<PAGE>







                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

                         Commission file number 1-10720

                          Illinois Central Corporation
             (Exact name of registrant as specified in its charter)

                               Delaware 13-3545405

    (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)
  455 North Cityfront Plaza Drive, Chicago, Illinois       60611-5504
      (Address of principal executive offices)             (Zip Code)

                                                                           
Registrant's telephone number, including area code:
                                                  (312) 755-7500

      Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.001 per share

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes ..X.. No ....

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     As of March 14, 1997,  the aggregate  market value of the common stock held
by  non-affiliates  of the  registrant was  approximately  $2,016  million.  For
purposes of the foregoing  statement only,  directors and executive  officers of
the registrant have beenassumed to be affiliates.

     As of March 14,  1997,  there were  61,406,831  shares of the  registrant's
common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this  Annual  Report on Form  10-K  incorporates  by  reference
information  (to the extent  specific  sections are referred to herein) from the
Registrant's Proxy Statement for its 1996 Annual Meeting of Stockholders.


<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                                    FORM 10-K

                          Year Ended December 31, 1996

                                      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............ 15

PART II

  Item 5.     Market for the Registrant's Common Equity and Related
              Stockholder Matters.......................................... . 16
  Item 6.     Selected Financial Data........................................ 16
  Item 7.     Management's Discussion and Analysis of Financial
              Condition and Results of Operations............................ 18
  Item 8.     Financial Statements and Supplementary Data.................... 30
  Item 9.     Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure......................... 30

PART III

  Item 10.    Directors and Executive Officers of the Registrant              31
  Item 11.    Executive Compensation ........................................ 32
  Item 12.    Security Ownership of Certain Beneficial Owners and
              Management..................................................... 32
  Item 13.    Certain Relationships and Related Transactions................. 32

PART IV

  Item 14.    Exhibits, Financial Statement Schedules and Reports
              on Form 8-K.................................................... 33

SIGNATURES................................................................... 34

                                        2

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                                     PART I

Item 1.  Business

Background

         Illinois Central  Corporation (the "Company"),  was incorporated  under
the laws of Delaware on January 27, 1989. 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 Company,  through its  wholly-owned  subsidiary,  Illinois  Central
Railroad  Company ("ICRR") traces its origin to 1851, when ICRR was incorporated
as the  nation's  first land  grant  railroad.  On June 13,  1996,  the  Company
acquired in a purchase transaction CCP Holdings,  Inc. (CCPH). ICRR and CCPH are
principally engaged in the rail freight transportation  business.  ICRR operates
2,600 miles of main line track between Chicago and the Gulf of Mexico, primarily
transporting  chemicals,  coal,  paper,  grain and milled grain,  and intermodal
trailers and  containers.  CCPH has two principal  operating  subsidiaries - the
Chicago  Central  and Pacific  Railroad  ("CCPR")  and the Cedar River  Railroad
("CRR") - which together comprise a Class II railroad system operating 850 miles
of track. CCPR operates from Chicago to Omaha,  Nebraska,  with connecting lines
to Cedar Rapids and Sioux City,  Iowa.  CRR runs from  Waterloo,  Iowa to Albert
Lea, Minnesota.  See "Managements Discussion and Analysis of Financial Condition
and Results of Operations  Significant  Developments" for additional information
on the 1996 acquisition of CCPH.

         In  addition  to  ICRR  and  CCPH,  the  Company's  other  wholly-owned
subsidiary,  IC Financial Services  Corporation ("IC Financial"),  was formed to
finance through various special purpose companies the acquisition of locomotives
and freight cars which are leased to ICRR.  IC Financial  also  functions as the
investment  vehicle by which non-rail  related  activities  are  conducted.  See
"Terminal Operations."

Plan 2000

         In the spring of 1995,  the Company  developed and announced Plan 2000.
This new plan is designed to build on the success of the 1992 plan and  position
the Company for the next  century.  Plan 2000 calls for (i) revenue to grow from
the 1994  base of $595  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.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Significant Developments."

                                        3

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Commodities and Customers

         ICRR'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,  intermodal and
other commodities. In 1996, a customer accounted for approximately 8% of
revenues (two other customers exceeded 5% and no other customer exceeded 5%) 
and the ten largest customers accounted for approximately 37% of revenues.

         In order to address  the  diversity  of the  Company's  customer  base,
ICRR's  marketing  department  is  organized  into two  major  groups - Bulk and
Consumer Products.  The Bulk group is responsible for coal,  chemicals and grain
related  products.  The Consumer  group covers forest  products,  intermodal and
metals.  These units work with  current  and  prospective  customers  to develop
customized shipping solutions.

         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.

         The respective percentage contributions by principal commodity group to
ICRR's freight revenues and revenue ton miles during the past five years are set
forth below:

                                        4

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       Contributions to Total Freight Revenues by Commodity Group for ICRR
 Commodity
 Group                              1996    1995      1994     1993        1992
Chemicals.......................... 27.6%   26.4 %    24.8%    25.0%       24.3%
Coal............................... 14.1    13.5      15.2     12.8        15.3
Grain.............................. 10.3    14.1      10.2     14.0        12.2
Paper.............................. 12.6    12.6      12.2     12.4        12.1
Grain mill & food products.........  8.6     8.9       8.5      9.8         8.8
Intermodal.........................  8.7     7.6       6.6      5.4         5.4
All other.......................... 18.1    16.9      22.5     20.6        21.9
Total..............................100.0%  100.0%    100.0%   100.0%      100.0%

          Contribution to Revenue Ton Miles by Commodity Group for ICRR
 Commodity
 Group                             1996     1995      1994      1993       1992
Chemicals..........................16.6%    14.6%     15.8%     15.9%      15.1%
Coal...............................24.1     20.8      24.0      15.1       18.2
Grain..............................18.3     26.8      20.0      27.9       27.3
Paper.............................. 9.3      9.0       9.8       9.6        9.0
Grain mill & food products......... 9.3      9.8       9.3       9.9        9.0
Intermodal......................... 6.5      5.5       5.5       3.7        3.1
All other..........................15.9     13.5      15.6      17.9       18.3
Total.............................100.0%   100.0%    100.0%    100.0%     100.0%


         At CCPH,  revenues of $40.2 million were comprised of grain (39%), coal
(19%), chemicals (14%) and all others (28%).

         In 1996,  approximately 68% of ICRR's freight traffic originated on its
own  lines,  of  which  approximately  21%  was  forwarded  to  other  carriers.
Approximately 17% of ICRR's freight traffic was received from other carriers for
final delivery by ICRR, and the balance of approximately 15% represented  bridge
or through traffic.

Terminal Operations

         The Company currently has three terminal facilities either operating or
under  construction.  The first  facility is a "transload"  facility  located in
Harvey,  Illinois. This facility stores cars of plastic pellets which are loaded
subsequently  into tanker trucks (i.e.,  transload) for distribution to smaller,
non-rail served manufacturers. During 1997, the Company plans to double the size
of this facility.

         In 1996,  IC Financial  formed a  subsidiary,  IC  RailMarine  Terminal
Company,  to construct and operate an import/export,  dry-bulk handling terminal
on the Lower  Mississippi  River.  And recently IC Financial  made an investment
($5.9 million) in a liquid-bulk storage and distribution  terminal that has been
serving the petroleum and petrochemical  industries for more than 15 years. Both
facilities  are  located  just south of Baton  Rouge,  Louisiana.  The  dry-bulk
terminal will be operational in late 1997 or early 1998.

                                        5

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Operating Statistics

         Set forth  below is  certain  information  relating  to ICRR's  freight
traffic during the past five years:
                                 1996     1995     1994     1993     1992

Carloads (in thousands)           927      957      915      848      852
Freight train miles
  (in thousands)1.............  7,950    7,758    7,179    5,659    5,149
Revenue ton miles of freight
  traffic (in millions)2...... 22,132   24,635   21,160   20,334   18,734
Revenue tons per carload         71.7     74.7     76.3     79.1     76.6
Average length of haul
  (in miles)..................    309      328      286      293      284
Gross freight revenue per
  ton mile3...................  $.026   $ .025  $  .027  $  .027  $  .029
Net freight ton miles per
  average route mile
  (in millions)...............    8.4      9.3      7.9      7.5      6.8
Gallons per ton mile4......... .00236   .00234   .00248   .00251   .00269
Active locomotives............    331      333      328      322      331
Track resurfacing (miles)       1,360    1,360    1,397    1,293    1,465
Percent resurfaced............  33.7%    32.2%    33.0%    29.8%    32.0%
Ties laid in replacement
  (including switch ties).....425,999  408,760  346,994  323,764  296,536
Slow order miles.............. 100.00   209.76   275.79   152.32   135.42



1 Freight train miles equals the total number of miles traveled by all 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.  Ratios for 1996 reflect the results of CCPH for
the period  June 13,  1996 (date of  acquisition)  to December  31,  1996.  As a
result, 1996 is not directly comparable to prior periods.


                                        6

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     Ratio                           1996    1995    1994    1993    1992

Operating 1.....................     63.3%   64.3%   66.4%   68.3%   70.8%
Labor and fringe benefits ......     29.2    30.2    31.0    31.1    32.0
Leases and car hire ............      6.8     7.2     8.2    11.9    12.6
Diesel fuel ....................      5.8     5.1     5.3     5.4     5.5
Materials and supplies .........      5.0     5.4     6.0     6.2     5.8
Depreciation and amortization ..      6.0     5.3     4.6     4.2     4.4
Casualty, insurance and losses .      1.8     2.7     4.0     3.8     4.8
Other taxes ....................      2.8     2.8     3.0     2.9     2.4
Other ..........................      5.9     5.6     4.3     2.8     3.3


                                     1996    1995    1994    1993    1992

Operating1 ..............            63.3%   64.3%   66.4%   68.3%   70.8%
Transportation2 .........            27.9    28.2    28.9    29.6    31.6
Maintenance of way3 .....             7.2     7.8     7.7     7.2     7.0
Maintenance of equipment4            18.5    18.9    19.2    20.7    22.5




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

         Labor  relations  in the  railroad  industry  are subject to  extensive
governmental  regulation under the Railway Labor Act.  Employees in the railroad
industry  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 as the
proportion of retired employees  receiving  benefits  increases  relative to the
number of working employees.  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  employees are  represented  by one of eleven
unions.  The general  approach to labor  negotiations by Class I railroads is to
bargain  on  a  collective  national  basis.  For  several  years  now,  one  of
management's   guiding  principles  is  that  local  --  rather  than  national,
industry-wide  --  negotiations  will  result in labor  agreements  that  better
address  both  employees'  concerns and  preferences  and the  Company's  actual
operating environment. Therefore, beginning in late 1994, ICRR began negotiating
separate  distinct  agreements  with each of its eleven unions.  To date, ten of
ICRR's  eleven  bargaining  units,   representing  85%  of  ICRR's   represented
workforce, have ratified local agreements that resolve wage and work-rule issues
through 1999 for shop crafts and through the year 2000 for trainmen.  The latter
agreement is similar to the national agreement,

                                        7

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except that the timing of various rate  increases and lump sum payments has been
changed.  ICRR  continues  to  negotiate  with  the  Brotherhood  of  Locomotive
Engineers,  its only unsigned union. At CCPH,  labor  negotiations are all local
and nine of the ten agreements  have become subject to  renegotiation,  however,
cost of living  allowance  provisions  and other  terms in each  agreement  will
continue until new agreements are reached.

         There are risks  associated with  negotiating  locally.  Presidents and
Congress  have  repeatedly  demonstrated  they  will  step in to avoid  national
strikes,  while a local dispute may not generate federal intervention,  making a
work stoppage potentially more likely.  ICRR's management believes the potential
mutual benefits of local bargaining outweigh the risk.

The following table shows the average annual employment levels for the last five
years:

                          1996    1995    1994    1993    1992
Total employees - ICRR   3,238   3,268   3,250   3,306   3,421
                - CCPH     379     N/A     N/A     N/A     N/A

N/A = Not Applicable


          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 Plan 2000.  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

         ICRR 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.

         ICRR  currently  transports a significant  volume of Southern  Illinois
coal.  Much of the coal from mines in that area 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.  As a result,  this  source of
traffic is expected to decline.  On the other hand,  ICRR expects to participate
in additional movements of Western coal and certain 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.


                                        8

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         Currently,  the  utility  industry  is  undergoing  deregulation.  Some
analysts have suggested that utility deregulation will significantly reduce rail
revenues.  However,  the impact of utility deregulation on the Company should be
less than the affect on other railroads  because there are no captive  utilities
served by the Company.  See  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations - Outlook" for additional comments.

         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

         ICRR and CCPH, to a lesser extent, face intense competition for freight
traffic  from motor,  water,  and pipeline  carriers  and from other  railroads.
Competition  is  generally  based  on the  rates  charged  and the  quality  and
reliability of the service provided. Low fuel prices disproportionately  benefit
trucking  operations over railroad  operations since fuel costs are a relatively
larger cost component for trucking  companies.  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. At December 31, 1996, there were 10 railroads in
the United States and Canada  classified by revenues as Class I railroads.  ICRR
is ninth in revenues and has the best operating ratio.

         To a greater  degree than other rail  carriers,  ICRR 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,  ICRR'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.  ICRR's ability to maintain its market share of the available
freight has  traditionally  been affected by the navigational  conditions on the
river.  However,  it appears to the Company that worn-out  barges are coming off
the  Mississippi  at a faster rate than new barge capacity is being added. A net
reduction of barge  capacity  could lead to firmer,  less variable barge pricing
than has been the case  over the last 15 years or so.  If this  trend  develops,
ICRR may benefit.

         Most of the Company'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
Company.  The  mega-carriers  could use their  size and  pricing  power to block
shippers' access to efficient gateways and routing options that are currently

                                        9

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and have been historically  available.  To date, mergers have not had a material
adverse impact on the results or financial condition of the Company.

         While there may be risks from  future  mergers,  the  Company  believes
those  risks are  manageable.  See  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations."

Liens on Properties

         Approximately  59 (75%)  locomotives and 1,510 (78%) rail cars owned by
IC Financial are subject to liens by the lenders.  Neither the Company, ICRR nor
CCPH are subject to these 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 $335 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, 1996,  ICRR's  total  system  consisted of
approximately  4,500 miles of track  comprised of 2,600 miles of main line,  200
miles of  secondary  main line and 1,700  miles of passing,  yard and  switching
track.  ICRR owns all of the track except for 190 miles  operated by  agreements
over  track  owned  by  other  railroads.   CCPH's  total  system  consisted  of
approximately 850 miles of track.

         Track and Structures.  The following amounts have been spent during the
five years ended  December 31,  1996,  on track and  structure to construct  and
maintain rail lines and related  signal  equipment,  and other  facilities ($ in
millions):

                     Capital
                  Expenditures   Maintenance           Total

19961 ..........   $   95.4 $       25.6          $  121.0
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

           Total   $  322.2     $  136.3          $  458.5



1 Includes CCPH from June 13, 1996,  $4.2 million,  $1.9 million,  $6.1 million,
  respectively.

                                       10

<PAGE>



         These expenditures have concentrated primarily on the rehabilitation of
the track roadway and bridges. Approximately, 1,400 miles of roadway ballast was
resurfaced in each of the last three years. In 1996 a total of $20.1 million was
spent to construct an  intermodal  terminal  facility for the Canadian  National
Railroad ("CN Terminal").  The largest projects were a total of $11.4 million to
complete the conversion of 198 miles of track, known as the Yazoo District, to a
single track with  centralized  traffic  control in 1993 and 1994 and a total of
$11.4  million was spent to construct new or expanded  intermodal  facilities in
Chicago  and  Memphis  in 1992  and  1994.  Some of the  projects  at CCPH  were
performed  with  grants  from  the  Iowa  Department  of   Transportation.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" for a discussion of future capital expenditures.

         Locomotives  and  Freight  Cars.  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 61 used  SD-40-2's  and 20-new  SD-70's have enabled ICRR to
replace older, lower horsepower and less efficient locomotives.  (The 20 SD-70's
replaced 31 older, smaller locomotives.)

         IC  Financial  acquired the SD-70's in 1995 and all are leased to ICRR.
Management is currently  rationalizing  CCPH's  locomotive fleet and instituting
revised  maintenance,  fueling and train assignment  practices.  Less-efficient,
high-maintenance locomotives are being stored, sold or scrapped.

         Locomotive  modernization  and  acquisition  were  part of a change  in
operational  philosophy  concerning  equipment  which resulted in adoption of an
equipment ownership program in 1993.

         The program included lease  conversions  whereby equipment was acquired
outright or leased  under more  favorable  lease terms by the  Company.  Through
1995, the conversion program involved 118 locomotives and 4,228 freight cars. As
a result of the new lease  terms,  $7.1  million  and $24.7  million  of capital
leases  were  recorded  in 1995 and  1994,  respectively.  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 cars  owned by IC  Financial  are leased to
ICRR.  The remaining  cars are leased to other  non-affiliated  companies.  When
those leases expire, ICRR has first right of refusal to lease the equipment.  If
ICRR  exercises  its  rights,  other  leased  equipment  will be returned to the
independent  and  third-party  lessors or  short-term  car hire  agreements  are
terminated.

         The third segment of the equipment program was a significant upgrade of
the highway trailer fleet used in intermodal  service. In 1992, the entire fleet
of old leased  trailers,  approximately  880,  was  replaced  with 800 brand new
trailers.  Expanding  intermodal volume necessitated the addition of another 100
trailers in 1994.

         During 1994 ICRR 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 ICRR anticipates it will need the equipment.

         In 1996, ICRR began a covered hopper fleet program under which existing
equipment was either modernized or replaced.  Approximately  800 cars,  operated
under short-term car hire

                                       11

<PAGE>



arrangements  or various  leases,  were returned and replaced by 600 newly built
high capacity  hoppers  which are being leased under an operating  lease from an
unrelated third party.

         The following is the overall fleet at December 31:

Total Units:         1996           1995         1994          1993         1992
Locomotives1.....     435            397          417           468          449
Freight cars.....  16,619         15,872       16,498        16,634       15,877
Work equipment...     655            654          625           745          902
Highway trailers.     889            898          898           898          203



1   Approximately  55  locomotives  need  repair  before they can be returned to
    service.  This  equipment is repaired if needed on an ongoing basis or sold.
    ICRR sold 6, 40, 48, 23 and 66 surplus locomotives in 1996, 1995, 1994, 1993
    and 1992, respectively. The active fleet is 331 as of December 31, 1996.

    The components of the fleet by subsidiary and in total for 1996 and in total
for 1995 are shown below:
                                                IC
                             ICRR    CCPH   Financial  1996     1995
Description1           Total(2)(3)   Total    Total    Total    Total

Locomotives:
  Multipurpose ........      230       42       79      351      312
  Switching ...........       82        2     --         84       85
            Total .....      312       44       79      435      397

Freight Cars:
 Box (general service)       318     --      1,126    1,444    1,481
 Box (special purpose)     2,523       34      384    2,941    3,011
 Gondola ..............    1,555       60     --      1,615    1,428
 Hopper (open top) ....    3,784       43      436    4,263    4,287
 Hopper (covered) .....    3,945      525     --      4,470    3,554
 Flat .................      596       14     --        610      705
 Other ................    1,276     --       --      1,276    1,406
                  Total   13,997      676    1,946   16,619   15,872
 Work Equipment .......      655                        655      654
  Highway trailers ....      889                        889      898


1 In addition,  approximately  1,575  freight cars were being used by ICRR under
  short-term car hire agreements. 
2 Includes 25 locomotives and 765 freight cars under capital leases.
3 Excludes equipment listed under IC Financial.


                                       12

<PAGE>



Environmental Conditions

         ICRR  faces  potential  environmental  cleanup  costs  associated  with
approximately 25 contaminated  sites and various fueling  facilities for which a
total of $17  million  has been  reserved  as of  December  31,  1996.  The most
significant of those sites are described below.

Mobile, Alabama

          ICRR  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. ICRR has been participating in
joint cleanup efforts with the current owner and ICRR's former lessee.  See Item
3. "Legal Proceedings."

Jackson, Tennessee

          A rail yard in  Jackson,  Tennessee,  formerly  owned by ICRR has been
placed on the federal and state "superfund" list as a result of the discovery of
Trichloroethane  (TCE) in the adjacent municipal water well field. ICRR 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.  ICRR  believes it has
demonstrated  that the TCE did not come from its  operation,  or from this site.
See Item 3. "Legal Proceedings."

McComb, Mississippi

         ICRR has conducted 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.  Currently,  ICRR is preparing a
remediation  plan under the supervision of the  Mississippi  Bureau of Pollution
Control.  Estimates of remaining  clean up costs range  between $2.7 million and
$8.0 million.

Kegley, Illinois

         Emergency  response  action  has been  taken by ICRR 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. ICRR has enrolled in Illinois'  Pre-Notice Site
Cleanup Program and is voluntarily  remediating the site. Estimates of remaining
clean up costs range  between $1.4 million and $7.0  million.  ICRR believes the
shipper  bears some  responsibility  for the  release  and has  initiated  legal
action.

East Hazel Crest, Illinois

         In 1994 ICRR learned that an underground fuel line had leaked about 
100,000 gallons of diesel fuel into the soil and groundwater.  The Company 
has replaced the fuel tank and piping, has constructed a groundwater 
remediation system and has enrolled the site in Illinois' Pre-Notice Site
Cleanup Program.  See Item 3. "Legal Proceedings."


                                       13

<PAGE>



Fueling Facilities

         ICRR 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 ICRR has  initiated  a program of
rebuilding all fuel lines above ground.

Waste Oil Generation

          ICRR has been identified as a Potentially Responsible Party ("PRP") at
a site where waste oil was allegedly processed and disposed.  ICRR is alleged to
have generated some of the waste oil. ICRR believes any contribution it may have
made to the site contamination is de minimis. See Item 3. "Legal Proceedings."

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 ICRR, which owned
the land  until  1976,  Alabama  Wood  Treating  Corporation,  Inc.,  and Reilly
Industries, Inc. ("RII"), which leased the land from ICRR and conducted creosote
operations  on the site.  In December  1976,  ICRR 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 ICRR 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.  ICRR has  contributed  $2.3  million.
Further clean-up activities are anticipated,  the cost of which could range from
$1.8  million  to $10.7  million  depending  upon the  clean  up  standards  and
remediation  methods  ultimately  required and  utilized.  Under the  agreement,
ICRR's share of the costs would range from $600,000 to $3.6 million.

         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. No party has declined further participation.

          In the Matter of Illinois Central Railroad Company,  et al., Tennessee
Division of Superfund No. 94-0187

         The Tennessee  Department of Environment and  Conservation,  on June 6,
1994,  issued a Remedial Order requiring  cleanup by ICRR and the current owners
of a site in Jackson, Tennessee. ICRR operated a rail yard and locomotive repair
facility  at the  site.  Trichloroethane  ("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

                                       14

<PAGE>



organic chemicals have been identified on the surface of the site. A preliminary
remedial  investigation and feasibility study has been completed which indicates
the TCE in the water  wells came from an  adjacent  municipal  dump and not from
operations on this site.  Exclusive of  ground-water,  cleanup,  ICRR  estimates
total clean up costs  between $3.5 million and $7.6 million and expects  another
PRP's to share in the expense.

          People of the State of Illinois v. Illinois  Central  Railroad Company
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 ICRR relating to a release of diesel fuel
from an  underground  pipeline  at ICRR's  Markham  Yard  facility in East Hazel
Crest,  Illinois. The Complaint alleges that ICRR violated State water pollution
statutes by allowing diesel fuel to enter waters of the State and seeks an order
compelling  ICRR to take necessary  corrective  actions at the site and to pay a
civil penalty of $100,000.  ICRR has replaced its fueling  tanks and  pipelines,
and  expects  remaining  clean up costs to range  between  $.4  million and $3.0
million.

South Eighth Street Landfill, West Memphis, Arkansas.

         ICRR  was  named  by the  EPA as a  Potentially  Responsible  Party  in
connection with a sludge oil pit at this location. It is alleged that ICRR along
with numerous other  commercial  and  governmental  entities  generated used oil
which was processed at this site and thus contributed to the contaminated sludge
on the site.  ICRR has entered into an agreement with numerous other PRP's under
which ICRR's  share of the clean up cost will be .2%.  Based on estimates of the
likely remediation cost, ICRR's contribution under the PRP agreement is expected
to be less than $20,000.

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.

                                       15

<PAGE>



                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
  Matters

  The Common  Stock is listed on the New York  Stock  Exchange,  Inc.  under the
symbol "IC."

         The following table sets forth, for the periods indicated, (I) the high
and low sale  prices  of the  Common  Stock as  reported  on the New York  Stock
Exchange  Composite  Tape and (ii) the per share amount of dividends  paid.  The
following  table has been  restated  to give  effect to a  3-for-2  stock  split
declared in January 1996.

                                            Stock Price          Dividends Paid
                                         High         Low          Per Share

 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......................  $28.750      $23.667          $ .20
 Second Quarter.....................   30.750       27.000            .20
 Third Quarter......................   31.875       26.875            .20
 Fourth Quarter.....................   34.375       29.500            .20

 1997
 First Quarter (through 
  March 14, 1997)                     $36.125      $30.500         $  .23

           As of March 14, 1997, 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 14,
1997 was $34.125 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, 1996,  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.  The selected  financial data for 1996 includes the
results of CCPH for the period June 13, 1996 (date of  acquisition)  to December
31, 1996. Therefore, data for 1996 is not directly comparable to pre 1996 data.

                                       16

<PAGE>





<TABLE>




                  SELECTED CONSOLIDATED FINANCIAL INFORMATION

                       ($ in millions, except share data)

<CAPTION>

                                          Years Ended December 31,
                                1996       1995       1994       1993       1992
<S>                             <C>        <C>        <C>        <C>        <C>    

Income Statement Data (1):
Revenues...................     $  657.5   $  645.3   $  595.3   $  565.9   $  548.5
Operating expenses before
   special charge..............    416.3      414.8      395.0      386.4      388.1
Special charge.................        -          -          -          -        8.9
Operating income...............    241.2      230.5      200.3      179.5      151.5
Other income (expense), net....      8.6       (0.2)       1.0        1.7        2.0
Interest expense, net..........    (34.1)     (29.5)     (28.4)     (33.1)     (43.6)
Income before income taxes,
   extraordinary item and cumulative
   effect of changes in accounting
   principles..................    215.7      200.8      172.9      148.1      109.9
Provision for income taxes.....     79.1       71.0       59.0       56.4       37.4
Income before extraordinary item
   and cumulative effect of changes
   in accounting principles....    136.6      129.8      113.9       91.7       72.5
Extraordinary item, net........        -      (11.4)         -      (23.4)         -
Cumulative effect of changes in
   accounting principles.......        -          -          -       (0.1)      23.4
Net income ................     $  136.6   $  118.4   $  113.9   $   68.2   $   95.9

Income per share (2):
   Before extraordinary item and
      accounting changes...     $   2.21   $   2.06   $   1.78   $   1.43   $   1.13
   Extraordinary item..........        -      (0.18)         -      (0.36)         -
   Accounting changes..........        -          -          -          -       0.37
      Net income per share      $   2.21   $   1.88   $   1.78   $   1.07   $   1.50

Weighted average number of
   common shares outstanding
   (in thousands)(2)...........   61,877     62,885     64,089     64,020     63,900

Cash dividends declared per
   common share (2)........     $   0.83   $   0.71   $   0.59   $   0.46   $   0.33

Operating ratio (3)............     63.3%      64.3%      66.4%      68.3%      70.8%

</TABLE>
                                       17

<PAGE>




                                             At December 31,
                               1996       1995       1994       1993       1992
Balance Sheet Data (4):
Total assets............. $  1911.4  $  1437.5  $  1308.7  $  1258.7  $  1206.1
Long-term debt............... 633.7      383.6      328.6      360.3      367.3
Stockholders' equity..... ... 555.5      470.1      454.1      377.4      338.8
Working capital (deficit)....  16.6      (76.1)     (65.4)     (32.4)      (2.9)


1. Results for 1996 include results of CCPH since June 13, 1996.
2. Restated to give effect to a 3-for-2 stock split declared in January 1996.
3.Operating  ratio is the ratio of operating  expenses  before special charge to
  revenues.
4. Data for 1996 includes CCPH.


                                       18

<PAGE>





                                                       
<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Significant Developments

CCP Holdings, Inc. Acquisition

         On June 12, 1996,  ICRR used  proceeds it received from the issuance of
Commercial  Paper (average  interest rate 5.52% and average maturity 30 days) to
pay a $50.0 million  dividend to the Company and to loan $59.9  million  (5.625%
per annum) to the  Company.  The  Company  used the $109.9  million and its bank
credit lines to acquire CCP Holdings, Inc. ("CCPH"). The transaction closed June
13, 1996,  following  the  effective  date of the  approval  order issued by the
Surface  Transportation  Board ("STB"). The purchase price was $147.1 million in
cash, the  assumption of  approximately  $2.5 million in debt and  approximately
$17.3 million of capitalized lease obligations existing on the acquisition date.
Additionally,  under the Stock Purchase  Agreement the actual  purchase price is
subject to various  potential  adjustments  for up to one year after the closing
date.

         CCPH has two principal operating subsidiaries - the Chicago Central and
Pacific Railroad  ("CCPR") and the Cedar River Railroad ("CRR") - which together
comprise a Class II railroad  system  operating 850 miles of road. CCPR operates
from Chicago to Omaha, Nebraska, with connecting lines to Cedar Rapids and Sioux
City, Iowa. CRR runs from Waterloo, Iowa to Albert Lea, Minnesota.

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 were issued March 14, 1996.  Fractional shares were settled in cash
at a rate of $25.94 per share. When  certificates  were issued,  the approximate
41.0 million shares  outstanding  increased 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.

1992 Four-Year Growth Plan and Plan 2000

         In 1992 the Company announced its first growth plan, for the years 1993
through  1996.  Since the key  concepts--$100  million in revenue  growth and an
operating ratio of 66.7%--were reached by the end of 1995, the Company announced
a second growth plan called Plan 2000.

         Plan  2000  calls  for (i)  revenue  to grow from the 1994 base of $595
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 designed,  Plan 2000 is intended to focus  management  on increasing
operating  performance and responding to general  economic  trends quickly.  The
plan assumes that the Company's  growth,  excluding coal use and worldwide grain
demand,  will be between  1.2% and 1.7% per year.  This  assumption  is based on
internal analysis of published  economic  forecasts  available when the plan was
developed,  such as the Blue Chip Economic Forecast,  which predicted industrial
production  would gain 2.4% to 2.8% per year.  As for grain,  Plan 2000  assumes
that export grain demand will be approximately 45,000 carloads annually.

                                       18

<PAGE>



         To achieve Plan 2000,  the Company will  concentrate  on expanding  the
volume of business from current  customers,  seeking to locate new businesses or
expansions by existing  customers on our system, and raising rates when possible
to reflect the value of the services the Company provides.  To increase business
in coal and grain, the Company will work with shippers to develop strategies and
service schedules to permit them to participate in the increasingly  competitive
world  market.  For example,  the Company  developed a concept of moving  export
grain  to the  Gulf in unit  trains  of  customer-supplied  cars,  operating  in
dedicated, continuous service approximately ten months of the year.

         As stated, a key goal of Plan 2000 was revenue growth from $595 million
to $800 million or  approximately  6% per year or 34% in total.  After achieving
revenues  of $645 in 1995 (or an 8.4%  increase),  ICRR did not meet its revenue
objectives in 1996; in fact,  ICRR's  revenues  declined 4.2% to $617.2 million.
See "-Results of Operations" and "- Outlook" for the cause of the 1996 shortfall
and a discussion of 1997.

         Because the acquisition of CCPH was not contemplated when Plan 2000 was
developed , the Company  considers  CCPH's  revenues  will be additive to ICRR's
$800 million revenue goal.

         Achieving  Plan  2000 is key to the  Company's  incentive  compensation
programs  because those  programs are dependent on revenue  growth and return on
total  capital  ("ROTC").  In 1995 ICRR's  revenue  growth of 8.4%  exceeded the
revenue goal of 5% but in 1996, as stated, revenues declined 4.2% missing the 5%
goal. For 1997, the Company's growth target is 7.5%.

         In  1996,  ICRR  had an  ROTC  of 12%,  essentially  meeting  threshold
performance and matching 1995's performance. For 1997, the Company's target ROTC
of 11.2%  recognizes that several  capital  projects like the terminals will use
capital but not provide return until 1998.

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   and  includes   CCPH  since  June  13,  1996  (date  of
acquisition).

1996 Compared to 1995

         Total  revenues for 1996 increased from the prior year by $12.2 million
or 1.9% to $657.5 million.  At ICRR revenues  declined $28.0 million following a
3.1% decrease in the number of  carloadings  coupled with a 1.5% decrease in the
average freight revenue per carload.

         Grain and grain mill  accounted  for 17% of ICRR's  carloads and 27% of
ton-miles in 1996. Against 1995, carloads, ton-miles and revenues were down 17%,
31% and 22%  respectively.  Grain  was  clearly  the  primary  cause of the 1996
revenue shortfall.  The comparisons were particularly difficult against a record
grain  carloading  year in 1995.  Illinois'  1995 corn and  soybean  harvest was
abnormally  small  so  that by the  third  quarter  1996  grain  elevators  were
essentially  depleted and the new harvest was still weeks away.  Rail rates were
higher on  average  this year  versus  last;  demand for grain was  strong;  the
product just was not  available to move.  The smaller crop also  affected  grain
mill  since  domestic  processors  were  forced  to  cut  back  on  their  usual
production.


                                       19

<PAGE>



         Coal accounted for 22% of ICRR's carloads and 24% of ton-miles in 1996.
Against  1995,  carloads,  ton-miles  and revenues were down 6%, up 6% and flat,
respectively.  A large coal contract for 25,000 carloads was not renewed in July
1995 as a large  customer  wanted more  aggressive  pricing and went  elsewhere.
Thus,  loads in late 1995 and the  first  half of 1996  compared  with 1995 were
significantly depressed.  However, for a second year in a row, coal margins, and
the return on the assets involved, improved.

         Chemicals  accounted for 15% of ICRR's carloads and 17% of ton-miles in
1996.  Compared with 1995,  ton-miles  were down 2% while  carloads and revenues
were flat. Rail rates,  under pressure in the earlier months of the year, firmed
in the second half.  The softness  observed in the  economy,  especially  in the
first two  quarters was  reflected  in the  building of chemical  manufacturers'
inventories  and softness in our  customers'  pricing.  Our  customers'  markets
firmed in the latter  half of the year so that the Company  came in  essentially
flat in both chemical loads and revenues.

         Paper and Forest  Products at ICRR were 15% of 1996 carloads and 14% of
ton-miles. Total carloads were down 6% while ton-miles and revenues were down 3%
versus 1995. Rail rates held up reasonably  well throughout the year.  Paper and
forest  products  are  economically   sensitive   commodities  that  respond  to
industrial production, housing starts and other basic economic indicators. Fiber
and pulpboard were depressed all year.

         Bulk  Commodities  contributed 6% of carloads and ton-miles in 1996 for
ICRR.  This  represents  carload and revenue  growth of  approximately  4% while
ton-miles were down slightly from the 1995 level. Bulk commodities are primarily
stone and other  construction  materials  and are closely tied to state  highway
projects. This smaller commodity group fluctuates with the timing of projects as
well as the availability of freight cars for this lower-margin business.

         Metals accounted for 4% of ICRR's carloads and 5% of ton-miles in 1996.
For 1996, versus 1995, carloads, ton-miles and revenues were up 9%, 21% and 11%,
respectively.  The steel  industry had another strong year, and ICRR set another
record for metals loads and revenues.

         Finally,  Intermodal  accounted  for  21%  of  ICRR's  loads  and 7% of
ton-miles. Versus 1995, carloads were up 10%, with ton-miles and revenues up 9%.
These  results  were  achieved in an industry  that saw  trailer  rate  weakness
earlier in the year and some weakness in  automotive  parts traffic later in the
year.

         At CCPH,  revenues of $40.2 million were comprised of grain (39%), coal
(19%), chemicals (14%) and all others (28%).

         Operating  expenses  overall  increased $1.5 million or .4% in 1996. Of
the total $416.3 million, $28.3 million was incurred at CCPH for the period June
13, 1996 to December 31, 1996. Labor and fringe costs include the wage increases
of 3% negotiated  with nine of the ICRR's unions and costs for CCPH for the last
half of 1996.  The  decline in this  category is  primarily  the result of lower
traffic  levels,  particularly  grain,  and the elimination of the high overtime
caused by the congestion experienced in 1995. Leases and car hire also benefited
from the elimination of congestion to return to more normal operating levels. In
1995,  favorable  one-time  adjustments on several capital leases were recorded.
Fuel expense  reflects the increase in cost per gallon (13.8%)  partially offset
by decreased usage (9.4%). Increased depreciation is a result of the acquisition
of CCPH. The decrease in casualty, insurance and losses reflects the emphasis on
safety and improved claims

                                       20

<PAGE>



experience.  Other expenses reflect the one-time reversal of non-revenue related
accruals to actual ($2.5  million) and favorable  performance  payments in joint
facilities that congestion in 1995 prevented us from receiving ($.7 million).

         Operating  income for 1996 increased by $10.7 million or 4.6% to $241.2
million for the reasons cited above.

         On October 3, 1996,  ICRR sold its  investments in an  industry-captive
insurance  company,  RAIL, Inc., which resulted in a one-time gain,  recorded as
Other Income Expense, Net, of approximately $7 million or $.07 per share.

         Net interest expense of $34.1 million for 1996 increased 15.6% compared
to $29.5 million in 1995. The 1996 expense  includes $3.6 million from increased
borrowings to support the $109.9 million  transferred  from ICRR in June 1996 in
connection with the  acquisition of CCPH.  Overall in 1996,  average  borrowings
have been greater than 1995 and interest rates have been lower.

1995 Compared to 1994

         Revenues  for 1995  increased  from the prior year by $50.0  million or
8.4% to  $645.3  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, ICRR 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 $19.8 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 ICRR'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.


                                       21

<PAGE>



Outlook

                                     -NOTE-

         This  section is intended to provide an  understanding  of factors that
will impact the Company in 1997 and beyond.  This discussion  contains  "forward
looking  statements" within the meaning of the federal securities laws including
statements of expectations,  beliefs,  plans, and similar expressions concerning
matters that are not historical facts. These statements are subject to risks and
uncertainties  that could cause actual results to differ  materially  from those
expressed in the statements. These risks and uncertainties affecting the Company
are discussed in greater detail in a separate exhibit to the Company's Form 10-K
for 1996.

         Illinois  Central  Corporation  is  now  an  operationally  intergrated
holding  company of freight  railroads and terminals  which are  coordinated  by
operating and marketing  initiatives  to originate,  direct and control  traffic
over our service areas.

         The Company's  principal  subsidiary  remains the ICRR.  However,  as a
result of the CCPH acquisition, the smaller Chicago, Central & Pacific and Cedar
River railroads are now subsidiaries.  As previously mentioned the revenues from
these railroads are considered additive to Plan 2000.

         The Company has also formed a subsidiary, called IC RailMarine Terminal
Company,  to construct and operate an import/export,  dry-bulk handling terminal
on the Lower Mississippi River. And recently the Company made an investment in a
liquid-bulk  storage  and  distribution  terminal  that  has  been  serving  the
petroleum and  petrochemical  industries for more than 15 years. Both facilities
are located just south of Baton Rouge, Louisiana.  The dry-bulk terminal will be
operational  in late 1997 or early  1998.  The  importance  of this  facility is
highlighted in the commodity comments for Metals below.

On a commodity basis:

         GRAIN:  Following a disappointing 1996, the good news is that 1996 corn
and  soybean  harvests  in both  Illinois  and Iowa were  excellent.  The strong
harvests did not immediately translate into improved traffic as farmers withheld
product for better  pricing.  Also,  export demand for U.S.  wheat has fallen in
competition  with  other  wheat-exporting   countries.   However,   world  grain
stockpiles  have been at historic lows and will take several  consistently  good
growing seasons worldwide to fully replenish. Iowa and Illinois together account
for more  than  35% of all the  corn  produced  in the  U.S.;  ICRR and CCPH run
through  some of the richest and most  productive  farmland in the  country.  We
believe  the  fundamental  grain  outlook  over the next  several  years is very
positive  for us,  even as we  recognize  the  vagaries  of the weather and that
export demand for U.S. grains,  from year-to-year,  will always be more volatile
than domestic demand, subject to the expansions and contractions of world supply
as well as international agricultural and trade policies.

         COAL:  Based on our current  projections,  dependent on stockpiles  and
weather in the  service  territories  of the  utilities  we serve,  the  Company
expects to move approximately the same number of loads in 1997 as 1996.

         The subject of coal often evolves to the utility deregulation issue and
its impact on the  Company.  Since coal  transportation  represents a large cost
factor for coal-fired plants, some believe

                                       22

<PAGE>



more  intense  competition  among  utilities,  including  "power  wheeling"  and
"coal-by-wire,"  may cause the pattern of coal movements to shift and rail rates
to come under pressure.  While this may turn out to be an impact on the industry
as a whole  (reflecting  the effects on the  dominant  coal-hauling  railroads),
applying  the  same  logic  to a  niche  player  like  ICRR is  probably  overly
simplistic. The Company doesn't have captive utilities. We compete with low-cost
barge transportation on the Mississippi and Ohio Rivers.

         At  this  point,  there  are too  many  variables  to  know if  utility
deregulation will have a neutral,  modestly positive or modestly negative effect
on the Company long-term. However, it is worth noting that today we enjoy better
margins on coal than we did five years ago.

         CHEMICALS:  Based on the  improved  economy  experienced  in late 1996,
growth of base chemical in 1997 should be consistent with the solid growth rates
seen in the last few  months of 1996.  Growth  beyond  1997  will  come  through
expansions of current  facilities on our line (for example,  Shell and Fina) and
through the addition of new manufacturing  capability.  In this latter category,
Shintech, a subsidiary of Shin-Etsu Chemical Co., has announced  construction of
a major  production  complex  on our  line  near  Geismar,  Louisiana,  which is
expected to begin operation in 1998.

         Two years ago we built in the Chicago area a facility to store  plastic
pellets in bulk and load them for customers into trucks for delivery to non-rail
served  sites.  That facility has proven so  successful,  it will be expanded in
1997 to approximately  double its size.  Additionally,  the liquid-bulk terminal
offers  off-site  storage and handling  capacity to our customers and eventually
will allow them to expand their manufacturing capabilities.

         PAPER AND FOREST  PRODUCTS:  Following  strong demand in 1994 and 1995,
producers  increased  production  capacity  in  1995  and  early  1996.  Now the
producers must struggle with the excess capacity in the industry.  Therefore, we
are not expecting a rapid  turnaround in this commodity  group,  although longer
term we believe we are well-positioned for modest growth.

         One of our largest  customers has been re-tooling a major mill to shift
to long-log  input.  Re-tooling  has not been  completed as quickly as expected,
however, the conversion will benefit us longer term. As we will be able to carry
the raw material into the mill in addition to hauling the finished product.

         Georgia Pacific has completed a major  distribution  center on our line
in northern  Illinois.  As this facility grows  additional  inbound and outbound
carloads will add to paper volumes.

         METALS:  We expect 1997 metals volumes to approximate  this year's very
strong performance.  In late 1997, Birmingham Steel will complete a mini-mill in
Memphis.  This mill  represents  significant new  manufacturing  on our line and
enhances the industrial park for potential future development.

         Metals will benefit from both this new  mini-mill in Memphis and the IC
RailMarine Terminal being constructed south of Baton Rouge.  RailMarine's anchor
customer is a joint venture  between  Birmingham  Steel and GS  Industries.  The
venture was formed to construct and operate a $200 million  direct-reduced  iron
(DRI) plant which will be adjacent to and served by our facility.


                                       23

<PAGE>



         The joint  venture will import iron ore through our terminal into their
facility  to produce  DRI.  The output  will  supply  Birmingham  Steel's and GS
Industries' own mills. Much if not all of Birmingham Steel's share of the output
will become input to their Memphis mill.

         INTERMODAL: This class of traffic is expected to continue its growth in
1997. Although CCP is best known as a grain-hauling  railroad,  we believe there
is  significant  potential for  intermodal  growth,  taking trucks off east/west
Interstate  80 and  Highway  20.  Within  90 days of the  acquisition,  we began
dedicated  intermodal service between Chicago and ramps in Council Bluffs, Sioux
City,  Fort Dodge,  Waterloo and Dubuque.  The  marketplace has already begun to
respond to this new service with higher levels of traffic moving via rail.

         In  August,   the   Burlington   Northern   Santa  Fe  ("BNSF")   began
interchanging  with us at Memphis in a traffic  corridor that stretches from the
West Coast to the  Southeast.  The business  originates and terminates in Mobile
and the arrangement creates a sufficient base of business to allow us to re-open
our previously  underutilized Mobile intermodal ramp.  In addition to serving 
the BNSF, re-opening the Mobile ramp allows us to market our own Mobile-to-
Chicago service offering.

         Recently we began a new  partnership  with  Conrail  which  efficiently
links the southern half of our system to their northeast markets.

         OTHER  GROWTH  OPPORTUNITIES:  One of the  Company's  strengths  is its
diverse customer base including chemical,  grain, coal, forest products,  metals
and intermodal shippers. In addition to our traditional  customers,  the Company
actively  markets its services and  facilities to other  railroads so that today
many of the major  railroads are customers.  Two of the most recent examples are
the  75-acre  Gateway  Intermodal  Terminal we built for the  Canadian  National
Railway and a service and joint  marketing  agreement with BNSF (the "BNSF
Agreement") to move traffic, originating primarily in Texas, north over our 
line.

Other Issues:

         CONSOLIDATIONS:  The  American  railroad  system  has seen  accelerated
consolidation in the last few years and pending  transactions  suggest the trend
will  continue.  Each rail  merger  presents  a risk that rail  traffic  will be
diverted around the Company's railroads.  In the most extreme circumstances rail
mergers could have a material  adverse impact on revenues.  However,  we believe
that the  Company  could  adjust  its  operations  to retain  current  levels of
profitability.  Management expects to continue to monitor  developments and take
actions to mitigate the impact of rail consolidations.  Of course, no assurances
can be given that such consolidations will not have a material adverse affect on
the Company.

         The Company  also  believes  that  consolidations  are not  necessarily
problematic. As is evident in the evolution of the Company over the last several
years,  the  Company  is  inclined  to see a changing  landscape  as a source of
potential new  opportunity for us. And the Company has done well in capitalizing
on new opportunities that have developed out of the consolidation in the West as
reflected by the BNSF Agreement.

          FUTURE  INVESTMENTS:  The Company  continually  considers a variety of
investment opportunities including acquisition of rail and other properties. The
Company is registered as an

                                       24

<PAGE>



interested  potential  bidder  in the  privatization  of  the  Mexican railway
system.  Specifically,  the  Company  is  interested  in the  Southeast 
territory.

Liquidity and Capital Resources

Operating Data ($ in millions):
                                             1996        1995            1994
Cash flows provided by (used for):
 Operating activities..................... $183.9      $177.4          $205.5
 Investing activities..................... (300.6)     (127.0)          (80.4)
 Financing activities.....................  170.9       (69.6)         (111.6)
          Net change in cash and
            temporary cash investments.   $  54.2     $ (19.2)          $  13.5

         Cash from operating activities in 1996, 1995 and 1994 was primarily net
income before  depreciation,  deferred taxes and extraordinary item and 1994 was
also affected by the sales of accounts receivable.

Investing Data

         Additions to property were as follows ($ in millions):

                                            1996          1995             1994
         Communications and signals...   $  12.2       $  10.7          $ 13.8
         Equipment/rolling stock......      29.4          61.5            28.3
         Track and bridges............      57.8          47.0            44.7
         Other........................      25.4           9.6             3.3
                  Total                   $124.8        $128.8          $ 90.1

         For 1996,  Track and Bridges and Other  include  $3.3 million and $16.8
million,  respectively,  for the CN Terminal.  In 1995, Equipment includes $25.9
million for 20 new SD-70 locomotives placed in service in the fourth quarter. In
1996, 1995 and 1994 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 $6.9 million,  $5.4 million,  and $8.2 million in
1996, 1995 and 1994, respectively.

         The Company  anticipates  that  capital  expenditures  for 1997 will be
approximately $172 million. Base expenditures of $93 million will concentrate on
track maintenance, bridges and freight car upgrades. Another $60 million will be
spent on constructing the dry bulk transfer  facility and expanding the recently
acquired liquid bulk transfer  facility  located along the Mississippi  River in
Louisiana.  The Company  expects to fund 40% of the dry bulk  transfer  facility
cash  requirements by the sale of a minority  interest in the terminal.  Most of
the  remainder  of  these  expenditures  are  expected  to be met  from  current
operations or other available sources.


                                       25

<PAGE>



         In June 1996,  following the effectiveness of the order by the STB, the
Company acquired the stock of CCPH Holdings, Inc. (See Note 17.) The Company 
used its own bank credit lines and funds  received from ICRR (a loan of $59.9
million and a $50  million  dividend)  to complete  the $147  million  
transaction.  The acquisition  is being  treated  as a  purchase  and  under  
the  Stock  Purchase Agreement,  the actual purchase price is subject to 
potential adjustments for up to one year.

Financing Activities

         The Company  has a $50 million  364-day  floating-rate  revolving  loan
agreement  which expires in August 1997. In June 1996, the Company  borrowed $40
million under this  agreement to acquire CCPH (see Note 17), which was repaid in
June.  At December 31,  1996,  no amounts  were drawn under this  agreement.  IC
Financial  leases  equipment  to ICRR  and has  approximately  $9.6  million  in
long-term borrowing agreements which were used to acquire locomotive and freight
car equipment during 1993 and 1991. IC Financial lease revenue and corresponding
expense at ICRR,  which is  eliminated in  consolidation,  was $14.4 million for
1996.

         For the three  years  ended  December  31,  1996,  the Company has paid
$126.3  million in cash  dividends  on its  common  stock.  Dividends  from ICRR
($103.2 million in 1996,  $107.7 million in 1995 and $42.5 million in 1994) were
used to fund these payments to stockholders, the acquisition of CCPH and the $60
million stock repurchase in 1995. (See "-Long-Term Equity Enhancement Program.")
Included in the 1996 dividends to the Company is the March 1996 transfer by ICRR
of its ownership in the Chicago Intermodal Company ("CIC") via a dividend of CIC
stock. The book value of the CIC investment was $5.7 million.

         In June 1996, CCPH entered into a revolving  credit  agreement with its
bank lending group for an unsecured $50 million revolving credit facility,  (the
"CCPH  Revolver").  The CCPH  Revolver has a $5 million  sublimit for letters of
credit and  expires in 2001.  The  revolver  can be used for  general  corporate
purposes.  Fees and  borrowing  spreads  are  predicated  on the ratio of CCPH's
funded debt to CCPH's earnings before income taxes,  interest,  depreciation and
amortization ("EBITDA"). Currently, the annual commitment fee is 25 basis points
and borrowings are at the  Eurodollar  offered rate plus 62.5 basis points.  The
credit  agreement  contains  various  financial   covenants   including  minimum
consolidated  tangible net worth, minimum interest coverage and maximum leverage
ratio.  CCPH does not anticipate any difficulty in maintaining  compliance  with
such  covenants.  At December 31,  1996,  $15.5  million of CCPH's  Revolver was
outstanding.  CCPH  used  $5  million  to  repay  amounts  outstanding  under  a
predecessor revolver which was then canceled.

         ICRR has a commercial paper program whereby a total of $200 million can
be issued and  outstanding  at any one time.  The program is supported by a $250
million Revolver with the Railroad's  lending group (see below). At December 31,
1996,  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 $20.0  million  was  outstanding.  The
average  interest rate on commercial paper for the year ended December 31, 1996,
was  5.61%  with a range  of  5.41% to  6.06%.  ICRR  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.  ICRR's public debt is rated Baa2 by Moody's and BBB by
S&P.


                                       26

<PAGE>



         In 1994,  ICRR  entered into a revolving  agreement  to sell  undivided
percentage interests in certain of its accounts receivable,  with recourse, to a
financial  institution.  The agreement,  which expires in June 1998,  allows for
sales of  accounts  receivable  up to a maximum of $50  million at any one time.
ICRR services the accounts  receivable  sold under the agreement and retains the
same exposure to credit loss as existed prior to the sale. At December 31, 1996,
$48  million  had been sold  pursuant  to the  agreement.  Costs  related to the
agreement  fluctuate  with changes in prevailing  interest  rates.  These costs,
which are included in Other  Income  (Expense),  Net,  were $2.9  million,  $3.2
million and $2.2 million for the years ended  December 31, 1996,  1995 and 1994,
respectively.  ICRR's accounting for the sale of accounts receivable is impacted
by SFAS No. 125. As a result, the agreement is expected to be modified to comply
with this new  standard so that the  accounting  and  reporting  for the sale of
accounts receivables will remain unchanged.

         In April 1996, ICRR concluded  negotiations with its bank lending group
whereby the  Railroad's  $250  million  Revolver was amended and  restated.  The
amendment  reduced  various  facility  fees and borrowing  spreads,  lowered the
tangible  net worth  requirement  beginning  in the  second  quarter of 1996 and
extended the expiration date to 2001. Fees and borrowing  spreads are predicated
on ICRR's  long-term  credit ratings.  Currently,  the annual facility fee is 15
basis points and borrowings under this agreement are at Eurodollar  offered rate
plus 22.5 basis  points.  The Revolver is used  primarily  for backup for ICRR's
commercial  paper program but can be used for general  corporate  purposes.  The
available  amount is  reduced  by the  outstanding  amount of  commercial  paper
borrowings  and any  letters  of  credit  issued  on  behalf  of ICRR  under the
facility.  No amounts have been drawn under the Revolver.  At December 31, 1996,
the $250  million  was  limited  to $230.0  million  because  $20.0  million  in
commercial paper was outstanding.

         Certain covenants of ICRR's debt agreements and CCPH's Revolver require
among others specific  levels of tangible net worth but not a specific  dividend
restriction.  At December 31, 1996,  ICRR and CCPH exceeded  their  tangible net
worth covenants by $26.9 million and $22.8 million, respectively.  Both ICRR and
CCPH were in  compliance  with all  covenants at December  31, 1996,  and do not
contemplate any difficulty maintaining such compliance.

         Throughout  1996 and  1995,  ICRR has been  active in the  public  debt
market,  issuing bonds and medium-term  notes ("MTN's").  In December 1996, ICRR
issued $125 million aggregate amount of 100-year 7.7% debentures,  due September
15, 2096.  These bonds may not be redeemed until 2026 and then only at a premium
which declines to par in 2056. In 1995, $100 million 7.75% non-callable  10-year
notes due May 2005 ("2005  Notes")  were  issued.  (See  below.) A total of $230
million in MTN's were issued over the two years as follows ($ in millions):

  Principal                                    Year
   Amount            Coupon            Issued           Matures

    $20              6.27%             1995             1998
     30              6.83              1995             2000
     50              6.98              1996             2007
     50              7.12              1996             2001
     30              6.85              1996             1999
     50              6.72              1996             2001


                                       27

<PAGE>



         The  shelf  registration  from  1995  has  been  fully  used.  A  shelf
registration  from 1996 can be used to issue an additional  $70 million in MTN's
or other debt until 2000. Currently, there are no plans to issue additional debt
but capital  investments  in the terminal  facilities,  other ventures and labor
settlements could necessitate use.

         In 1995,  ICRR 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
2005  Notes 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 MTN's.

         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 has access to the public debt market if needed.

Miscellaneous

         ICRR has entered into various diesel fuel collar agreements designed to
mitigate  significant changes in fuel prices. As a result,  approximately 17% of
ICRR's  short-term  diesel fuel  requirements  through  June 1997 are  protected
against significant price changes.

         The Company has paid approximately $3 million in 1996 and $6 million in
each of 1995 and 1994 for  severance,  lump sum  signing  awards and other costs
associated with various labor  agreements.  Under the terms of local  bargaining
agreements, wages will rise 3%-4% per year.

         In October  1996,  the  Brotherhood  of  Maintenance  of Way  Employees
membership  ratified a new  agreement  which settles wage and work rules through
1999. In January 1997, the United  Transportation  Union ("UTU")  ratified a new
agreement  which  settles  wage and  work  rule  issues  through  2000.  The UTU
agreement is similar to the nationally negotiated agreement in effect with other
Class I carriers. The main distinction is timing of the various lump sum payouts
and scheduled  wage  increases.  ICRR  continues to negotiate with its remaining
operating  union on a local level.  While no agreement is pending,  an agreement
may be reached that requires  significant  lump sum payment.  It is too early to
determine  if a separate  agreement  will be  reached  but  management  believes
available funding sources will be sufficient to meet any required payment.

Long-Term Equity Enhancement Program

         The Company paid its twentieth  consecutive  quarterly cash dividend on
January 8, 1997. 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.

         During  1995,  the Company  completed a $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

                                       28

<PAGE>



repurchases  under the program for 1996.  Further  purchases  are  dependent  on
market  conditions,   the  economy,   cash  needs  and  alternative   investment
opportunities. The Board intends to review stock repurchases 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  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 25  contaminated  sites at 
which it is probably liable  for  some  portion  of any  required  clean-up.  
Of these, 17 involve contamination  primarily by diesel fuel which can be 
remediated without material cost.  Five other sites are expected to require 
more than $1 million in clean-up costs.  At four of these sites  other  
parties are  expected to  contribute  the majority of the costs  incurred.  
The Company  paid  approximately  $2.8 million toward the investigation and 
remediation at all sites in 1996, and anticipates similar expenditures 
annually. 

         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, 1996, the Company  estimated the probable range of its liability to
be $17 million to $53 million, and in accordance with the provisions of SFAS No.
5 had a reserve of $17 million for environmental  contingencies.  This amount is
not reduced for potential insurance recoveries or third-party contributions.

         The risk of incurring  environmental  liability in connection with both
past and current  activities  is inherent  in railroad  operations.  Decades-old
railroad  housekeeping  practices were not always  consistent with  contemporary
standards,  historically the Company leased  substantial  amounts of property to
industrial  tenants,  and ICRR continues to haul hazardous  materials  which are
subject to  occasional  accidental  release.  Because the ultimate cost of known
contaminated  sites cannot be definitively  established  and because  additional
contaminated sites yet unknown may be discovered or future operations may result
in  accidental  releases,  no  assurance  can be given that 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,

                                       29

<PAGE>



based on these known facts and circumstances,  to have a material adverse effect
on the  Company`s  financial  position,  results  of  operations,  cash  flow or
liquidity.

Recent Accounting Pronouncements

         Statement of Financial  Accounting  Standards No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
("SFAS No. 125"), issued by the Financial Accounting Standards Board in 1996 and
effective for 1997,  provides  accounting and reporting  standards for transfers
and  servicing  of  financial  assets and  extinguishment  of  liabilities.  The
accounting for the ICRR's sales of accounts receivable  agreement is impacted by
this standard.  As a result,  the agreement is expected to be modified to comply
with the SFAS No. 125  requirements so that the accounting and reporting for the
sale of the ICRR's accounts receivable will remain unchanged.

         In March 1997, the Financial Accounting Standards Board released FASB
Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). The new statement is
effective December 15, 1997; early adoption is not permitted. When adopted, 
SFAS No. 128 will require restatement of prior years' earnings per share. The 
Company has not determined the effect that the new standard will have on its 
financial statements.

Item 8.  Financial Statements and Supplementary Data

See Index to Consolidated Financial Statements on page 36 of this Report.



Item 9.  Changes in and Disagreement with Accountants in Accounting
            Financial Disclosures
                                      NONE

                                       30

<PAGE>




                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

(a)      See Note below concerning Directors who are not also Executive 
         Officers.

(b)      The  executive  officers  of the Company  are  identified  in the table
         below.  Each  executive  officer  of the  Company  currently  holds  an
         identical  position  with  ICRR and  CCPH.  Executive  officers  of the
         Company,  ICRR and CCPH serve at the pleasure of the respective  Boards
         of Directors.

      Name              Age          Position(s)

 Gilbert H. Lamphere     44   Chairman of the Board of Directors
 E. Hunter Harrison      52   President and Chief Executive Officer, Director
 John D. McPherson       50   Senior Vice President - Operations
 Donald H. Skelton       53   Senior Vice President - Marketing and Sales
 James M. Harrell        44   Vice President - Human Resources
 David C. Kelly          52   Vice President - Maintenance
 Ronald A. Lane          46   Vice President and General Counsel and Secretary
 Dale W. Phillips        42   Vice President and Chief Financial Officer
 John V. Mulvaney        46   Controller

         Biographical Information

         The  following  sets  forth the  periods  during  which  the  executive
officers of the Company have served as such and a brief  account of the business
experience of such persons during the past five years.  Unless  otherwise stated
each individual holds a similar position at ICRR and CCPH.

          Mr.  Lamphere  has been a director  of the Company and ICRR since 1989
and of CCPH since June 1996. 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 ICRR in February  1993 and of CCPH in June 1996.  He
joined the Company 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 in July 1993.  He was named  Senior
Vice  President - Operations in 1994. He also serves as a Director of ICRR,  and
since June 1996 of CCPH. Mr.  McPherson is also a director of the Peoria & Pekin
Union Railroad. Prior to joining the Company

                                       31

<PAGE>



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 in January  1996.  He serves as a director  of ICRR,  and since June
1996 of CCPH.  He joined the Company 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 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 as Vice  President and Chief  Engineer in
1989. In January 1994, he was appointed Vice President - Maintenance.

          Mr. Lane joined the Company as Vice President and General  Counsel and
Secretary in 1990. He also serves as a Director of ICRR,  and since June 1996 of
CCPH.

         Mr.  Phillips was appointed to his present  position in the Company in
April 1990. He also serves as a Director of ICRR, and since June 1996 of CCPH.

         Mr. Mulvaney joined the Company as Controller in June 1990.

         No family relationship  exists among the officers of the Company,  ICRR
or CCPH.

(c)      Pursuant to Item 405 of Regulation S-K, Mr. D.  H.  Skelton's Form 4 
         for November 1996 reflecting the sale of 2,000 shares was filed thirty
         (30) days late.

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 Item 10a, Item 11, Item 12 and Item 13 is
incorporated  by  reference to the sections of the  Company's  definitive  proxy
statement for its 1997 Annual Meeting of  Stockholders  (which is expected to be
filed with the Securities  and Exchange  Commission on or before March 27, 1997)
entitled  Nominees  for  Election as Class III  Directors  who would hold office
until  2000,  Class II  Directors  continuing  in  office  until  1999,  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.

                                       32

<PAGE>



                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)    1.   Financial Statements:

            See Index to  Consolidated  Financial  Statements on page 36 of this
            Report.

       2.   Financial Statement Schedules:

            See  Index to  Financial  Statement  Schedules  on page F-27 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 1996 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:

            On December 4, 1996, a current report on Form 8-K was filed updating
            current year's expected results,  an increase in dividends from $.20
            per  share  to $.23 per  share  and  announcing  the  signing  of an
            agreement with the United  Transportation Union subject to a January
            ratification vote by UTU membership.

            On  December  4,  1996,  a  current  report  on Form  8-K was  filed
            reporting a contract  agreement proposed between the Company and the
            United Transportation Union.

(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.

                                       33

<PAGE>



                                                             SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned, there unto duly authorized.

                                            ILLINOIS CENTRAL CORPORATION

                                                 By:  /s/ DALE W. PHILLIPS
                                                          Dale W. Phillips
                                      Vice President and Chief Financial Officer
                                                   Date: March 19, 1997

     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 and Director       March 19, 1997
    Gilbert H. Lamphere

/s/ E. HUNTER HARRISON   President and Chief Executive Officer    March 19, 1997
    E. Hunter Harrison   (principal executive officer), Director

/s/ DALE W. PHILLIPS             Vice President                   March 19, 1997
    Dale W. Phillips        and Chief Financial Officer
                            (principal financial officer)

/s/ JOHN V. MULVANEY              Controller                      March 19, 1997
    John V. Mulvaney       (principal accounting officer)

/s/  GEORGE D. GOULD               Director                       March 19, 1997
     George D. Gould

/s/ WILLIAM B. JOHNSON             Director                       March 19, 1997
    William B. Johnson

/s/ ALEXANDER P. LYNCH             Director                       March 19, 1997
    Alexander P. Lynch

/s/ SAMUEL F. PRYOR, IV            Director                       March 19, 1997
    Samuel F. Pryor, IV

/s/ F. JAY TAYLOR                  Director                       March 19, 1997
    F. Jay Taylor

/s/ JOHN V. TUNNEY                 Director                       March 19, 1997
    John V. Tunney

/s/ ALAN H. WASHKOWITZ             Director                       March 19, 1997
    Alan H. Washkowitz

                                       34

<PAGE>



                         ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES








                                  F O R M 10-K



                              FINANCIAL STATEMENTS

                         SUBMITTED IN RESPONSE TO ITEM 8

                                       35

<PAGE>








                          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, 1996......................................................... F-2

Consolidated Balance Sheets at December 31, 1996 and 1995................... F-3

Consolidated Statements of Cash Flows for the three years ended
  December 31, 1996......................................................... F-4

Consolidated Statements of Stockholders' Equity and Retained
  Income for the three years ended December 31, 1996........................ F-5

Notes to Consolidated Financial Statements for the three years
  ended December 31, 1996................................................... F-6

                                       36

<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Illinois Central Corporation:

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Illinois  Central  Corporation (a Delaware  corporation)  and subsidiaries as of
December 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1996, 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.


                                                           ARTHUR ANDERSEN LLP


Chicago, Illinois
January 20, 1997

                                       F1

<PAGE>



                  ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
                       Consolidated Statements of Income
                       ($ in millions, except share data)


                                               Years Ended December 31,
                                          1996          1995           1994
Revenues .........................   $   657.5     $   645.3     $    595.3

Operating expenses:
  Labor and fringe benefits ......       192.0         194.8          184.2
  Leases and car hire ............        45.0          46.5           48.6
  Diesel fuel ....................        38.4          33.2           31.5
  Materials and supplies .........        32.9          35.0           35.6
  Depreciation and amortization ..        39.3          33.9           27.4
  Casualty, insurance and losses .        12.1          17.4           23.7
  Other taxes ....................        18.2          18.2           17.6
  Other ..........................        38.4          35.8           26.4
Operating expenses ...............       416.3         414.8          395.0

Operating income .................       241.2         230.5          200.3

Other income (expense), net ......         8.6          (0.2)           1.0
Interest expense, net ............       (34.1)        (29.5)         (28.4)

Income before income taxes and
 extraordinary ...................       215.7         200.8          172.9
Provision for income taxes .......        79.1          71.0           59.0

Income before extraordinary item .       136.6         129.8          113.9
Extraordinary item, net ..........          --         (11.4)            --


Net income .......................   $   136.6     $   118.4     $    113.9

Income per share:
 Before extraordinary item .......   $    2.21     $    2.06     $    1.78

 Extraordinary item, net .........          --         (0.18)           --
Net income per share .............   $    2.21     $    1.88     $    1.78

Weighted average number of shares
  of common stock and common stock
  equivalents outstanding ........   61,877,268    62,885,121    64,088,609


     The  following  notes are an integral  part of the  consolidated  financial
statements.

                                       F2

<PAGE>



                  ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                                ($ in millions)
                                                    
                                                   December 31,     December 31,
                       ASSETS                        1996                1995
  Current assets:
     Cash and temporary cash investments          $   59.2          $     5.0
     Receivables, net of allowance for doubtful accounts
        of $1.3 in 1996 and $2.0 in 1995             107.0               84.8
     Secured financing receivable                     32.6                  -
     Materials and supplies, at average cost          17.3               14.9
     Assets held for disposition                       1.6                7.7
     Deferred income taxes - current                  20.3               19.1
     Other current assets                             10.6                2.6
        Total current assets                         248.6              134.1

  Investments                                         17.5               13.6

  Properties:
     Transportation:
        Road and structures, including land         1375.0            1,052.1
        Equipment                                    261.2              225.6
     Other, principally land                          41.5               41.0
        Total properties                            1677.7            1,318.7
     Accumulated depreciation                        (53.6)             (44.0)
        Net properties                              1624.1            1,274.7

  Other assets                                        21.2               15.1
        Total assets                              $ 1911.4          $ 1,437.5
                  LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
     Current maturities of long-term debt         $    6.3          $    12.4
     Accounts payable                                 60.4               56.6
     Dividends payable                                14.1               11.9
     Income taxes payable                              1.1                5.0
     Casualty and freight claims                      21.1               24.9
     Employee compensation and vacations              21.4               16.9
     Taxes other than income taxes                    17.4               16.3
     Accrued redundancy reserve                        4.9                4.3
     Other accrued expenses                           85.3               61.9
        Total current liabilities                    232.0              210.2

  Long-term debt                                     633.7              383.6
  Deferred income taxes                              356.6              246.2
  Other liabilities and reserves                     133.6              127.4

  Contingencies and commitments (Note 15)

  Stockholders' equity:
   Common stock, par value $.001, 
   authorized 100,000,000 shares,
   64,297,834 shares issued and 61,406,831 shares
   outstanding                                         0.1                0.1
     Additional paid-in capital                      167.1              166.3
     Retained income                                 453.8              368.2
     Treasury stock (2,891,003 shares)               (65.5)             (64.5)
      Total stockholders' equity                     555.5              470.1
      Total liabilities and stockholders' equity  $ 1911.4          $ 1,437.5

  The  following  notes  are an  integral  part  of the  consolidated  financial
statements.

                                       F4

<PAGE>



                 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                                ($ in millions)


                                                       Years Ended December 31,
                                                      1996       1995      1994
Cash flows from operating activities :
   Net income                                     $  136.6   $  118.4  $  113.9
   Reconciliation of net income to 
    net cash provided
      by (used for) operating activities :
         Extraordinary item, net                         -       11.4         -
         Depreciation and amortization                39.3       33.9      27.4
         Deferred income taxes                        36.4       30.7      17.4
         Equity in undistributed earnings 
            of affiliates,
            net of dividends received                 (0.5)      (0.8)     (0.4)
         Net gains on sales of real estate            (1.6)      (0.1)     (2.0)
         Cash changes in working capital             (15.0)      (8.0)     54.3
         Changes in other assets                      (6.1)      (1.7)     (4.4)
         Changes in other liabilities and 
            reserves                                  (5.2)      (6.4)     (0.7)
            Net cash provided by operating 
             activities                              183.9      177.4     205.5

Cash flows from investing activities :
   Additions to properties                          (124.8)    (128.8)    (90.1)
   Acquisitions                                     (152.9)         -         -
   Proceeds from sales of real estate                  3.0        2.5       3.8
   Proceeds from equipment sales                       3.9        2.9       4.4
   Proceeds from sales of investments                  2.3        0.8       2.7
   Secured financing                                 (32.6)         -         -
   Other                                               0.5       (4.4)     (1.2)
    Net cash (used for) investing activities        (300.6)    (127.0)    (80.4)

Cash flows from financing activities :
   Proceeds from issuance of debt                    335.5      250.0     134.7
   Principal payments on debt                        (77.4)    (259.8)   (184.6)
   Net proceeds (payments)  -  Commercial Paper      (37.0)      42.0     (23.1)
   Dividends paid                                    (48.7)     (41.9)    (35.7)
   Stock repurchases                                  (1.0)     (59.8)     (0.2)
   Proceeds from exercise of stock options and 
    warrants                                           0.2        0.1         -
   Purchase of subsidiary's common stock              (0.7)      (0.2)     (2.7)
     Net cash provided by (used for) financing 
      activities                                     170.9      (69.6)   (111.6)
Changes in cash and temporary cash investments        54.2      (19.2)     13.5
Cash and temporary cash investments at beginning 
 of year                                               5.0       24.2      10.7
Cash and temporary cash investments at end 
 of year                                          $   59.2   $    5.0  $   24.2
Supplemental  disclosure  of cash flow  information  : 
Cash paid during the year for:
      Interest (net of amount capitalized)        $   31.6   $   32.1  $   28.9
      Income taxes                                $   50.9   $   31.0  $   42.7

The  following  notes  are  an  integral  part  of  the  consolidated  financial
statements.

                                       F5

<PAGE>



                  ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
       Consolidated Statements of Stockholders' Equity and Retained Income

                          Shares              Equity ($ in millions)
                          (000's)                                     Total
                                         Additional                   Stock-
                          Common    Common Paid-in Retained Treasury  holders'  
                          Stock     Stock  Capital Income   Stock     Equity


Balance 
 December 31, 1993        63,922 $  0.1 $  164.1 $  216.5 $   (3.3)$   377.4


Issuance of Common Stock:

   Exercise stock option       2      -        -                           -

   Restricted stock awards    22      -      0.9                         0.9

Stock repurchased            (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

Issuance of Common Stock:

   Exercise stock options       13      -      0.2                       0.2

   Restricted stock awards       -      -      0.6                       0.6

Stock repurchased              (31)                           (1.0)     (1.0)

Dividends                                           (51.0)             (51.0)

Net income                                          136.6              136.6

Balance 
 December 31, 1996          61,407 $  0.1 $  167.1 $453.8    $(65.5) $ 555.5


The  following  notes  are  an  integral  part  of  the  consolidated  financial
statements.

                                                          F7

<PAGE>



                          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
subsidiaries, Illinois Central Railroad Company ("ICRR") and CCP Holdings, Inc.
("CCPH"),  is principally engaged in the rail freight  transportation  business.
ICRR  operates  2,600 miles of main line track  between  Chicago and the Gulf of
Mexico,  primarily transporting  chemicals,  grain and milled grain, coal, paper
and intermodal commodities.  CCPH has two principal operating subsidiaries - the
Chicago  Central  and Pacific  Railroad  ("CCPR")  and the Cedar River  Railroad
("CRR") - which together comprise a Class II railroad system operating 850 miles
of track. CCPR operates from Chicago to Omaha,  Nebraska,  with connecting lines
to Cedar Rapids and Sioux City,  Iowa.  CRR runs from  Waterloo,  Iowa to Albert
Lea,  Minnesota.   IC  Financial   Services,   the  Company's  remaining  direct
subsidiary,  conducts  financing  operations  for railroad  equipment and is the
investment   vehicle  for  non-rail  related   activities   including   terminal
operations.

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.  Results  for  1996  include  CCPH  from  June  13,  1996  (date  of
acquisition). See Note 17.

         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.
The operating  subsidiaries  use the composite  method of depreciation for track
structure,   other  road  property,  and  equipment.  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 are as follows:
                                                  ICRR       CCPH

     Road properties.............................1% - 8%    2% - 16%
     Transportation equipment....................1% - 7%    8% - 14%

         ICRR's  rates  were  approved  by  the   predecessor   of  the  Surface
Transportation  Board  ("STB"),  an  independent  agency  of the  Department  of
Transportation.


                                       F6

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


          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.

         Derivative Financial Instruments

         The Company has only  limited  involvement  with  derivative  financial
instruments and does not use them for trading purposes.  The Company has entered
into various  diesel fuel collar  agreements  with the  objective of  mitigating
significant fluctuations 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. 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.


                                       F7

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


          Stock-Based Compensation

          The  Company  has  elected  to adopt  SFAS No.  123,  "Accounting  for
Stock-Based  Compensation"  ("SFAS No. 123"), for disclosure  purposes only. The
Company accounts for compensation  under its Long-Term  Incentive Plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 14.

         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.  Purchases in 1994 and
1995 under the  program,  2,475,000  shares of Common  Stock,  were  funded by a
special $60 million  dividend  from ICRR which was  declared in 1994 and paid in
1995.  Further purchases are dependent on market conditions,  the economy,  cash
needs  and  alternative  investment  opportunities.  The Board  determined  that
various  capital needs such as the  acquisition  of CCPH (see Note 17) precluded
stock repurchases under the program for 1996. However,  open market purchases in
conjunction with option exercises did occur in 1996.

4.       Extraordinary Item

         In 1995,  ICRR 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.

                                       F8

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



5.       Other Income (Expense), Net

         Other Income (Expense), Net consisted of the following ($ in millions):

                                                Years Ended December 31,
                                                1996    1995    1994

Rental income, net ........................   $  2.9  $  3.5  $  3.3
Net gains  (losses) on sales of real estate      1.6     (.1)    2.0
Equity in undistributed
   earnings of affiliates .................       .8      .9      .7
Sales of accounts receivable  (see Note 10)     (2.9)   (3.2)  (2.2)
Terminated merger discussions with
   Kansas City Southern ...................       --      --   (2.7)
Sale of RAIL (see below) ..................      7.3      --     --
Other, net ................................     (1.1)   (1.3)   (.1)
   Other Income (Expense), Net ............   $  8.6  $  (.2)$  1.0

          On October 3, 1996,  ICRR sold its  investment in an industry  captive
insurance  company which resulted in a one-time gain of  approximately  $.07 per
share.

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,
                                     1996     1995     1994

Receivables, net ..............   $  (5.1) $ (17.6) $  46.3
Materials and supplies ........       1.0       .8      4.4
Other current assets ..........      (7.5)      .7       .6
Accounts payable ..............     (12.2)     2.2      2.8
Income taxes payable ..........      (8.1)    11.1     (1.3)
Accrued redundancy reserve  ...        .6     (2.5)      --
Other current liabilities .....      16.3     (2.7)     1.5
Cash Changes in Working Capital   $ (15.0) $  (8.0) $  54.3

        ICRR entered into  capital  leases of $7.1 million  covering 328 freight
cars in 1995 and $24.7 million covering 65 locomotives and 1,623 freight cars in
1994. See Note 8 for the present value of the minimum lease payments.


                                       F9

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


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,  1996,  ICRR was party to one  diesel  fuel  collar
agreement  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 $.722 per gallon for
December 1996.  Under the agreement,  ICRR receives or makes monthly payments on
800,000 notional gallons based on the excess or deficiency of the Contract Price
over or under $.55 or $.43 per gallon, respectively.

8.      Leases

        As of December 31, 1996,  the Company leased 5,437 of its cars and 40 of
its  locomotives.  These leases  generally  have original  terms of 15 years and
expire  between  1997 and 2003.  Under the  terms of the  majority  of its lease
agreements,  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, 1996 and 1995,
included  in the  Consolidated  Balance  Sheets  were  $34.5  million  and $23.2
million,  respectively.  The gross  assets under  capitalized  leases were $37.4
million and $40.8 million at December 31, 1996 and 1995,  respectively,  and are
included in Properties in the Consolidated Balance Sheets.

         At  December  31,  1996,  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
1997....................................          $ 6.7           $  25.0
1998....................................            6.3              22.5
1999....................................            6.6              21.4
2000....................................            5.5              13.4
2001....................................            6.6              12.3
Thereafter..............................           14.4              61.4
    Total minimum lease payments........           46.1            $156.0

Less: Imputed interest..................           11.6
    Present value of minimum payments...          $34.5

        Total  rent  expense  applicable  to  noncancellable   operating  leases
amounted to $26.7  million in 1996,  $19.9  million in 1995 and $38.1 million in
1994.  Most of the leases  provide  that the  Company  pay  taxes,  maintenance,
insurance and certain other operating expenses.

                                       F10

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



9.      Long-Term Debt and Interest Expense

        Long-Term  Debt  at  December  31,  consisted  of  the  following  ($ in
millions):

                                                        1996      1995
Equipment obligations, due annually to 2000,  
 6.11% to 9.254% ....                               $    7.8  $    9.7
Debentures and other debt, due 1997 to 2056, 
 4.5% to 10.89% ......                                  27.6      10.2
Debentures, due 2096, 7.7% ......................      125.0        --
Commercial Paper, at average interest rate 5.61% 
 in 1996 and 6.19% in 1995.......................       20.0      57.0
Notes, due 2003, 6.75% ..........................      100.0     100.0
Notes, due 2005, 7.75% ..........................      100.0     100.0
Medium term notes, due 1998 to 2007, 
 6.27% to 7.12% ..............                         230.0     100.0
Capitalized leases (see Note 8) .................       30.4      12.8
Unamortized discount, net .......................       (7.1)     (6.1)

             Total Long-Term Debt ...............   $  633.7  $  383.6

        At December 31, 1996, the aggregate  annual  maturities and sinking fund
requirements  for debt payments for 1997 through 2002 and  thereafter  were $6.3
million,  $46.2 million,  $39.9 million,  $34.3 million,  $127.8  million,  $3.5
million and $382.0 million, respectively. The weighted-average interest rate for
1996 and 1995 on total debt  excluding  the effect of  discounts,  premiums  and
related amortization was 7.2% and 8.0%, respectively.

        In December 1996, ICRR issued $125 million aggregate amount of 100-year,
7.7%  debentures  due September 15, 2096.  These bonds may not be redeemed until
2026 and then only at a premium which declines to par in 2056.

        In 1995,  ICRR 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,  ICRR amended and restated
its revolver with its bank lending group (the "Revolver").

        ICRR has a commercial  paper program whereby a total of $200 million can
be issued and  outstanding at any one time. The commercial  paper is rated A2 by
S&P, P2 by Moody's and F2 by Fitch and is supported by the Revolver.  ICRR views
commercial paper as a significant  long-term funding source and intends to issue
replacement debt as maturities occur. Therefore,  the $20 million outstanding at
December 31, 1996, has been classified as long-term.

          ICRR has a $250 million  Revolver  that expires in 2001.  ICRR pays an
annual fee of 15 basis points on the Revolver  and the  Eurodollar  offered rate
plus 22.5 basis  points for any  borrowings.  The Revolver may be used as backup
for commercial paper and for general corporate purposes. The

                                       F11

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


available  amount is  reduced  by the  outstanding  amount of  commercial  paper
borrowings  and any  letters  of  credit  issued  on  behalf  of ICRR  under the
facility.  No amounts have been drawn under the Revolver.  At December 31, 1996,
the Revolver was limited to $230 million because $20 million in commercial paper
was outstanding.

        CCPH has a floating rate  revolving  loan agreement for an unsecured $50
million (the "CCPH  Revolver").  The CCPH Revolver has a $5 million sublimit for
letters of credit and expires in 2001. The CCPH Revolver can be used for general
corporate purposes.  The annual commitment fee is 25 basis points and borrowings
are at the Eurodollar offered rate plus 62.5 basis points. At December 31, 1996,
$15.5 million was outstanding.

        The Company  has a $50  million  364-day  floating-rate  revolving  loan
agreement  which expires in August 1997. In June 1996, the Company  borrowed $40
million under this  agreement to acquire CCPH (see Note 17), which was repaid in
June.  At December 31, 1996,  no amounts  were drawn under this  agreement.  The
Company's  financing/leasing  subsidiaries  have  approximately  $9.6 million in
long-term  borrowing  agreements  for which the original  proceeds  were used to
acquire a total of 61  locomotives  during 1993 and 1991.  Such  borrowings  are
secured by the locomotives which are leased to ICRR 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 satisfaction of 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,
                                            1996           1995         1994

Interest expense........................   $37.4          $32.2        $31.2
Less:
   Interest capitalized ................     1.7            1.3          1.4
   Interest income......................     1.6            1.4          1.4
Interest Expense, Net...................   $34.1          $29.5        $28.4


                                       F12

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



10.     Receivables

        In 1994,  ICRR  entered  into a revolving  agreement  to sell  undivided
percentage interests in certain of its accounts receivable,  with recourse, to a
financial institution.  The agreement allows for sales of accounts receivable up
to a  maximum  of $50  million  at any one  time.  ICRR  services  the  accounts
receivable sold under the agreement and retains the same exposure to credit loss
as existed prior to the sale.  During June 1995,  the agreement was extended one
year and now expires in June 1998.  At December 31,  1996,  $48 million had been
sold pursuant to the  agreement.  Costs related to the agreement  fluctuate with
changes in prevailing  interest rates.  These costs, which are included in Other
Income  (Expense),  Net,  were $2.9  million,  $3.2 million and $2.2 million for
1996, 1995 and 1994, respectively.

        Statement of Financial  Accounting  Standards  No. 125 ("SFAS No. 125"),
issued by the  Financial  Accounting  Standards  Board in 1996 and effective for
1997, provides accounting and reporting standards for transfers and servicing of
financial  assets and  extinguishment  of  liabilities.  The  accounting for the
ICRR's sales of accounts receivable agreement is impacted by this standard. As a
result, the agreement is expected to be modified to comply with the SFAS No. 125
requirements  so that the  accounting  and  reporting for the sale of the ICRR's
accounts receivable will remain unchanged.

        At December  31, 1996,  the Company had a $32.6  million  receivable  in
connection  with the  secured  financing  of freight  equipment  acquired  by an
unrelated third party. This amount was repaid on January 3, 1997.

11.     Benefit Plans

        All employees of ICRR and CCPH are covered under the Railroad Retirement
System  instead of Social  Security.  Additionally,  various  retirement  plans,
postemployment benefits and postretirement benefits are provided.

        Retirement Plans.

        ICRR 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.  ICRR 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 $1.2 million, $1.1 million, and $1.0
million in 1996, 1995 and 1994,  respectively.  All ICRR contributions are fully
vested upon contribution.

        ICRR 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 the three years ended December 31, 1996.

                                       F13

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


        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.  This plan  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 1996 and
1995 expenses for the plan were $.8 million and $.9 million, respectively.

        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 $1.1 million, $.5 million
and $.3 million were deferred in 1996, 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 1996 and 1995 were not material.

        Unfunded  Plan.  ICRR has an unfunded  plan  whereby 10% of an officer's
combined  salary and bonus in excess of a wage offset factor  ($104,500 in 1996)
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,
$.4 million and $.3 million in 1996, 1995 and 1994, 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 retirement  plans,  ICRR 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 medical cost inflation rate exceeds
9.5%,  and  contains  other  cost  sharing  features  such  as  deductibles  and
co-payments. ICRR'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 ICRR funds these benefits
as claims are paid.

        CCPH provides to employees of CCPR  postretirement  medical  benefits to
age 65 if the employee attained age 60, worked for CCPR's previous owner, worked
for CCPR since it commenced operations and between the two employers rendered at
least 30 years  continuous  service.  These benefits are subject to deductibles,
co-insurance provisions and other limitations. CCPH may amend or change the plan
periodically subject to its union labor agreements. There are no plan assets and
CCPH funds these benefits as claims are paid.


                                       F14

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


        The  accumulated  postretirement  benefit  obligations  ("APBO")  of the
postretirement plans were as follows ($ in millions):

                                                     December 31,
                                                1996                   1995
                                      Medical       Life    Total     Total
Accumulated postretirement benefit
obligation:
 Retirees ........................   $  13.4        2.1    $ 15.5   $  16.4
 Fully eligible active
 plan participants            ....       1.0         --       1.0        .9
 Other active plan participants ..       5.1         --       5.1       3.4
           Total APBO ............   $  19.5        2.1      21.6      20.7

 Unrecognized net gain ...........                           18.3      18.4
 Accrued liability for
 postretirement benefits .........                         $ 39.9   $  39.1

        The  weighted-average  discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 31, 1995. As a result of
the change in general  interest rates on high quality fixed rate  investments in
1996, the Company  increased the  weighted-average  discount rate to 7.75% as of
December 31, 1996.  The change in rates  resulted in  approximately  $.7 million
actuarial  gain.  The  actuarial  gains and losses along with actual  experience
gains,  primarily fewer claims and lower medical rate  inflation,  resulted in a
total $18.3 million unrecognized net gain as of December 31, 1996. 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,
                                               1996               1995
Service costs.........................        $  .2            $    .1
Interest costs........................          1.5                1.7
Net amortization of excess gain.......         (1.2)              (1.2)
Net periodic postretirement
  benefit costs.......................        $  .5            $    .6

         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 11.0% for 1997 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 ICRR's  portion of such costs to 9.5% each year and
caps ICRR'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, 1996,  or the aggregate of the service
and interest cost components of net periodic  postretirement  benefit expense in
future years.


                                       F15

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


12.     Provision for Income Taxes

        The Provision for Income Taxes for  continuing  operations  consisted of
the following ($ in millions):

                                              Years Ended December 31,
                                         1996           1995          1994
Current income tax:
  Federal............................   $38.1          $35.8         $37.5
  State..............................     4.6            4.5           4.1
Deferred income taxes................    36.4           30.7          17.4
Provision  for Income Taxes..........   $79.1          $71.0         $59.0

         The effective  income tax rates for the years ended  December 31, 1996,
1995 and  1994,  were  37%,  35% and 34%,  respectively.  See Note 4 for the tax
benefits associated with the 1995 extraordinary loss.

         At  December  31,  1996,  the Company  for tax or  financial  reporting
purposes had no Federal net operating loss carryovers.

         In 1996,  1995 and 1994 tax benefits of $1.8 million,  $4.3 million and
$5.0 million, respectively, were recorded to reflect the favorable resolution of
prior-period tax issues.

         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,
                                       1996             1995           1994
Expected tax expense computed
 at statutory rate.............   $75.5    35%    $70.3     35%    $60.5    35%
Dividends received exclusion...     (.2)    -       (.1)     -       (.9)    -
State income taxes, net
 of Federal tax effect.........     6.1     3       5.4      2       3.6     2
Favorable resolution of
 prior period tax issues.......    (1.8)   (1)     (4.3)    (2)     (5.0)   (3)
Other items, net...............     (.5)    -      ( .3)     -        .8     -
Provision for Income Taxes.....   $79.1    37%    $71.0     35%    $59.0    34%

         Temporary differences between book and tax income arise because the tax
laws  require that  certain  items of income and expense be treated  differently
than under  generally  accepted  accounting  principles.  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.



                                       F16

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


         Deferred Income Taxes consisted of the following ($ in millions):

                                                 December 31,
                                        1996                      1995
Deferred tax assets..............    $  77.6                  $   80.5
Less: Valuation allowance........       (1.5)                     (1.8)
Deferred tax assets,
    net of valuation allowance...       76.1                      78.7
Deferred tax liabilities.........     (412.4)                   (305.8)
Deferred Income Taxes............    $(336.3)                  $(227.1)

         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 ($63.7 million) and safe harbor leases ($10.8 million). Major types
of deferred tax liabilities are: accelerated depreciation ($376.7 million), land
basis differences ($16.5 million) and debt marked to market ($2.5 million).

         The  liability  for deferred  income taxes  increased by $72.8  million
attributable to the acquisition of CCPH.

         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, 1996,  there were  61,406,831  shares of Common
Stock outstanding. Each holder of Common Stock is entitled to one vote per share
in the  election  of  directors  and  on  all  matters  submitted  to a vote  of
stockholders.  Subject to the rights and  preferences  of  redeemable  preferred
stock,  if any,  each share of Common Stock is entitled to receive  dividends as
may be declared by the Board of Directors out of funds legally  available and to
share ratably in all assets  available for  distribution  to  stockholders  upon
dissolution or liquidation.  No holder of Common Stock has any preemptive  right
to subscribe  for any  securities of the Company.  No shares of preferred  stock
were outstanding at December 31, 1996 and 1995.

        On January 25,  1996,  the Board of Directors  declared a  three-for-two
stock  split on Common  Stock.  The split  was  effected  in the form of a stock
dividend  and was paid March 14,  1996.  Approximately  21 million  shares  were
issued from  declared but  unissued  shares.  Fractional  shares were settled in
cash. The effects of the stock split are presented herein as if it took place as
of the

                                       F17

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


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 its
subsidiaries  to pay dividends to the Company.  Covenants of ICRR's Revolver and
CCPH's Revolver require  specified levels of tangible net worth. At December 31,
1996,  ICRR  exceeded its tangible net worth  covenant by $26.9 million and CCPH
exceeded its tangible net worth covenant by $22.8 million.

        See Note 14 for discussion of restricted stock awards in 1994 and 1993.

14.     Stock Based Compensation

        The Company  grants stock options to employees  and directors  under the
1990 Long-Term  Incentive Plan and has two employee  stock purchase  plans.  The
Company   accounts  for  these  plans  under  APB  Opinion  25  under  which  no
compensation cost has been recognized.

        Long-Term  Incentive Plan. Under the Company's 1990 Long-Term  Incentive
Plan (the  "Long-Term  Incentive  Plan")  3,426,150  shares of Common  Stock are
reserved 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  under the  Executive  Compensation  Plan and to
certain other  individuals who possess the potential to contribute to the future
success of the Company.  This amount includes 300,000 shares added following the
approval of Incentive  2000 for Outside  Directors at the 1996 Annual Meeting of
Stockholders.  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.  Under the  Executive
Compensation  Plan  the  grant  price  is  limited  to fair  market  value.  The
Compensation  Committee  awarded stock options to employees  under the Long-Term
Incentive  Plan for the first time in 1993.  Awards,  all at the closing  market
price on date of grant,  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

                                       F18

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


six months after their date of grant. In 1996, each Outside Director was granted
an option for 37,500 shares in connection  with the Incentive 2000 Plan approved
by the  Stockholders at the 1996 Annual  Meeting.  These options are exercisable
after  December 31, 1999, if the  Company's  stock price is at least $43.000 for
twenty consecutive days from January 1, 2000 until April 30, 2001.

        The  Committee  awarded  22,500  shares and 37,500  shares of restricted
stock to  eligible  employees  of ICRR in 1994 and 1993,  respectively.  No cash
payments  are  required  by the  individuals.  Shares  awarded  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 ICRR is terminated. No shares were forfeited
in 1996. A total of 4,125 shares and 150 shares were forfeited in 1995 and 1994,
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,  43 and 7,632 shares vested in 1996 and 1995,
respectively.  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 $.8 million,
$1.2 million and $.9 million in 1996, 1995 and 1994, respectively.

        Stock Purchase  Programs.  The Company has two stock purchase  programs.
The basic  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.
Costs associated with these programs have been immaterial to date.

                                       F19

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



        The following table  summarizes  changes in shares under options,  after
giving effect to the 3-for- 2 stock split declared in January 1996:

                                          Weighted       Weighted     Weighted
                                            Average   Average Fair     Average
                                 Exercise    Value On   Exercisable    Exercise
                        Options     Price  Grant Date   At Year End      Price

Outstanding 12-31-94  1,063,500    $16.822              478,500        $14.417
Granted                 535,274     23.158    $9.105
Exercised (a)            (4,500)    16.834
Forfeited (a)           (11,250)    20.833
Outstanding 12-31-95  1,583,024     18.936              812,381        $17.007
Granted                 848,250     29.803    $8.247
Exercised (b)           (13,125)    22.367
Forfeited (c)            (3,375)    22.389

Outstanding 12-31-96  2,414,774     22.730            1,269,355        $18.873



(a)      Pre-1995 option awards
(b)      Includes 7,875 pre-1995 option awards
(c)      Includes 1,125 pre-1995 option awards

         The last date  exercisable for options granted to Outside  Directors is
May 8, 2006, and March 8, 2006, for those granted to employees.

         Had the  Company  adopted the  compensation  cost  recognition  methods
outlined in FASB Statement No. 123 "Accounting  for  Stock-Based  Compensation "
("SFAS  123"),  the  Company's  1996 and 1995 net income and  earnings per share
would have been as follows - on a pro forma basis - ($ in millions, except share
data):

                                        1996               1995
                              As Reported  Pro Forma   Actual Pro Forma

Income before Extraordinary Item  $136.6     $135.0    $129.8   $129.3
Net Income                        $136.6     $135.0    $118.4   $117.9
EPS before Extraordinary Item     $ 2.21     $ 2.17    $ 2.06   $ 2.06
EPS - Net Income                  $ 2.21     $ 2.17    $ 1.88   $ 1.88
                             

                                       F20

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


        Because the SFAS No. 123 method of  accounting  has not been  applied to
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost may not be representative of that to be expected in future years.

        Of the options outstanding at December 31, 1996, 1,269,355 have exercise
prices between  $5.333 and $29.375,  with a weighted  average  exercise price of
$18.873,  a weighted average  remaining  contractual life of 8 years and all are
exercisable.  The remaining 1,145,418 options,  which are not exercisable,  have
exercise  prices  between  $16.583 and $37.875 with a weighted  average price of
$27.004 and a weighted average remaining contractual life of 8 years.

        The fair value of each option is  estimated  on the grant date using the
Black-Scholes   option  pricing  models  with  the  following   weighted-average
assumptions:

                                       1996            1995

Risk-free interest rate(s)          6.7% and 7.0%   7.2% and 7.3%
Dividend yields                     3.2% and 2.7%   2.9% and 3.0%
Days to expiration                  3652            3652
Volatility                          31.4%           33.1% and 32.9%

15.      Contingencies, Commitments and Concentration of Risks

         The Company has  unconditionally  guaranteed  its finance  subsidiary's
$9.6 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 $335 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.

         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.

     Environmental  Contingencies.  The  Company  is aware of  approximately  25
contaminated  sites at which  it is  probably  liable  for some  portion  of any
required clean up. Of these, 17 involve  contamination  primarily by diesel fuel
which can be remediated without material cost. Five other sites

                                       F21

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


are expected to require more than $1 million in clean-up costs. At four of these
sites  other  parties  are  expected  to  contribute  the  majority of the costs
incurred.

         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, 1996, the Company  estimated the probable range of its liability to
be $17 million to $53 million, and in accordance with the provisions of SFAS No.
5 had a reserve of $17 million for environmental  contingencies.  This amount is
not reduced for potential insurance recoveries or third-party contributions.

         The risk of incurring  environmental  liability in connection with both
past and current  activities  is inherent  in railroad  operations.  Decades-old
railroad  housekeeping  practices were not always  consistent with  contemporary
standards,  historically the Company leased  substantial  amounts of property to
industrial  tenants,  and ICRR continues to haul hazardous  materials  which are
subject to  occasional  accidental  release.  Because the ultimate cost of known
contaminated  sites cannot be definitively  established  and because  additional
contaminated sites yet unknown may be discovered or future operations may result
in  accidental  releases,  no  assurance  can be given that 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,  based on these known facts and
circumstances,  to have a material  adverse  effect on the  Company`s  financial
position, results of operations, cash flow or liquidity.

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 $52.8 million and $1.4 million included in Cash
and Temporary Cash  Investments as of December 31, 1996 and 1995,  respectively,
have been classified and accounted for as held to maturity securities.

     Investments.  The Company has investments of $11.7 million in 1996 and $8.2
million in 1995 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,

                                       F22

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


the  carrying  amount is a  reasonable  estimate  of fair value.  The  Company's
remaining  investments  ($5.8  million  in 1996 and $5.4  million  in 1995)  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,
                                              1996                 1995

                                      Carrying      Fair  Carrying      Fair
                                        Amount     Value    Amount     Value

Cash and temporary cash investments     $ 59.2   $  59.2   $  5.0     $  5.0
Investments...........................    11.7      11.7      8.2        8.2
Fuel Hedge............................      .1        .1        -          -
Debt..................................  (640.0)   (634.2)  (396.0)    (432.7)

17.        Acquisition of CCP Holdings, Inc.

           On June 12, 1996, ICRR used proceeds it received from the issuance of
Commercial  Paper (average  interest rate 5.52% and average maturity 30 days) to
pay a $50.0 million  dividend to the Company and to loan $59.9  million  (5.625%
per annum) to the  Company.  The  Company  used the $109.9  million and its bank
credit lines to acquire CCPH. The  transaction  closed June 13, 1996,  following
the effective  date of the approval  order issued by the STB. The purchase price
was $147.1 million in cash and the assumption of  approximately  $2.5 million in
debt and approximately  $17.3 million of capitalized lease obligations  existing
on  acquisition  date.  Additionally,  under the Stock Purchase  Agreement,  the
actual purchase price is subject to various potential  adjustments for up to one
year after the closing date.

           The  acquisition  has been accounted for under the purchase method of
accounting.  Accordingly,  the Company has allocated the purchase cost to CCPH's
assets and  liabilities as of June 13, 1996. The allocation of the purchase cost
has been based upon preliminary  estimates.  Revisions to the carrying values of
CCPH's  assets  and  liabilities  will be made as  detailed  studies  of  CCPH's
operations, assets and obligations are completed. In general, the purchase price
allocations will be

                                       F23

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


subject to adjustment for one year following the acquisition for  preacquisition
contingencies and adjustments to the purchase price.

           A summary of the CCPH assets acquired and liabilities assumed at June
13, 1996, after reflecting the preliminary purchase accounting  allocations,  is
set forth below ($ in millions):

Cash and Cash Equivalents  $   4.9  Accounts Payable                 $(16.8)
Accounts Receivable           14.1  Other Current Liabilities         (10.2)
Other Current Assets          12.3  Long-Term Debt                    (21.3)
Properties                   256.0  Deferred Income Taxes             (79.8)
                                    Other Liabilities and Reserves    (12.2)

           The  following   unaudited  pro-forma  results  of  the  Company  are
presented to reflect the  Company's  results of  operations  for the years ended
December 31, 1996, and 1995, as if CCPH had been  acquired on January 1, 1996,
and January 1, 1995, respectively ($ in millions, except share data):

                                         Years Ended December 31,
                                        1996                 1995
                                              (Unaudited)

Revenues                              $697.3                $719.8
Operating income                       255.5                 251.5
Income before extraordinary item       143.2                 135.5
Net income                             143.2                 124.1

Income per share:
 - Before extraordinary item         $  2.32                $ 2.15
 - Net Income                        $  2.32                $ 1.97




                                                         F24

<PAGE>



          18.  Selected  Quarterly  Financial Data - (Unaudited) ($ in millions,
except share data):

                                 First     Second      Third     Fourth
1996                           Quarter    Quarter    Quarter    Quarter

Revenues......................  $162.6     $153.4     $167.9     $173.6
Operating Income..............    60.3       56.4       61.5       63.0
Net income....................    33.1       31.4       32.1       40.0

Net income per share.......... $   .54   $    .51   $    .52    $   .65

1995

Revenues......................  $167.9     $156.6     $161.3     $159.5
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 extraordinary item..... $   .54    $   .47    $   .47    $   .59
Extraordinary item............       -       (.18)         -          -
Net income per share.......... $   .54    $   .29    $   .47    $   .59

1994

Revenues......................  $147.8     $145.6     $147.0     $154.9
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

 Per share  amounts have been  restated to reflect the 3-for-2  stock split that
was declared in January 1996.

Information for 1996 includes results of CCPH for the period June 13, 1996 (date
of acquisition) to December 31, 1996.

                                       F25

<PAGE>













                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES








                                  F O R M 10-K




                          FINANCIAL STATEMENT SCHEDULES

                       SUBMITTED IN RESPONSE TO ITEM 14(a)

                                       F26

<PAGE>







                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES









                                    I N D E X

                                       T O
                          FINANCIAL STATEMENT SCHEDULES
                       SUBMITTED IN RESPONSE TO ITEM 14(a)




Schedules for the three years ended December 31, 1996:

          I-Condensed financial information.............................F-28
         II-Valuation and qualifying accounts...........................F-31

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)



                                       F27

<PAGE>



                                          Years Ended December 31,
                                      1996         1995         1994
   Operating expenses...........  $      0.3   $      0.7   $      0.3
   Operating (loss).................    (0.3)        (0.7)        (0.3)

   Other income (expense), net......    (1.9)        (2.8)        (3.7)
   Interest income (expense), net...    (3.2)        (0.5)        (0.1)
   (Loss) before taxes and earnings
      of subsidiaries...............    (5.4)        (4.0)        (4.1)
   Earnings of subsidiaries.........   137.7        120.9        116.5
   Provision (benefit) for income 
    taxes                               (4.3)        (1.5)        (1.5)

   Net income...................  $    136.6   $    118.4   $    113.9
   Income per share ............  $     2.21   $     1.88   $     1.78

   Weighted average number of shares
      outstanding (thousands) ......61,877.3     62,885.1     64,088.6


          The Notes to Consolidated  Financial  Statements beginning on page F-6
are an integral part of this schedule.

                                       F28

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                  SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
                  Illinois Central Corporation--Parent Company
                            Condensed Balance Sheets
                                 ($ in millions)

                                                          December 31
                                                        1996         1995
             ASSETS
Current assets:
   Cash and temporary cash investments............. $    0.9     $    1.3
   Receivables........................................  49.1          6.5
   Other current assets...............................   0.5            -
      Total current assets............................  50.5          7.8

Investments in subsidiaries........................... 627.8        476.1

Loan to affiliate.....................................  17.1         17.1

Deferred income taxes.................................   1.4          0.5

Other assets..........................................   0.2          0.3
      Total assets................................. $  697.0     $  501.8

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable................................ $   56.8     $   16.8
   Dividends payable..................................  14.1         11.9
   Income taxes payable...............................     -            -
      Total current liabilities.......................  70.9         28.7

Intercompany debt.....................................  67.0            -

Other liabilities and reserves........................   3.6          3.0

Contingencies and commitments

Stockholders' equity:
   Common stock, par value $.001 authorized 
   100,000,000 shares, 64,297,834 shares issued 
   and 61,406,831 shares outstanding                     0.1          0.1
   Additional paid-in capital......................... 167.1        166.3
   Retained income...........................  ...     453.8        368.2
   Treasury stock (2,891,003 shares)..............     (65.5)       (64.5)
      Total stockholders' equity...................... 555.5        470.1

      Total liabilities and stockholders' equity..  $  697.0     $  501.8

                                       F29

<PAGE>



          The Notes to Consolidated  Financial  Statements beginning on page F-6
are an integral part this schedule.
                                       F30

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                  SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
                  Illinois Central Corporation--Parent Company
                       Condensed Statements of Cash Flows
                                 ($ in millions)

                                                      Years Ended December
                                                    1996       1995       1994
Cash flows from operating activities:
   Net income..................................  $  136.6   $  118.4   $  113.9
   Reconciliation of net income to net cash
      provided by (used for) operating activities:
      Deferred income taxes........................  (0.9)      (1.5)       0.4
      Earnings of subsidiaries.....................(137.7)    (120.9)    (116.5)
      Cash changes in working capital:
         Receivables............................... (42.6)      (4.1)       0.4
         Other current assets......................  (0.5)       0.1          -
         Accounts payable...................... ...  40.0        7.9        2.6
         Income taxes payable...................  .     -       (0.4)       2.3
      Changes in other assets......................   0.1        0.1        0.1
      Changes in other liabilities and reserves....   2.3        2.2        0.2
         Net cash provided by (used for) operating 
          activities ....                            (2.7)       1.8        3.4

Cash flows from investing activities:
   Acquisitions ....................................(152.9)        -          -
   Loan to subsidiaries.............................     -     (17.1)         -
   Loan from subsidiaries...........................  67.0         -          -
   Capital contribution to subsidiaries.............  (6.2)     (0.4)      (0.3)
   Dividends received from subsidiaries............. 143.9      107.7      42.5
         Net cash provided by investing activities..  51.8       90.2      42.2

Cash flows from financing activities:
   Proceeds from the issuance of debt............. .  40.0          -         -
   Prinipal payments on debt........................ (40.0)         -         -
   Dividends paid................................... (48.7)     (41.9)    (35.7)
   Stock repurchases................................  (1.0)     (59.8)     (0.2)
   Proceeds from exercise of stock options and 
    warrants......                                     0.2          -         -
         Net cash (used for) financing activities... (49.5)    (101.7)    (35.9)

Changes in cash and temporary cash investments.....   (0.4)      (9.7)      9.7
Cash and temporary cash investments at beginning of
   period...........................................   1.3       11.0       1.3
Cash and temporary cash investments at end of
   period.......................................  $    0.9   $    1.3  $   11.0

Supplemental disclosure of cash flow information: 
 Cash paid during the year for:
      Interest (net of amount capitalized)......  $      -   $      -  $      -
      Income taxes..............................  $      -   $      -  $      -

          The Notes to Consolidated  Financial  Statements beginning on page F-6
are an integral part of this schedule.

                                       F32

<PAGE>



                           ILLINOIS CENTRAL CORPORATION
                                 AND SUBSIDIARIES

                      SCHEDULE II -- VALUATION AND QUALIFYI
                                 ($ in millions)

Year Ended December 31, 1996


                                 Balance At  Additions   Payments    Balance
                                 Beginning    Charged      And        At End
       Classification            Of Year    To Expense  (Charges)   Of Year
Accrued redundancy reserve...  $  33.9     $   2.1     $   5.2     $  30.8
Casualty and other reserves...... 55.7         8.9        19.6        45.0
Environmental.................... 12.9         1.9        (2.4)       17.2
Bad debt reserve.................  2.0         1.8         2.5         1.3
Taxes............................  1.8           -         0.3         1.5
      Total..................  $ 106.3     $  14.7     $  25.2     $  95.8


Year Ended December 31, 1995


                                 Balance At  Additions   Payments    Balance
                                 Beginning   Charged      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


                                  Balance At  Additions   Payments    Balance
                                  Beginning   Charged      And        At End
       Classification             Of Year     To Expense  (Charges)   Of Year
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



                                       F33

<PAGE>




                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX

Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.



2.1    Stock  Purchase  Agreement  dated as of January  17,  1996
       among Illinois Central  Corporation,  CCP Holdings,  Inc.,
       Donald R. Wood,  Jr. and Lyle D. Reed,  and the Ann L. and
       Walter  A.  Drexel  Revocable  Trust  and Reed  Charitable
       Remainder  Unitrust and R. Kevin Trout,  John A. Adair and
       Gregory L. Amys.  (Incorporated  by reference to Exhibit 2
       to the current report on Form 8-K dated as of May 15, 1996
       for  the  Illinois  Central  Corporation.  (SEC  File  No.
       1-10720))

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 dated as of  September  26,
       1989.  (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 dated as of
       September 26, 1989. (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 dated as of
       August 21, 1990. (SEC File Nos. 33-36321 and 33-36321-01))



  * Used  herein to  identify  management  contracts  or  compensation  plans or
arrangements as required by Item 14 of Form 10-K.

                                       E-1

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.

  

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
       dated as of August 21,  1990.  (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
       dated as of September 26, 1989. (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))


                                       E-2

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX

Exhibit                                                            Sequential
  No.                           Descriptions                         Page No.


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))


                               E-3

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX

Exhibit                                                              Sequential
  No.                     Descriptions                                 Page No.


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))

                                                         E-4

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


4.13   Form of Revolving  Credit and Term Loan Agreement  between
       IC Leasing III and the First National Bank of Boston dated
       as of July 5, 1994.  (Incorporated by reference to Exhibit
       4.2  to  the   Quarterly   Report  of   Illinois   Central
       Corporation  on Form  10-Q  for  the  three  months  ended
       September 30, 1994. (SEC File No. 1-10720))

4.14   Toronto   Dominion  Credit   Agreement   (Incorporated  by
       reference  to Exhibit 4.1 to the  Quarterly  Report of the
       Illinois  Central  Railroad  Company  on Form 10-Q for the
       three months ended March 31, 1994. (SEC File No. 1-7092))

4.15   Form of Receivables  Purchase  Agreement dated as of March
       29, 1994,  between  Illinois  Central Railroad Company and
       Golden  Gate   Funding   Corporation.   (Incorporated   by
       reference  to Exhibit 4.2 to the  Quarterly  Report of the
       Illinois  Central  Railroad  Company  on Form 10-Q for the
       three months ended March 31, 1994. (SEC File No. 1-7092))

4.16   Form of Railcar Management Agreement between Interrail and
       IC  Leasing   Corporation  III  dated  December  3,  1993.
       (Incorporated  by  reference to Exhibit 4.1 to the Current
       Report of the  Illinois  Central  Corporation  on Form 8-K
       dated July 29, 1994. (SEC File No. 1- 10720))

4.17   Form of Note Purchase  Agreement  dated as of May 1, 1993,
       between  Illinois  Central  Railroad Company and The First
       National  Bank of Boston  (Incorporated  by  reference  to
       Exhibit  4.1 to the  Registration  Statement  of  Illinois
       Central  Railroad  Company  on Form  S-3.  (SEC  File  No.
       33-61410))

4.18   Form of  Second  Amended  and  Restated  Revolving  Credit
       Agreement dated as of April 2, 1993,  amended and restated
       as of October 27, 1993 and further amended and restated as
       of  November  1, 1994,  among  Illinois  Central  Railroad
       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))


                                                         E-5

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX

Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


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))


                                                         E-6

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX

Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


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))

4.27   Amendment  No. 1, dated as of April 29,  1996 to the Third
       Amended and Restated  Revolving Credit Agreement,  between
       Illinois  Central  Railroad Company and the First National
       Bank of  Boston  initially  dated  as of  April  2,  1993,
       amended and restated November 1, 1994, and further amended
       and  restated  as of  April  28,  1995.  (Incorporated  by
       reference  to  Exhibit 4 to the  Quarterly  Report on Form
       10-Q for the quarter ended June 30, 1996, for the Illinois
       Central  Railroad  Company filed on August 13, 1996.  (SEC
       File No. 1-7092))

4.28   Form of Revolving Credit  Agreement  between CCP Holdings,
       Inc., Chicago,  Central & Pacific Railroad Company,  Cedar
       River  Railroad  Company,  Iron  Horse  Properties,  Inc.,
       Missouri  River Bridge Company and the First National Bank
       of  Boston   and  Bank  of  America   Trust  and   Savings
       Association  dated as of June 14, 1996.  (Incorporated  by
       reference  to  Exhibit 4 to the  Quarterly  Report on Form
       10-Q for the  quarter  ended  September  30,  1996 for the
       Illinois  Central  Corporation  filed on November 8, 1996.
       (SEC File No. 1-10720))

4.29   Form of Indenture  between the Illinois  Central  Railroad
       Company and The Chase  Manhattan Bank,  N.A.,  dated as of
       July 25, 1996.  (Incorporated  by reference to Exhibit 4.1
       of Form  S-3  dated as of May 15,  1996  for the  Illinois
       Central Railroad Company. (SEC File No. 1-7092))


                                                         E-7

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


4.30   Form of Indenture  between the Illinois  Central  Railroad
       Company and The Chase  Manhattan Bank,  N.A.,  dated as of
       May  1996. (Incorporated by reference to Exhibit 4.2 of
       Form S-3 dated as of May 15, 1996 for the Illinois Central
       Railroad Company. (SEC File No. 1-7092))

4.31   Form of Indenture  between the Illinois  Central  Railroad
       Company and The Chase  Manhattan Bank,  N.A.,  dated as of
       July 25, 1996.  (Incorporated  by reference to Exhibit 4.1
       of Form S-4 dated as of December 18, 1996 for the Illinois
       Central Railroad Company. (SEC File No. 1-7092))

4.32   Form of First Supplemental  Indenture between the Illinois
       Central  Railroad  Company and The Chase  Manhattan  Bank,
       N.A.  dated as of  December  17,  1996.  (Incorporated  by
       reference  to Exhibit 4.2 of Form S-4 dated as of December
       18, 1996 for the Illinois Central Railroad  Company.  (SEC
       File No. 1-7092))

4.33   Form  of  Registration  Rights  Agreement  among  Illinois
       Central Railroad Company, Lehman Brothers Inc. And Merrill
       Lynch,  Pierce,  Fenner & Smith  Incorporated  dated as of
       December 10, 1996.  (Incorporated  by reference to Exhibit
       4.3 of Form S-4  dated  as of  December  18,  1996 for the
       Illinois Central Railroad Company. (SEC File No. 1-7092))

4.34   Form of fixed and floating rate Medium-Term Notes Series B
       for the Illinois Central Railroad  Company.  (Incorporated
       by reference to Exhibit 4.3 to the current  report on Form
       8-K  dated as of July 29,  1996 for the  Illinois  Central
       Railroad Company (SEC File No. 1-7092))

10.1*  Form  of  supplemental  retirement  and  savings  plan.
       (Incorporated   by   reference   to  Exhibit  10C  to  the
       Registration  Statement of Illinois Central Transportation
       Co. on Form 10 filed on October 7, 1988, as amended.  (SEC
       File No. 1-10085)) E-8

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX

Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


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 dated as of
       September   26,  1989.   (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))

                                                         E-9

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX
Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


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))


                                                         E-10

<PAGE>



                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES

                                  EXHIBIT INDEX

Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


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))

10.19  Form of Illinois Central Corporation Directors Incentive 2000
       Option Plan (Incorporated by reference to Exhibit 10.1 to the
       Quarterly Report on Form 10-Q for the quarter ended March 31,
       1996, for the Illinois Central Corporation filed on May 10, 1996.
       (SEC File No.  1-10720))

                                                         E-11

<PAGE>





                          ILLINOIS CENTRAL CORPORATION
                                AND SUBSIDIARIES
                                  EXHIBIT INDEX
Exhibit                                                             Sequential
  No.                     Descriptions                                Page No.


10.20* Form of Illinois Central Railroad Company Incentive 2000 
       Plan (Incorporated by reference to Exhibit 10 to the 
       Quarterly Report on Form 10-Q for the quarter ended 
       March 31, 1996, for the Illinois Central Railroad Company 
       filed on May 10, 1996.  (SEC File No. 1-7092))

11     Computation of Income Per Common Share                (Included at E-13)

21     Subsidiaries of Registrant                            (Included at E-14)

23     Consent of Arthur Andersen LLP                                     

27     Financial Data Schedule                                             

99     Provisions of the Private Securities Litigation Reform Act of 1995


                                                         E-12

<PAGE>