SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-10720
ILLINOIS CENTRAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3545405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611-5504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 755-7500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
As of March 31, 1995, 42,127,241 common shares were outstanding.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
FORM 10-Q
Three Months Ended March 31, 1995
CONTENTS
Part I - Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8
Part II - Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 11 E-1
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions, except share data)
(Unaudited)
Three Months
Ended March 31,
1995 1994
Revenues $167.5 $147.5
Operating expenses:
Labor and fringe benefits 46.8 46.9
Leases and car hire 13.4 12.7
Diesel fuel 8.8 7.8
Materials and supplies 10.1 10.3
Depreciation and amortization 7.5 6.5
Casualty and insurance, net 4.4 3.7
Other taxes 5.1 4.6
Other 8.9 4.4
Operating expenses 105.0 96.9
Operating income 62.5 50.6
Other income, net (0.2) 0.6
Interest expense, net (7.4) (7.3)
Income before income taxes 54.9 43.9
Provision for income taxes 20.6 16.2
Net income $ 34.3 $ 27.7
Income per share $ 0.81 $ 0.65
Weighted average number of shares
of common stock and common stock
equivalents outstanding 42,547,042 42,794,150
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
ASSETS March 31, 1995 December 31,1994
Current assets:
Cash and temporary cash investments $35.1 $24.2
Receivables, net of allowance for
doubtful accounts of $1.9 in 1995
and $2.1 in 1994 34.4 33.9
Materials and supplies, at average cost 17.4 15.7
Assets held for disposition 8.2 9.1
Deferred income taxes - current 21.3 21.8
Other current assets 4.3 3.3
Total current assets 120.7 108.0
Investments 13.4 13.5
Properties:
Transportation:
Road and structures, including land 1,006.4 994.9
Equipment 173.0 165.6
Other, principally land 40.8 40.8
Total properties 1,220.2 1,201.3
Accumulated depreciation (33.0) (30.0)
Net properties 1,187.2 1,171.3
Other assets 16.3 15.9
Total assets $1,337.6 $1,308.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 14.8 $ 11.1
Accounts payable 57.9 54.5
Dividends payable 10.6 10.7
Income taxes payable 15.5 0.9
Casualty and freight claims 24.9 24.9
Employee compensation and vacations 12.9 16.5
Taxes other than income taxes 13.8 16.2
Accrued redundancy reserves 6.5 6.8
Other accrued expenses 28.6 31.8
Total current liabilities 185.5 173.4
Long-term debt 331.5 328.6
Deferred income taxes 222.9 218.2
Other liabilities and reserves 135.8 134.4
Contingencies and commitments
Stockholders' equity:
Common stock, par value $.001,
authorized 100,000,000 shares,
42,853,564 shares issued and 42,127,241
shares outstanding - -
Additional paid-in capital 165.4 165.1
Retained income 316.7 293.0
Treasury stock (726,323 shares) (20.2) (4.0)
Total stockholders' equity 461.9 454.1
Total liabilities and stockholders'
equity $1,337.6 $1,308.7
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
Three Months Ended March 31,
1995 1994
Cash flows from operating activities :
Net income $34.3 $27.7
Reconciliation of net income to net
cash provided by (used for) operating
activities :
Depreciation and amortization 7.5 6.5
Deferred income taxes 5.2 6.5
Equity in undistributed earnings of
affiliates,net of dividends received (0.2) (0.2)
Net gains on sales of real estate 0.1 0.1
Cash changes in working capital 4.8 29.9
Changes in other assets (0.4) (0.3)
Changes in other liabilities and
reserves 2.4 (4.7)
Net cash provided by (used for)
operating activities 53.7 65.5
Cash flows from investing activities :
Additions to properties (24.0) (12.4)
Proceeds from real estate sales 1.3 0.2
Proceeds from equipment sales 0.6 0.3
Proceeds from sales of investments 0.2 0.2
Other (0.4) 0.2
Net cash provided by (used for)
investing activities (22.3) (11.5)
Cash flows from financing activities :
Proceeds from issuance of debt - 48.6
Principal payments on debt (3.5) (60.1)
Net proceeds (payments) in commercial
paper 10.0 (25.1)
Dividends paid (10.6) (8.9)
Stock repurchase program (16.3) -
Purchase of subsidiary's common stock (0.1) (0.1)
Net cash provided by (used for)
financing activities (20.5) (45.6)
Changes in cash and temporary cash
investments 10.9 8.4
Cash and temporary cash investments at
beginning of period 24.2 10.7
Cash and temporary cash investments at
end of period $35.1 $19.1
Supplemental disclosure of cash flow
information :
Cash paid during the year for:
Interest (net of amount capitalized) $ 9.6 $ 9.7
Income taxes $ 0.7 $ 3.1
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
Except as described below, the accompanying unaudited
consolidated financial statements have been prepared in
accordance with accounting policies described in the 1994 Annual
Report on Form 10-K and should be read in conjunction with the
disclosures therein.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. Interim
results are not necessarily indicative of results for the full
year. Certain 1994 amounts have been reclassified to conform
with the presentation used in the 1995 financial statements.
Income Per Share
Income per common share of the Company is based on the weighted
average number of shares of common stock and common stock
equivalents outstanding during the period.
2. Sale of Accounts Receivable
In 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 March 31, 1995, $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 $.8 million and $.4 million
for the quarters ended March 31, 1995 and 1994, respectively.
3. Common Stock and Dividends
On March 2, 1995, the Board of Directors approved a quarterly
dividend of $.25 per share which was paid April 6, 1995. The
Board intends to continue its policy of quarterly dividends.
Future dividends may be dependent on the Railroad's ability to
pay cash dividends to the Company. Covenants specifically restricting
dividend payments by the Railroad were eliminated when the Senior
Notes were prepaid. Covenants of the Railroad's New Revolver require
specified levels of tangible net worth. See Notes 4 and 5.
4. Stock Repurchase Program
For the three months ended March 31, 1995, the Company paid $16.3
million to acquire 482,100 shares of Common Stock under its
ongoing stock repurchase program. Such purchases were funded in
part by a $9 million payment by the Railroad to the Company under
the special $60 million dividend which was declared in 1994 and
will be paid as requested by the Company. From inception of the
stock repurchase program in 1994 to April 30, 1995, the Company
has paid an aggregate $22.8 million to acquire 676,100 shares of
Common Stock, and the Railroad has paid the Company an aggregate
$9 million of the special dividend. Further purchases are
dependent on market conditions, the economy, cash needs and
alternative investment opportunities.
5. Prepayment of Senior Notes
On May 4, 1995, the Railroad prepaid the holders of its $160
million Senior Notes at face value plus accrued interest and a
prepayment penalty. The monies used to fund the prepayment were
provided by commercial paper, the net proceeds of the recently
issued $100 million 7.75% 10 year-notes due May 2005 and $40
million from existing lines of credit. The prepayment resulted
in an extraordinary charge of $18.4 million, $11.5 million after-
tax, which will be recorded in the second quarter of 1995. In
connection with the prepayment, the Railroad amended and restated
its revolver with its bank lending group (the "New Revolver"). The
New Revolver was increased to $250 million and expires in the
year 2000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below takes into account the financial condition
and results of operations of the Company for the periods presented in
the consolidated financial statements.
Results of Operations
Three Months Ended March 31, 1995 Compared to Three Months Ended March
31, 1994
Revenues for 1995 increased from the prior year quarter by $20.0
million or 13.6% to $167.5 million. The increase was a result of a
12.8% increase in the number of carloads coupled with an increase of
2.0% in gross freight revenue per carload. For the quarter, the
Company experienced carloading increases in intermodal (68.9%), grain
and grain mill and food products (35.4%), paper (6.9%) and
chemicals (13.8%), offset by decreased coal loads (9.4%).
Operating expenses for 1995 increased $8.1 million, or 8.4% as
compared to 1994. Increases in fuel and depreciation were offset by
decreased lease and car hire expense. Lease and car hire expense on a
combined basis reflects a $3.9 million decline in lease expense
primarily as a result of the Company's shift from leasing to ownership
of its fleet and a $4.3 million increase in car hire costs as increased
export grain and grain mill traffic resulted in higher costs.
Marketing and other costs associated with the rise in business levels
($1.2 million) and environmental charges ($1.1 million) were primarily
responsible for the shift in other operating expense between quarters.
Operating income for 1995 increased 23.5% ($11.9 million) to
$62.5 million from $50.6 million in 1994, primarily as a result of
increased revenues cited above.
Liquidity and Capital Resources
Operating Data:
Three Months Ended March 31,
1995 1994
($ in millions)
Cash flows provided by (used for):
Operating activities $ 53.7 $ 65.5
Investing activities (22.3) (11.5)
Financing activities (20.5) (45.6)
Net change in cash and
temporary cash investments $ 10.9 $ 8.4
Operating activities in 1995 provided $53.7 million in cash,
primarily from net income before depreciation and deferred taxes.
During 1995, additions to property of $24.0 million included
approximately $11.8 million for track and bridge rehabilitation and
approximately $10.0 million for equipment upgrades. 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 update the locomotive
fleet. For the full year 1995, the Company continues to expect base
capital spending (expenses for track and track structures) to be
approximately $65 million, with the locomotive purchases and lease
conversions the total capital spending could be approximately $100
million to $110 million. These expenditures are expected to be met
from current operations and other available sources.
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 March 31, 1995, $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 $.8
million, and $.4 million for the three month periods ended March 31,
1995 and 1994, respectively.
Under the Railroad's commercial paper program a total of $100
million can be issued and outstanding. The program is supported by the
revolver with the Railroad's bank lending group (see below). At March
31, 1995, $25.0 million was outstanding. For the three months then
ended 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 connection with the Railroad's prepayment of its $160 million
Senior Notes (see below), the Railroad and its bank lending group
renegotiated the Railroad's $150 million revolver which had been
amended and restated in November 1994. The new Revolver is for $250
million and expires in 2000. Fees and interest rates are predicated on
the Railroad's long-term credit ratings. Currently, the annual fee is
17 basis points and borrowings under this agreement are at LIBOR plus
32.5 basis points. 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. At March 31, 1995, $25.0
million in commercial paper was outstanding and $2.4 million in letters
of credit had been issued thereby reducing the amount available under
the New Revolver. No amounts had been drawn under the New Revolver or
any prior revolving agreements with its bank lending group.
On May 4, 1995, the Railroad prepaid its then outstanding $160
million Senior Notes at fair market value plus accrued interest and a
prepayment penalty of $16.4 million. The prepayment resulted in an
extraordinary charge of $18.4 million, $11.5 million after-tax, to be
recorded in the second quarter of 1995. The monies used to fund the
prepayment were provided by Commercial Paper, the net proceeds of the
recently issued $100 million 7.75% 10-year notes due 2005 (the "New
Notes") and $40 million borrowed from various institutions under
uncommitted lines of credit at interest ranging from 6.36% to 6.4% which
may be refinanced by the Railroad's new Medium Term Note Program ("MTN").
The New Notes and any MTN's to be issued are covered by under a $200
million shelf registration filed with the Securities and
Exchange Commission on April 12, 1995. The New Notes pay interest
semi-annually in May and November and were issued pursuant to an
indenture.
At March 31, 1995, the Railroad's public debt was rated Baa2 by
Moody's and BBB by S&P and the Railroad's commercial paper program was
rated A2 by S&P, P2 by Moody's and F2 by Fitch.
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 through March 31, 1995. 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 March
31, 1995, and management does not anticipate any difficulty in
maintaining such compliance.
The Railroad has entered into various hedge agreements designed
to mitigate significant changes in fuel prices. As a result,
approximately 46% of the Railroad's short-term diesel fuel requirements
through June 1995 are protected against significant price changes.
The Company declared its thirteenth consecutive quarterly cash
dividend which was paid on April 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. Covenants specifically restricting dividend payments by the
Railroad were eliminated when the Senior Notes were prepaid. Covenants
contained in the Railroad's new Revolver require specified levels of
tangible net worth.
The Company anticipates that in addition to the $1.4 million paid
through March 31, 1995, an additional $5 million will be required in
1995 related to all previously signed labor 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
could require significant lump sum payments. The Company can not
determine whether separate agreements will be reached but management
believes available funding sources will be sufficient to meet any
required payments.
Stock Repurchase Program
For the three months ended March 31, 1995, the Company paid $16.3
million to acquire 482,100 shares of Common stock under its announced
$60 million 1995 stock repurchase program. Such purchases were funded
in part by a $9 million payment by the Railroad to the Company under
the special $60 million dividend which was declared in 1994 and will be
paid as requested by the Company. From inception of the stock
repurchase program in 1994 to April 30, 1995, the Company has paid an
aggregate $22.8 million to acquire 676,100 shares of Common Stock, and
the Railroad has paid the Company an aggregate $9 million of the
special dividend. Further purchases are dependent on market
conditions, the economy, cash needs and alternative investment
opportunities. The Board intends to review this program annually.
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 has paid approximately $.2
million in 1995 toward the investigation and remediation of those
sites, and anticipates annual expenditures of $3.0 million. During the
quarter, the Company spent an additional $1.4 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 March 31, 1995, the Company
estimated the probable range of its estimated liability to be $13
million to $48 million and in accordance with SFAS No. 5 had a reserve
of $13 million for environmental contingencies. This amount has not
been 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 March 1995, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 121 - Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS 121). SFAS 121 requires that long-lived assets and
certain identifiable intangibles to be held or used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount may not be recoverable. The statement is
effective for fiscal year beginning after December 15, 1995. The
Company is reviewing this statement to determine its impact, if any.
Early adoption is not anticipated.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 19, 1995, the Registrant held its Annual Meeting of
Stockholders.
At the meeting, the stockholders' were asked to vote on one (1)
proposal -- the election of Class I Directors until 1998.
Description
Vote Recap
Proposal No. 1 The election of E. Hunter Harrison, For 34,082,299
Samuel F. Pryor, IV, and Alan H. Against 33,694
Washkowitz as Class I directors
until 1998
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11
(b) Reports on Form 8-K:
An 8-K was filed March 9, 1995 to update the consent of
Arthur Andersen LLP included in the Annual Report on Form
10-K for the year ended December 31, 1994.
ILLINOIS CENTRAL CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned hereto duly authorized.
ILLINOIS CENTRAL CORPORATION
/s/ DALE W. PHILLIPS
Dale W. Phillips
Vice President & Chief
Financial Officer
/s/ JOHN V. MULVANEY
John V. Mulvaney
Controller
Date: May 9, 1995
EXHIBIT 11
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
($ in millions, except share data)
Three Months
Ended March 31,
1995 1994
Net income $34.3 $27.7
Calculation of average number
of shares outstanding:
Primary:
Weighted average number of common
shares outstanding 42,415,662 42,615,456
Effect of shares issuable under
stock options 131,380 178,694
42,547,042 42,794,150
Fully diluted:
Weighted average number of common shares
outstanding 42,415,662 42,615,456
Effect of shares issuable under
stock options (1) 137,895 178,694
42,553,557 42,794,150
Income per common share:
Primary:
Net income $ 0.81 $ 0.65
Fully diluted:
Net income $ 0.81 $ 0.65
(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.
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