Ic Industries, Inc.

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Ic Industries, Inc.

One Illinois Center
111 East Wacker Drive
Chicago, Illinois 60601
U.S.A.
(312) 565–3000

Public Company
Incorporated: August 31, 1962 as Illinois Central
Industries, Inc.
Employees: 43,050
Sales: $4.222 billion
Market Value: $3.325 billion
Stock Index: New York

Illinois Central Industries is the conglomerate that grew out of the Illinois Central Gulf Railroad. The chief engineer of the company’s strategy is William B. Johnson, who joined the struggling railroad in 1966 when it had $300 million in revenues. Prior to joining the Chicago-based company, Johnson was a lawyer for the Pennsylvania Railroad and president of Railway Express Agency.

As president of Illinois Central Railroad, Johnson is heir to a company history dating back to 1851 when a group of European bankers decided to take advantage of the growing railroad business in America. At the onset, the railroad was operated only inside Illinois, but just after the U.S. Civil War the company began a vigorous expansion plan, incorporating more than 200 railroads into its system. By 1867 the railroad had crossed the Mississippi into Iowa, eventually stretching southward through Kentucky, Tennessee, Arkansas, Alabama, Mississippi, and on to New Orleans. Additional Illinois Central lines ran to South Dakota, Minnesota, Wisconsin, Indiana, Missouri and Nebraska. For more than a hundred years the Illinois Central Railroad did its job of hauling freight and passengers up and down the Mississippi Valley and throughout the northern portion of the midwest. No evidence existed of the company’s future expansion outside of the railroad business.

However, on August 31, 1962 the railroad was incorporated as Illinois Central Industries, Inc. And under William Johnson’s leadership the company had a new goal—diversification. The Johnson blueprint called for the building of a consumer and commercial products conglomerate by using company cash and stock to buy other businesses, and company tax credits to shelter their earnings. With the single-mindedness typical of its president, the company began methodically to work toward that end.

The first dramatic step was taken in 1968 when the company ventured into the nonrail business, purchasing the Abex Corporation. Formerly known as American Brake Shoe and Foundry, the company produced brakes, wheels and couplings for railroad cars, brake linings for cars and trucks, hydraulic systems for airplanes and ships, and specialized metal castings for industrial uses such as sugar mills and locomotives.

Sixteen years after this initial acquisition, Johnson bought the Pneumo Corporation, a Boston-based aerospace, food and drug company, for $593 million. Over a year later he orchestrated the merger of Abex and Pneumo, forming the Pneumo Abex Corporation. The Pneumo purchase was viewed as a means of increasing overall revenue. The subsidiary also provided income from its military contracts, and gave credence to Johnson’s theory of growth through acquisition.

In 1970 Illinois Central Industries diversified into the real estate business by becoming a major partner in the Illinois Center. The Center is a complex of office buildings, hotels and condominiums that sprawls across 83 acres of lakefront property in downtown Chicago. In another real estate transaction, the company sold land it owned in New Orleans; the city’s Superdome now rests on this property. Yet Illinois Central Industries maintained ownership of 11 adjoining acres for future developments such as the Hyatt Regency hotel. The company has also developed an array of industrial parks in or near Fort Lauderdale, Memphis and New Orleans.

This diversification toward real estate came at a time of increasing debate over what role the traditional railroad business should play in the evolving structure of the company. The faltering operations, on the one hand, were aided by a merger with the Gulf, Mobile and Ohio Railroad, which was a combination of several railroads including: the Gulf, Mobile and Northern; the Mobile and Ohio; and the Chicago and Alton. The merger was formally completed on August 10, 1972 and the new line was named the Illinois Central Gulf Railroad by the parent company.

The sale of some of the company’s prime property, on the other hand, indicated movement away from continuing the railroad business. Indeed, by the late 1970’s Johnson vacilated back and forth between placing the railroad for sale on the market and then duly removing it. Actually it was the eventual piecemeal sale of the line that proved immensely profitable and solidified Johnson’s reputation as an astute businessman.

When the railroad was first placed on the market, no serious purchaser stepped forward, mainly because Johnson had let the railroad deteriorate through lack of maintenance. Johnson then decided to dismantle the line and sell it part by part. This process was greatly aided by capital improvements and rail deregulation during the mid-1980’s, and Johnson netted handsome profits for his company.

As Johnson’s strategy of diversification unfolded, the company changed its name in 1975 to IC Industries, Inc. Three areas of business were identified as important and company acquisitions fell into these categories: consumer products; commercial products; and railroad activities. The holding company was structured around decentralized management and a growing list of subsidiaries that maintained primarily autonomous operations.

In the consumer products group, a 1978 acquisition brought in the Pet company, the St. Louis, Missouri, firm that produces evaporated milk. Since then the company has expanded into a variety of food products, including Whitman Chocolates and Old El Paso, the best selling brand of Mexican foods in the United States. The enterprise has grown to 30 owned and eight leased manufacturing plants located in America and six foreign countries.

The Hussman Corporation, a manufacturer of refrigeration equipment for food retailers and processors, composed an important branch of IC’s commercial products group. In the early part of the 1980’s Hussmann suffered a slump in sales and profits, but by 1984 the subsidiary regained its profitable standing and earned about $44 million before taxes. Later that same year, Hussmann acquired Riordan Holdings, Ltd., a top producer of food refrigeration equipment, based in London, which served to heighten Hussmann’s overseas profile. There are 20 Hussmann-owned and ten leased manufacturing facilities in the United States, Mexico, the United Kingdom and Canada, as well as three owned and 95 leased branch facilities in these same countries (excluding Mexico) that sell, install and maintain Hussmann products.

The Pneumo Abex Corporation currently manufacturers products that fall into three basic components: aerospace, industrial, and fluid power products. There is stiff competition, particularly in the aerospace business, but IC regards the competition as a challenge to invest more of its dollars and technology in the field, enabling it to compete with larger firms such as Cleveland Pneumatic Company. Industrial products include braking materials for the automotive original equipment and replacement outlets, and safety equipment for recreational vehicles, trucks and automobiles. Products are manufactured for use in mining, earthmoving, steel making and food processing, to name a few. Canadian and United States railroads are markets for iron and composition brake shoes, cast steel wheels and custom-made trackwork manufactured by Pneumo Abex. Fluid power products include complete hydraulic systems that are used in construction and mobile equipment, industrial and marine machinery, materials-handling equipment, off-shore drilling and nuclear power plants. This division also manufactures products for aerospace and general aviation markets, from 33 plants in the United States and 16 in foreign locations.

When market analysts examine William Johnson’s formula for corporate success, which entails pruning acquisitions of all but their most profitable divisions, they most often look to Pet. This is now the largest of IC’s $1.8 billion consumer division. One year following this acquisition, its pre-tax profits almost tripled to an estimated $85 million in 1984, on a revenue increase of 33%. Part of this carefully crafted plan involves selling low-return operations. Over a six year period, 22 of Pet’s units, with sales totalling $400 million, have been sold in order to funnel money into Pet’s more profitable products. In line with the increased demand for ethnic foods, channeling funds into the Old El Paso food products line has helped to rank number one in sales. In 1982 Pet acquired the Wm. Underwood Company in the United Kingdom, producers of Red Devil spreads and B & M baked beans and, in the process, secured a share for Pet in the overseas market. In turn, Pet formed an International Group and in early 1984 brought the Old El Paso line to England. The product is distributed through Underwood’s Shippams meat products operation. Continuing to expand its international divisions, Pet disclosed that in May of 1987, it acquired Facchin Foods Co. Ltd. Facchin is a pasta manufacturer in Edmonton, Canada, which has become part of Primo Foods Ltd., Pet’s Canadian subsidiary. In addition to more than 800 Italian food products, Primo produces Old El Paso Mexican foods and Underwood meat spreads.

Pepsi Cola General Bottlers is the second largest franchise bottler of Pepsi Cola beverages in the United States, claiming the greater share of the soft-drink market in Chicago, Cincinnati, Kansas City and Louisville. This branch of IC’s consumer products group also handles other soft-drinks, including Dad’s Root Beer, 7—Up, Dr. Pepper, Orange Crush, Canada Dry and Hawaiian Punch. In 1984 Pepsi General garnered only minimal profits, partly because of heavily discounted prices and partly because both Pepsi Cola and Coca Cola introduced new products to the consumer. However, for the next two years Pepsi General’s sales growth averaged 7%, outstripping the industry’s as a whole.

Another of IC’s major consumer product holdings is Midas International, a company that makes automotive exhaust systems, suspension systems and brake services through approximately 2,000 franchised and company-owned Midas shops in America, Canada, England, France, Australia, Belgium, Germany, Austria, Panama and Mexico. Originally specializing in replacement mufflers, Midas has broadened its range to include repairing and replacing brakes and shock absorbers at about 95% of its outlets. The expansion of services accounts for the estimated 9% profit growth shown during 1985–86.

The indefatigable William Johnson has twice deferred his own retirement in order to complete his plans for the company of which he has been chairman since 1968. He envisions IC Industries as an outstanding and reliable investment vehicle—a blue chip company. His conglomerate, which receives at least three-fourth of its revenue from nonrail subsidiaries, has recently attracted Wall Street analysts and investors. In 1985, nine separate sales of branch lines belonging to Illinois Central Gulf Railroad produced in excess of $250 million. That amount was realized by selling parts of nonrail businesses that did not meet IC’s profit margin standard, such as Pet’s dairy division, Pneumo’s food and drug store chains, and five ICG Railroad line segments totaling 1,558 miles of track.

IC Industries, Inc. is now an international diversified holding company. Johnson’s timetable calls for the company to concentrate on consumer products and commercial products in the near future, particularly the aerospace bsinesses. In the area of consumer products, Pet plans to introduce new lines and augment its international sales, while Midas has new services and locations on the drawing board. In the area of commercial products, Pneumo Abex will focus on the operations of its aircraft flight control and landing gear business, while Hussmann’s future appears solid because of recent European acquisitions.

In keeping with IC’s record of making a major acquisition every two years, those elements that will complement existing subsidiaries are under consideration. The IC plan is to continue building its empire through market expansion, rigorous cost containment, and greater productivity. Principal Subsidiaries: Mid-American Improvement Corp.; Hussmann Distributing Co., Inc.; IC Equities, Inc.; IC Leasing, Inc.; Illinois Center Corp.; Illinois Central Gulf Railroad Co.; La Salle Properties, Inc.; South Properties, Inc.; IC Products Co.; Bubble Up Co., Inc.; Dad’s Root Beer Co.; IC Industries International; ICP Holding Corp.; BIH Foodservice, Inc.; Midas International Corp.; Pneumo Abex Corp. The company also lists subsidiaries in the following countries: Australia, Austria, Bermuda, Canada, Denmark, France, Italy, Japan, Mexico, The Netherlands, Sweden, Switzerland, United Kingdom, Venezuela, and West Germany.