UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 1-10720
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. [X]
As of March 11, 1996, the aggregate market value of the common
stock held by non-affiliates of the registrant was approximately $1,602
million. For purposes of the foregoing statement only, directors and
executive officers of the registrant have been assumed to be affiliates.
As of March 11, 1996, there were 40,950,154 shares of the
registrant's common stock outstanding. On March 14, 1996 the effective
date of a 3-for-2 stock split, there will be approximately 61.4 miilion
shares 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.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
Year Ended December 31, 1995
INDEX
PART I
10-K Page
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 4A. Executive Officers of the Registrant 15
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
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 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial
Owners and Management 28
Item 13. Certain Relationships and Related
Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 10-K 29
SIGNATURES 30
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. 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.
The 1992 Four-Year Growth Plan and Plan2000
In the fall of 1992, the Company announced a four-year growth
plan designed to increase revenues $100 million to $647 million, reduce
the operating ratio four percentage points to 66.7% and reduce interest
expense $10 million to $34 million. By December 31, 1994, the Company
had achieved the operating ratio and interest expense reduction goals.
Therefore, in the spring of 1995, the Company developed and announced
Plan2000. This new plan is designed to build on the success of the
1992 plan and position the Company for the next century. Plan2000
calls for (i) revenue to grow from the 1994 base of $594 million to
$800 million by the end of 1999, (ii) the continued reduction of the
operating ratio to below 60%, and (iii) a Long-Term Equity Enhancement
Program of increased dividends and share repurchases.
As of December 31, 1995, following revenue increases of 3.1%,
5.2% and 8.4% in 1993, 1994 and 1995, respectively, revenue was 17.6%
higher than 1992 and only $3 million below the original four year $100
million target. The 1995 revenue of $644 million is slightly ahead of
the 1995 target specified in Plan2000. Contributing to the revenue
growth since 1992 were gains in intermodal (57.7%), grain and grain
mill (22.9%), and chemicals (14.4%), despite a decline in coal (.6%).
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Significant Developments."
Commodities and Customers
The Railroad's customers are engaged in a wide variety of businesses
and ship a number of different products that can be classified into
commodity groups: chemicals, coal, grain, paper, grain mill and food
products and other commodities. In 1995, two customers each accounted
for approximately 6% of revenues (no other customer exceeded 5%) and the
ten largest customers accounted for approximately 35% of revenues.
In 1995, approximately 71% of the Railroad's freight traffic originated
on its own lines, of which approximately 22% was forwarded to other
carriers. Approximately 16% of the Railroad's freight traffic was
received from other carriers for final delivery by the Railroad, and
the balance of approximately 13% represented bridge or through traffic.
In order to address more effectively the diversity of the
Company's customer base, the Railroad's marketing department was re-
organized in late 1995 into two major groups - Bulk and Consumer
Products. The Bulk group is responsible for coal, chemicals and grain
products. The Consumer group covers forest products, intermodal and
metals. The formation of separate units enables a fully integrated
sales and marketing effort. Specialization allows employees to
anticipate and respond to customer needs more quickly, and to establish
business relationships with new shippers. These new units work with
current and prospective customers to develop customized shipping
solutions. Management believes that this commitment to improved
customer service will enhance relations with shippers.
The respective percentage contributions by principal commodity
group to the Railroad's freight revenues and revenue ton miles during
the past five years are set forth below:
Contributions to Total Freight Revenues by Commodity Group
Commodity
Group 1995 1994 1993 1992 1991
Chemicals 25.3 % 24.8% 25.0% 24.3% 24.5%
Coal 14.0 15.2 12.8 15.3 15.0
Grain 14.4 10.2 14.0 12.2 11.7
Paper 12.9 12.2 12.4 12.1 11.2
Grain mill &
food products 9.1 8.5 9.8 8.8 8.7
Intermodal 7.9 6.6 5.4 5.4 5.2
All other 16.4 22.5 20.6 21.9 23.7
Total 100.0% 100.0% 100.0% 100.0% 100.0%
Contribution to Revenue Ton Miles by Commodity Group
Commodity
Group 1995 1994 1993 1992 1991
Chemicals 14.6% 15.8% 15.9% 15.1% 16.0%
Coal 20.8 24.0 15.1 18.2 17.0
Grain 26.8 20.0 27.9 27.3 27.7
Paper 9.0 9.8 9.6 9.0 8.4
Grain mill &
food products 9.8 9.3 9.9 9.0 8.3
Intermodal 5.5 5.5 3.7 3.1 2.9
All other 13.5 15.6 17.9 18.3 19.7
Total 100.0% 100.0% 100.0% 100.0% 100.0%
The principal elements of these commodity groupings are as follows:
Chemicals A wide variety of chemicals and related products such as
chlorine, caustic soda, potash, soda ash, vinyl chloride
monomer, carbon dioxide, synthetic resins, alcohols,
glycols, styrene monomer, plastics, sulfuric acid, muriatic
acid, anhydrous ammonia, phosphates, mixed fertilizer
compounds and carbon blacks.
Coal Bituminous and metallurgical coal.
Grain Corn, wheat, soybeans, sorghum, barley and oats.
Paper Pulpboard, fiberboard, woodpulp, printing paper, newsprint
and scrap or waste paper.
Grain Mill
& Food
Products Products obtained by processing grain and other farm
products such as feed, soybean meal, corn syrup, flour and
middlings, animal packinghouse by-products (tallow), canned
food, corn oil, soybean oil, vegetable oils, malt liquors,
sugar and molasses.
Intermodal A wide variety of products shipped either in containers or
trailers on specially designed cars.
Other Pulpwood and chips, lumber and other wood products; sand,
gravel and stone, coke and petroleum products, metallic
ores and other bulk commodities; primary and scrap metals,
machinery and metal products, appliances, automobiles and
parts, transportation equipment and farm machinery; glass
and clay products, ordnance and explosives, rubber and
plastic products, and general commodities.
Operating Statistics
Set forth below is certain information relating to the Railroad's
freight traffic during the past five years:
1995 1994 1993 1992 1991
Carloads
(in thousands) 957 915 848 852 866
Freight train
miles(in
thousands)(1) 7,758 7,179 5,659 5,149 5,445
Revenue ton miles
of freight
traffic (in
millions)(2) 24,635 21,160 20,334 18,734 19,357
Revenue tons
per carload 74.7 76.3 79.1 76.6 79.0
Average length
of haul(in miles) 328 286 293 284 286
Gross freight
revenue per
ton mile(3) $.025 $ .027 $ .027 $ .029 $ .028
Net freight ton
miles per
average route
mile(in millions) 9.3 7.9 7.5 6.8 7.0
Gallons per ton
mile(4) .00234 .00248 .00251 .00269 .00276
Active
locomotives 333 328 322 331 361
Track resurfacing
(miles) 1,360 1,397 1,293 1,465 940
Percent re-
surfaced 32.2% 33.0% 29.8% 32.0% 19.6%
Ties laid in
replacement
(including
switch ties) 408,760 346,994 323,764 296,536 255,283
Slow order
miles 209.76 275.79 152.32 135.42 194.62
1 Freight train miles equals the total number of miles traveled by
the Railroad's trains in the movement of freight.
2 Revenue ton miles of freight traffic equals the product of the
weight in tons of freight carried for hire and the distance in
miles between origin and destination.
3 Revenue per ton mile equals net freight revenue divided by
revenue ton miles of freight traffic.
4 Gallons per ton mile equals the amount of fuel required to move
one ton of freight one mile.
The following tables summarize operating expense-to-revenue
ratios of the 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 Surface Transportation Board ("STB") functional
groupings.
Ratio 1995 1994 1993 1992 1991
Operating (1) 64.2% 66.3% 68.2% 70.7% 73.5%
Labor and fringe
benefits 30.3 31.0 31.1 32.0 32.4
Leases and car hire 7.2 8.2 11.9 12.6 13.6
Diesel fuel 5.2 5.3 5.4 5.5 6.0
Materials and
supplies 5.4 6.0 6.2 5.8 5.5
Depreciation and
amortization 5.3 4.6 4.2 4.4 3.8
Casualty, insurance
and losses 2.7 4.0 3.8 4.8 7.2
Other taxes 2.8 3.0 2.9 2.4 1.9
Other 5.3 4.2 2.7 3.2 3.1
1995 1994 1993 1992 1991
Operating (1) 64.2% 66.3% 68.2% 70.7% 73.5%
Transportation(2) 28.0 28.9 29.6 31.6 34.8
Maintenance of way (3) 7.8 7.7 7.2 7.0 6.4
Maintenance of
equipment (4) 18.9 19.2 20.7 22.5 23.9
1 Operating ratio means the ratio of operating expenses before
special charge over operating revenues.
2 Transportation ratio means the ratio of transportation expenses
(such as expenses of operating, servicing, inspecting, weighing,
assembling and switching trains) over operating revenues.
3 Maintenance of way ratio means the ratio of maintenance of way
expenses (such as the expense of repairing, maintaining, leasing,
depreciating and retiring right-of-way and trackage structures,
buildings and facilities) over operating revenues.
4 Maintenance of equipment ratio means the ratio of maintenance of
equipment expenses (such as the expense of repairing,
maintaining, leasing, depreciating and retiring transportation
and other operating equipment) over operating revenues.
Employees; Labor Relations
Railroad industry personnel are covered by the Railroad
Retirement System instead of Social Security. Employer contribution
rates under the Railroad Retirement System are currently more than
double those in other industries and may rise further because of the
increasing proportion of retired employees receiving benefits relative
to the shrinking number of working employees.
Labor relations in the railroad industry is subject to extensive
governmental regulation under the Railway Labor Act. Railroad
employees are also covered by the Federal Employer's Liability Act
("FELA") rather than by state no-fault workmen's compensation systems.
FELA is a fault-based system, with compensation for injuries determined
by individual negotiation or litigation.
Approximately 90% of all Railroad Employees are represented by a
union. Prior to 1994, the Railroad had been a party to several
national collective bargaining agreements which, until 1994,
established the wages and benefits of its union workers. These
agreements became subject to renegotiation beginning November 1, 1994,
when bargaining notices were filed; however, cost of living allowance
provisions and other terms in each agreement continue until new
agreements are reached. Beginning in late 1994, the Railroad began
negotiating separate distinct agreements with each of its eleven
unions on a local basis. To date, eight unions, representing 42% of
the Railroad's represented workforce, have ratified agreements which
cover wages and work rule issues through 1999. During the term of
these agreements wages will rise approximately 3%-4% per year on
average. In reaching these agreements, approximately $1.2 million was
paid in signing bonuses. It is too early to determine if separate
agreements will be reached with the other crafts, although on November
10, 1995, a tentative agreement was reached with the United
Transportation Union ("UTU"), subject to membership ratification. This
agreement represented a significant change in the basis of paying
operating employees, with an hourly wage system replacing a
mileage-based system. On February 28, 1996, the Company was notified
by the UTU that its members had rejected the agreement. As a result, no
amounts have been reflected in the Consolidated Financial Statements
associated with this agreement. The Company will seek the counsel of the
National Mediation Board who facilitated the agreement in November. The
following table shows the average annual employment levels of the Railroad:
1995 1994 1993 1992 1991
Total employees 3,268 3,250 3,306 3,421 3,611
A substantial portion of the decline from the 1992 level is the
result of a separate agreement between the Railroad and the UTU,
reached in November 1991. This agreement permits the Railroad to
reduce the size of all crews on all trains operated. In accordance
with this agreement, 158 crew members were severed at a cost of $9.6
million to date. The current crew size of approximately 2.74 is not
expected to change significantly.
Management believes that over the next several years attrition
and retirements will be the primary source of future declines in
employment levels. Increases in employment levels, particularly in
train operations, are possible in response to growth of business in
accordance with Plan2000. See also, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Significant
Developments - CCP Holdings, Inc. Acquisition."
Regulatory Matters; Freight Rates; Environmental Considerations
The Railroad is subject to significant governmental regulation by
the STB and other federal, state and local regulatory authorities with
respect to rates, service, safety and operations.
The jurisdiction of the STB encompasses, among other things,rates charged
for certain transportation services, assumption of certain liabilities by
railroads, mergers or the acquisition of control of one carrier by another
carrier and extension or abandonment of rail lines or services.
The Federal Railroad Administration, the Occupational Safety and
Health Administration and certain state transportation agencies have
jurisdiction over railroad safety matters. These agencies prescribe and
enforce regulations concerning car and locomotive safety equipment, track
safety standards, employee work conditions and other operating practices.
The amount of Southern Illinois coal transported by the Railroad
is expected to decline somewhat as the Clean Air Act is fully
implemented. Much of the coal from mines in that area currently served
by the Railroad will not meet the environmental standards of the Clean
Air Act without blending with compliance coal or installation of air
scrubbers at point of use. On the other hand, the Railroad expects to
participate in additional movements of Western coal and Southern
Illinois coal which does comply. Overall, management believes that
implementation of the Clean Air Act is unlikely to have a material
adverse effect on the results of the 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 Company
and other railroads is the risk of environmental liabilities. See Item
2. "Properties - Environmental Conditions" for discussion of sites on
which the Company 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 Company may be required in order to comply with existing and future
environmental and health and safety laws and regulations or to address
contaminated sites which may be discovered.
Competition
The Railroad faces intense competition for freight traffic from
motor, water, and pipeline carriers and from other railroads.
Competition is generally based on the quality and reliability of the
service provided and the rates charged. Declining fuel prices
disproportionately benefit trucking operations over railroad
operations. The trucking industry frequently is more cost and transit-
time competitive than railroads, particularly for distances of
less than 300 miles. While deregulation of freight rates under the
Staggers Act has greatly increased the ability of railroads to compete
with each other and alternate modes of transportation, changes in
governmental regulations (particularly changes to the Staggers Act)
could significantly affect the 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.
Most of the Railroad's operations are conducted between points served by
one or more competing carriers. The consolidation in recent years of major
rail systems has resulted in strong competition in the service territory of
the Railroad. To date, such consolidations have not had a material adverse
impact on the Railroad's operation or financial results, but continued
consolidation could limit Railroad's access to shippers.
Liens on Properties
Most of the locomotives and rail cars owned by the Company's
financing/leasing subsidiaries are subject to liens.
Liability Insurance
The Company is self-insured for the first $5 million of each loss. The
Company carries $245 million of liability insurance per occurrence, subject
to an annual cap of $345 million in the aggregate for all losses. This
coverage is considered by the 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, 1995, the Railroad's total system consisted
of approximately 4,600 miles of track comprised of 2,700 miles of main line,
200 miles of secondary main line and 1,700 miles of passing, yard and
switching track. The Railroad owns all of the track except for 190 miles
operated by agreements over track owned by other railroads.
Track Structures. During the five years ended December 31, 1995,
the Railroad has spent $394.5 million on track structure to construct
and maintain its rail lines, as follows ($ in millions):
Capital
Expenditures Maintenance Total
1995 $ 66.9 $ 33.5 $100.4
1994 63.2 29.1 92.3
1993 50.3 25.1 75.4
1992 46.4 23.0 69.4
1991 36.3 20.7 57.0
Total $263.1 $131.4 $394.5
These expenditures concentrated primarily on track roadway and
bridge rehabilitation over the last four years. Approximately, 1,400
miles of road were resurfaced in each of the last three years. During
1994 and 1993, approximately $11.4 million was spent to complete the
conversion of 198 miles of track, known as the Yazoo District, to a
single track with centralized traffic control ("CTC"). In 1992 through
1994, a total of $11.4 million was spent to construct new or expanded
intermodal facilities in Chicago and Memphis. Expenditures in 1991
benefited from the use of reclaimed rail, cross ties, ballast and other
track materials from the second main line when the Railroad's double-
track mainline was converted to a single-track mainline with CTC. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of future capital expenditures.
Fleet. The Company's fleet has undergone significant
rationalization and modernization since 1985 when locomotives and cars
were at their peak of 862 and 28,616, respectively. Over the last
four years purchases of 59 used SD-40-2's and 20-new SD-70's have enabled
the Railroad to replace older, lower horsepower and less efficient
locomotives. The SD-70's, acquired in 1995, replaced 31 older smaller
locomotives. These locomotives are owned by the Company's financing/leasing
subsidiaries and are leased to the Railroad.
These acquisitions were part of an equipment program implemented
in 1993, to increase ownership of its equipment. The program includes
lease conversions whereby equipment is acquired outright or leased under more
favorable lease terms by the Company. To date, the conversion program has
involved 118 locomotives and 4,228 freight cars. As a result of the new lease
terms, $24.7 million of capital leases were recorded in 1994. Most of these
leases contain fixed price options whereby the equipment can be acquired at
or below fair market value at some point during the lease term.
Approximately 1,800 of the Company's financing/leasing subsidiaries
cars acquired are leased to the Railroad as well. The remaining cars are
leased to other non-affiliated companies. 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.
The third segment of the equipment program was a significant
upgrade of the highway trailer fleet used in intermodal service. In
1992 all old leased trailers, approximately 880, were replaced with 800
newly built trailers. To further address expanded intermodal volume,
another 100 trailers were added in 1994.
During 1994 the Railroad repaired and reconditioned approximately
173 cars at a cost of $2.9 million. This equipment is being leased on
a short-term basis to other carriers until the Railroad anticipates it
will need the equipment for its expansion.
The following is the overall fleet at December 31:
Total Units: 1995 1994 1993 1992 1991
Locomotives (1) 397 417 468 449 470
Freight cars 15,872 16,498 16,634 15,877 16,381
Work equipment 654 625 745 902 881
Highway trailers 898 898 898 203 124
1 Approximately 56 locomotives need repair before they can be
returned to service. This equipment is repaired if needed on
an ongoing basis or sold. The Railroad sold 40, 48, 23 and 66
surplus locomotives in 1995, 1994, 1993 and 1992, respectively.
The active fleet is 333 as of December 31, 1995.
The components of the fleet by subsidiary and in total for
1995 and in total for 1994 are shown below:
Leasing
Subsid-
iaries Railroad(3) 1995 1994
Description Total Owned(2) Leased Total Total Total
Locomotives:
Multi-purpose 79 215 18 233 312 325
Switching - 63 22 85 85 92
Total 79 278 40 318 397 417
Freight Cars:
Box (general
service) 1,126 261 94 355 1,481 1,462
Box (special
purpose) 384 2,577 50 2,627 3,011 3,101
Gondola - 910 518 1,428 1,428 1,362
Hopper (open top) 439 2,110 1,738 3,848 4,287 4,717
Hopper (covered) - 2,930 624 3,554 3,554 3,732
Flat - 239 466 705 705 780
Other - 1,167 239 1,406 1,406 1,344
Total 1,949 10,194 3,729 13,923 15,872 16,498
Work Equipment 654 - 654 654 625
Highway trailers - 898 898 898 898
1 In addition, approximately 1,630 freight cars were being used
by the Railroad under short-term car hire agreements.
2 Includes 59 locomotives and 1,722 freight cars under
capital leases.
3 Excludes equipment listed under Leasing Subsidiaries.
Environmental Conditions
The Railroad faces potential environmental cleanup costs associated
with approximately 30 contaminated sites and various fueling facilities
for which a total of $13 million has been reserved as of December 31, 1995.
The most significant of those sites are described below.
Mobile, Alabama
The Railroad owned property in Mobile prior to 1976 upon which a lessee
conducted creosoting operations. The Alabama Department of Environmental
Management has determined that the soil and groundwater are contaminated
with creosote, pentachlorophenol and possibly dioxins. The Railroad has been
participating in joint cleanup efforts with the current owner and
the Railroad's lessee. See Item 3. "Legal Proceedings."
Jackson, Tennessee
A rail yard in Jackson, Tennessee, formerly owned by the Railroad has
been placed on the federal and state "superfund" list as a result of the
discovery of Trichloroethylene (TCE) in the adjacent municipal water well
field. The Railroad formerly operated a shop facility at the site and TCE
is a common component of solvents similar to those believed to have been
used in the shop. See Item 3. "Legal Proceedings."
McComb, Mississippi
The Railroad is conducting a site assessment of a facility
where car repairs were formerly performed to determine the nature
and extent of contamination, primarily lead from removed paint,
at the site. The study is being conducted under the supervision
of the Mississippi Department of Environmental Quality.
Kegley, Illinois
Emergency response action has been taken by the Railroad at
this scene of a 1994 derailment in which about 22,000 gallons of
TCE were released. The spill has been contained by construction
of an impervious wall extended into the bedrock and encircling
the site. The Railroad has enrolled in Illinois' Pre-Notice Site
Cleanup Program and is voluntarily remediating the site. The
Railroad believes the shipper bears some responsibility for the
release and has so notified it.
East Hazel Crest, Illinois
In 1994 the Railroad learned that an underground fuel line
had leaked about 100,000 gallons of diesel fuel into the soil and
groundwater. The 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
The Railroad has maintained fueling facilities at more than
20 locations at various times from the 1950's to date. Many of
those sites are or may be contaminated with spilled fuel. Those
stations currently in use are equipped with drip pans and
treatment facilities and the Railroad has initiated a program of
rebuilding all fuel lines above ground.
Waste Oil Generation
The Railroad has been identified as a Potentially
Responsible Party ("PRP") at three sites where waste oil was
allegedly processed and disposed. In each instance, the Railroad
is alleged to have generated some of the waste oil, and in each
the Railroad believes any contribution it may have made to the
site contamination is de minimis.
Item 3. Legal Proceedings
State of Alabama, et al. v. Alabama Wood Treating Corporation,
Inc., et al., S.D. Ala. No. 85-0642-C
The State of Alabama and Alabama State Docks ("ASD") filed
suit in 1985 seeking damages for alleged pollution of land in
Mobile, Alabama, stemming from creosoting operations over several
decades. Defendants include the Railroad, which owned the land
until 1976, Alabama Wood Treading Corporation, Inc., and Reilly
Industries, Inc. ("RII"), which leased the land from the Railroad
and conducted creosote operations on the site. In December 1976,
the Railroad sold the premises to ASD. The complaint sought payment for
the clean-up cost together with punitive and other damages.
In 1986, ASD, RII and the Railroad agreed to form a joint
technical committee to clean the site, sharing equally the cost
of clean-up, and in October 1986 the court stayed further proceedings
in the suit. Under the agreement the joint technical committee has
spent approximately $6.8 million and has been authorized to expend up
to a total of $6.9 million. The Railroad has contributed $2.3 million.
Further clean-up activities are anticipated.
Under the agreement, if any party disagrees with the amount
determined by the joint technical committee to be expended or
otherwise disagrees with any aspect of the clean-up, such party
may decline further participation and recommence legal
proceedings. However, amounts already contributed by any party
will be credited against that party's eventual liability and may
not be recovered from any other party.
In the Matter of Illinois Central Railroad Company, et al.,
Tennessee Division of Superfund No. 94-0187
The Tennessee Department of Environment and Conservation
has issued a Remedial Order requiring cleanup by the Railroad and
the current owners of a site in Jackson, Tennessee. The Railroad
operated a rail yard and locomotive repair facility at the site.
Trichloroethylene ("TCE") has been found in several municipal
water wells near the site. TCE is a common component of solvents
similar to those believed to have been used at the shop. In
addition, concentrations of metals and organic chemicals have
been identified on the surface of the site. The Railroad has
commenced a remedial investigation and feasibility study of the
site, and expects to cooperate with the agency and other PRP's to
conduct any necessary clean-up activities.
People of the State of Illinois v. Illinois Central Railroad No.
95 CH842 (Circuit Court of Cook County, Illinois)
On February 2, 1995, the State of Illinois filed a
Complaint for Injunction and Civil Penalties against the Railroad
relating to a release of diesel fuel from an underground pipeline
at the Railroad's Markham Yard facility in East Hazel Crest,
Illinois. The Complaint alleges that the Railroad violated State
water pollution statutes by allowing diesel fuel to enter waters
of the State and seeks an order compelling the Railroad to take
necessary corrective actions at the site and to pay a civil penalty.
Item 4. Submission of Matters to a Vote of Security Holders
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 43 Chairman of the Board of Directors
E. Hunter Harrison 51 President and Chief Executive
Officer, Director
John D. McPherson 49 Senior Vice President - Operations
Donald H. Skelton 52 Senior Vice President - Marketing and Sales
James M. Harrell 43 Vice President - Human Resources
David C. Kelly 51 Vice President - Maintenance
Ronald A. Lane 45 Vice President and General Counsel and Secretary
Dale W. Phillips 41 Vice President and Chief Financial Officer
John V. Mulvaney 45 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. 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. Skelton was elected Senior Vice President-Marketing and
Sales of the Company and the Railroad in January 1996. In
January 1996 he was elected a Director of the Railroad. He
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. 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.
Mr. Phillips was appointed to his present position in the
Company and the Railroad in April 1990. He also serves as a
Director of the Railroad. Mr. Phillips also serves as a director
of Rail Association Insurance, Ltd.
Mr. Mulvaney joined the Company and the Railroad as Controller
in June 1990.
No family relationship exists among the officers of the
Company or the Railroad.
On December 31, 1995, Mr. Gerald F. Mohan, Senior Vice
President-Marketing retired after over 35 years of service. He
was replaced by Mr. Skelton.
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. The following table has been restated to
give effect to a 3-for-2 stock split declared in January 1996.
Stock Price Dividends
High Low Per Share
1993
First Quarter $18.167 $15.750 $ .10
Second Quarter 20.083 16.917 .10
Third Quarter 21.833 17.750 .11
Fourth Quarter 24.000 19.500 .11
1994
First Quarter $25.750 $21.583 $ .14
Second Quarter 25.250 20.333 .14
Third Quarter 21.167 19.550 .14
Fourth Quarter 21.000 19.083 .14
1995
First Quarter $23.500 $20.500 $ .17
Second Quarter 23.750 21.833 .17
Third Quarter 28.000 23.000 .17
Fourth Quarter 28.667 24.500 .17
1996
First Quarter (through
March 11, 1996) $26.417 $23.667 $ .19
As of March 11, 1996, there were approximately 25,000
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 11, 1996 was $39.125
per share.
Item 6. Selected Financial Data
The following table sets forth selected historical
consolidated financial data of the Company for the five years
ended December 31, 1995, all derived from the consolidated
financial statements of the Company which were audited by Arthur
Andersen LLP. This summary should be read in conjunction with the
consolidated financial statements included elsewhere in this
Report and the schedules and notes thereto.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
($ in millions, except share data)
Years Ended December 31,
1995 1994 1993 1992 1991
Income Statement Data:
Revenues $643.8 $593.9 $564.7 $547.4 $549.7
Operating expenses
before special charge 413.3 393.6 385.2 387.0 404.1
Special charge - - - 8.9 -
Operating income 230.5 200.3 179.5 151.5 145.6
Other income (expense),
net (0.2) 1.0 1.7 2.0 5.7
Interest expense, net (29.5) (28.4) (33.1) (43.6) (55.1)
Income before income
taxes, extraordinary
item and cumulative
effect of changes in
accounting
principles 200.8 172.9 148.1 109.9 96.2
Provision for income
taxes 71.0 59.0 56.4 37.4 30.8
Income before extra-
ordinary item and
cumulative effect
of changes in
accounting principles 129.8 113.9 91.7 72.5 65.4
Extraordinary item,
net (11.4) - (23.4) - -
Cumulative effect of
changes in accounting
principles - - (0.1) 23.4 -
Net income $118.4 $113.9 $68.2 $95.9 65.4
Income per share (1):
Before extraordinary
item and accounting
changes $ 2.06 $ 1.78 $ 1.43 $ 1.13 $ 1.09
Extraordinary item (0.18) - (0.36) - -
Accounting changes - - - 0.37 -
Net income per
share $ 1.88 $ 1.78 $ 1.07 $ 1.50 $ 1.09
Weighted average number of
common shares out-
standing (in thousands)
(1) 62,885 64,089 64,020 63,900 59,745
Cash dividends declared per
common share (1) $ .70 $ .59 $ .46 $ .33 -
Operating ratio (2) 64.1% 66.3% 68.2% 70.7% 73.5%
Years Ended December 31,
1995 1994 1993 1992 1991
Balance Sheet Data:
Total assets $1,404.2 $1,308.7 $1,258.7 $1,206.1 $1,183.5
Long-term debt 383.6 328.6 360.3 367.3 413.5
Stockholders' equity 470.1 454.1 377.4 338.8 260.3
Working capital
(deficit) (76.1) (65.4) (32.4) (2.9) (3.4)
1. Restated to give effect to a 3 for 2 stock split declared in January
1996, amount for the year 1991 also has 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.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Significant Developments
1992 Four-Year Growth Plan and Plan2000
In the fall of 1992, the Company announced a four-year growth
plan designed to increase revenues $100 million to $647 million, reduce
the operating ratio four percentage points to 66.7% and reduce interest
expense $10 million to $34 million. By December 31, 1994, the Company
had achieved the operating ratio and interest expense reduction goals.
Therefore, in the spring of 1995, the Company developed and announced
Plan2000. This new plan is designed to build on the success of the
1992 plan and position the Company for the next century. Plan2000
calls for (i) revenue to grow from the 1994 base of $594 million to
$800 million by the end of 1999, (ii) the continued reduction of the
operating ratio to below 60%, and (iii) a Long-Term Equity Enhancement
Program of increased dividends and share repurchases.
As of December 31, 1995, following revenue increases of 3.1%,
5.2% and 8.4% in 1993, 1994 and 1995, respectively, revenue was 17.6%
higher than 1992 and only $3.6 million below the original four year
$100 million target. The 1995 revenue of $644 million is slightly
ahead of the 1995 target specified in Plan2000. Contributing to the
revenue growth since 1992 were gains in intermodal (57.7%), grain and
grain mill (22.9%) and chemicals (14.4%), despite a decline in coal (.6%).
Plan2000 was developed primarily as a management tool and is
subject to factors and assumptions which could impact on its
achievability. The most significant risks that could impact Plan2000
are its economic assumptions, the haulage agreement with the Southern
Pacific Railroad ("Southern Pacific") and export grain demand. The
plan assumes industrial production will rise, an average 2.8% in each
year 1996 through 1999 with a soft landing of 2.4% in 1997.
Historically, the Company's growth excluding coal and export grain,
which are not affected by industrial production, has been 50% to 60% of
industrial production. Plan2000 assumes the historical trend will
continue. As to the Southern Pacific, intermodal haulage between
Memphis and Chicago is expected to remain in excess of 30,000 units
annually. However, the Southern Pacific and the Union Pacific Railroad
have indicated that this business will be re-evaluated following their
merger. Unlike the very low 1994 level and the unusually strong
1995 grain traffic levels, Plan2000 expects export grain traffic will
be closer to the historical norm.
Local Union Agreements
In 1994 the Company began to negotiate separate distinct
agreements with each of its eleven unions on a local basis effectively
withdrawing from the traditional pattern of bargaining on a national
basis with the other railroads. To date eight unions, representing 42%
of the Railroad's union workforce, have ratified agreements which cover
wages and work rule issues through 1999. These agreements provide wage
increases of 3%-4% per year on average. Upon ratification, signing
bonuses of $1.2 million were paid.
In November 1995, the Company and the United Transportation
Union ("UTU") entered into a tentative agreement subject to membership
ratification. This agreement represented a significant change in the
basis of paying operating employees, with an hourly wage system replacing
a mileage-based system. On February 28, 1996, the Company was notified
by the UTU that its members had rejected the agreement. As a result, no
amounts have been reflected in the Consolidated Financial Statements
associated with this agreement. The Company will seek counsel of the
National Mediation Board who facilitated the agreement in November.
CCP Holdings, Inc. Acquisition
On January 17, 1996, the Company announced that it had entered
into a definitive agreement to purchase all the stock of CCP Holdings,
Inc., for approximately $125 million in cash, and the assumption of
approximately $14 million in net debt and approximately $18 million of
capitalized lease obligations. The Company expects to fund the
acquisition using funds from its existing line of credit and the
proceeds of public debt issued by the Railroad. The Railroad will
transfer the funds to the Company via a combination of dividends and
intercompany loans. The purchase will not close until required
regulatory approval from the Surface Transportation Board is obtained,
which is expected by no later than September 1996.
The Company will account for the transaction as a purchase. The
total purchase price is subject to various potential adjustments for up
to one year after the closing date.
CCP Holdings, Inc., principal subsidiaries are the Chicago,
Central and Pacific Railroad (CCP) and the Cedar River Railroad (CRR).
These two railroads comprise a Class II freight system which operates
850 miles of road. CCP operates from Chicago west to Omaha, Nebraska,
with connecting lines to Cedar Rapids and Sioux City, Iowa. CRR runs
north from Waterloo, Iowa to Albert Lea, Minnesota. CCP Holdings,
Inc.'s 1995 revenues were approximately $76 million, its operating
ratio was approximately 70%, and its shareholders' equity was
approximately $54 million at December 31, 1995.
Railroad Industry Mergers
During 1995, the merger of the Burlington Northern Railroad and
the Sante Fe Railway and the merger of the Union Pacific Railroad and
the Chicago and NorthWestern Railroad were completed and the intended
acquisition of the Southern Pacific by the Union Pacific Railroad was
announced. These consolidations have the potential to increase
competition in the Railroad's service territory. To date, the impact
on the Railroad's operation or financial results has not been material,
but continued consolidations could limit the Railroad's access to shippers.
Stock Split
On January 25, 1996, the Board declared a 3-for-2 stock split in
the form of a stock dividend to holders of record on February 14, 1996.
New certificates will be issued March 14, 1996. Fractional shares will
be settled in cash at a rate of $25.96 per share. When certificates
are issued, the approximate 41.0 million shares outstanding will
increase to approximately 61.4 million. All share counts, options
outstanding, option prices and per share information presented in this
annual report have been restated to reflect the 3-for-2 split as if it
had occurred at the beginning of the earliest period presented.
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.
1995 Compared to 1994
Revenues for 1995 increased from the prior year by $49.9 million
or 8.4% to $643.8 million. The increase was a result of a 4.6%
increase in carloadings coupled with a 2.1% increase in the average
freight revenue per carload. In 1995, the Company experienced
increased carloadings in intermodal (31.2%), grain and grain mill
products (13.2%), paper (6.4%) and chemicals (4.1%), partially offset
by decreased loadings in coal (11.9%).
Operating expenses for 1995 increased $19.7 million or 5.0%.
Labor and fuel expenses increased reflecting the increased loadings
experienced in 1995 over 1994. Depreciation expense was higher in 1995
because of the Company's increased ownership of equipment. Other
expenses, which include joint facilities, net and equipment related
expenses, increased $9.3 million. Partially offsetting the increased
expenses was a $2.1 million decrease in lease and carhire expense and
decreased casualty, insurance and loss expense ($6.3 million) reflecting
the Company's emphasis on safety and improved claims experience.
Operating income for 1995 increased $30.2 million or 15.1% to
$230.5 million for the reasons cited above.
Net interest expense of $29.5 million for 1995 increased 3.9%
compared to $28.4 million in 1994. Increased debt burden primarily
associated with equipment additions and stock repurchases account for
the increase in interest expense. Results for 1995, also reflect the
issuance of lower coupon debt in connection with the prepayment of the
Railroad's $160 million Senior Notes at face value, plus accrued
interest and a prepayment penalty. The prepayment resulted in an
extraordinary loss of $18.4 million, $11.4 million after tax.
See "-Liquidity and Capital Resources."
Net income was further affected by a $4.3 million after tax gain
on the resolution of prior period tax issues.
1994 Compared to 1993
Revenues for 1994 increased from the prior year by $29.2 million
or 5.2% to $593.9 million. The increase was a result of a 7.9%
increase in carloadings partially offset by a 3.7% decrease in the
average freight revenue per carload. In 1994, the 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 $9.9 million. Partially offsetting the increased
expenses was a $18.7 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 Railroad to utilize
existing assets to obtain funds rather than issuing additional debt.
The expense associated with this transaction is accounted for as Other
Income (Expense), Net, not Interest Expense, Net, 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 $5.0 million
after tax gain on the favorable resolution of prior period tax issues.
Liquidity and Capital Resources
Operating Data ($ in millions):
1995 1994 1993
Cash flows provided by (used for):
Operating activities $177.4 $205.5 $124.3
Investing activities (127.0) (80.4) (89.0)
Financing activities (69.6) (111.6) (59.2)
Net change in cash and
temporary cash
investments $ (19.2) $ 13.5 $ (23.9)
Cash from operating activities in 1995, 1994 and 1993 was
primarily net income before depreciation, deferred taxes, extraordinary
item and the cumulative effect of changes in accounting principles, and
1994 was also affected by the sales of accounts receivable. A
significant source of cash in 1993 ($6.3 million) was the realization
of settlement proceeds with numerous insurance carriers in connection
with asbestos and hearing loss casualty claims. Most of the settlements
were for prior claims but some cover future claims related to prior periods.
As part of the settlements, the Railroad agreed to release the carriers from
liability for future hearing loss claims. In 1995 and 1994, the Railroad
received $1.1 million and $.5 million, respectively.
Additions to the property were as follows ($ in millions):
1995 1994 1993
Communications and signals $ 10.7 $ 13.8 $ 5.6
Equipment-rolling stock 61.5 28.3 42.9
Track and bridges 47.0 44.7 36.6
Other 9.6 3.3 5.6
Total $128.8 $ 90.1 $90.7
In 1995, equipment purchases include $25.9 million for 20 new SD-
70 locomotives placed in service in the fourth quarter. In 1993, the
Company purchased 21 used SD-40-2 locomotives and 1,522 freight cars.
In 1994, Other includes $3.0 million for intermodal facility
rehabilitation in Memphis. In 1995, 1994 and 1993 capital expenditures
exceeded original estimates as several opportunities to acquire
equipment were acted upon in accordance with the Company's strategy of
owning more of its equipment. Property retirements and removals
generated proceeds of $5.4 million, $8.2 million, and $5.3 million in
1995, 1994 and 1993, respectively.
The Company anticipates that capital expenditures for 1996 will
be approximately $145 million of which $83 million of base expenditures
will concentrate on track maintenance (i.e., renewal of track
structures such as bridges) and freight car upgrades. Approximately
$20 million will be incurred to expand the Company's intermodal facility
in Chicago to service Canadian National Railway. Another $32 million will
be spent to construct a bulk transfer facility along the Mississippi River
in Louisiana. These expenditures are expected to be met from current
operations or other available sources.
The aforementioned capital expenditures excludes the January 1996
announcement of the acquisition of CCP Holdings, Inc. for $125 million
cash and assumption of debt and capital lease obligations. See
"-Significant Developments."
Since 1990, a major financial goal has been to reduce leverage,
expand funding sources, lower funding costs and obtain upgraded credit
ratings from the debt rating services. Some of the steps taken have
included replacing high-coupon public debt with private debt and public
debt with lower interest rates, renegotiating existing bank credit
agreements, obtaining separate unsecured credit lines for the Company
and the Railroad, selling accounts receivables and initiating (in 1993)
and expanding (in 1995) a commercial paper program.
Under the Railroad's commercial paper program a total of $150
million can be issued and outstanding at any one time. The program is
supported by a $250 million Revolver with the Railroad's lending group
(see below). At December 31, 1995, Standard & Poor's Corporation
("S&P"), Moody's Investor Services ("Moody's") and Fitch Investors
Service ("Fitch") have rated the commercial paper A2, P2 and F2,
respectively, and $57.0 million was outstanding. For the year the
rates ranged from 5.90% to 6.60%. The Railroad views this program as a
significant long-term funding source and intends to issue replacement
notes as each existing issue matures. Therefore, commercial paper
borrowings are classified as long-term. The Railroad's public debt is
rated Baa2 by Moody's and BBB by S&P.
In 1994, the Railroad entered into a revolving agreement to sell
undivided percentage interests in certain of its accounts receivable,
with recourse, to a financial institution. The agreement, which
expires in June 1998, allows for sales of accounts receivable up to a
maximum of $50 million at any one time. The Railroad services the
accounts receivable sold under the agreement and retains the same
exposure to credit loss as existed prior to the sale. At December 31,
1995, the maximum had been sold pursuant to the agreement. Costs
related to the agreement fluctuate with changes in prevailing interest
rates. These costs, which are included in Other Income (Expense), Net,
were $3.2 million for the year ended December 31, 1995.
In April 1995, the Railroad concluded negotiations with its bank
lending group whereby the Railroad's Revolver was amended and restated,
for the third time since becoming unsecured in September 1993, to a
$250 million revolver expiring in 2000. Fees and borrowing spreads are
predicated on the Railroad's long-term credit ratings. Currently, the
annual facility fee is 17 basis points and borrowings under this
agreement are at Eurodollar offered rate plus 32.5 basis points. This
amended facility replaced the $150 million revolver due in 1999. The
Revolver will be used primarily for backup for the Railroad's
commercial paper program but can be used for general corporate
purposes. The available amount is reduced by the outstanding amount of
commercial paper borrowings and any letters of credit issued on behalf
of the Railroad under the facility. No amounts have been drawn under
the Revolver. At December 31, 1995, the $250 million was limited to
$192.1 million because $57.0 million in commercial paper was
outstanding and $.9 million in letters of credit had been issued.
The Company has $50 million 364-day floating-rate revolving loan
agreement which charges a 17.5 basis point annual facility fee and LIBOR
plus 40.5 basis points on any borrowings, and expires in August 1996. No
amounts have been drawn upon during 1995. The Company's financing/leasing
subsidiaries have approximately $11.4 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.
Additionally, the Company believes it and its primary subsidiary the
Railroad have access to the public debt market if needed.
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, 1995, and management does not anticipate any difficulty in
maintaining such compliance.
Certain covenants of the Railroad's debt agreements require
specific levels of tangible net worth but not a specific dividend
restriction. The Railroad paid dividends to the Company of $107.7
million in 1995, $42.5 million in 1994 and $27.4 million in 1993. At
December 31, 1995, the Railroad's tangible net worth exceeded the
required level by approximately $71.9 million. In January 1996, the
Railroad declared and paid a dividend of $12.0 million to the Company.
In 1995, the Railroad prepaid the holders of its $160 million
Senior Notes at face value plus accrued interest and a prepayment
penalty. The monies used to fund the prepayment were provided by
commercial paper, the net proceeds of the $100 million 7.75% non-
callable 10 year-notes due May 2005 and $40 million from existing lines
of credit. The prepayment resulted in an extraordinary loss of $18.4
million, $11.4 million after-tax ($.18 per share). The line of credit
borrowings were replaced with the proceeds of Medium-Term Notes
("MTN"). The MTN's expire as follows: $20 million (coupon 6.27%) in
1998, $30 million (coupon 6.83%) in 2000, and $50 million (coupon
6.98%) in 2007.
In 1993, a $23.4 million extraordinary loss, net of $12.6 million
in tax benefits, was incurred in connection with the Railroad's tender
offer for its $145 million 14 1/8% Senior Subordinated Debentures
("Debentures") and the costs associated with calling the Debentures.
In connection with the tender offer for the Debentures, the Railroad
issued $100 million of 6.75% non-callable, 10-year notes due 2003 and
irrevocably placed funds with a trustee to cover principal, a 6%
premium and interest through the first call date of October 1, 1994,
for the untendered Debentures.
The Railroad has entered into various diesel fuel collar
agreements designed to mitigate significant changes in fuel prices. As
a result, approximately 65% of the Railroad's short-term diesel fuel
requirements through June 1996 and 17% for the period July 1996 through
June 1997 are protected against significant price changes. See Note 7
of the Notes to Consolidated Financial Statements.
The Company has paid approximately $6 million, $6 million and $8
million in 1995, 1994, and 1993, respectively, for severance, lump sum
signing awards and other costs associated with the various agreements
signed in 1994, 1992 and 1991. The previously announced agreement
with the United Transportation Union covering wages and work rule
issues through 2000 failed to ratify. See "- Significant Developments."
As the Company continues to negotiate with its remaining operating
unions on a local level, agreements may be reached that require
significant lump sum payments. It is too early to determine if
separate agreements will be reached but management believes available
funding sources will be sufficient to meet any required payments.
Long-Term Equity Enhancement Program
The Company paid its sixteenth consecutive quarterly cash
dividend on January 9, 1996. The Board believes quarterly dividends
are an integral part of its announced Long-Term Equity Enhancement
Program designed to increase stockholder value through dividend
payments and stock repurchases. Actual dividends are declared by the
Board of Directors based on profitability, capital expenditure
requirements, debt service and other factors. At December 31, 1995,
the Railroad exceeded its tangible net worth covenant by $71.9 million.
During 1995, the Company completed the $60 million stock repurchase
program acquiring 2,475,000 shares in open market transactions. While
intended to be an annual component of the Long-Term Equity Enhancement
Program, the Board concluded that alternative funding needs, most notably
the acquisition of CCP Holdings, Inc., the expansion of the intermodal
facility in Chicago and the construction of a bulk transfer facility in
Louisiana warranted the suspension of share repurchases for 1996. The
Board intends to review the level of stock repurchase 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 30 contaminated sites and
various fueling facilities at which it is probably liable for some
portion of the clean-up. The Company paid approximately $6.3 million
in 1995 toward the investigation and remediation of those sites, and
anticipates future expenditures of between $1 million and $2 million
annually. Furthermore, recent amendments to the Clean Air Act require
the Environmental Protection Agency to promulgate regulations
restricting the level of pollutants in locomotive emissions which could
impose significant retrofitting requirements, operational
inefficiencies or capital expenditures in the future.
For all known sites of environmental contamination where 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, 1995, the Company
estimated the probable range of its estimated liability to be $13
million to $50 million, and in accordance with the provisions of SFAS
No. 5 had a reserve of $13 million for environmental contingencies.
This amount is not reduced for potential insurance recoveries or third-
party contribution where the 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 No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held or used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. The
statement is effective for fiscal year beginning after December 15,
1995. The Company is reviewing this statement to determine its
impact, if any. Early adoption is not anticipated.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a
fair value based method of accounting for stock-based compensation
plans. This statement applies to financial statements for fiscal years
beginning after December 15, 1995, or for the fiscal year for which
this Statement is initially adopted for recognizing compensation cost,
which ever comes first. The Company is currently evaluating the
impact, if any, this statement will have on its reported results.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements on page 32 of this Report.
Item 9. Changes in and Disagreement with Accountants in Accounting
Financial Disclosures
NONE
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 1996 Annual Meeting of Stockholders (which is expected to be
filed with the Securities and Exchange Commission on or before March
19, 1996) entitled Nominees for Election as Class II Directors who
would hold office until 1999, Class III Directors continuing in office
until 1997, Class I Directors continuing in office until 1998, 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.
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 32 of
this Report.
2. Financial Statement Schedules:
See Index to Financial Statement Schedules on page F-25 of this
Report.
3. Exhibits:
See items marked with "*" on the Exhibit Index beginning on
page E-1 of this Report. Items so marked identify management
contracts or compensatory plans or arrangements as required by
Item 14.
(b) 1. Reports on Form 8-K:
During the fourth quarter of 1995 the Registrant filed with the
Securities and Exchange Commission the following reports on
Form 8-K on the dates indicated to report the events described:
NONE
(c) Exhibits:
The response to this portion of Item 14 is submitted as a
separate section of this Report. See Exhibit Index beginning
on page E-1.
(d) Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, there unto duly authorized.
ILLINOIS CENTRAL CORPORATION
By: /s/ DALE W. PHILLIPS
Dale W. Phillips
Vice President and Chief Financial Officer
Date: March 11, 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title(s) Date
/s/ GILBERT H. LAMPHERE Chairman of the Board March 11, 1996
Gilbert H. Lamphere and Director
/s/ E. HUNTER HARRISON President and Chief March 11, 1996
E. Hunter Harrison Executive Officer
(principal executive
officer), Director
/s/ DALE W. PHILLIPS Vice President March 11, 1996
Dale W. Phillips and Chief Executive
Officer (principal
financial officer)
/s/ JOHN V. MULVANEY Controller March 11, 1996
John V. Mulvaney (principal
accounting officer)
/s/ THOMAS A. BARRON Director March 11, 1996
Thomas A. Barron
/s/ GEORGE D. GOULD Director March 11, 1996
George D. Gould
/s/ WILLIAM B. JOHNSON Director March 11, 1996
William B. Johnson
/s/ ALEXANDER P. LYNCH Director March 11, 1996
Alexander P. Lynch
/s/ SAMUEL F. PRYOR, IV Director March 11, 1996
Samuel F. Pryor, IV
/s/ F. JAY TAYLOR Director March 11, 1996
F. Jay Taylor
/s/ JOHN V. TUNNEY Director March 11, 1996
John V. Tunney
/s/ ALAN H. WASHKOWITZ Director March 11, 1996
Alan H. Washkowitz
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, 1995 F-2
Consolidated Balance Sheets at December 31, 1995 and
1994 F-3
Consolidated Statements of Cash Flows for the three
years ended December 31, 1995 F-4
Consolidated Statements of Stockholders' Equity and
Retained Income for the three years ended December 31,
1995 F-5
Notes to Consolidated Financial Statements for the three
years ended December 31, 1995 F-6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Illinois Central
Corporation:
We have audited the accompanying consolidated balance sheets of
Illinois Central Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1995 and 1994, 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, 1995. 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, 1995 and 1994,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The 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.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 25, 1996
(except with respect to
the matter discussed in
Note 18, as to which the
date is February 29, 1996)
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions, except share data)
Years Ended December 31,
1995 1994 1993
Revenues
$643.8 $593.9 $564.7
Operating expenses:
Labor and fringe benefits 194.8 184.2 176.0
Leases and car hire 46.5 48.6 67.3
Diesel fuel 33.2 31.5 30.4
Materials and supplies 35.0 35.6 34.9
Depreciation and amortization 33.9 27.4 23.6
Casualty, insurance and losses 17.4 23.7 21.5
Other taxes 18.2 17.6 16.4
Other 34.3 25.0 15.1
Operating expenses 413.3 393.6 385.2
Operating income 230.5 200.3 179.5
Other income (expense), net (0.2) 1.0 1.7
Interest expense, net (29.5) (28.4) (33.1)
Income before income taxes,
extraordinary item and
cumulative effect of changes in
accounting principles 200.8 172.9 148.1
Provision for income taxes 71.0 59.0 56.4
Income before extraordinary item and
cumulative effect of changes in
accounting principles 129.8 113.9 91.7
Extraordinary item, net (11.4) - (23.4)
Cumulative effect of changes in
accounting principles - - (0.1)
Net income $118.4 $113.9 $68.2
Income per share:
Before extraordinary item
and cumulative effect of changes
in accounting principles $ 2.06 $ 1.78 $ 1.43
Extraordinary item, net (0.18) - (0.36)
Cumulative effect of changes in
accounting principles - - -
Net income per share $ 1.88 $ 1.78 $ 1.07
Weighted average number of
shares of common stock
and common stock
equivalents outstanding 62,885,121 64,088,609 64,019,525
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
ASSETS December 31, 1995 December 31, 1994
Current assets:
Cash and temporary
cash investments $ 5.0 $ 24.2
Receivables, net of
allowance for doubtful
accounts of $2.0 in 1995
and $2.1 in 1994 51.5 33.9
Materials and supplies,
at average cost 14.9 15.7
Assets held for disposition 7.7 9.1
Deferred income taxes
- current 19.1 21.8
Other current assets 2.6 3.3
Total current assets 100.8 108.0
Investments 13.6 13.5
Properties:
Transportation:
Road and structures,
including land 1,052.1 994.9
Equipment 225.6 165.6
Other, principally land 41.0 40.8
Total properties 1,318.7 1,201.3
Accumulated depreciation (44.0) (30.0)
Net properties 1,274.7 1,171.3
Other assets 15.1 15.9
Total assets $1,404.2 $1,308.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt $ 12.4 $ 11.1
Accounts payable 56.6 54.5
Dividends payable 11.9 10.7
Income taxes payable 5.0 0.9
Casualty and freight
claims 24.9 24.9
Employee compensation and
vacations 16.9 16.5
Taxes other than income
taxes 16.3 16.2
Accrued redundancy reserve 4.3 6.8
Other accrued expenses 28.6 31.8
Total current
liabilities 176.9 173.4
Long-term debt 383.6 328.6
Deferred income taxes 246.2 218.2
Other liabilities and
reserves 127.4 134.4
Contingencies and commitments (Note 15)
Stockholders' equity:
Common stock, par value
$.001, authorized
100,000,000 shares,
64,284,846 shares
issued and 61,425,231
shares outstanding 0.1 0.1
Additional paid-in
capital 166.3 165.0
Retained income 368.2 293.0
Treasury stock
(2,859,615 shares) (64.5) (4.0)
Total stockholders'
equity 470.1 454.1
Total liabilities
and stockholders'
equity $1,404.2 $1,308.7
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
Years Ended December 31,
1995 1994 1993
Cash flows from operating
activities:
Net income $118.4 $113.9 $68.2
Reconciliation of net income
to net cash provided by (used
for) operating activities:
Extraordinary item, net 11.4 - 23.4
Cumulative effect of changes
in accounting principles - - 0.1
Depreciation and amortization 33.9 27.4 23.6
Deferred income taxes 30.7 17.4 31.9
Equity in undistributed
earnings of affiliates,
net of dividends received (0.8) (0.4) (0.3)
Net gains on sales of real
estate (0.1) (2.0) (0.8)
Cash changes in working
capital (8.0) 54.3 (0.8)
Changes in other assets (1.7) (4.4) (1.4)
Changes in other liabilities
and reserves (6.4) (0.2) (19.6)
Net cash provided by operating
activities 177.4 206.0 124.3
Cash flows from investing activities:
Additions to properties (128.8) (90.1) (90.7)
Proceeds from sales of real
estate 2.5 3.8 1.5
Proceeds from equipment
sales 2.9 4.4 3.8
Proceeds from sales of
investments 0.8 2.7 (0.4)
Other (4.4) (1.2) (3.2)
Net cash (used for) investing
activities (127.0) (80.4) (89.0)
Cash flows from financing activities:
Proceeds from issuance of
debt 250.0 134.7 330.8
Principal payments on debt (259.8) (184.6) (401.1)
Net proceeds (payments)
- Commercial Paper 42.0 (23.1) 38.1
Dividends paid (41.9) (35.7) (27.1)
Stock repurchases (59.8) (0.7) -
Proceeds from exercise of
stock options and warrants 0.1 - 0.5
Purchase of subsidiary's
common stock (0.2) (2.7) (0.4)
Net cash (used for)
financing activities (69.6) (112.1) (59.2)
Changes in cash and temporary
cash investments (19.2) 13.5 (23.9)
Cash and temporary cash
investments at beginning of
year 24.2 10.7 34.6
Cash and temporary cash
investments at end of year $5.0 $24.2 $10.7
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest (net of amount
capitalized) $32.1 $28.9 $38.4
Income taxes $31.0 $42.7 $10.9
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Retained
Income
Shares
(000's) Equity ($ in millions)
Addition- Total
al Stock-
Common Common Paid-In Retained Treasury holders'
Stock Stock Capital Income Stock Equity
Balance December
31, 1992 64,011 $0.1 $160.8 $177.9 $ - $338.8
Issuance of Common
Stock:
Exercise stock
options 75 - 0.5 0.5
Restricted stock
awards 37 - 2.8 2.8
Stock repurchased/
forfeited (201) (3.3) (3.3)
Dividends (29.6) (29.6)
Net income 68.2 68.2
Balance December 31,
1993 63,922 0.1 164.1 216.5 (3.3) 377.4
Issuance of Common
Stock:
Exercise stock
options 2 - - -
Restricted stock
awards 22 - 0.9 0.9
Stock repurchased/
forfeited (31) (0.7) (0.7)
Dividends (37.4) (37.4)
Net income 113.9 113.9
Balance December 31,
1994 63,915 0.1 165.0 293.0 (4.0) 454.1
Issuance of Common Stock:
Exercise stock
options 4 - - -
Restricted stock
awards - - 1.3 1.3
Stock repurchased
/forfeited (2,494) (60.5) (60.5)
Dividends (43.2) (43.2)
Net income 118.4 118.4
Balance December 31,
1995 61,425 $0.1 $166.3 $368.2 $(64.5) $470.1
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Illinois Central Corporation (the "Company"), a holding company, was
incorporated under the laws of Delaware. The Company, through its wholly-
owned subsidiary, Illinois Central Railroad Company (the "Railroad"), is
principally engaged in the rail freight transportation business. The
Railroad operates 2,700 miles of main line track between Chicago and the
Gulf of Mexico, primarily transporting chemicals, grain and milled grain,
coal, paper and intermodal commodities. In addition to the Railroad, the
Company's other direct subsidiary conducts financing operations for
railroad equipment.
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 approximate ranges of annual depreciation rates for major property
classifications of the Railroad are as follows:
Road properties 1% - 8%
Transportation Equipment 1% - 7%
Prior to 1996, the rates used by the Railroad were approved by the
Interstate Commerce Commission ("ICC"). The Interstate Commerce
Commission Termination Act of 1995, signed in December 1995, transfers
certain responsibilities of the ICC, including economic and accounting
analyses and authority to determine depreciation rates, to the Surface
Transportation Board ("STB"), an independent agency of the Department of
Transportation.
Revenues
Revenues are recognized based on services performed and include estimated
amounts relating to movements in progress for which the settlement process
is not complete. Estimated revenue amounts for movements in progress are
not significant.
Income Taxes
Deferred income taxes are accounted for on the asset and liability method
by applying enacted statutory tax rates to differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities. The resulting deferred tax liabilities and assets represent
taxes to be paid or collected in the future when the related assets and
liabilities are recovered and settled, respectively.
Cash and Temporary Cash Investments
Cash in excess of operating requirements is invested in certain funds
having original maturities of three months or less. These investments are
stated at cost, which approximates market value.
Income Per Share
Income per 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. See Note 13 regarding
the January 1996 stock split.
Derivative Financial Instruments
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 collar agreements with the
objective of mitigating significant changes in fuel prices. Premiums paid
for the purchase of these agreements are amortized to fuel expense over
the terms of the agreements. Unamortized premiums are included in Other
Assets in the Consolidated Balance Sheets. Amounts receivable or payable
under the collar agreements are accrued as increases or decreases to
Diesel Fuel Expense. See Note 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. As a result of significant
improvements in safety performance and enhancements in claim and
settlement approaches, the Company has experienced continuing reductions
in its final claim settlement amounts. As a result, it is reasonably
possible that future actuarial valuations will reflect additional
improvements that could result in a reduction in the near term to casualty
costs and related expenses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain items relating to prior years have been reclassified to conform
to the presentation in the current year.
3. Stock Repurchase Program
In 1994, the Board of Directors adopted a 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 annually
reviews the appropriate level of repurchases for the following year.
For 1995 the Board authorized the purchase of $60 million of Common
Stock. Such purchases under the program were funded by a special $60
million dividend from the Railroad which was declared in 1994 and paid
in 1995. Through December 31, 1995, the Company spent an aggregate $60
million to acquire 2,475,000 shares of Common Stock (see Note 13) under
the program. Further purchases are dependent on market conditions, the
economy, cash needs and alternative investment opportunities. The Board
has determined that the capital needs to fund the acquisition of CCP
Holdings, Inc. (see Note 17),the expansion of the intermodal
facility in Chicago and the construction of a bulk terminal facility
in Louisiana preclude stock repurchases under the program for 1996.
4. Extraordinary Items
In 1995, the Railroad prepaid the holders of its $160 million Senior
Notes at face value plus accrued interest and a prepayment penalty. The
prepayment resulted in an extraordinary loss of $18.4 million, $11.4
million after-tax. The loss resulted from the premium paid, the write-off
of unamortized financing fees and costs associated with the prepayment.
The monies used to fund the prepayment were provided by commercial paper,
the net proceeds of the 7.75% Notes and $40 million from existing lines
of credit. See Note 9.
The 1993 extraordinary loss resulted from the retirement of the
Railroad's 14-1/8% Senior Subordinated Debentures (the "Debentures") and
refinancing the Permanent Facility. The loss was $23.4 million, net of
tax benefits of $12.6 million. The loss resulted from the premium paid,
the write-off of unamortized financing fees and debt discount and costs
associated with calling the Debentures. The net proceeds of the 6.75%
Notes, borrowings under the $180 million Revolving Credit Facility and
other available cash were used to fund the retirement of the Debentures.
See Note 9.
5. Other Income (Expense), Net
Other Income (Expense), Net consisted of the following ($ in millions):
Years Ended December 31,
1995 1994 1993
Rental income, net $3.5 $ 3.3 $ 3.9
Net gains (losses) on
sales of real estate (.1) 2.0 .8
Net gains (losses) on
equipment sales - .2 (2.3)
Equity in undistributed
earnings of affiliates .9 .7 .5
Sales of accounts
receivable(see Note 10) (3.2) (2.2) -
Terminated merger
discussions with
Kansas City Southern - (2.7) -
Other, net (1.3) (.3) (1.2)
Other Income
(Expense), Net $ (.2) $ 1.0 $ 1.7
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,
1995 1994 1993
Receivables, net $(17.6) $46.3 $ (3.9)
Materials and supplies .8 4.4 (1.4)
Other current assets .7 .6 (1.5)
Accounts payable 2.2 2.8 1.1
Income taxes payable 11.1 (1.3) 13.6
Accrued redundancy
reserves (2.5) - (2.6)
Other current
liabilities (2.7) 1.5 (6.1)
Cash Changes in
Working Capital $ (8.0) $54.3 $ (.8)
Included in changes in Other Liabilities and Reserves is approximately
$6.3 million for the years ended December 31, 1993, reflecting the
settlement of casualty claims with numerous insurance carriers.
The Railroad entered into capital leases of $7.1 million covering 328
freight cars in 1995, $24.7 million covering 65 locomotives and 1,623
freight cars in 1994, and $4.4 million covering 200 freight cars in 1993.
See Note 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, car and locomotive parts and fuel.
As of December 31, 1995, the Railroad was 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 $.577 per gallon for December 1995. Under the agreements, the
Railroad receives or makes monthly payments on notional amounts based on
the excess or deficiency of the Contract Price over or under an amount
averaging approximately $.59 or $.44 per gallon, respectively. As of
December 31, 1995, the agreements cover notional quantities amounting to
3,000,000 gallons through June 1996 (approximately 65% of requirements).
An agreement covering 800,000 gallons for the period July 1996 to June
1997 contains a put, whereby the issuer may increase the notional amount
to 2,000,000 gallons per month at $.55 or $.43 per gallon, respectively.
The put expires March 29, 1996.
8. Leases
As of December 31, 1995, the Company leased 5,451 of its cars and 99
of its locomotives. These leases generally have original terms of 15 years
and expire between 1996 and 2003. Under the terms of the majority of its
leases, the 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 facilities, computer equipment and
vehicles.
Net obligations under capital leases at December 31, 1995 and 1994,
included in the Consolidated Balance Sheets were $23.2 million and $27.9
million, respectively.
At December 31, 1995, minimum rental payments under capital and
operating leases that have initial or remaining noncancellable terms in
excess of one year were as follows ($ in millions):
Capital Operating
Leases Leases
1996 $14.2 $ 23.3
1997 3.0 18.2
1998 2.6 13.1
1999 2.6 11.8
2000 2.0 6.2
Thereafter 3.3 18.4
Total minimum
lease payments 27.7 $ 91.0
Less: Imputed
interest 4.5
Present value of
minimum
payments $23.2
Total rent expense applicable to noncancellable operating leases
amounted to $19.9 million in 1995, $38.1 million in 1994 and $44.9 million
in 1993. Most of the leases provide that the Company pay taxes,
maintenance, insurance and certain other operating expenses.
9. Long-Term Debt and Interest Expense
Long-Term Debt at December 31, consisted of the following ($ in
millions):
1995 1994
Equipment obligations, due annually
to 2000, 6.11% to 9.254% $ 9.7 $ 31.0
Debentures and other debt, due
1996 to 2056, 4.5% to 10.89 10.2 10.5
Commercial Paper, at average
interest rate 6.19% in 1995 and
4.72%in 1994 57.0 15.0
Notes, due 2003, 6.75% 100.0 100.0
Notes, due 2005, 7.75% 100.0 -
Medium term notes, due 1998 to
2007, 6.27%-6.98% 100.0 -
Senior Notes, 10.02% and 10.4% - 159.8
Capitalized leases (see Note 8) 12.8 18.5
Unamortized discount (6.1) (6.2)
Total Long-Term Debt $383.6 $328.6
At December 31, 1995, the aggregate annual maturities and sinking
fund requirements for debt payments for 1996 through 2001 and thereafter
were $12.4 million, $61.2 million, $24.0 million, $7.5 million, $32.1
million, $1.5 million and $263.4 million, respectively. The weighted-
average interest rate for 1995 and 1994 on total debt excluding the effect
of discounts, premiums and related amortization was 8.0% and 8.6%,
respectively.
In 1995, the Railroad prepaid the holders of its $160 million Senior
Notes at face value plus accrued interest and a prepayment penalty. The
monies used to fund the prepayment were provided by commercial paper, the
net proceeds of the $100 million 7.75% 10-year notes due May 2005 and $40
million from existing lines of credit. In connection with the prepayment,
the Railroad amended and restated its revolver with its bank lending group
(the "Revolver"). The Revolver was increased to $250 million and expires
in the year 2000. The Railroad pays an annual fee of 17 basis points on
the Revolver and the Eurodollar offered rates plus 32.5 basis points
for any borrowings. The line of credit borrowings were replaced with
the proceeds of Medium-Term Notes ("MTN"). The MTN's expire as follows:
$20 million (coupon 6.27%) in 1998, $30 million (coupon 6.83%) in 2000
and $50 million (coupon 6.98%) in 2007.
The Railroad's commercial paper is rated A2 by S&P, P2 by Moody's and
F2 by Fitch and is supported by the Revolver. The Railroad views
commercial paper as a significant long-term funding source and intends to
issue replacement notes as maturities occur. Therefore, the $57.0 million
outstanding at December 31, 1995, has been classified as long-term.
The Revolver may be used as backup for the commercial paper and for
general corporate purposes. The available amount is reduced by the
outstanding amount of commercial paper borrowings and any letters of
credit issued on behalf of the Railroad under the facility. No amounts
have been drawn under the Revolver. At December 31, 1995, the Revolver
was limited to $192.1 million because $57.0 million in commercial paper
was outstanding and $.9 million in letters of credit had been issued.
The Company has a $50 million 364-day floating-rate revolving
loan agreement, which charges a 17.5 basis point annual facility
fee and LIBOR plus 40.5 basis points on any borrowings, and expires in
August 1996. No amounts have been drawn upon during 1995. The Company's
financing/leasing subsidiaries have approximately $11.4 million in long-
term borrowing agreements which were used to acquire a total of 61
locomotives during 1993 and 1991. Such borrowings are secured by the
locomotives which are leased to the Railroad and mature in 1999 and 2000.
Various borrowings of the Company's subsidiaries are governed by
agreements which contain certain affirmative and negative covenants
customary for facilities of this nature including restrictions on additional
indebtedness, investments, guarantees, liens, distributions, sales and
leasebacks, and sales of assets and capital stock. Some also require
the Railroad to satisfy certain financial tests, including a leverage
ratio, an earnings before interest and taxes to interest charges ratio,
and minimum consolidated tangible net worth requirements. See Note 13.
Interest Expense, Net consisted of the following ($ in millions):
Years Ended December 31,
1995 1994 1993
Interest expense $32.2 $31.2 $35.2
Less:
Interest capitalized 1.3 1.4 .8
Interest income 1.4 1.4 1.3
Interest Expense, Net $29.5 $28.4 $33.1
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 allows for sales of
accounts receivable up to a maximum of $50 million at any one time. The
Railroad services the accounts receivable sold under the agreement and
retains the same exposure to credit loss as existed prior to the sale.
During June 1995, the agreement was extended one year and now expires in
June 1998. At December 31, 1995, the maximum had been sold pursuant to
the agreement. Costs related to the agreement fluctuate with changes in
prevailing interest rates. These costs, which are included in Other
Income (Expense), Net, were $3.2 million and $2.2 million for 1995 and
1994, respectively.
11. Benefit Plans
All employees of the Railroad are covered under the Railroad
Retirement System instead of Social Security. Additionally, the Railroad
provides various retirement plans, postemployment benefits and
postretirement benefits.
Retirement Plans. The Railroad has two qualified plans permitting
participants to make "pre-tax" contributions of their salary up to
Internal Revenue Code limitations and each contains a company match
provision. The union plan, which started in mid-1995, allows union employees
covered by local contracts to participate. The Railroad matches 25% of
the first 4% of employee contributions. The management plan's matching
provisions are 50% of the first 6% of salary deferral. The management plan
also contains a separate defined contribution portion of 2% of each
employee's salary. Expenses related to both plans were $1.1 million,
$1.0 million, and $.9 million in 1995, 1994 and 1993, respectively. All
Railroad contributions are fully vested upon contribution.
The Railroad also has a supplemental executive retirement plan
("SERP") which covers officers and certain other management employees.
The SERP provides for a monthly benefit equal to 35% of a participant's
final average compensation as defined in the plan. The monthly benefit
is subject to offsets such as employer contributions to the 401(k) plan.
The plan was adopted in 1994. The cost was not material in 1994 or 1995.
The Company's former Chairman, President and Chief Executive
Officer is covered by a non-qualified, unfunded supplemental retirement
benefit agreement which provides for a defined benefit payable annually,
in the amount of $250,000 per year, until the year 2008.
The Company's non-employee directors are covered by a
non-qualified, unfunded retirement plan which provides an annual
payment equal to the annual retainer at the time of the director's
retirement and is paid for the number of years the director served
up to a maximum of ten years. The 1995 expense for the plan was
$.9 million.
Salary Deferral Plans. In addition to the 401(k) plan, all officers
and certain other management employees may elect to defer up to 50% of
base salary and 100% of annual bonus. Participant deferrals are fully
vested and earn interest at a specified, variable rate. Approximately $.5
million and $.3 million were deferred in 1995 and 1994, respectively.
Beginning in 1995 the Company's non-employee directors may also defer
their annual retainer and meeting fees. All deferrals are 100% vested and
earn interest at a specified, variable rate. Deferrals in 1995 were not
material.
Unfunded Plan. The Railroad has an unfunded plan whereby 10% of an
officer's combined salary and bonus in excess of a wage offset factor
($102,000 in 1995) is accrued and earns interest. Amounts accrued are
paid when the employee leaves the Company, normally at retirement.
Expenses for this plan were $.4 million, $.3 million and $.2 million in
1995, 1994 and 1993, respectively.
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.
Postretirement Plans. In addition to the Company's retirement plans,
the Railroad has three benefit plans which provide some postretirement
benefits to most former full-time salaried employees and selected former
union-represented employees. The medical plan for salaried retirees is
contributory, with retiree contributions adjusted annually if expected
inflation rate exceeds 9.5%, and contains other cost sharing features such
as deductibles and co-payments. The 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 Railroad funds these
benefits as claims are paid.
Effective January 1, 1993, the Railroad adopted the Statement of
Financial Accounting Standards No. 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions" and the Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." As a result of adopting these two standards,
the Railroad recorded a decrease to Net Income of $84,000 (net of taxes
of $46,000) as a cumulative effect of changes in accounting principles.
The accumulated postretirement benefit obligations ("APBO") of the
postretirement plans were as follows ($ in millions):
December 31,
1995 1994
Medical Life Total Total
Accumulated postretirement
benefit obligation:
Retirees $14.2 $ 2.2 $16.4 $17.7
Fully eligible active
plan participants .9 - .9 .6
Other active plan
participants 3.4 - 3.4 3.3
Total APBO $18.5 $ 2.2 20.7 21.6
Unrecognized net gain 18.4 18.9
Accrued liability for
postretirement
benefits $39.1 $40.5
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 8.5% at December 31,
1994. As a result of the change in general interest rates in 1995 on high
quality investment vehicles, the Company lowered the weighted-average
discount rate to 7.25% as of December 31, 1995. The change in rates
resulted in approximately $1.9 million actuarial loss. The actuarial
gains and losses along with actual experience gains, primarily fewer
claims and lower medical rate inflation, resulted in a total $18.4
million unrecognized net gain as of December 31, 1995. In accordance with
SFAS No. 106, the excess gain is subject to $1.2 million annual
amortization based on an amortization period of approximately 13 years.
The components of the net periodic postretirement benefits cost were
as follows ($ in millions):
Years Ending December 31,
1995 1994
Service costs $ .1 $ .2
Interest costs 1.7 2.4
Net amortization of
excess gain (1.2) (.1)
Net periodic postretirement
benefit costs $ .6 $ 2.5
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits (e.g., health care cost trend rate) for the
medical plans is 12.0% for 1996 and is assumed to decrease gradually to
6.25% by 2002 and remain at that level thereafter. The health care
cost trend rate assumption normally has a significant effect on the
amounts reported; however, the plan limits annual inflation for the
Railroad's portion of such costs to 9.5% each year and caps the
Railroad's contribution at the actual 1999 level. Therefore, an
increase in the assumed health care cost trend rates by one percentage
point in each year would have no impact on the Company's accumulated
postretirement benefit obligation for the medical plans as of December
31, 1995, or the aggregate of the service and interest cost components
of net periodic postretirement benefit expense in future years.
12. Provision for Income Taxes
In 1995 and 1994 tax benefits of $4.3 million and $5.0 million,
respectively, were recorded to reflect the favorable resolution of prior-
period tax issues. On August 10, 1993, the Omnibus Budget Reconciliation
Act of 1993 became law and increased the maximum corporate federal income
tax rate from 34% to 35% retroactive to January 1, 1993. This change
required the Company to record additional deferred income tax expense of
approximately $3.1 million in 1993 to reflect the new tax rate's impact
on net deferred income tax liability as of January 1, 1993.
The Provision for Income Taxes for continuing operations consisted
of the following ($ in millions):
Years Ended December 31,
1995 1994 1993
Current income tax:
Federal $35.8 $37.5 $23.6
State 4.5 4.1 .9
Deferred income taxes 30.7 17.4 31.9
Provision for Income
Taxes $71.0 $59.0 $56.4
The effective income tax rates for the years ended December 31, 1995,
1994 and 1993, were 35%, 34% and 38%, respectively. See Note 4 for the
tax benefits associated with the 1995 and 1993 extraordinary losses. In
1993, state income taxes benefited from the utilization of state net
operating losses.
The items which gave rise to differences between the income taxes
provided for continuing operations in the Consolidated Statements of
Income and the income taxes computed at the statutory rate are summarized
below ($ in millions):
Years Ended December 31,
1995 1994 1993
Expected tax
expense computed
at statutory rate $70.3 35% $60.5 35% $51.8 35%
Dividends received
exclusion (.1) - (.9) - (.1 ) -
Impact of OBRA 1993
rate change - - - - 3.1 2
State income taxes, net
of Federal tax effect 5.4 2 3.6 2 .6 -
Favorable resolution of
prior period tax
issues (4.3) (2) (5.0) (3) - -
Other items, net ( .3) - .8 - 1.0 1
Provision for Income
Taxes $71.0 35% $59.0 34% $56.4 38%
Temporary differences between book and tax income arise because the
tax effects of transactions are recorded in the year in which they enter
into the determination of taxable income. As a result, the book
provisions for taxes differ from the actual taxes reported on the income
tax returns. The net results of such differences are included in Deferred
Income Taxes in the Consolidated Balance Sheets.
At December 31, 1995, the Company for tax or financial reporting
purposes, had no Federal net operating loss carryovers.
Deferred Income Taxes consisted of the following ($ in millions):
December 31,
1995 1994
Deferred tax assets $ 80.5 $ 82.8
Less: Valuation allowance (1.8) (1.8)
Deferred tax assets,
net of valuation allowance 78.7 81.0
Deferred tax liabilities (305.8) (277.4)
Deferred Income Taxes $(227.1) $(196.4)
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 ($67.7 million) and safe harbor leases ($11.5 million).
Major types of deferred tax liabilities are: accelerated depreciation
($276.1 million), land basis differences ($11.0 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 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, 1995, there were 61,425,231
shares of Common Stock outstanding on a post split basis. 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, 1995 and 1994.
On January 25, 1996, the Board of Directors declared a three-for-two
stock split on Common Stock. The split will be effected in the form of
a stock dividend and will be paid March 14, 1996. Approximately 21
million shares will be issued from declared but unissued shares.
Fractional shares will be settled in cash. The effects of the stock split
are presented herein as if it took place as of the earliest period shown.
In 1992, the Board of Directors also authorized a three-for-two stock
split on Common Stock.
The Board of Directors has 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. The Railroad is
no longer subject to specific dividend restrictions. Covenants of the
Railroad's Revolver require specified levels of tangible net worth. At
December 31, 1995, the Railroad exceeded its tangible net worth covenant
by $71.9 million. In December 1994, the Railroad declared a special $60
million dividend, which was paid in 1995, in connection with the stock
repurchase program. See Note 3.
See Note 14 for discussion of restricted stock awards in 1994 and
1993.
14. Compensation and Stock Options
Long-Term Incentive Plan. Under the Company's 1990 Long-Term
Incentive Plan (the "Long-Term Incentive Plan") 1,556,250 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. 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 Compensation 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
2,250 shares of Common Stock. 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.
The Company awarded 22,500 shares and 37,500 shares of restricted
stock to eligible employees of the Railroad in 1994 and 1993,
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 4,125 shares, 150 shares and 20,250 shares were forfeited in
1995, 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. In connection with early retirements,
7,632 shares vested early in 1995. 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 $1.2 million, $.9 million and
$.8 million in 1995, 1994 and 1993, respectively.
The following table summarizes the shares available for award under
the Long-Term Incentive Plan, after giving effect to the 3-for-2 stock
split declared in January 1996, for the year ended December 31, 1995:
Shares available for award at beginning of
year 2,076,150
Options exercised (4,500)
Subtotal 2,071,650
Shares of restricted stock forfeited 4,125
Change in options outstanding during year (519,525)
Shares available for award at end of year 1,556,250
The following table summarizes changes in shares under options after
giving effect to the 3-for-2 stock split declared in January 1996, for
the year ended December 31, 1995:
Option
Outside Price Range
Directors Employees Total Per Share
Outstanding
options
- beginning
of year 283,500 780,000 1,063,500 $ 5.333 to $ 25.167
Options -
Granted 20,250 523,425 543,675 22.917 to 23.167
- Exercised (4,500) - (4,500) 15.167 to 18.500
- Terminated - (19,650) (19,650) 20.833 to 23.167
Change during
the year 15,750 503,775 519,525
Outstanding
options - end
of year 299,250 1,283,775 1,583,025 5.333 to 25.167
The last date exercisable for options granted to Outside Directors
is April 19, 2005, and March 16, 2005, for those granted to employees.
Stock Purchase Programs. The Company has two stock purchase
programs. The regular program is open to all employees and permits
employees to acquire Company common stock via payroll deductions. The
other plan is the Discounted Stock Purchase Plan ("Discounted Plan").
Only management employees are eligible to participate in the Discounted
Plan which provides for the investment of up to 15% of an eligible
employee's salary in the common stock of the Company at a 15% discount.
A participant must continue employment with the Company or its
subsidiaries for two years to retain the 15% discount, and, during that
period, the shares will be held by the plan's administrator. If the
employee withdraws shares or directs the sale of shares within two years,
the discount must be repaid in cash or relinquished shares. No such
repayment is required in the event of death, retirement, disability or
change of control of the Company. Cost associated with these programs
have been immaterial to date.
15. Contingencies, Commitments and Concentration of Risks
The Company has unconditionally guaranteed its finance subsidiary's
$11.4 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 $245 million of liability insurance per occurrence,
subject to an annual cap of $345 million in the aggregate for all losses.
This coverage is considered by the Company's management to be adequate in
light of the Company's safety record and claims experience.
As of December 31, 1995, the Company had $.9 million of letters of
credit outstanding as collateral primarily for surety bonds executed on
behalf of the Company. Such letters of credit expire in 1996 and are
automatically renewable for one year. The letters of credit reduced the
maximum amount that could be borrowed under the Revolver. See Note 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.
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. Investments in U.S. corporate demand notes of $1.4 million
and $19.4 million included in Cash and Temporary Cash Investments as of
December 31, 1995 and 1994, respectively, have been classified and
accounted for as held to maturity securities.
Investments. The Company has investments of $8.2 million in 1995 and
$8.8 million in 1994 for which there are no quoted market prices. These
investments are in joint railroad facilities, railroad terminal
associations, switching railroads and other transportation companies. For
these investments, the carrying amount is a reasonable estimate of fair
value. The Company's remaining investments ($5.4 million in 1995 and $4.7
million in 1994) are accounted for by the equity method.
Long-Term Debt. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities.
Derivative Financial Instruments. The fair value of diesel fuel
collar agreements is the estimated amount that the Company would receive
or pay to terminate the agreements as of year end, taking into account the
current credit worthiness of the agreement counterparties.
The estimated fair values of the Company's financial instruments are
as follows ($ in millions):
December 31,
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and temporary
cash investments $ 5.0 $ 5.0 $ 24.2 $ 24.8
Investments 8.2 8.2 8.8 8.8
Accounts payable
(derivatives) - - (.1) (.4)
Debt (396.0) (432.7) (339.7) (341.2)
17. Subsequent Event - CCP Holdings, Inc. Acquisition
On January 17, 1996, the Company announced that it had entered into
a definitive agreement to purchase all the stock of CCP Holdings, Inc.,
for approximately $125 million in cash, the assumption of approximately
$14 million in net debt and approximately $18 million of capitalized lease
obligations. The purchase will not close until required regulatory
approval from the STB is obtained, which is expected by no later than
September 1996.
The Company will account for the transaction as a purchase. The
total purchase price is subject to various potential adjustments for up
to one year after the closing date.
CCP Holdings, Inc., principal subsidiaries are the Chicago, Central
and Pacific Railroad (CCP) and the Cedar River Railroad (CRR). These two
railroads comprise a Class II freight system which operates 850 miles of
road. CCP operates from Chicago west to Omaha, Nebraska, with connecting
lines to Cedar Rapids and Sioux City, Iowa. CRR runs north from Waterloo,
Iowa to Albert Lea, Minnesota. CCP Holdings, Inc.'s 1995 revenues were
approximately $76 million, its operating ratio was approximately 70%, and
its shareholders' equity was approximately $54 million at December 31, 1995.
18. Subsequent Event - UTU Agreement
On November 10, 1995, the Company announced a tentative agreement
with the United Transportation Union ("UTU") providing for prospective
wage and work rule changes and a one-time payment of $60,000 per trainman.
On February 29, 1996, the Company was notified by the UTU that they had
rejected the agreement. As a result, no amounts have been reflected in
the Consolidated Financial Statements associated with the agreement. The
Company will seek the counsel of the National Mediation Board who
facilitated the agreement in November.
19. Selected Quarterly Financial Data - (Unaudited) ($ in millions,
except share data):
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
Revenues $167.5 $156.2 $161.0 $159.1
Operating
income 62.5 55.9 53.1 59.0
Income before
extraordinary
item, net 34.3 29.6 29.2 36.7
Net income 34.3 18.2 29.2 36.7
Income per share:
Before extra-
ordinary item $ .54 $ .47 $ .47 $ .59
Extraordinary
item - (.18) - -
Net income
per share $ .54 $ .29 $ .47 $ .59
1994
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 $ .43 $ .39 $ .41 $ .55
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 extra-
ordinary item
and cumulative
effect $ .37 $ .31 $ .33 $ .41
Extra-
ordinary
item - (.36) - -
Cumulative
effect - - - -
Net income
(loss) per
share $ .37 $ (.05) $ .33 $ .41
Per share amounts have been restated to reflect the 3-for-2 stock
split that was declared in January 1996.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
F O R M 10-K
FINANCIAL STATEMENT SCHEDULES
SUBMITTED IN RESPONSE TO ITEM 14(a)
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, 1995:
I-Condensed financial information F-26
II-Valuation and qualifying accounts F-29
Pursuant to Rule 5.04 of General Rules of Regulation S-X, all other
schedules are omitted because they are not required or because the
required information is set forth in the financial statements or related
notes thereto.
ILLINOIS CENTRAL 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,
1995 1994 1993
Operating expenses $0.7 $0.3 $0.2
Operating (loss) (0.7) (0.3) (0.2)
Other income (expense), net (2.8) (3.7) (1.3)
Interest income (expense),
net (0.5) (0.1) -
(Loss) before taxes and
earnings of subsidiaries (4.0) (4.1) (1.5)
Earnings of subsidiaries 120.9 116.5 69.1
Provision (benefit) for
income taxes (1.5) (1.5) (0.6)
Net income $118.4 $113.9 $68.2
Income per share $ 1.88 $ 1.78 $1.07
Weighted average number of
shares outstanding
(thousands) 62,885.1 64,088.6 64,019.5
The Notes to Consolidated Financial Statements beginning on page
F-6 are an integral part of this schedule.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
Illinois Central Corporation--Parent Company
Condensed Balance Sheets
($ in millions)
December 31,
1995 1994
ASSETS
Current assets:
Cash and temporary cash
investments $1.3 $11.0
Receivables 6.5 60.6
Other current assets - 0.1
Total current assets 7.8 71.7
Investments in subsidiaries 476.1 404.6
Loan to affiliate 17.1 -
Deferred income taxes 0.5 -
Other assets 0.3 0.4
Total assets $501.8 $476.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16.8 $ 8.9
Dividends payable 11.9 10.6
Income taxes payable - 0.4
Total current liabilities 28.7 19.9
Deferred income taxes - 1.1
Other liabilities and reserves 3.0 1.6
Contingencies and commitments
Stockholders' equity:
Common stock, par value $.001
authorized 100,000,000 shares:
64,284,846 shares issued and
61,425,231 shares outstanding 0.1 0.1
Additional paid-in capital 166.3 165.0
Retained income 368.2 293.0
Treasury stock (2,859,615
shares) (64.5) (4.0)
Total stockholders'
equity 470.1 454.1
Total liabilities and
stockholders'equity $501.8 $476.7
The Notes to Consolidated Financial Statements beginning on page F-6
are an integral part of this schedule.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
llinois Central Corporation--Parent Company
Condensed Statements of Cash Flows
($ in millions)
Years Ended December 31,
1995 1994 1993
Cash flows from operating activities:
Net Income $118.4 $113.9 $68.2
Reconciliation of net income
to net cash provided by
(used for) operating activities:
Deferred income taxes (1.5) 0.4 0.3
Earnings of subsidiaries (120.9) (116.5) (69.1)
Cash changes in working capital:
Receivables (4.1) 0.4 0.1
Other current assets 0.1 - (0.1)
Accounts payable 7.9 2.6 2.2
Income taxes payable (0.4) 2.3 (0.7)
Taxes other than income taxes - - (0.1)
Changes in other assets 0.1 0.1 (0.5)
Changes in other liabilities and
reserves 2.2 0.2 1.1
Net cash provided by operating
activities 1.8 3.4 1.4
Cash flows from investing activities:
Loan to affiliate (17.1) - -
Capital contribution to
subsidiaries (0.4) (0.3) (9.9)
Dividends received from
subsidiaries 107.7 42.5 27.4
Net cash provided by investing
activities 90.2 42.2 17.5
Cash flows from financing activities:
Dividends paid (41.9) (35.7) (27.1)
Stock repurchases (59.8) (0.2) -
Proceeds from exercise of
stock options and warrants - - 0.5
Net cash (used for) financing
activities (101.7) (35.9) (26.6)
Changes in cash and temporary cash
investments (9.7) 9.7 (7.7)
Cash and temporary cash investments
at beginning of period 11.0 1.3 9.0
Cash and temporary cash investments
at end of period $ 1.3 $11.0 $ 1.3
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.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
($ in millions)
Year Ended December 31, 1995
Balance At Additions Payments Balance
Beginning Charges And At End
Classification Of Year To Expense (Charges) Of Year
Accrued redundancy reserve $ 38.2 $ 3.0 $ 7.3 $ 33.9
Casualty and other reserves 61.7 14.3 20.3 55.7
Environmental 13.3 5.3 5.7 12.9
Bad debt reserve 2.1 1.9 2.0 2.0
Taxes 1.8 - - 1.8
Total $117.1 $24.5 $35.3 $106.3
Year Ended December 31, 1994
Accrued redundancy reserve $ 43.6 $ 1.8 $ 7.2 $ 38.2
Casualty and other reserves 62.3 16.9 17.5 61.7
Environmental 11.9 4.4 3.0 13.3
Bad debt reserve 3.1 1.9 2.9 2.1
Taxes 2.2 - 0.4 1.8
Total $123.1 $25.0 $31.0 $117.1
Year Ended December 31, 1993
Accrued redundancy reserve $ 51.6 $ 1.8 $ 9.8 $ 43.6
Casualty and other reserves 67.4 18.8 23.9 62.3
Environmental 9.9 2.9 0.9 11.9
Bad debt reserve 2.6 2.0 1.5 3.1
Taxes 3.3 - 1.1 2.2
Total $134.8 $25.5 $37.2 $123.1
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT
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))
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 4.1 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 4.2 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 4.3 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 4.4 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 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 Company and the Banks named therein
(Incorporated by reference to Exhibit 4.14 to the
Annual Report of Illinois Central Railroad Company on
Form 10-K for the year ended December 31, 1994. (SEC
File No. 1-7092))
4.19 Form of Lease Agreement dated as of July 1, 1994,
between IC Leasing Corporation III and Illinois
Central Railroad Company. (Incorporated by reference
to Exhibit 4.10 to the Annual Report on Form 10-K for
the year ended December 31, 1994, for the Illinois
Central Railroad Company. (SEC File No. 1-7092))
4.20 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 Options Agreement dated as of July 1, 1994,
between IC Leasing Corporation III and Illinois
Central Railroad Company. (Incorporated by reference
to Exhibit 4.12 to the Annual Report on Form 10-K for
the year ended December 31, 1994, for the Illinois
Central Railroad Company. (SEC File No. 1-7092))
4.22 Form of Options Agreement dated as of July 1, 1994,
between IC Leasing Corporation III and Illinois
Central Railroad Company. (Incorporated by reference
to Exhibit 4.13 to the Annual Report on form 10-K for
the year ended December 31, 1994, for the Illinois
Central Railroad Company. (SEC File No. 1-7092))
4.23 Third Amended and Restated Revolving Credit Agreement
between Illinois Central Railroad Company and the
banks named therein dated as of April 2, 1993,
amended and restated as of October 27, 1993, further
amended and restated as of November 1, 1994 and
further amended and restated as of April 28, 1995.
(Incorporated by reference to Exhibit 4.1 to the
quarterly report of Illinois Central Railroad Company
in Form 10-Q for the three months ended June 30,
1995. (SEC File No. 1-7092))
4.24 Form of Indenture dated as of April 1, 1995 between
Illinois Central Railroad Company and The First
National Bank of Boston. (Incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-3
of Illinois Central Railroad Company dated April 12,
1995. (SEC File No. 33-58547))
4.25 Form of Fixed Rate Medium-Term Note dated as of May
1, 1995 between Illinois Central Railroad Company and
Lehman Brothers Inc., Salomon Brothers, Inc and Smith
Barney Inc. (Incorporated by reference to Exhibit 4.1
to the Current Report of Illinois Central Railroad
Company of Form 8-K dated May 2, 1995. (SEC File No.
1-7092))
4.26 Form of Floating Rate Medium-Term Notes dated as of
May 1, 1995 between Illinois Central Railroad Company
and Lehman Brothers Inc, Salomon Brothers Inc and
Smith Barney Inc. (Incorporated by reference to
Exhibit 4.2 to the Current Report of Illinois Central
Railroad Company on Form 8-K dated May 2, 1995. (SEC
File No. 1-7092))
10.1 * Form of supplemental retirement and savings plan.
(Incorporated by reference to Exhibit 10C to the
Registration Statement of Illinois Central
Transportation Co. on Form 10 filed on October 7,
1988, as amended. (SEC File No. 1-10085))
10.2 Form of indemnification agreement dated as of January
29, 1991, between Illinois Central Corporation and
certain officers and directors. (Incorporated by
reference to Exhibit 10.9 to the Annual Report on
Form 10-K for the year ended December 31, 1990, for
the Illinois Central Corporation filed on April 1,
1991. (SEC File No. 1-10720))
10.3 * Form of IC 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 on Form 8-K of the Illinois Central
Railroad Company 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 on Form 8-K of the Illinois Central
Railroad Company 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 on Form 8-K of the Illinois Central
Railroad Company 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 on Form
8-K of the Illinois Central Railroad Company
dated as of July 29, 1994. (SEC File No. 1-7092)
10.17* Illinois Central Corporation Management Employee
Discounted Stock Purchase Plan. (Incorporated by
reference to Exhibit 10.7 to the report of Form
10-K of Illinois Central Corporation for the year
ended December 31, 1995. (SEC File No. 1-10720)
10.18 Form of Illinois Central Railroad Company Union
Employees' Savings Plan. (Incorporated by
reference to Registration Statement of Illinois
Central Corporation on Form S-8 dated as of July
18, 1995. (SEC File No. 33-61095))
11 Computation of Income Per Common Share (Included at E-10
21 Subsidiaries of Registrant (Included at E-11
23 Consent of Arthur Andersen LLP (A)
27 Financial Data Schedule (A)
* Used herein to identify management contracts or compensation plans
or arrangements as required by Item 14 of Form 10-K.
(A) Included herein but not reproduced.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
($ in millions, except share data)
Years Ended December 31,
1995 1994 1993
Income before
extraordinary item
and cumulative effect
of changes in accounting
principle $121.9 $113.9 $91.7
Extraordinary item, net (11.4) - (23.4)
Cumulative effect of
changes in accounting
principles - - (0.1)
Net income $110.5 $113.9 $68.2
Calculation of average
number of shares
outstanding (1):
Primary:
Weighted average number
of common shares
outstanding 62,608,274 63,895,566 63,840,123
Effect of shares
issuable under
stock options 276,847 193,043 179,402
62,885,121 64,088,609 64,019,525
Fully diluted:
Weighted average
number of common
shares outstanding 62,608,274 63,895,566 63,840,123
Effect of shares
issuable under stock
options (2) 302,043 193,043 264,957
62,910,317 64,088,609 64,105,080
Income per common share:
Primary:
Before extraordinary
item and cumulative
effect of changes
in accounting
principles $1.94 $1.78 $1.43
Extraordinary item, net (0.18) - (0.36)
Cumulative effect of
changes in accounting
principles - - -
Net income $1.76 $1.78 $1.07
Fully diluted:
Before extraordinary
item and cumulative
effect of changes in
accounting principles $1.94 $1.78 $1.43
Extraordinary item, net (0.18) - (0.36)
Cumulative effect of
changes in accounting
principles - - -
Net income $1.76 $1.78 $1.07
(1) Shares restated to reflect the 3-for-2 stock split declared in
January 1996 as if it took place at the earliest period shown.
(2) 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, 1995
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 25, 1996,
(except with respect to the matter discussed in Note 18, as to which
the date is February 29,1996) included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, into Illinois Central
Corporation's previously filed Form S-8 Registration Statements File
Nos. 33-41052, 33-51924, 33-54709, 33-57757 and 33-61095.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 11, 1996
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