income 293.0 216.5
Treasury stock (243,973 shares) (4.0) (3.3)
Total stockholders' equity 454.1 377.4
Total liabilities and
stockholders' equity $1,308.7 $1,258.7
The following notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
Years Ended December 31,
1994 1993 1992
Cash flows from operating
activities :
Net income $113.9 $68.2 $95.9
Reconciliation of net income
to net cash provided by (used
for) operating activities:
Extraordinary item, net - 23.4 -
Cumulative effect of changes
in accounting principles - 0.1 (23.4)
Depreciation and amortization 27.4 23.7 22.1
Deferred income taxes 17.4 31.9 21.4
Special charge - - 8.9
Equity in undistributed earnings
of affiliates, net of
dividends received (0.4) (0.3) 0.2
Net gains on sales of real
estate (2.0) (0.8) (0.4)
Cash changes in working capital 54.3 (0.8) (15.8)
Changes in other assets (4.4) (1.4) 2.8
Changes in other liabilities
and reserves (0.9) (19.7) 12.7
Net cash provided by
operating activities 205.3 124.3 124.4
Cash flows from investing activities:
Additions to properties (90.1) (90.7) (50.8)
Proceeds from sales of real
estate 3.8 1.5 1.3
Proceeds from single track sales - - 4.1
Proceeds from equipment sales 4.4 3.8 2.2
Proceeds from sales of investments 2.7 (0.4) 1.8
Other (1.2) (3.2) (5.2)
Net cash (used for) investing
activities (80.4) (89.0) (46.6)
Cash flows from financing activities:
Proceeds from issuance of debt 134.7 330.8 .9
Principal payments on debt (184.6) (401.1) (61.7)
Net proceeds (payments) -
Commercial Paper (23.1) 38.1 -
Dividends paid (35.7) (27.1) (14.8)
Proceeds from exercise of
stock options and warrants - .5 .2
Purchase of subsidiary's
common stock (2.7) (.4) (.5)
Net cash (used for)
financing activities (111.4) (59.2) (75.9)
Changes in cash and temporary
cash investments 13.5 (23.9) 1.9
Cash and temporary cash investments
at beginning of year 10.7 34.6 32.7
Cash and temporary cash
investments at end of year $24.2 $10.7 $34.6
Supplemental disclosure of cash
flow information :
Cash paid during the year for:
Interest (net of amount
capitalized) $30.2 $39.3 $45.3
Income taxes $42.7 $10.9 $15.9
The following notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Retained Income
Shares Equity ($ in millions) Total
(000's) Additional Stock-
Common Common Paid-In Retained Treasury holders'
Stock Stock Capital Income Stock Equity
Balance December
31, 1991 28,205 $ - $157.1 $103.2 $ - $260.3
Issuance of
Common Stock:
Stock split 3-for-2 14,102 - - -
Exercise stock options 17 - .2 .2
Restricted stock awards 350 - 3.6 3.6
Dividends (21.2) (21.2)
Net income 95.9 95.9
Balance December
31, 1992 42,674 - 160.9 177.9 - 338.8
Issuance of Common Stock:
Exercise stock options 50 - .5 .5
Restricted stock awards 25 - 2.8 2.8
Stock repurchased /
forfeited (134) (3.3) (3.3)
Dividends (29.6) (29.6)
Net income 68.2 68.2
Balance December
31, 1993 42,615 - 164.2 216.5 (3.3) 377.4
Issuance of Common Stock:
Exercise stock options 1 - - -
Restricted stock awards 15 - .9 .9
Stock repurchased /
forfeited (21) (.7) (.7)
Dividends (37.4) (37.4)
Net income 113.9 113.9
Balance December
31, 1994 42,610 $ - $165.1 $293.0 $(4.0) $454.1
The following notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statement
1. The Company
Illinois Central Corporation, a holding company, (hereinafter, the
"Company") was incorporated under the laws of Delaware. The Company was
formed originally for the purpose of acquiring, through a wholly-owned
subsidiary, the outstanding common stock of Illinois Central
Transportation Company ("ICTC"). Following a tender offer and several
mergers, the Illinois Central Railroad Company ("Railroad") is the
surviving corporation and the successor to ICTC and now a wholly-owned
subsidiary of the Company.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
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. The depreciation rates
for the equipment owned by the Company's finance subsidiary are based on
estimated useful life and anticipated salvage value. Lives used range
from 18 to 20 years. At the Railroad, 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 Interstate Commerce Commission ("ICC") approves the depreciation
rates used by the Railroad. The approximate ranges of annual depreciation
rates for major property classifications are as follows:
Road properties . . . . . 1% - 8%
Transportation equipment. 1% - 7%
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
Effective January 1, 1992, the Company adopted the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). Under SFAS No. 109, deferred income taxes are accounted
for on the asset and liability method by applying enacted statutory tax
rates to differences ("temporary differences") between the financial
statement carrying amounts and the tax bases of assets and liabilities.
The resulting deferred tax assets and liabilities represent taxes to be
collected or paid in the future when the related assets and liabilities
are recovered and settled, respectively. See Note 12 for discussion of
the 1992 impact of adopting SFAS No. 109.
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.
F-6
<PAGE>
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
for the period. Dilution, which could result if all outstanding common
stock equivalents were exercised, is not significant.
Futures, Options, Caps, Floors and Forward Contracts
In March 1990, the FASB issued Statement of Financial Accounting
Standards No. 105 "Disclosure of Information about Financial Instruments
with Off Balance Sheet Risk and Financial Instruments with Concentration
of Credit Risk" ("SFAS 105"). Disclosures required by SFAS 105 are found
in various notes where the financial instruments or related risks are
discussed. See specifically Notes 7, 8, 9, 10 and 15.
Derivatives
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Specifically, the
Company has entered into various diesel fuel commodity collar and swap
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 and swap agreements are accrued as
increases or decreases to Diesel Fuel Expense. See Note 7.
Casualty Claims
The Company 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. Estimated amounts
expected to be settled within one year are classified as current
liabilities in the accompanying Consolidated Balance Sheets.
Employee Benefit Plans
All employees of the Railroad are covered under the Railroad Retirement
Act. In addition, management employees of the Railroad are covered under
a defined contribution plan. Contribution costs of the plan are funded
currently.
Mr. E. L. Moyers, the Company's former Chairman, President and Chief
Executive Officer ("Mr. Moyers") is covered by a supplemental plan which
is discussed in Note 11.
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"). See Note 11
for discussion of the impact of SFAS No. 106 and SFAS No. 112.
Reclassifications
Certain items relating to prior years have been reclassified to conform
to the presentation in the current year.
3. Stock Repurchase Program
In 1994, the Board of Directors adopted an ongoing plan to target
approximately 75% to 150% of projected free cash flow after capital
expenditures and dividends, subject to maintaining a target debt-to-
capital ratio of not more than 45%, for the repurchase of Common Stock.
The Board will review annually the appropriate levels of repurchases for
the following year. For 1995, the Board authorized the purchase of $60
million of Common Stock. Such purchases under the program are to be
funded by a special $60 million dividend from the Railroad which was
declared in 1994 and will be paid as requested by the Company. At
December 31, 1994, the Company had spent $.2 million to acquire 8,000
shares of Common Stock under the plan. Further purchases are dependent on
market conditions, the economy, cash needs and alternative investment
opportunities.
4. Extraordinary Item and Refinancing
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 the calling of the $10.3 million of Debentures not
tendered. The net proceeds of the 6.75% Notes (see Note 9), borrowings
under the $180 million Revolving Credit Facility and other available cash
were used to fund the retirement of the Debentures.
<PAGE>
5. Other Income, Net
Other Income, Net consisted of the following ($ in millions):
Years Ended December 31,
1994 1993 1992
Rental income, net $ 3.3 $ 3.9 $ 3.8
Net gains on real estate sales 2.0 .8 .4
Net gain (loss) on disposal
of rolling stock .2 (2.3) -
Equity in undistributed
earnings of affiliates .7 .5 .3
Receivable sales (see Note 10) (2.2) - -
Terminated merger discussions
with Kansas City Southern (2.7) - -
Other, net (.3) (1.2) (2.5)
Other Income, Net $ 1.0 $ 1.7 $ 2.0
6. 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,
1994 1993 1992
Receivables, net $46.3 $ (3.9) $ 4.7
Materials and supplies 4.4 (1.4) (3.2)
Other current assets .6 (1.5) .3
Accounts payable 2.8 1.1 (5.7)
Income taxes payable (1.3) 13.6 .5
Accrued redundancy
reserves - (2.6) (11.0)
Other current liabilities 1.5 (6.1) (1.4)
$54.3 $ (.8) $ (15.8)
Included in changes in Other Liabilities and Reserves is
approximately $6.3 million and $23.4 million for the years ended December
31, 1993 and 1992, respectively, reflecting the settlement of casualty
claims with numerous insurance carriers.
The Railroad entered into capital leases of $24.7 million covering
65 locomotives and 1,623 freight cars in 1994 and 200 freight cars in 1993
in the amount of $4.4 million. See Note 8 for a recap of the present
value of the minimum lease payments.
7. Materials and Supplies
Materials and Supplies, valued using the average cost method, consist
of track material, switches, cars and locomotive parts and fuel.
As of December 31, 1994, the Company was a party to four diesel fuel
collar agreements under which the Company 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 $.486 per gallon for December 1994. Under the agreements, the
Company receives or makes monthly payments on notional amounts based on
the excess of the Contract Price over $.60 per gallon or when the
Contract Price is below an amount averaging approximately $.51,
respectively. As of December 31, 1994, the agreements covered notional
quantities amounting to 4,000,000 gallons through March 1995 and 2,000,000
gallons for the period April 1995 through June 1995, or approximately 92%
and 46%, respectively, of the Company's monthly diesel fuel requirements.
8. Leases
As of December 31, 1994, the Company leased 6,364 of its cars and 148
of its locomotives. These leases generally have original terms of 15 years
and expire between 1995 and 2003. Under the terms of the majority of its
leases, the Company 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 Company also leases office and computer equipment, vehicles and
office facilities.
Net obligations under capital leases at December 31, 1994 and 1993,
included in the Consolidated Balance Sheets are $27.9 million and $5.4
million, respectively.
At December 31, 1994, minimum rental payments under capital and
operating leases that have initial or remaining noncancellable terms in
excess of one year were as follows ($ in millions):
Capital Operating
Leases Leases
1995 $11.2 $24.1
1996 13.9 20.9
1997 2.0 11.3
1998 1.5 6.7
1999 1.5 6.2
Thereafter 2.6 17.8
Total minimum lease payments $32.7 $87.0
Less: Imputed interest 4.8
Present value of minimum payments $27.9
Total rent expense applicable to noncancellable operating leases
amounted to $38.1 million in 1994, $44.9 million in 1993 and $46.2 million
for 1992. Most of the leases provide that the Company pay taxes,
maintenance, insurance and certain other operating expenses.
<PAGE>
9. Long-Term Debt and Interest Expense
Long-Term Debt at December 31, consisted of the following ($ in
millions):
1994 1993
Equipment obligations, due
annually to 2000, 6.11% to 9.254% $ 31.0 $ 13.0
Debentures and other debt, due 1995
to 2056, 4.5% to 10.9% 10.5 10.8
Commercial Paper, at average
interest rate 4.72% in 1994 and
3.57% in 1993 15.0 38.1
Bank Line, at average interest rate
of 4.02% in 1994 and 3.49% in 1993 - 40.0
Notes, due 2003, 6.75% 100.0 100.0
Senior Notes, due 1998 to 2001,
10.02% and 10.4% 159.8 159.8
Capitalized leases (Note 8) 18.5 4.9
Unamortized (discount) (6.2) (6.3)
Total Long-Term Debt $328.6 $360.3
At December 31, 1994, the aggregate annual maturities and sinking
fund requirements for debt payments for 1995 through 2000 and thereafter
are $11.1 million, $31.5 million, $7.4 million, $62.0 million, $65.6
million, $30.2 million and $131.9 million, respectively. The weighted-
average interest rate for 1994 and 1993 on total debt excluding the effect
of discounts, premiums and related amortization was 8.6% and 9.1%,
respectively.
In November 1993, the Railroad initiated a public commercial paper
program. The commercial paper is rated A2 by S&P, P3 by Moody's and F2 by
Fitch and is supported by a new $150 million Revolver with the
Railroad's bank lending group due 1999. The Railroad pays an annual fee
of 25 basis points on the Revolver and LIBOR plus 50 basis points for any
borrowings. The Revolver replaced both a $50 million Bank Line which
expired in October 1994 and the former $100 million revolver with the
banks due 1996. The Railroad views commercial paper as a significant long-
term funding source and intends to issue replacement notes as maturities
occur. Therefore, the $15.0 million outstanding at December 31, 1994 has
been classified as long-term.
The Revolver will be used primarily as backup for the commercial
paper 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. The $150
million was limited to $132.6 million because $15.0 million in commercial
paper was outstanding and $2.4 million in letters of credit had been
issued.
The $100 million 6.75% Notes ("Notes") (issued at a slight
discount 1.071%) pay interest semiannually in May and November and are
covered by an Indenture. Of the $160 million Senior Notes ("Senior
Notes"), $109.8 million bears interest at a rate of 10.02% and $50 million
at 10.4%. Principal payments of $55 million, $54.8 million, $25 million
and $25 million are due in 1998, 1999, 2000 and 2001, respectively. The
Senior Notes are governed by a Note Purchase Agreement and are subject to
prepayment beginning in April 1995.
In 1994, in order to facilitate the stock repurchase program the
Company entered into a $50 million 364-day floating-rate revolving loan
agreement which charges a 20 basis point annual fee, interest between
LIBOR plus 62.5 basis points to LIBOR plus 100 basis points, expires in
August 1995 and was not drawn upon during 1994. The Company's
financing/leasing subsidiaries have approximately $13.0 million in long-
term borrowing agreements which were used to acquire a total of 61
locomotives during 1993 and 1991. Such borrowings are secured by
equipment which is leased to the Railroad and mature in 1999 and 2000.
Another subsidiary used a short-term bridge financing of $21.7 million to
acquire 1,522 box cars in December 1993. In July 1994, the subsidiary
refinanced this debt with a seven year floating rate revolving facility
and term loan.
Various borrowings of the Company's subsidiaries are governed by
agreements which contain certain affirmative and negative covenants
customary for facilities of this nature including restrictions on
additional indebtedness, investments, guarantees, liens, distributions,
sales and leasebacks, and sales of assets and capital stock. Some also
require the Railroad to satisfy certain financial tests, including a
leverage ratio, an earnings before interest and taxes to interest charges
ratio, debt service coverage, and minimum consolidated tangible net worth
requirements.
Interest Expense, Net consisted of the following ($ in millions):
Years Ended December 31,
1994 1993 1992
Interest expense $31.2 $35.2 $46.2
Less:
Interest capitalized 1.4 .8 .6
Interest income 1.4 1.3 2.0
Interest Expense, Net $28.4 $33.1 $43.6
10. 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, which expires March
1997, 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. At December 31, 1994, $50 million in accounts
receivable had been sold pursuant to the agreement. The Railroad retains
the same exposure to credit loss as existed prior to the sale. Costs
related to the agreement vary in correlation with changes in prevailing
interest rates. These costs, which are included in Other Income, Net,
were $2.2 million for 1994.
11. Employee Benefit Plans
Retirement Plans. All employees of the Railroad are covered under
the Railroad Retirement Act. In addition, management employees of the
Railroad are covered under a defined contribution plan. Contributions
under the plan vest immediately. Expenses relating to the defined
contribution plan were $.5 million, $.4 million and $.4 million for the
years ended December 31, 1994, 1993 and 1992, respectively.
Mr. Moyers is covered by a non-qualified, unfunded supplemental
retirement benefit agreement which provides for a defined benefit payable
annually, commencing upon death, permanent disability or retirement (with
benefits arising from retirement commencing upon his attaining age 65 and
compliance with certain non-competition agreements), in the amount of
$250,000 per year for a maximum of 15 years. In accordance with the term
of the agreement, no payments will be made while Mr. Moyers is employed
by another Class I railroad. The present value of this agreement was
included in the 1992 special charge. See Note 17.
Postretirement Plans. In addition to the Company's defined
contribution plan for management employees, the Company 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 Company'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 Company funds these benefits as claims
are paid.
Postemployment Benefit Plans. The Company provides certain
postemployment benefits such as long-term salary continuation and waiver
of medical and life insurance co-payments while on long-term disability.
SFAS No. 106 and SFAS No.112. As described in Note 2 effective
January 1, 1993 the Company adopted SFAS No. 106 and SFAS No. 112. With
respect to SFAS No. 106, the Company elected to immediately recognize the
transition asset associated with adoption which resulted because the
Company had previously recorded an amount under purchase accounting to
reflect the estimated liability for such benefits as of the acquisition
date of ICTC. SFAS No. 106 requires that future costs associated with
providing postretirement benefits be recognized as expense over the
employees' requisite service period.
<PAGE>
As a result of adopting these two standards, the Company recorded a
decrease to net income of $84,000 (net of taxes of $46,000) as a
cumulative effect of changes in accounting principles ($ in millions):
Postretirement Benefits (SFAS No. 106):
APBO at January 1, 1993:
Medical $36.5
Life 2.3
Total APB 38.8
Liability previously recorded (40.3)
Transition Asset 1.5
Postemployment Benefits Obligation
at January 1, 1993 (SFAS 112) (1.6)
Pre-tax Cumulative Effect of Changes
in Accounting Principles (.1)
Related tax benefit -
Cumulative Effect of Changes in Accounting
Principles $ (.1)
Per Share Impact $ -
In accordance with each standard, years prior to 1993 have not been
restated. The adoption of these two standards had no significant effect
on income before cumulative effect of changes in accounting principles as
compared to the Company's prior pay-as-you-go method of accounting for
such benefits.
The accumulated postretirement benefit obligations ("APBO") of the
postretirement plans were as follows ($ in millions):
December 31,
1994 1993
Medical Life Total Total
Accumulated postretirement
benefit obligation:
Retirees $15.7 $ 2.0 $17.7 $28.8
Fully eligible active
plan participants .6 - .6 .7
Other active plan
participants 3.3 - 3.3 4.7
Total APBO $19.6 $ 2.0 21.6 34.2
Unrecognized net gain 18.9 5.0
Accrued liability for
post- retirement benefits $40.5 $39.2
The weighted-average discount rate used in determining the
accumulated post-retirement benefit obligation was 7.25% at December 31,
1993. As a result of the rise in general interest rates in 1994 on high
quality investment vehicles, the Company increased the weighted-average
discount rate to 8.5% as of December 31, 1994. The change in rates
resulted in approximately $2.2 million actuarial gain. The actuarial gain
along with actual experience gains, primarily fewer claims and lower
medical rate inflation, resulted in a total $18.9 million unrecognized
net gain as of December 31, 1994. In accordance with SFAS No. 106, the
excess gain is subject to $1.3 million annual amortization based on an
amortization period of approximately 13 years.
The components of the net periodic postretirement benefits cost were
as follows ($ in millions):
Years Ending December 31,
1994 1993
Service costs $ .2 $ .1
Interest costs 2.4 3.0
Net amortization of excess
gain (.1) -
Net periodic postretirement
benefit costs $ 2.5 $ 3.1
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 13.0% for 1995 and is assumed to decrease gradually to
6.25% by 2001 and remain at that level thereafter. The health care cost
trend rate assumption normally has a significant effect on the amounts
reported; however, as discussed, the plan limits annual inflation for the
Company's portion of such costs to 9.5% each year. Therefore, an increase
in the assumed health care cost trend rates by one percentage point in
each year would have no impact on the Company's accumulated postretirement
benefit obligation for the medical plans as of December 31, 1994, or the
aggregate of the service and interest cost components of net periodic
postretirement benefit expense in future years.
12. Provision for Income Taxes
Effective January 1, 1992, the Company adopted the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). As a result, the Company recorded a $23.4 million ($.55
per share) reduction in its accrued net deferred income tax liability as
of January 1, 1992. The gain recorded upon adoption could not be
recognized previously in accordance with SFAS No. 96 which the Company had
adopted in 1988. The Company elected to report this change as the
cumulative effect of a change of accounting principle.
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
Company 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. In 1994, a $5.0 million tax
benefit was recorded to reflect the favorable resolution of prior-period
tax issues associated with the former parent of ICTC.
The Provision for Income Taxes for continuing operations consisted
of the following ($ in millions):
Years Ended December 31,
1994 1993 1992
Current income tax:
Federal $37.5 $23.6 $14.4
State 4.1 .9 1.6
Deferred income taxes 17.4 31.9 21.4
Provision for Income
Taxes $59.0 $56.4 $37.4
The effective income tax rates for the years ended December 31, 1994, 1993
and 1992, were 34%, 38% and 34%, respectively. See Note 4 for the tax
benefits associated with the 1993 extraordinary loss.
<PAGE>
The items which gave rise to differences between the income taxes
provided for continuing operations in the Consolidated Statements of
Income and the income taxes computed at the statutory rate are
summarized below ($ in millions):
Years Ended December 31,
1994 1993 1992
Expected tax expense computed
at statutory rate $60.5 35% $51.8 35% $37.4 34%
Dividends received exclusion (.9) - (.1) - (.1) -
Impact of OBRA 1993 rate
change - - 3.1 2 - -
State income taxes, net of
Federal tax effect 3.6 2 .6 - 1.0 1
Favorable resolution of
prior period tax issues (5.0)(3) - - - -
Other items, net .8 - 1.0 1 (.9) (1)
Provision for Income Taxes $59.0 34% $56.4 38% $37.4 34%
Temporary differences between book and tax income arise because the tax
effects of transactions are recorded in the year in which they enter
into the determination of taxable income. As a result, the book
provisions for taxes differ from the actual taxes reported on the
income tax returns. The net results of such differences are included
in Deferred Income Taxes in the Consolidated Balance Sheets.
At December 31, 1994, the Company, for tax or financial statement
reporting purposes, had no Federal net operating loss carryovers.
Deferred Income Taxes consisted of the following ($ in millions):
December 31,
1994 1993
Deferred tax assets $ 71.6 $ 82.2
Less: Valuation allowance (1.8) (2.2)
Deferred tax assets,
net of valuation allowance 69.8 80.0
Deferred tax liabilities (266.2) (259.5)
Deferred Income Taxes $(196.4) $(179.5)
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 ($56.5 million) and safe harbor leases ($11.3 million).
Major types of deferred tax liabilities are: accelerated depreciation
($222.0 million), land basis differences ($10.1 million) and debt marked
to market ($2.0 million).
The Company 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 the Company's consolidated group, with no benefit for prior net
operating losses or credit carryovers from prior years.
13. Common Stock and Dividends
The Company is authorized to issue 100,000,000 shares of Common
Stock, par value $.001. At December 31, 1994, there were 42,609,591
shares of Common Stock outstanding. Each holder of Common Stock is
entitled to one vote per share in the election of directors and on all
matters submitted to a vote of stockholders. Subject to the rights and
preferences of redeemable preferred stock, if any, each share of Common
Stock is entitled to receive dividends as may be declared by the Board of
Directors out of funds legally available and to share ratably in all
assets available for distribution to stockholders upon dissolution or
liquidation. No holder of Common Stock has any preemptive right to
subscribe for any securities of the Company. No shares of preferred stock
were outstanding at December 31, 1994 and 1993.
On February 4, 1992, the Board of Directors authorized a three-for-
two stock split on Common Stock. The split was in the form of a stock
dividend and was paid on February 28, 1992. Fractional shares were
settled for cash. A total of 14,132,058 shares were issued from
authorized but unissued shares. In 1992, the Board of Directors initiated
a policy of quarterly dividends on the Common Stock of the Company.
Future dividends may be dependent on the ability of the Railroad to pay
dividends to the Company. Certain covenants of the Railroad's debt
restrict the level of dividends it may pay to the Company. In December
1994, the Railroad declared a special $60 million dividend payable in
connection with the stock repurchase program. At December 31, 1994, an
additional $44.9 million was free of covenant restrictions (see Note 3).
The Company awarded 15,000 shares, 25,000 shares and 150,000 shares
of restricted stock to eligible employees of the Railroad in 1994, 1993
and 1992, respectively. No cash payments are required by the individuals.
Shares awarded under the plans may not be sold, transferred, or used as
collateral by the holders until the shares awarded become free of the
restrictions. Restrictions lapse over a four-year period. All shares
still subject to restrictions will be forfeited and returned to the plan
if the employee's relationship with the Railroad is terminated. A total
of 100 shares and 13,500 shares were forfeited in 1994 and 1993,
respectively. If the employee becomes disabled, or dies, or a change in
control occurs during the vesting period, the restrictions lapse at that
time. The compensation expense resulting from the award of restricted
stock is valued at the closing market price of the Company's Common Stock
on the date of the award, recorded as a reduction of Stockholders' Equity,
and charged to expense evenly over the vesting period. Compensation
expense was $.9 million, $.8 million and $.5 million in 1994, 1993 and
1992, respectively.
In 1992, the Company awarded 200,000 shares to Mr. Moyers as well.
Of this amount, 133,000 were vested upon his retirement in 1993. The
remaining 67,000 were forfeited in 1993 when Mr. Moyers was employed by
another Class I railroad. See Note 17.
14. Compensation and Stock Options
Stock Purchase Plan. Under the Company's 1990 Stock Purchase Plan
(the "Stock Plan"), 736,380 shares (post split) of Common Stock were made
available from shares held by Prospect for sale to key employees and
officers of the Company as determined by the Company's Board of Directors.
Shares so awarded were sold at a price of $.10 per share (post
split)(which was Prospect's approximate original per share cost for such
stock as adjusted for the 3 for 2 stock split in February 1992). Shares
awarded pursuant to the Stock Purchase Plan were restricted when issued.
At December 31, 1994, all shares awarded have vested. The unawarded
shares (63,270) and those repurchased in 1991 are now included in
Treasury Stock.
Long-Term Incentive Plan. Under the Company's 1990 Long-Term
Incentive Plan (the "Long-Term Incentive Plan") shares of Common Stock are
available for issuance upon the exercise of incentive options that may be
awarded by the Compensation Committee to directors and selected salaried
employees of the Company and its affiliates and to certain other
individuals who possess the potential to contribute to the future success
of the Company. At the 1993 Annual Meeting, the stockholders authorized
an additional one million shares to be available for issuance under the
Long-Term Incentive Plan. The Compensation Committee also has the
authority under the Long-Term Incentive Plan to award stock appreciation
rights, restricted stock and restricted stock units, dividend equivalents
and other stock-based awards, and to determine the consideration to be
paid by the participant for any awards, any limits on transfer of awards,
and, within certain limits, other terms of awards. In the case of options
(other than options granted to directors who are not full-time employees
of the Company ("Outside Directors"), as described below) granted under
the Long-Term Incentive Plan, the Committee has the power to determine the
exercise price of the option (which cannot be less than 50% of the fair
market value on the date of grant of the shares subject to the option),
the term of the option, the time and method of exercise and whether the
options are intended to qualify as "incentive stock options" pursuant to
Section 422A of the Internal Revenue Code. The Compensation Committee
awarded stock options to employees under the Long-Term Incentive Plan for
the first time in 1993. Awards, all at fair market value, vest ratably
over four years and expire 10 years from date of grant.
Outside Directors also participate in the Long-Term Incentive Plan.
On the date of each Annual Meeting, each Outside Director who serves
immediately prior to such date and who will continue to serve after such
date (whether as a result of such director's re-election or by reason of
the continuation of such director's term) is granted an option to purchase
1,500 shares of Common Stock. Until the 1994 Annual Meeting of
Stockholders, Outside Directors were granted an option to purchase 15,000
shares of Common Stock upon initial appointment or election. In addition,
Outside Directors as of November 1990 were granted options to purchase an
additional 10,000 shares, which grants were approved at the 1991 Annual
Meeting of Stockholders. Options granted to Outside Directors entitle
such persons to purchase Common Stock at the fair market value of such
Common Stock on the date the option was granted. Options held by Outside
Directors expire 10 years from the date of grant, or, if earlier, one year
following termination of service as a director for any reason other than
death or disability. Such options become exercisable in full six months
after their date of grant.
<PAGE>
The following table summarizes the shares available for award under
the Incentive Plan for the year ended December 31, 1994:
Shares available for
award at beginning of year 1,427,500
Options exercised (1,500)
Restricted stock (15,000) (16,500)
Subtotal 1,411,000
Shares of restricted
stock forfeited 100
Change in options
outstanding during year (27,000)
Shares available for award
at end of year 1,384,100
The following table summarizes changes in shares under option for the
year ended December 31, 1994:
Option
Outside Price Range
Directors Employees Total Per Share
Outstanding options
- - beginning of year 162,000 520,000 682,000 $ 8.000 to $31.250
Options
- Granted 28,500 - 28,500 $34.250 to $37.750
- Exercised (1,500) - (1,500) $12.750
- Terminated - - -
Change during
the year 27,000 - 27,000
Outstanding options
end of year 189,000 520,000 709,000 $8.000 to $37.750
The last date exercisable for options granted to Outside Directors
is April 21, 2004, and November 23, 2003 for those granted to employees.
In 1994, Outside Directors exercised 1,500 options at $12.75 per
share when the market price was $37.25 per share.
See Notes 13 and 17 for a discussion of the restricted stock issued
under the Long-Term Incentive Plan.
15. Contingencies, Commitments and Concentration of Risks
The Company has unconditionally guaranteed its finance subsidiary's
$12.8 million obligations via a pledge of the stock of the finance
subsidiary.
The Company is self-insured for the first $5 million of each loss.
The Company carries $295 million of liability insurance per occurrence,
subject to an annual cap of $395 million in the aggregate for all losses.
This coverage is considered by the Company's management to be adequate in
light of the Company's safety record and claims experience.
As of December 31, 1994, the Company had $2.4 million of letters of
credit outstanding as collateral primarily for surety bonds executed on
behalf of the Company. Such letters of credit expire in 1995 and are
automatically renewable for one year. The letters of credit reduced the
maximum amount that could be borrowed under the Revolver (see Note 9).
The Company has guaranteed repayment of certain indebtedness of a
jointly owned company aggregating $7.8 million. The Company's primary
share is $1.0 million; the remainder is a primary obligation of other
unrelated owner companies.
The Company has agreed to acquire 20 new SD-70 locomotives for a
total cost of $25.8 million with delivery expected in October 1995.
There are various regulatory proceedings, claims and litigation
pending against the Company. While the ultimate amount of liability
that may result cannot be determined, in the opinion of the Company's
management, based on present information, adequate provisions for
liabilities have been recorded. See "Management's Discussion and
Analysis - Liquidity and Capital Resources - Environmental Liabilities"
for a discussion of environmental matters.
16. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and temporary cash investments. The carrying amount
approximates fair value because of the short maturity of those
instruments.
Certain Investments in Debt and Equity Securities. Effective January
1, 1994, the Company adopted the Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investment in Debt and Equity
Securities"("SFAS No. 115"). SFAS No. 115 expands the use of fair value
accounting for certain investments in debt and equity securities but
retains the use of the amortized cost method for investments in debt
securities that the reporting enterprise has the positive intent and
ability to hold to maturity. All of the investments are temporary and
held for less than 90 days. They are included in the Consolidated Balance
Sheet as part of Cash and Temporary Cash Investments. For the periods
presented below, all investments were in U.S. Corporate demand notes. It
is the intent of the Company to hold all debt securities to maturity,
therefore, the following is provided in accordance with SFAS No. 115 ($
in millions):
12-31-94 1-1-94
Aggregate fair value $19.4 $5.6
Gross unrealized holding gains - -
Gross unrealized holding losses - -
Amortized cost 19.4 5.6
Investments. The Company has investments of $8.8 million in 1994 and
$10.3 million in 1993 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 Company's remaining investments ($4.7 million in 1994 and $5.4
million in 1993) are accounted for by the equity method.
Long-term debt. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities.
Derivatives. The fair value of diesel fuel collar and swap
agreements is the estimated amount that the Company would receive or pay
to terminate the agreements as of year end, taking into account the
current credit worthiness of the agreement counterparties.
The estimated fair values of the Company's financial instruments at
December 31, are as follows ($ in millions):
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and temporary
cash investments $24.2 $24.8 $ 10.7 $ 10.7
Investments 8.8 8.8 10.3 10.3
Accounts payable
(derivatives) (.1) (.4) (.5) (4.6)
Debt (339.7)(341.2) (384.6) (406.0)
17. Special Charge
In 1992, the Company recorded a pretax special charge of $8.9 million
as part of operating expense. The special charge reduced Net Income by
$5.9 million or $.13 per share.
The special charge consisted of $7 million for various costs
associated with the retirement of Mr. Moyers and the related
organizational changes. The costs associated with Mr. Moyers' retirement
include the present value of his pension, accelerated vesting of a portion
of his restricted stock award and certain costs of a non-competition
agreement. The remaining $1.9 million was for the disposition costs of
railcars and a building and its adjacent land.
<PAGE>
18. Selected Quarterly Financial Data - (Unaudited) ($ in millions,
except share data):
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter(a)
Revenues $147.5 $145.2 $146.7 $154.5
Operating income 50.6 45.2 45.9 58.6
Net income 27.7 24.8 25.9 35.5
Net income per share $ .65 $ .58 $ .61 $ .83
1993
Revenues $142.7 $132.1 $147.4 $142.5
Operating income 46.4 38.3 46.4 48.4
Income before
extraordinary item
and cumulative
effect of changes in
accounting principles 24.0 19.9 21.5 26.3
Net income (loss) 23.9 (3.5) 21.5 26.3
Income per share:
Before extraordinary
item and cumulative
effect $ .56 $ .47 $ .50 $ .61
Extraordinary item - (.55) - -
Cumulative effect - - - -
Net income (loss)
per share $ .56 $ (.08) $ .50 $ .61
1992
Revenues $138.7 $129.9 $131.4 $147.4
Operating income 42.6 36.7 36.5 35.7
Income before cumulative
effect of change in
accounting principle 21.1 16.9 17.6 16.9
Net income 44.5 16.9 17.6 16.9
Income per share:
Before cumulative
effect $.50 $.40 $ .41 $ .39
Cumulative effect .55 - - -
Net income per share $ 1.05 $ .40 $ .41 $ .39
(a) Includes the special charge recorded in the fourth quarter of 1992,
see Note 17.
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
F O R M 10-K
FINANCIAL STATEMENT SCHEDULES
SUBMITTED IN RESPONSE TO ITEM 14(a)
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
I N D E X
T O
FINANCIAL STATEMENT SCHEDULES
SUBMITTED IN RESPONSE TO ITEM 14(a)
Schedules for the three years ended December 31, 1994:
I-Condensed financial information.. .F-27
II-Valuation and qualifying accounts .F-30
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.
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
Illinois Central Corporation--Parent Company
Condensed Statements of Income
($ in millions, except share data)
Years Ended December 31,
1994 1993 1992
Operating expenses $0.3 $0.2 $0.3
Operating (loss) (0.3) (0.2) (0.3)
Other income (expense), net (3.7) (1.3) (1.6)
Interest income (expense), net (0.1) - 0.4
(Loss) before taxes and
earnings of subsidiaries (4.1) (1.5) (1.5)
Earnings of subsidiaries 116.5 69.1 97.0
(Benefit) for income taxes (1.5) (0.6) (0.4)
Net income $113.9 $68.2 $95.9
Income per share $2.67 $1.59 $2.25
Weighted average number of
shares outstanding (thousands) 42,725.7 42,679.7 42,600.1
The Notes to Consolidated Financial Statements beginning on page F-6
are an integral part of this schedule.
F-27
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
Illinois Central Corporation--Parent Company
Condensed Balance Sheets
($ in millions)
December 31,
1994 1993
ASSETS
Current assets:
Cash and temporary cash investments $11.0 $1.3
Receivables 60.6 16.0
Other current assets 0.1 0.1
Total current assets 71.7 17.4
Investments in subsidiaries 404.6 375.1
Other assets 0.4 0.5
Total assets $476.7 $393.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8.9 $6.3
Dividends payable 10.6 8.9
Income taxes payable 0.4 (1.9)
Total current liabilities 19.9 13.3
Deferred income taxes 1.1 0.7
Other liabilities and reserves 1.6 1.6
Contingencies and commitments
Stockholders' equity:
Common stock, par value $.001
authorized 100,000,000 shares:
42,853,564 shares issued
and 42,609,591 shares outstanding - -
Additional paid-in capital 165.1 164.2
Retained income 293.0 216.5
Treasury stock (243,973 shares) (4.0) (3.3)
Total stockholders' equity 454.1 377.4
Total liabilities and
stockholders' equity $476.7 $393.0
The Notes to Consolidated Financial Statements beginning on page F-6
are an integral part of this schedule.
F-28
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
Illinois Central Corporation--Parent Company
Condensed Statements of Cash Flows
($ in millions)
Years Ended December 31,
1994 1993 1992
Cash flows from operating activities:
Net income $113.9 $68.2 $95.9
Reconciliation of net income to
net cash provided by (used for)
operating activities:
Deferred income taxes 0.4 0.3 0.3
Earnings of subsidiaries (116.5) (69.1) (97.0)
Cash changes in working capital:
Receivables 0.4 0.1 (0.4)
Other current assets - (0.1) -
Accounts payable 2.6 2.2 1.4
Income taxes payable 2.3 (0.7) (1.0)
Taxes other than income taxes - (0.1) 0.1
Changes in other assets 0.1 (0.5) 0.1
Changes in other liabilities
and reserves - 1.1 -
Net cash provided by (used for)
operating activities 3.2 1.4 (0.6)
Cash flows from investing activities:
Capital contribution to
subsidiaries (0.3) (9.9) -
Dividends received from
subsidiaries 42.5 27.4 6.4
Net cash provided by investing
activities 42.2 17.5 6.4
Cash flows from financing activities:
Dividends paid (35.7) (27.1) (14.8)
Proceeds from exercise of
stock options and warrants - 0.5 0.2
Net cash (used for) financing
activities (35.7) (26.6) (14.6)
Changes in cash and temporary cash
investments 9.7 (7.7) (8.8)
Cash and temporary cash investments
at beginning of period 1.3 9.0 17.8
Cash and temporary cash investments
at end of period $11.0 $1.3 $9.0
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amount
capitalized) $- $- $-
Income taxes $- $- $-
The Notes to Consolidated Financial Statements beginning on page F-6
are an integral part of this schedule.
F-29
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
($ in millions)
Year Ended December 31, 1994
Balance At Additions Payments Balance
Beginning Charged And At End
Classification Of Year To Expense (Charges) Of Year
Redundancy and guarantee
reserves $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
Balance At Additions Payments Balance
Beginning Charged And At End
Classification Of Year To Expense (Charges) Of Year
Redundancy and guarantee
reserves $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
Year Ended December 31, 1992
Balance At Additions Payments Balance
Beginning Charged And At End
Classification Of Year To Expense (Charges) Of Year
Redundancy and guarantee
reserves $61.3 $2.1 $11.8 $51.6
Casualty and other
reserves 60.4 21.3 14.3 67.4
Environmental 10.1 2.3 2.5 9.9
Bad debt reserve 5.1 1.9 4.4 2.6
Taxes - 3.7 0.4 3.3
Total $136.9 $31.3 $33.4 $134.8
F-30
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Description 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))
3.3 Restated Articles of Incorporation of Illinois Central
Corporation. (Incorporated by reference to Exhibit 3.1
to the Current Report of the Illinois Central Corporation
on Form 8-K dated July 29, 1994. (SEC File No. 1-10720))
3.4 By-Laws of Illinois Central Corporation, as amended.
(Incorporated by reference to Exhibit 3.4 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))
3.5 Certificate of Retirement of Illinois Central Corporation
(Incorporated by reference to Exhibit 3.3 to the
Registration Statement of Illinois Central Corporation
and Illinois Central Railroad Company on Form S-1, as
amended. (SEC File No. 33-40696 and Post-Effective
Amendments to Registration Statement Nos. 33-36321 and
33-36321-01))
3.6 Certificate of Elimination of Illinois Central
Corporation. (Incorporated by reference to Exhibit 3.2
to the Quarterly Report of the Illinois Central
Corporation on Form 10-Q for the three months ended
September 30, 1991. (SEC File No. 1-10720))
* Used herein to identify management contracts or compensation plans or
arrangements as required by Item 14 of Form 10-K.
<PAGE>
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 Restated Articles of Incorporation of Illinois Central
Corporation (included in Exhibit 3.3)
4.3 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))
4.4 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))
4.5 Form of the Loan and Security Agreement dated as of
December 6, 1991, between IC Leasing Corporation I and
Hitachi Credit America Corp. (including the Form of the
Initial Funding Credit Note, the Form of the
Refurbishing Credit Note, the Form of Assignment of
Lease and Agreement, the Form of the Pledge Agreement
between IC Financial Services Corporation and Hitachi
Credit America Corp. and the Form of the Guaranty
Agreement between Illinois Central Corporation and
Hitachi Credit America Corp. included as Exhibits D, E,
F, G and H, respectively, therein). (Incorporated by
reference to Exhibit 4.9 to the Annual Report on Form
10-K for the year ended December 31, 1991, for the
Illinois Central Corporation filed March 12, 1992. (SEC
File No. 1-10720))
4.6 Form of the Trust Agreement dated as of March 30, 1993,
between IC Leasing Corporation II and Wilmington Trust
Company. (Incorporated by reference to Exhibit 4.10 to
the Current Report of Illinois Central Corporation on
Form 8-K dated May 7, 1993. (SEC File No. 1-10720))
4.7 Form of the Security Agreement and Mortgage dated as of
March 30, 1993, between IC Leasing Trust II and UNUM
Life Insurance Company of America (Including the Form
of the Promissory Note between IC Leasing Trust II and
UNUM Life Insurance Company of America included as
Exhibit A, therein). (Incorporated by reference to
Exhibit 4.11 to the Current Report of Illinois Central
Corporation on Form 8-K dated May 7, 1993. (SEC File
No. 1-10720))
4.8 Assignment of Lease and Conveyance dated March 30,
1993, between IC Leasing Corporation II and IC Leasing
Trust II. (Incorporated by reference to Exhibit 4.12
to the Current Report of Illinois Central Corporation
on Form 8-K dated May 7, 1993. (SEC File No. 1-10720))
4.9 Assignment of Lease and Conveyance dated March 30,
1993, between IC Leasing Trust II and UNUM Life
Insurance Company of America. (Incorporated by
reference to Exhibit 4.13 to the Current Report of
Illinois Central Corporation on Form 8-K dated May 7,
1993. (SEC File No. 1-10720))
4.10 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))
4.11 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))
4.12 Form of Revolving Credit Agreement between Illinois
Central Corporation and Bank of America National Trust
and Saving Association Dated August 24, 1994.
(Incorporated by reference to Exhibit 4.1 to the
Quarterly Report of Illinois Central Corporation on
Form 10-Q for the three months ended September 30,
1994. (SEC File No. 1-10720))
4.13 Form of Revolving Credit and Term Loan Agreement
between IC Leasing III and the First National Bank of
Boston dated as of July 5, 1994. (Incorporated by
reference to Exhibit 4.2 to the Quarterly Report of
Illinois Central Corporation on Form 10-Q for the three
months ended September 30, 1994. (SEC File No. 1-
10720))
4.14 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))
4.15 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))
4.16 Form of Railcar Management Agreement between Interrail
and IC Leasing Corporation III dated December 3, 1993.
(Incorporated by reference to Exhibit 4.1 to the
Current Report of the Illinois Central Corporation on
Form 8-K dated July 29, 1994. (SEC File No. 1-10720))
4.17 Form of Note Purchase Agreement dated as of May 1, 1993
between Illinois Central Railroad 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))
4.18 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 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))
4.19 Form of Lease Agreement dated as of July 1, 1994,
between IC Leasing Corporation III and Illinois Central
Railroad Company. (Incorporated by refernce 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))
4.20 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))
4.21 Form of Option 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))
4.22 Form of Option 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))
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 1990 Stock Purchase Plan. (Incorporated by
reference to Exhibit 10.6 to the Registration Statement
of Illinois Central Corporation on Form 10 filed on
January 5, 1990, as amended. (SEC File No. 1-10720))
10.4 * 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))
10.5 * Amendments No. 1 and No. 2 to the IC Long-Term
Incentive Plan. (Incorporated by reference to the Proxy
Statement of Illinois Central Corporation in connection
with its 1992 Annual Meeting of Stockholders. (SEC File
No. 1-10720))
10.6 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))
10.7 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))
10.8 * Form of Consulting and Non-Competition Agreement
between Illinois Central Corporation and Edward L.
Moyers dated as of February 18, 1993. (Incorporated by
reference to Exhibit 10.10 to Annual Report on Form 10-
K for the year ended December 31, 1992, for the
Illinois Central Corporation filed March 5, 1993. (SEC
File No. 1-10720))
10.9 * Form of the Note Agreement between the Illinois Central
Corporation and Edward L. Moyers dated February 18,
1993. (Incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K for the year ended December
31, 1992, for the Illinois Central Corporation filed
March 5, 1993. (SEC File No. 1-10720))
10.10 * Form of a Supplemental Retirement Benefit Agreement
dated as of August 20, 1992 between Illinois Central
Corporation and Edward L. Moyers. (Incorporated by
reference to Exhibit 10.3 to the Quarterly Report of
the Illinois Central Corporation on Form 10-Q for the
three month ended September 30, 1992. (SEC File No. 1-
10720))
10.11 The Asset Sale Agreement between Allied Railcar
Company and IC Leasing Corporation III dated
December 3, 1993, (Incorporated by reference to
Exhibit 10.13 to the Annual Report on Form 10-K
for the year ended December 31, 1993 for the
Illinois Central Corporation field March 16,
1994, including the Bill of Sale Agreement and
Assumption of Liabilities included as Exhibits C
and D, respectively, therein). (SEC File No. 1-10720))
10.12 The Purchase Agreement between IC Leasing
Corporation III and The First National Bank of
Maryland dated December 29, 1993. (Incorporated
by reference to Exhibit 10.15 to the Annual
Report on Form 10-K for the Illinois Central
Corporation filed March 16, 1994. (SEC File No.
1-10720))
10.13* Form of the Illinois Central Railroad Company
Executive Performance Compensation Program
(Incorporated by reference to Exhibit 10.1 to the
report of the Illinois Central Railroad Company
on Form 8-K dated as of July 29, 1994.
(SEC File No. 1-7092))
10.14* Form of the Illinois Central Railroad Company
Supplemental Executive Retirement Plan
(Incorporated by reference to Exhibit 10.2 to the
report of the Illinois Central Railroad Company
on Form 8-K dated as of July 29, 1994.
(SEC File No. 1-7092))
10.15* Form of the Illinois Central Railroad Company
Executive Deferred Compensation Plan
(Incorporated by reference to Exhibit 10.3 to the
report of the Illinois Central Railroad Company
on Form 8-K dated as of July 29,1994.
(SEC File No. 1-7092))
10.16* Form of Illinois Central Railroad Company Performance
Compensation Program. (Incorporated by reference to
Exhibit 10.4 to the report of the Illinois Central
Railroad Company on Form 8-K dated as of July 29,1994.
(SEC File No. 1-7092))
10.17* Illinois Central Corporation Management
Employee Discounted Stock Purchase Plan. (A)
11 Computation of Income Per CommonShare (Included at E-9)
21 Subsidiaries of Registrant (Included at E-10)
23 Consent of Arthur Andersen LLP (A)
27 Financial Data Schedule (A)
(A) Included herein but not reproduced.
EXHIBIT 10.17
ILLINOIS CENTRAL CORPORATION
MANAGEMENT EMPLOYEE DISCOUNTED STOCK PURCHASE PLAN
WHEREAS, Illinois Central Corporation desires
to establish an employee stock purchase plan
providing the opportunity to purchase Common Stock
of the Company at a discount to permanent, full
time, salaried employees of the Company and its
Subsidiaries;
NOW THEREFORE, the Company establishes the
Plan, effective May 1, 1994, the terms of which
shall be as follows:
1. Purpose. The purpose of the Plan is to
give Eligible Employees of the Company and its
Subsidiaries an opportunity to acquire shares of
its Common Stock at a discount, and to promote the
best interests and enhance the long-term
performance of the Company and its Subsidiaries.
2. Definitions. Wherever used herein, the
following words and phrases shall have the meaning
stated below unless a different meaning is plainly
required by the context:
(a) "Administrator" means the Company's
agent for administering the Plan which is
First Chicago Trust Company of New York, or
such successor Administrator appointed by the
Committee from time to time;
(b) "Board" means the Board of Directors
of the Company;
(c) "Change In Control" of the Company
shall be deemed to have occurred if (A) any
"person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the
"Exchange Act") is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the
Exchange Act, except that a person shall be
deemed to be the "beneficial owner" of all
shares that any such person has the right to
acquire pursuant to any agreement or
arrangement or upon exercise of conversion
rights, warrants, options or otherwise,
without regard to the sixty day period
referred to in such Rule), directly or
indirectly, of securities representing 25% or
more of the combined voting power of the
Company's then outstanding securities;
provided, however, that the following
acquisitions shall not constitute a Change in
Control: (a) any acquisition directly from the
Company, (ii) any acquisition by the Company
or (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or
maintained by the Company; or (b) at any time
during any period of two consecutive years
(not including any period prior to May 1,
1994) individuals who at the beginning of such
period constituted the Board (the "Incumbent
Board") cease for any reason to constitute at
least a majority of the Board; provided,
however, that any individual becoming a
director subsequent to such date whose
election, or nomination for election by the
Company's shareholders, was approved by a vote
of at least a majority of the directors then
comprising the Incumbent Board shall be
considered as though such individual were a
member of the Incumbent Board, but excluding,
for this purpose, any such individual whose
initial assumption of office occurs as a
result of either an actual or threatened
election contest (as such terms are used in
Rule 14a-11 or Regulation 14A promulgated
under the Exchange Act) or other actual or
threatened solicitation of proxies or consents
by or on behalf of a person other than the
Board.
(d) "Code" means the Internal Revenue
Code of 1986, as amended;
(e) "Committee" means either (i) the
Compensation Committee of the Board to which
the Board has delegated its powers with
respect to the management, operation and
administration of the Plan pursuant to Section
3 hereof; or (ii) the Benefits Administration
Committee of the Company to which the
Compensation Committee has delegated a portion
of such powers pursuant to Section 3 hereof.
(f) "Common Stock" means shares of the
common stock of the Company, $.001 par value;
(g) "Company" means Illinois Central
Corporation, a Delaware corporation, or any
successor corporation by merger,
consolidation, purchase or otherwise, and any
Subsidiaries, direct or indirect, of the Company;
(h) "Compensation" means regular salary
only paid to an Eligible Employee by the
Company prior to deductions for income or
employment taxes or any other withholdings;
(i) "Earliest Retirement Age" means age 62.
(j) "Eligible Employee" means each
person who, on or after May 1, 1994, is
employed by the Company on a permanent, full-
time, salaried basis; provided however, that
the term Eligible Employee shall not include
any individual covered by a collective
bargaining agreement between employee
representatives and the Company;
(k) "Election Form" means a form
delivered by an Eligible Employee to the
Committee with respect to participation in the
Plan as set forth in Section 5.
(l) "Fair Market Value" of the Common
Stock as of a given Investment Date shall mean
the price (or the weighted average price) at
which the Common Stock is purchased or sold by
the Administrator on the New York Stock
Exchange (or other market in which the Common
Stock is traded) with respect to such Investment Date.
(m) "Investment Date" means the date or
dates selected by the Administrator on which
purchases or sales of Common Stock occur
pursuant to an Investment Direction;
(n) "Investment Direction" means a
written instruction from a Participant to the
Administrator to do one or more of the
following financial transactions:
(i) purchase shares of Common
Stock, including a continuing direction
to purchase shares with respect to future
payroll deductions or lump sum payments;
(ii) sell shares of Common Stock and
distribute the net cash proceeds or to
withdraw cash from the Participant's Plan Account;
(iii) reinvest dividends on all
or a designated number of shares of
Common Stock; and
(iv) distribute dividends on all or
a designated number of shares of Common Stock.
(o) "Participant" means an Eligible
Employee who elects to participate in the Plan
pursuant to Section 5 hereof;
(p) "Plan Account" means the record of a
Participant's full and fractional shares of
Common Stock and cash held by the Administrator.
A Participant's Plan Account and the shares of Common
Stock held therein shall be fully vested in and
nonforfeitable by the Participant.
(q) "Purchase Price" means 85% of the
Fair Market Value per share of Common Stock on
an applicable Investment Date;
(r) "Plan" means the Illinois Central
Corporation Management Employee Discounted
Stock Purchase Plan, as set forth herein, and
as hereinafter may be amended from time to
time; and
(s) "Subsidiary" or "Subsidiaries" means
a corporation or corporations of which stock
possessing at least 80% of the total combined
voting power of all classes of stock entitled
to vote is owned by the Company or by any
other Subsidiary or Subsidiaries;
3. Administration.
(a) The Plan shall be administered by the
Committee. No member of the Committee shall have
been granted or awarded stock, restricted stock,
stock options, stock appreciation rights, limited
rights or any other derivative security of the
Company or an affiliate thereof under this Plan, or
any similar plan of the Company or an affiliate,
during his tenure on the Committee or during the 12
month period prior to commencing service on the
Committee, except as permitted in Rule 16b-
3(c)(2)(i)(A) through (D), or any successor
provision, under the Securities Exchange Act of
1934. Members of the Committee shall be subject to
any additional restrictions necessary to satisfy
the requirements of disinterested administration of
the Plan as set forth in Rule 16b-3 as it may be
amended from time to time. A member of the
Committee shall only be liable for any action or
determination made in bad faith.
(b) The Committee may delegate its duties,
authorities and responsibilities under the Plan to
the Benefits Administration Committee of the
Company to the extent applicable to Eligible
Employees and Participants who are not subject to
Section 16 of the Securities Exchange Act of 1934
and to the extent of such delegation all references
herein to the Committee shall be deemed references
to the Benefits Administration Committee.
(c) The action of the Committee shall be
determined by the vote or other affirmative
expression of a majority of its members. The
members of the Committee shall serve without
compensation for their services as such.
(d) Unless otherwise specifically provided in
the Plan, the Committee shall have full and
complete authority, responsibility and control over
the management, administration, and operation of
the Plan, including, but not limited to, the
authority and discretion to:
(i) formulate, adopt, issue and apply
procedures and rules, including such rules as
may be necessary for transactions by Eligible
Employees and Participants who are subject to
Section 16 of the Securities Exchange Act of
1934, to satisfy the requirements of Rule 16b-
3 under such Act, and change, alter or amend
such procedures and rules, as may be
consistent with the terms of the Plan;
(ii) exercise such discretion as may be
required to construe and apply the provisions
of the Plan, subject only to the terms and
conditions of the Plan;
(iii) determine the effective dates
for various transactions; and
(iv) take all necessary and proper acts
as are required for the Committee to fulfill
its duties and obligations under the Plan.
(e) The Company shall supply to the Committee
and the Administrator, within a reasonable time of
its request, the names of all Eligible Employees,
their age, the amount of Compensation paid to each
Eligible Employee, and the names and dates of all
Eligible Employees who incurred a termination of
employment. The Company shall provide to the
Committee and the Administrator, or its delegate,
such other information as it shall from time to
time need in the discharge of its duties. The
Committee and the Administrator may rely
conclusively on the information certified to it by
the Company.
(f) The decision of the Committee in matters
within its jurisdiction shall be final, binding,
and conclusive upon the Company and upon each
Eligible Employee, Participant, spouse,
beneficiary, the Administrator and every other
person or party interested or concerned.
(g) If an Eligible Employee decides to
participate in the Plan, the Administrator will
keep a continuous record of his participation and
send him a statement of his account under the Plan
for each calendar quarter in which a purchase or
sale of Common Stock for his Plan Account takes
place, as set forth in Section 17 below. The
Administrator will hold and act as custodian of
shares of Common Stock purchased under the Plan.
Except as provided in Section 12, certificates for
shares of Common Stock purchased under the Plan
will not be issued to Participants. The number of
shares of Common Stock credited to a Participant's
Plan Account will be shown on his quarterly
statement of account. However, pursuant to Section
12, certificates for any number of whole shares
credited to a Participant's Plan Account will be
issued to him upon his written request to the
Administrator, upon his payment to the
Administrator of a distribution fee in an amount
from time to time determined by the Committee. Any
remaining shares will continue to be credited to
the Participant's Plan Account.
(h) Shares of Common Stock purchased pursuant
to the Plan shall be acquired by the Administrator
on the open market.
4. Eligibility to Participate. Any
individual who is or becomes an Eligible Employee
(other than an individual on an authorized leave of
absence) at any time on or after May 1, 1994 shall
be eligible to become a Participant pursuant to
Section 5.
5. Election to Participate. An Eligible
Employee may elect to become a Participant in the
Plan by completing an appropriate Election Form
provided by the Committee and returned to the
Committee at least 14 calendar days prior to the
next scheduled A and/or B payroll period on which
his participation is to commence. Such Election
Form shall include (1) an election, if applicable,
to reduce his Compensation by payroll deductions on
each scheduled A and/or B payroll period as
designated by the Participant by the amount set
forth therein, (ii) an Investment Direction, and
(iii) a designation of a beneficiary to receive the
Common Stock and cash held in his Plan Account on
the date of his death. An election made by a
Participant to reduce his Compensation pursuant to
his Election Form shall be cancelled if: (a) a
Participant's wages are subject to a tax levy,
until the levy is removed, and (b) a Participant's
wages are subject to a wage assignment and/or
garnishment to the extent there is insufficient
remaining Compensation to deduct the entire amount
specified in the Election Form.
6. Payroll Deductions.
(a) If a Participant's Election Form
authorizes payroll deductions, his employer shall
withhold from his Compensation the amount
authorized by him. The amount to be withheld from
each paycheck shall be no less than $10.00 and no
more than 15% of his Compensation for his last
payroll period for which payment has been made (or
if he is a new Eligible Employee with no previous
Compensation, 15% of his anticipated Compensation).
The amounts withheld from all Participants'
paychecks will be pooled and forwarded to the
Administrator and will be used by the Administrator
to buy shares of Common Stock on the open market
for the Plan Accounts of all such Participants on
the next Investment Date selected by the
Administrator or as soon thereafter as is
reasonably practicable.
(b) A Participant's payroll deduction
authorizations on his Election Form shall become
effective with respect to the next scheduled A
and/or B payroll period applicable to him that is
at least 14 calendar days after the date the
Election Form is received by the Committee, and
shall continue in effect until the earliest of the
date (1) his election is changed in accordance with
paragraph 6(c) or (d) hereof; (2) he ceases to be
an Eligible Employee, or (3) his payroll deduction
authorization is cancelled in accordance with
Section 5 or paragraph 6(c) hereof.
(c) A Participant may increase or decrease
the amount of his payroll deductions (subject to
the dollar and percentage limits stated in
paragraph 6(a) above) by delivering to the
Committee a new Election Form on which is specified
the new amount of payroll deductions. The new
Election Form shall become effective with respect
to the next scheduled A and/or B payroll period
applicable to him that is at least 14 calendar days
after the date the new Election Form is received by
the Committee. Any Election Form which has not
been properly completed will be deemed not to have
been received by the Committee.
(d) A Participant desiring to cancel his
existing payroll deduction authorization and reduce
the amount thereof to zero must deliver to the
Committee a new Election Form. Such new Election
Form shall become effective with respect to the
next scheduled A and/or B payroll period applicable
to him that is at least 14 calendar days after the
date the new Election Form is received by the
Committee. Payroll deductions held by the Company
with respect to an A and/or B payroll period
payment date before such new Election Form becomes
effective, or held by the Administrator pending
investment, shall not be affected by such new
Election Form. Any Participant who has improperly
completed a new Election Form will be deemed not to
have made such new election. A Participant who
cancels his existing payroll deductions need not
withdraw the shares of Common Stock in his Plan
Account prior to the earlier of (i) the date he
ceases to be employed by the Company, and (ii) the
date of termination of the Plan.
(e) If an individual ceases to be an Eligible
Employee but continues to be employed by the
Company, his payroll deduction authorization shall
be cancelled and no further shares of Common Stock
shall be purchased for his Plan Account while he
continues in such status. Any cash then held in
his Plan Account shall be paid to him as soon as
practicable after such status commences, and any
shares then in his Plan Account shall be retained
until the first to occur of (i) a withdrawal
pursuant to Section 12, (ii) the date of his
termination of employment with the Company, and
(iii) the date of termination of the Plan. An
individual continuing employment in such status
shall continue to be entitled to direct the sale of
shares of Common Stock in his Plan Account pursuant
to his Investment Direction and the procedures set
forth in Section 10.
(f) The Company will transfer funds withheld
pursuant to payroll deduction authorizations to the
Administrator once during each calendar month on or
prior to the date or dates on which transactions
from the most recent Investment Date are settled.
No interest will be paid on payroll deduction
amounts held by the Company pending transfer to the
Administrator.
7. Lump Sum Payments. To the extent a
Participant does not authorize payroll deductions
on his Election Form, he shall deliver payment of
the balance of the Purchase Price of the shares of
Common Stock to be purchased for his Plan Account
on any Investment Date in full, in cash or by
personal check, to the Administrator prior to the
date on which transactions from the applicable
Investment Date are settled. Such payment,
together with all payroll deductions accumulated
for him hereunder and not previously expended or
returned, will be used to purchase shares of Common
Stock for his Plan Account with respect to the
applicable Investment Date.
8. Maximum Purchase. A Participant may not
authorize the purchase of Common Stock with respect
to any Investment Date with a Purchase Price in
excess of 15% of his Compensation earned from the
Company and all Subsidiaries during the A and/or B
payroll period applicable to him immediately
preceding such Investment Date. In addition, the
aggregate amount of payroll deductions made
pursuant to Section 6, and lump sum payments made
pursuant to Section 7, by or on behalf of a
Participant, shall not exceed 15% of the
Participant's Compensation for any calendar year.
9. Company Payments. On or prior to the
date on which the transactions from an Investment
Date are settled, the Company shall pay to the
Administrator an amount equal to the 15% discount
with respect to the Common Stock purchased for the
Plan Accounts of Participants with respect to such
Investment Date.
10. Purchase and Sale of Shares of Common Stock.
(a) With respect to each Investment Date, (i)
accumulated payroll deductions and lump sum amounts
received from or on behalf of all Participants
pursuant to Sections 6 and 7, and amounts received
from the Company pursuant to Section 9, will be
pooled and used by the Administrator to purchase
shares of Common Stock on the open market for the
Plan Accounts of the applicable Participants, and
(ii) shares of Common Stock will be sold by the
Administrator on the open market from the Plan
Accounts of Participants who have delivered
Investment Directions directing the sale of Common
Stock, and the net proceeds of sale shall be
credited to the Plan Accounts of the applicable
Participants. Notwithstanding the foregoing,
aggregate purchases and sales on any Investment
Date may be offset by the Administrator, which
shall then purchase or sell the net number of
shares of Common Stock.
(b) For any transaction to be processed as of
an Investment Date, the Administrator must receive
an Investment Direction from the applicable
Participant at least two days prior to the
Investment Date and such Investment Direction shall
apply only to accumulated payroll deductions and
lump sum amounts received from or on behalf of all
Participants pursuant to Section 6 and 7, and
shares of Common Stock held in Plan Accounts as of
the Investment Date. Purchases and sales of Common
Stock shall be posted to a Participant's Plan
Account as of the date on which transactions for
that Investment Date are settled, and shall be
based upon the Fair Market Value of Common Stock as
of such Investment Date as determined by the
Administrator.
(c) Any payroll deductions remaining after
purchase of such maximum number of shares will be
retained in the Plan Account of each applicable
Participant and applied to the purchase of shares
of Common Stock for him with respect to the next
Investment Date. Any lump sum payments so
remaining shall be returned to the applicable
Participants. Each Participant's Plan Account will
be credited with the shares (computed to three
decimal places) of Common Stock purchased for him
on each Investment Date, and with the net sale
proceeds of the shares of Common Stock sold for him
with respect to each Investment Date. The net
proceeds of any such sale shall be distributed to a
Participant from his Plan Account as soon as
possible after the applicable Investment Date. The
number of shares of Common Stock credited to each
Participant's Plan Account will depend on the
aggregate amount of his payroll deductions and lump
sum payments and Company contributions, and the
Fair Market Value of Common Stock determined on the
applicable Investment Date.
(d) Any direction to sell shares of Common
Stock shall be subject to satisfaction of the
conditions set forth in Section 13 to the extent
applicable.
11. Fees and Expenses. Participants will
incur no brokerage commissions or service charges
for purchases or sales of Common Stock under the
Plan. Certain administrative charges, as
determined by the Committee, may be incurred by a
Participant upon his withdrawal from the Plan, upon
receipt of a distribution of certificates representing
Common Stock pursuant to Section 3, or upon termination of the Plan.
12. Withdrawals. A Participant may cause the
Administrator to make a withdrawal from his Plan
Account as authorized pursuant to Section 3 above.
The withdrawal shall come only from shares of
Common Stock and cash posted to his Plan Account.
There is no restriction on the number of times a
Participant may withdraw from his Plan Account, nor
is there a minimum amount for any type of
withdrawal. The Administrator shall make
distribution of shares of Common Stock to the
Participant as soon as is administratively feasible
after receiving a written withdrawal request, and
shall make payment of cash in his Plan Account as
soon as is administratively feasible after the date
for settlement of transactions from the most recent
Investment Date preceding the date of delivery of
the withdrawal request. The Committee shall
receive a copy of each withdrawal request from a
Participant. The medium for payment for
withdrawals is either cash or whole shares of
Common Stock. If shares of Common Stock are to be
distributed, the Participant must indicate in his
withdrawal request in what name or names the
certificates are to be issued. If no instructions
are received, the certificates will be issued only
in the name of the Participant. The form of
payment for cash withdrawals shall be a single sum.
A withdrawal request will not include (1)
uninvested amounts held by the Company with respect
to the Participant, or (2) uninvested cash
dividends unless the Administrator receives the
withdrawal request by the record date for cash
dividend payments. Any withdrawal request shall be
subject to satisfaction of the conditions set forth
in Section 13 to the extent applicable.
13. Restriction on Shares.
(a) Notwithstanding anything elsewhere
contained in the Plan, a Participant may not direct
a sale of, or withdraw, shares of Common Stock from
his Plan Account prior to the expiration of the
Restriction Period or Restriction Periods
(hereinafter defined) applicable to such shares
unless one of the following conditions is
satisfied:
1. Prior to the date of any such sale
or withdrawal, the Participant shall tender to
the Company, in cash or by personal check, an
amount equal to 15% of the Fair Market Value
of such shares of Common Stock, determined as
of the Investment Date on which such shares
were purchased for his Plan Account; or
2. The Participant, in his Investment
Direction delivered pursuant to Section 10, or
his withdrawal request delivered pursuant to
Section 12, directs the Administrator to
transfer to the Company a number of shares of
Common Stock held in his Plan Account, and
subject to such Restriction Period or Periods,
with a Fair Market Value determined on the
date of the sale or withdrawal equal to 15% of
the Fair Market Value of such shares of Common
Stock, determined as of the Investment Date on
which such shares were purchased for his Plan
Account.
(b) The Restriction Period applicable to any
shares of Common Stock purchased pursuant to the
Plan shall commence on the Investment Date with
respect to which such shares are purchased, and
shall expire on the first to occur of (i) the date
24 months from such Investment Date, (ii) the date
on which the Participant retires from employment
with the Company and its Subsidiaries on or after
attaining the Earliest Retirement Age specified in
Section 2(i), (iii) the date of his death, (iv) the
date of his disability (as defined in the long term
disability plan then maintained by the Company),
and (v) the date of a Change In Control of the
Company.
(c) Except as otherwise provided in Section
20 below, any withdrawal or any attempted sale,
transfer or other disposition, of shares of Common
Stock within an applicable Restriction Period shall
be invalid and of no effect until the date on which
the provisions of clause 1 or clause 2 of paragraph
(a) of this Section are satisfied by or with
respect to the applicable Participant.
14. Termination of Employment.
(a) A Participant shall cease to participate
in the Plan upon his termination of employment with
the Company and its Subsidiaries for any reason,
including death, and no purchase or sale of shares
of Common Stock shall be made hereunder for him as
of any Investment Date following the date of such
termination of employment. All cash held in his
Plan Account, all of his payroll deductions and
cash contributions not allocated to his Plan
Account, and certificates representing all shares
of Common Stock held in his Plan Account, as of the
date of such termination of employment, shall be
distributed or otherwise transferred to him (or to
his beneficiary in the event of his death pursuant
to Section 23) as soon as possible following the
date of such termination of employment.
(b) Notwithstanding the preceding provisions
of this Section, no distribution of certificates
representing shares of Common Stock held in a
Participant's Plan Account shall be made pursuant
to this Section prior to the expiration of the
Restriction Period applicable to such shares until
the requirements of clause 1 or clause 2 of
paragraph (a) of Section 13 have been satisfied
with respect to such shares.
(c) Notwithstanding any other provisions of
Sections 13 or 14, any shares of Common Stock
purchased for a Participant under the Plan within
180 days prior to the date of his retirement on or
after attaining the Earliest Retirement Age
specified in Section 2(i), shall be deemed to be
subject to a Restriction Period and shall not be
sold or withdrawn from the Plan Account of the
Participant following his termination of employment
with the Company until the requirements of clause 1
or clause 2 of paragraph (a) of Section 13 have
been satisfied with respect to such shares.
15. Dividends.
(a) A Participant may direct the
Administrator to reinvest cash dividends paid on
whole shares of Common Stock held in his Plan
Account into additional full or fractional shares
of Common Stock, or to distribute such cash
dividends directly to the Participant. To be
effective with respect to the record date for a
cash dividend payment, an election pursuant to the
preceding sentence to reinvest or distribute such
cash dividend must be received by the Administrator
at least two days prior to such record date. Cash
dividends will be distributed only with respect to
the whole number of shares of Common Stock, or
reinvested with respect to the full and fractional
shares of Common Stock, as designated by the
Participant respectively. If a Participant has not
given a timely election pursuant to the preceding
sentences of this paragraph, cash dividends shall
be reinvested into additional full and fractional
shares of Common Stock held in the Participant's
Plan Account.
(b) Non-cash dividends of Common Stock will
be held in the Plan Account of the Participant.
Non-cash dividends, other than of Common Stock,
shall be sold and reinvested in Common Stock and
held in the Plan Account of the Participant.
16. Withholding. Whenever the Company or the
Administrator proposes or is required to allocate
or transfer shares of Common Stock to the Plan
Account of a Participant, or directly to a
Participant, the Committee shall have the right to
require the Participant to remit to the Company an
amount sufficient to satisfy all federal, state and
local withholding tax requirements, prior to the
allocation of any shares of Common Stock to his
Plan Account, or to the delivery to him of any
certificate or certificates for such shares. If
such certificates already have been delivered prior
to the time a withholding obligation arises, the
Committee shall have the right to require the
Participant to remit to the Company an amount
sufficient to satisfy all federal, state or local
withholding tax requirements, and to withhold such
other amounts payable to the Participant, as
compensation or otherwise, as necessary. A
Participant may elect to satisfy his tax
withholding obligation incurred with respect to the
Taxable Date of the purchase of shares of Common
Stock for him hereunder by (a) directing the
Committee to withhold a portion of the shares of
Common Stock otherwise to be credited to his Plan
Account or distributable to him, or (b) by
transferring to the Company a number of shares of
Common Stock previously acquired, such shares being
valued at the Fair Market Value thereof on the
Taxable Date. Notwithstanding any provisions of
the Plan to the contrary, a Participant's election
pursuant to the preceding sentence: (a) must be
made on or prior to the Taxable Date with respect
to the shares of Common Stock being purchased, (b)
must be irrevocable, and (c) if the election is
made by a Participant who is subject to the
restrictions of Section 16(b) of the Securities
Exchange Act of 1934, must be made in writing (i)
within the 10 business days beginning on the third
business day following the release of the Company's
quarterly or annual summary of earnings and ending
on the 12th business day following such day, or
(ii) at least 6 months prior to the date that is 24
months from the Investment Date on which such
shares of Common Stock were purchased for him.
Taxable Date means the date a Participant
recognizes income with respect to a purchase of
shares of Common Stock under the Plan pursuant to
the terms of the Code or any applicable state or
local income tax law.
17. Statements. Each Participant will
receive a statement of his Plan Account for each
calendar quarter in which a purchase or sale of
Common Stock for his Plan Account takes place.
Participants will also receive the annual report
for the Plan and communications sent to other
shareholders of the Company, including the annual
report of the Company and its notice of annual
meeting of shareholders and proxy statement.
Participants will receive such information as is
necessary for reporting income realized by them
under the Plan to the Internal Revenue Service.
18. Adjustment Provisions. The maximum
number of shares of Common Stock available for
purchase hereunder, the aggregate number of shares
of Common Stock with respect to which an election
to purchase is outstanding hereunder, and the
Purchase Price per share of Common Stock, shall all
be appropriately adjusted, as the Committee may
determine, for any increase or decrease in the
number of shares of issued Common Stock resulting
from a subdivision or consolidation of shares,
whether through reorganization, recapitalization,
stock split-up, stock distribution or combination
of shares, or the payment of a share dividend or
other increase or decrease in the number of such
shares of Common Stock outstanding effected without
receipt of consideration by the Company.
Adjustments pursuant to this Section shall be made
according to the sole discretion of the Committee
and its decision shall be binding and conclusive.
19. Transferability. Except as otherwise
provided in Sections 12, 14, 20 and 25, the right
to purchase shares of Common Stock pursuant to the
terms of the Plan, and the cash and shares of
Common Stock in a Participant's Plan Account, may
not be sold, transferred, assigned, pledged,
hypothecated or otherwise disposed of (whether by
operation of law or otherwise) by a Participant or
any other person, and no such right to purchase
shall be subject to execution, attachment or
similar process. Except as otherwise provided in
Sections 12, 14, 20 and 25, any attempt to sell,
transfer, assign, pledge, hypothecate or otherwise
dispose of, a right to purchase shares of Common
Stock hereunder, and the cash and shares of Common
Stock in a Participant's Plan Account, or any levy
of attachment or similar process upon such right,
cash or shares, shall be null and void and without
effect. A right to purchase or sell shares of
Common Stock hereunder may be exercised only by a
Participant during his lifetime.
20. Dissolution, Merger and Consolidation.
In the event of the dissolution or liquidation of
the Company, or the merger or dissolution of the
Company in which the Company is not the surviving
corporation, all future rights to purchase shares
of Common Stock pursuant to the terms of the Plan
shall expire as of the effective date of such
event, and all payroll deductions held for each
Participant, and all shares of Common Stock
purchased prior to the date of such event for each
Participant and not previously distributed to him,
shall be distributed to him at least 30 days prior
to the effective date of such event. In such
event, the restrictions set forth in Section 13
above shall cease to apply with respect to such
event, and the Participant shall be entitled to
transfer or otherwise dispose of his shares of
Common Stock purchased hereunder pursuant to the
terms of such event within the Restriction Period
applicable to such shares of Common Stock.
21. Conditions Subsequent to Effective Date.
The Plan has been adopted by the Board subject to
approval by the holders of a majority of the
outstanding shares of Common Stock of the Company
within 12 months after the date of adoption of the
Plan by the Board. The Plan shall be null and void
and of no effect if the foregoing condition is not
fulfilled.
22. Voting. The Administrator will vote any
shares of Common Stock that it holds for a
Participant's Plan Account in accordance with the
Participant's written directions, provided they are
received in a timely manner in accordance with the
procedures developed for this purpose by the
Administrator. The Administrator will not vote the
shares of Common Stock in the Plan Account of a
Participant from whom no voting directions are received.
23. Distribution of Plan Accounts on Death.
(a) Each Participant shall complete a
beneficiary designation form indicating the
beneficiary who is to receive the assets in the
Participant's Plan Account at the time of his
death. The Participant may change such designation
of beneficiary from time to time by filing a new
beneficiary designation form with the Committee.
No designation of beneficiary or change of
beneficiary shall be effective until filed with the
Committee.
(b) Upon the death of a Participant, any
assets then held in his Plan Account, plus his
payroll deductions and cash contributions not
allocated to his Plan Account, shall be distributed
in a single sum of whole shares of Common Stock
plus cash to his designated beneficiary. If the
Participant dies and either (1) the Participant
shall have failed to file a valid beneficiary
designation form, or (2) all persons designated on
the beneficiary designation form shall have
predeceased the Participant, the Committee shall
direct the Administrator to distribute the
aforementioned assets in a single distribution of
whole shares of Common Stock plus cash to his
spouse, if then living, or if none, to the legal
representatives of his estate.
(c) On the death of a Participant, his Plan
Account shall be maintained in the name of his
beneficiary or beneficiaries designated by the
Participant until distribution thereof pursuant to
paragraph (b), and his Investment Direction
regarding dividends shall apply to such beneficiary.
(d) A distribution pursuant to this Section
23 shall not be subject to the restrictions set
forth in Section 13(a).
24. Administrator.
(a) The Administrator shall serve at the will
of the Committee and the Committee may from time to
time remove the Administrator with or without cause
and shall appoint its successor.
(b) The powers, duties and responsibilities
of the Administrator shall be as stated in the
Plan. All payroll deductions and payments by
Participants and the Company shall be paid to the
Administrator, and all Plan Accounts shall be
maintained by the Administrator. Neither the
Company nor any Subsidiary shall have any rights or
claims of any nature in or to the assets of any
Plan Account.
(c) All fees and expenses of the
Administrator agreed upon by the Company and the
Administrator shall be paid by the Company to the
Administrator.
(d) The Administrator shall determine the
appropriate number of Investment Dates for all
funds received by it and for each Investment
Direction; provided however, no Investment Date
shall be required prior to the date funds have been
posted to a Participant's Plan Account or withheld
by the Company.
25. Amendment and Termination.
(a) Amendments.
(i) The Company, or the Committee
as provided in subsection (ii) below, may
amend, modify, change or revise the Plan
by amendment at any time; provided,
however, that no amendment shall:
(A) change the minimum
purchase price or make any other
material change with respect to the
terms and conditions of
participation by officers or
directors of the Company without
stockholder approval consistent with
applicable rules of the Securities
and Exchange Commission.
(B) increase the duties or
liabilities of the Administrator or
the Committee without its written
consent; or
(C) have the effect of vesting
in the Company or any Subsidiary any
interest in any funds, securities or
other property.
(ii) The Committee may amend,
modify, change or revise the Plan by
amendment if such amendment could have
been adopted under paragraph (i) hereof
and it does not materially increase the
duties and obligations of the Company or
any Subsidiary, with respect to the Plan.
(b) Plan Termination. Although it is the
expectation of the Company at the time of adoption
of the Plan by the Board that it will continue the
Plan indefinitely, the continuation of the Plan is
not assumed as a contractual obligation of the
Company or any Subsidiary and the Company reserves
the right, in its sole discretion, to terminate the
Plan at any time. Upon termination of the Plan,
all Plan Accounts, and all assets not allocated to
Plan Accounts, will be distributed as if each
Participant had terminated employment and received
a distribution pursuant to Section 14(a).
26. Miscellaneous Provisions.
(a) Pledging of Common Stock. Shares of
Common Stock credited to the Plan Account of a
Participant may not be encumbered, pledged as
collateral or otherwise hypothecated. A
Participant who has an involuntary transfer imposed
upon him with respect to shares of Common Stock in
his Plan Account will be deemed to have elected to
withdraw such shares.
(b) Plan Does Not Affect Employment Rights.
The Plan does not provide any employment rights to
any Eligible Employee. The Company and its
Subsidiaries expressly reserve the right to
discharge an Eligible Employee at any time, with or
without cause, without regard to the effect such
discharge would have upon the Eligible Employee's
interest in the Plan.
(c) Deduction of Taxes from Amounts Payable.
Subject to Section 16, the Administrator shall have
the power and authority to deduct from the amount
to be distributed to a Participant such amount as
the Administrator deems proper to protect the
Administrator against liability for the payment of
death, succession, inheritance, income, or other
taxes, and out of money so deducted, the
Administrator may discharge any such liability and
pay the amount remaining to the Participant, or the
deceased Participant's beneficiary, as the case may
be.
(d) Source of Benefits. All benefits payable
under the Plan shall be paid or provided for solely
from Plan Accounts, and the Company and its
Subsidiaries assume no liability or responsibility
therefor.
(e) Limitation on Liability. Neither the
Company nor any Subsidiary, nor any agent or
representative of the Company or any Subsidiary who
is an employee, officer, or director of the Company
or any Subsidiary, in any manner guarantees the
assets of the Plan against loss or depreciation and
none of them shall be liable (except for his own
gross negligence or willful misconduct), for any
act or failure to act, done or omitted in good
faith, with respect to the Plan. The Company and
its Subsidiaries, and the Committee shall have no
responsibility for any act of or failure to act by
the Administrator.
(f) Indemnification of the Board and the
Committee. In addition to such other rights or
indemnification as they may have as members of the
Board, or as members of the Committee, or as its
delegate, the members of the Board and of the
Committee and its delegate, shall be indemnified by
the Company against (a) reasonable expenses (as
such expenses are incurred), including attorneys
fees, actually and necessarily incurred in
connection with the defense of any action, suit or
proceeding (or in connection with any appeal
therein) to which they or any of them may be a
party by reason of any action taken or failure to
act under or in connection with the Plan, and (b)
against all amounts paid by them in settlement
thereof (provided such settlement is approved by
independent legal counsel selected by the Company)
or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in
relation to matters as to which it shall be
adjudged in such action, suit or proceeding that
such Board or Committee member or delegate is
liable for gross negligence or willful misconduct
in the performance of his duties. The Company may
elect, at its own expense, to handle and defend any
such action, suit or proceeding.
(g) Gender and Number. Except when the
context indicates to the contrary, when used
herein, masculine terms shall be deemed to include
the feminine, and singular the plural.
(h) Invalidity of Certain Provisions. If any
provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and
the Plan shall be construed and enforced as if such
provisions, to the extent invalid or unenforceable,
had not been included.
(i) Headings. The headings of sections and
paragraphs are included solely for convenience of
reference, and if there is any conflict between
such headings and the text of the Plan, the text
shall control.
(j) Law Governing. The Plan shall be
construed and enforced according to the laws of the
State of Illinois.
(k) Legal and Other Requirements. The
Committee may postpone any stock purchase or sale
under the Plan for such time as the Committee, in
its sole discretion, may deem necessary in order to
permit the Company (i) to effect, amend or maintain
any necessary registration of the Plan or the
shares of Common Stock available for purchase or
sale under the Plan under the Securities Act of
1933, as amended, or the securities laws of any
applicable jurisdiction, (ii) to permit any action
to be taken in order to (A) list such shares of
Common Stock on a stock exchange if shares of
Common Stock are then listed on such exchange or
(B) comply with restrictions or regulations
incident to the maintenance of a public market for
its shares of Common Stock, including any rules or
regulations of any stock exchange on which the
shares of Common Stock are listed, or (iii) to
determine that such shares of Common Stock and the
Plan are exempt from such registration or that no
action of the kind referred to in (ii)(B) above
needs to be taken; and the Company shall not be
obligated by virtue of any provision of the Plan to
purchase or sell shares of Common Stock in
violation of the Securities Act of 1933, as
amended, or the law of any government having
jurisdiction thereof.
(l) Section 16(b) Compliance and Bifurcation
of the Plan. It is the intention of the Company
that the Plan comply in all respects with Rule 16b-
3 under the Securities Exchange Act of 1934 and, if
any Plan provision is later found not to be in
compliance with such Rule, the provision shall be
deemed null and void, and in all events the Plan
shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding
anything in the Plan to the contrary, the
Committee, in its sole discretion, may bifurcate
this Plan so as to restrict, limit or condition the
use of any provision of the Plan with respect to
Eligible Employees and Participants who are subject
to Section 16 of the Securities Exchange Act of
1934, without so restricting, limiting or
conditioning the Plan with respect to other
Eligible Employees and Participants.
(m) Rights as Shareholder. A Participant
shall have all rights as a shareholder of the
Company with respect to all shares of Common Stock
purchased for his Plan Account pursuant to the
terms of the Plan.
(n) Leaves of Absence and Disability. The
Committee shall be entitled to make such rules,
regulations and determinations as it deems
appropriate under the Plan with respect to any
leave of absence taken by, or any disability of, a
Participant. Without limiting the generality of
the foregoing, the Committee shall be entitled to
determine (i) whether any such leave of absence
shall constitute a termination of employment within
the meaning of the Plan, and (ii) the impact, if
any, of any such leave of absence on the right to
purchase Common Stock under the Plan by any
Participant who takes such leave of absence.
(o) Notices. Every request, direction,
revocation or notice authorized or required by the
Plan shall be deemed to have been delivered to the
Committee or the Company (i) on the date it is
personally delivered to the General Counsel of the
Company at the principal executive offices of the
Company, or (ii) 3 business days after it is sent
by registered or certified mail, postage prepaid,
addressed to the General Counsel of the Company at
such offices; and shall be deemed delivered to an
Eligible Employee, Participant or beneficiary (1)
on the date it is personally delivered to him, or
(2) 3 business days after it is sent by registered
or certified mail, postage prepaid, addressed to
him at the last address shown for him on the
records of the Company or any Subsidiary.
EXHIBIT 11
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
($ in millions, except share data)
Years Ended December 31,
1994 1993 1992
Income before extraordinary
item and cumulative effect
of changes in accounting
principle $113.9 $91.7 $72.5
Extraordinary item, net - (23.4) -
Cumulative effect of changes
in accounting principles - (0.1) 23.4
Net income $113.9 $68.2 $95.9
Calculation of average
number of shares outstanding:
Primary:
Weighted average number
of common shares
outstanding 42,597,044 42,560,082 42,508,910
Effect of shares issuable
under stock options 128,695 119,601 91,197
42,725,739 42,679,683 42,600,107
Fully diluted:
Weighted average number
of common shares 42,597,044 42,560,082 42,508,910
outstanding
Effect of shares issuable
under stock options (1) 128,695 176,638 101,061
42,725,739 42,736,720 42,609,971
Income per common share:
Primary:
Before extraordinary item
and cumulative effect of
changes in accounting
principles $2.67 $2.14 $1.70
Extraordinary item, net - (0.55) -
Cumulative effect of changes
in accounting principles - - 0.55
Net income $2.67 $1.59 $2.25
Fully diluted:
Before extraordinary item
and cumulative effect of changes
in accounting principles $2.67 $2.14 $1.70
Extraordinary item, net - (0.55) -
Cumulative effect of changes
in accounting principles - - 0.55
Net income $2.67 $1.59 $2.25
(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.
Exhibit 21
ILLINOIS CENTRAL CORPORATION
Subsidiaries of the Registrant
as of December 31, 1994
Name Place of Incorporation
Subsidiaries included in the financial statements,
which are 100% owned:
Illinois Central Railroad Company Delaware
IC Financial Services Corporation Delaware
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
Subsidiaries that are 100% owned by IC Financial
Services Corporation:
IC Leasing Corporation I Nevada
IC Leasing Corporation II Nevada
IC Leasing Corporation III Nevada
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
ILLINOIS CENTRAL CORPORATION
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated January 17, 1995, included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1994,
into Illinois Central Corporation's previously filed Form S-8 Registration
Statements File Nos. 33-41052, 33-51924 and 33-57757.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 8, 1995
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