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LINCOLN ROOM 
 
 UNIVERSITY OF ILLINOIS 
 LIBRARY 
 
ABRAHAM LINCOLN 
 
 AJ^D THE 
 
 ILLINOIS CENTRAL RAILROAD 
 
Abraham Lincoln 
 
 and the 
 
 Illinois Central Railroad 
 
 MAIM LIME OF MID-AMERICA 
 
 ITS ORGANIZATION, FINANCING, AND SUBSEQUENT 
 
 SIMPLIFICATION OF DEBT AND CAPITAL STRUCTURE 
 
 THROUGH MAY 1955 
 
 BY EDWIJ^ S. S. SU^YDERLAJ^D 
 
 NEW YORK • PRIVATELY PRINTED 
 1955 
 
Copyright, 1955, by Edwin S. S. Sunderland 
 
4^ 
 
 5 "^5:^ ci^cL. 
 
 To two remarkable and lovable ladies: 
 
 MY WIFE 
 AND MY 96 YEAR OLD MOTHER 
 
 both of whom were comrades and helpers 
 
 in the development 
 
 of the territory served by the Illinois Central Railroad 
 
 and in the inspiration 
 
 that made this book possible 
 
An examination of the Bibliography of Abraham 
 Lincohi and the lUinois Central Railroad, which is to 
 be fomid at the back of this book, emphasizes the 
 important role that Lincoln played not only as an 
 attorney but as a politician in the organization and 
 development of the Railroad and the growth of the 
 territory that it serves. The organization and financ- 
 ing of the Main Line of Mid-America have been the 
 result of the thought and work of many prominent 
 leaders in America, whose names are given in the text. 
 The construction and acquisition of many small 
 railroads in the Mississippi Valley, each having cre- 
 ated debt, resulted in a complicated debt structure 
 which was unified and simplified during the period 
 1938-1952 under the financial leadership of Eugene 
 W. Stetson, Chairman of the Finance Committee, and 
 the Board of Directors. The accomplishment is set 
 forth in detail in this volume. From 1953 through 
 May 1955 a further accomplishment in this regard 
 has been brought about, one which is worthy of note 
 and is emphasized herein. Great credit, particularly 
 during the last decade, is due to Wayne A. Johnston, 
 the able President, and to his competent cabinet 
 of oflBcers. These improvements are attributable not 
 alone to leadership but also to the thirty-odd thousand 
 men and women who competently and enthusiasti- 
 cally have given their best service to this great enter- 
 prise and to the development of the Mississippi 
 Valley. 
 
PREFACE 
 
 INCLUDING REFERENCES TO CONTENTS 
 
 /rXN December 31, 1952, there was privately printed by the 
 >^^ present author a brochure deahng with the simpUfication 
 of the Ilhnois Central Railroad's debt structure during the 
 period 1938 tlirough 1952. This brochure, largely pursuant to 
 request, was distributed not only to persons connected with the 
 Railroad, but to public libraries, the libraries of chambers of 
 commerce, and those of the colleges and universities in the 
 fourteen states in the Valley of the Mississippi River from the 
 Great Lakes to the Gulf of Mexico. Additional requests were 
 satisfied by a second printing, but copies are no longer avail- 
 able. More importantly, since the date of publication of the 
 brochure, December 31, 1952, many changes have occurred in 
 the debt and capital structure of the Railroad by reason of the 
 issue of roughly $100,000,000 of Bonds, principally for refunding 
 purposes, on terms which have reduced greatly the annual fixed 
 charges on the Railroad's mortgage debt, which is approximately 
 $128,000,000. Approximately $35,000,000 of Debentures have 
 been retired; and approximately $5,000,000 in Sinking Fund 
 Debentures have been issued in order to provide funds at the 
 time expected to be necessary for the redemption of the 6% 
 Preferred Stock, Series A. The small amount of the Debentures 
 recently issued is accounted for by the fact that substantially 
 all of the convertible Preferred stockholders— particularly the 
 Union Pacific Raihoad under the leadership of E. Roland Har- 
 riman, Chairman of the Board of Directors, and Robert A, 
 Lovett, Chairman of the Executive Committee of the Board- 
 have converted their Preferred shares into Common shares. 
 
 C ix ] 
 
In the last two years, a substantial amount of Equipment Trust 
 Certificates have been issued in order materially to advance the 
 Dieselization Program of the Railroad. 
 
 Furthermore, examination of the w^orks and documents 
 enumerated in the Bibliography at the end of this book has 
 impressed the author w^ith the fact that a greater emphasis than 
 has heretofore been given is warranted for the activities of 
 Abraham Lincoln as attorney for the Illinois Central Railroad 
 and as a legislator in connection with the organization and 
 financing of the Raihoad and the growth of the territory that 
 it serves. 
 
 Consequently, before dealing with the expansion of the Illi- 
 nois Central Railroad into the Illinois Central System, and before 
 dealing with the action looking to the simplification of the debt 
 and capital structure of the Railroad beginning in the middle or 
 late 1930's and carried on especially from 1943 through May 
 1955, there is briefly recorded the participation of Abraham 
 Lincoln as an attorney and legislator in the organization and 
 development of the Illinois Central Railroad. This includes the 
 agricultural and industrial development as a result of Federal 
 and state land grants first of the State of Illinois and ultimately 
 of tlie entire territory served by the Illinois Central Raihoad in 
 the Mississippi Valley. 
 
 It has also been deemed important to show statistically in 
 this book the financial results obtained during the last two 
 years, in order that the entire record may be before those who 
 have been concerned with the earfier publication. 
 
 EDWIN S. S. SUNDERLAND 
 
 June 1, 1955 
 
 I X ] 
 
CONTENTS 
 
 Preface 
 
 IX 
 
 I. Abraham Lincoln and the Illinois Central Railroad 1 
 
 Early Illinois Programs for Transportation Development 5 
 
 EfiForts to Secure Federal Aid (Land Grants) 6 
 Charter of Illinois Central Railroad Company (February 
 
 10, 1851) 10 
 Organization and Early Financing of the Railroad 13 
 Lincoln's Activities for the Railroad during Its Construc- 
 tion (1852-1860) 16 
 Lincoln and Politics (1852-1860) 21 
 Growth of Illinois Due to the Railroad ( 1852-1860) 29 
 
 II. The Expansion of the Railroad into the Illinois Central 
 
 System 43 
 
 III. The Simplification of the Debt and Capital Structure of 
 
 the Ilhnois Central Railroad, 1938 through May 1955 51 
 
 The Depression of the 1930's and Its Effect on the Railroad 51 
 The Railroad's Recovery from the Depression— Increased 
 
 Dividends on Its Common Stock 61 
 The Determined Debt Reduction Policy of the Directors 
 
 of the Illinois Central Railroad through 1949 76 
 
 Debt Simplification and Reduction-1950 to 1952 84 
 
 Sale of Series D Consolidated (First) Mortgage Bonds 85 
 
 Sale of Series E Consolidated ( First ) Mortgage Bonds 87 
 
 i xi } 
 
Refunding of Debt at Favorable Interest Rates from 1952 
 through May 1955 
 Sale of Series F Consolidated (First) Mortgage Bonds 
 
 and the Redemption of the $34,743,000 Forty- 
 
 Year 4%% Debentures 
 Sale of Series G First Mortgage Bonds to Refund 
 
 Consolidated Mortgage Series D Bonds 
 
 The Edgewood Cut-Off 
 
 Issue and Sale of $25,000,000 Series G First 
 Mortgage Bonds 
 Sale of Series H First Mortgage Bonds to Refund 
 
 Consolidated Mortgage Series E Bonds 
 Issue and Sale of Twenty-five Year 3/2% Sinking Fund 
 
 Debentures and the Redemption of the 6% Pre- 
 ferred Stock, Series A 
 The Consolidated (First) Mortgage 
 Improvement in Lien, 1949-1955 
 Important Provisions of Consolidated (First) 
 
 Mortgage 
 Conclusion 
 
 89 
 
 89 
 
 90 
 
 91 
 
 92 
 92 
 
 93 
 96 
 97 
 
 100 
 102 
 
 Appendix A. Excerpts from Testimony of the Principal 
 Officers and Certain Directors in the Case of Alexander 
 Cuttmann and Others against the Illinois Central 
 Railroad Company 111 
 
 Appendix B. Simplification of Corporate Structure 113 
 
 Appendix C. Credit Given to Carlton J. Corliss, Author 
 Main Line of Mid-America, Published by the Creative 
 Age Press at the Time of the Railroad's Centennial, 
 February 10, 1951, and to the Members of the "Cen- 
 tennial Committee" 115 
 
 Bibliography 
 
 116 
 
 [ xii ] 
 
PART I 
 
 ABRAHAM LINCOLN 
 
 AND THE 
 
 ILLINOIS CENTRAL RAILROAD 
 
"The Illinois Central 
 
 may well be proud of Abraham Lincoln— 
 
 not because he afterwards became President 
 
 of the United States, 
 
 but because as an attorney he served his client 
 
 superlatively well."— favi. m. angle. 
 
/Abraham Lincoln, in launching his first poHtical campaign 
 ^^ for the office of Representative in the Illinois General 
 Assembly when he had just passed his twenty-third birthday, 
 addressed liis fellow citizens on March 9, 1832. The subject 
 of his statement was internal improvements and the need 
 for transportation bv railroad in Illinois. There is to be found 
 in this statement the following: "No other improvement that 
 reason will justify us in hoping for can equal in utility the 
 railroad. It is a never-failing source of commimication between 
 the places of business remotely situated from each other. Upon 
 the railroad the regular progress of commercial intercourse is 
 not interrupted by either high or low water or freezing weather, 
 which are the principal difficulties that render our future hopes 
 of water communication precarious and uncertain." 
 
 In his statement, and in subsequent campaign speeches in 
 1832, he approved of the established custom and the principles 
 of true republicanism, which make it a duty for a candidate for 
 public office to make known to fellow citizens whom he pro- 
 
 C 1 } 
 
poses to represent his sentiments in regard to the important 
 questions, such as those of raihoads and internal improvements. 
 In his pubhshed statement, addressed to the people of Sanga- 
 mon County, Illinois, he said with great earnestness and clarity 
 that time and experience had verified the public utility of 
 internal improvements. He called attention to the cost that 
 would have to be faced in making the necessary public im- 
 provements. He further stated that there could not justly be 
 any objection to having railroads, canals, and other public 
 improvements other than the question of cost. He referred to 
 public meetings that were being held for the purpose of discuss- 
 ing some easier means of transportation than the county then 
 possessed for exporting the surplus products of its fertile soil 
 and importing necessary articles. 
 
 There are sincerity and earnestness in this declaration. They 
 doubtless grew from the fact that as a young man he had built 
 flatboats and experienced the moving of produce and the ferry- 
 ing of people in creeks and rivers, particularly in the neigh- 
 borhood of his birthplace at Sinking Spring Farm, near Hodgen- 
 ville in Haiden County, Kentucky; also on Knob Creek, a 
 few miles from Gentryville, Ohio, where Thomas Lincoln, his 
 father, had moved. Later much of his time was spent in clearing 
 the snags which interfered with the progress of his ferry and 
 flatboats along the Sangamon River in Illinois. 
 
 Shortly after Lincoln launched his political campaign for the 
 legislatm-e, he responded to the Illinois Governor's call for 
 volunteers to protect the settlers of the Northwestern Frontier 
 against the invasion of the British band of Sac and other tribes 
 of Indians. 
 
 Lincoln organized a mounted company, of which he became 
 captain, serving as such during this first campaign. He not only 
 obtained a sufficient number of men for his cavalry unit but 
 supplied them with arms. On April 28, 1832, he gave his receipt 
 for thirty guns in order to arm completely his cavahy unit, 
 which was then mustered into service. 
 
 Following this successful defense of the settlers of the North- 
 western "frontier. Captain Lincoln and his volunteers received 
 honorable discharges. When the invasion by the Indians was 
 
 [ 2 ] 
 
renewed, he immediatelv re-enlisted as a private. This second 
 invasion was successfullv defeated and he was again honorably 
 discharged. 
 
 At the conclusion of the Black Hawk Wars, he returned to 
 Springfield and his law ofiice. He also resumed his campaign 
 for election to the Illinois Legislature. 
 
 During these war experiences, Captain Lincoln travelled 
 across the prairie and tlie swamplands and dense woods, par- 
 ticularly in the northwestern part of the state. He witnessed the 
 difficult conditions of the terrain. He also had time to reflect 
 on the difficulty of transporting goods and people. Conse- 
 quently, it was very natural and understandable that his mind 
 should turn with greater emphasis toward the problem of 
 organizing a railroad in Illinois and of finding some method of 
 financing its construction and the development of the territor\'. 
 
 In liis political campaigns, Lincoln frequently called atten- 
 tion to the trying traffic conditions which he had vidtnessed 
 during the Black Hawk Wars. He asserted that transportation 
 over the wooded areas and the prairies was practicallv im- 
 possible. He graphically emphasized the fact that the swdft- 
 moving streams, whose force resulted from tlie heavy rains, 
 made men wade breast-deep for hours, pushing the flatboats and 
 the keel boats against the rapid currents. In the swamps, 
 wagons were constantly mired. It was found almost impossible 
 to move freight overland through the black muck and the 
 tangled roads, and the supplies and ammunition of the armv 
 moved with the greatest difficulty. He reported that the soldiers 
 suffered from being constantly wet, and that the necessity to 
 move in the deep mud greatly retarded their progress. It was, 
 consequently, quite natural that Abraham Lincoln made the 
 need for better transportation the subject of his political 
 speeches in 1832 and in 1834, He had heard of the efforts being 
 made in the East to substitute transportation by railroad for 
 water and overland transportation. He knew of the successful 
 effort in New York by Governor De Witt Clinton, who, ha\'ing 
 been the father of the Erie Canal, had turned his attention to 
 the building of a raihoad. He had heard that the first locomo- 
 tive on this railroad was named in honor of Governor Clinton. 
 
 I 3 } 
 

 LINCOLN'S FLAT BOAT ON THE SANGAMON RIVER 
 
It is reported that Lincoln told liis friend Joshua Speed that he 
 was aiming to be the De Witt Clinton of Illinois. 
 
 EARLY ILLINOIS PROGRAMS 
 FOR TRANSPORTATION DEVELOPMENT 
 
 In December 1835, the General Assembly of the State of 
 Illinois had before it at Vandalia, where it was sitting, the verv 
 important measm'e providing for the incorporation of the Cen- 
 tral Raihoad Company, with the necessary authorizations to 
 build and operate a railroad with branches from the mouth of 
 the Ohio River to Galena. This bill, which became a law on 
 January 16, 1836, received the support of Abraham Lincoln and 
 that of his law partner, Jolin Stuart. 
 
 Under the law, the Central Railroad was authorized to issue 
 capital stock to the extent of $2,500,000 upon the condition that 
 not more than five shares of capital stock could be held by any 
 one person. This restriction was designed to prevent the Rail- 
 road from being controlled by a few individuals, especially 
 those resident outside of the State of Illinois. 
 
 A necessary corollary to this eflFort of building a railroad was 
 the passage of legislation under which the lands in Illinois 
 through which the route was to run would become available. In 
 addition, there was the possibility that through sale of adjacent 
 land to settlers and developers help might be secm^ed towards 
 financing the construction of the Railroad as well as the growth 
 of the country. To this end, tlie Internal Improvement Act 
 which was passed by the IlHnois Legislature on February 27, 
 1837, made provision for a network of over 1,300 miles of state- 
 owned railroad extending into many parts of Illinois. Various 
 railroad lines were the subject of consideration in order to make 
 the system available to the grovmig cities throughout the state. 
 
 The project was to be financed by money borrowed by the 
 State of Illinois. The first estimate of the amount required was 
 $10,000,000, but within a short time this estimate was doubled. 
 This involved the government of the state in a commitment for 
 a very large amount. It is estimated that the commitment 
 equalled about $268 for every family then living in Illinois. 
 
 [ 5 } 
 
Abraham Lincoln, as the leader of Sangamon County's "Long 
 Nine," so called because each member of this group of politi- 
 cians averaged over six feet in height, was the most influential 
 member of the Illinois Legislature at that time. He and his 
 associates worked incessantly for the Internal Improvement Bill 
 which, as above stated, provided for a complete network of rail- 
 roads, particularly in the northwestern part of the state, and 
 included railroads running across the state. It also provided for 
 the removal from Vandalia to Springfield of the capital of 
 Illinois. The actual removal of the capital was delayed until July 
 1839, but work was immediately begun on the railroad project, 
 and over $1,000,000 was spent in construction. The costs were so 
 prohibitively large that the Legislature responded to the public 
 insistence that the project be abandoned. 
 
 Further consideration of the project made it clear that the 
 plan in the Internal Improvement Act of 1837 was too ambitious 
 and placed too heavy a burden upon the small number of people 
 resident in the territory. The general subject was, however, 
 revived later. 
 
 Abraham Lincoln was re-elected to the Legislature in 1838, 
 Various plans for carrying on the necessary internal improve- 
 ments of tlie state and the building of a raihoad which would 
 serve the territory were again the subject of intense and active 
 discussions. 
 
 EFFORTS TO SECURE FEDERAL 
 AID (LAND GRANTS) 
 
 The first effort along these lines having failed, the subject of 
 building a railroad was revived in 1842, when Sidney Breese, 
 who had just completed the first lawbook ever published in the 
 state, and who was a native of New York and a first cousin of 
 Samuel F. B. Morse, the inventor of the telegi'aph, announced 
 his candidacy for the United States Senate. He stressed in his 
 campaign the necessity of reviving the Central Railroad plan, 
 with the modification that tlie new railroad should be a private 
 enterprise and not a state project. In the development of this 
 project he had the assistance of Wilham S, Wait, who had come 
 
 [ 6 } 
 
from Maine and had impressed Judge Breese and his associates 
 with his earnestness in advocating the construction of raihoads 
 in lUinois. Thus, at an early date the raihoad project was begin- 
 ning to be viewed as one of national scope and significance and 
 not only as one benefiting the State of Illinois. Indeed, it was the 
 purpose of this endeavor to have a raihoad constructed that 
 would become a part of a great system of rail transportation 
 reaching through Illinois and into the Northeast and Northwest 
 and the South and Southeast. In any such comprehensive plan, 
 it was natural, therefore, to turn to the Congress of the United 
 States. There, it was hoped, would be found the means by which 
 such an ambitious undertaking could be financed. 
 
 As an outgrowth of Abraham Lincoln's enthusiasm, as well as 
 the demand among the electorate for a raihoad and for the 
 necessary internal improvements, the voters supported the new 
 leader in this endeavor, and Breese took his seat in the Senate 
 on March 4, 1843. He devoted liimself unceasingly to obtaining 
 Federal aid in furtherance of this project during his six years 
 as Senator. 
 
 Lincoln, after a vigorous campaign in which he repeatedly 
 emphasized the need for internal improvements and Federal 
 and state land grants to provide for the construction of the 
 Railroad, was elected a member of the United States House of 
 Representatives and took his seat on March 4, 1847. He made 
 his first speech in support of these projects on December 20, 
 1847, only fourteen days after he had taken his oath of office. 
 In his second speech, on December 22, 1847, he presented 
 memorials from his constituents in Illinois urging land-grant aid 
 for the proposed Central Railroad "connecting the upper and 
 lower Mississippi Rivers with the chain of lakes at Chicago." 
 As a member of Congress, Lincoln also presented a Joint 
 Resolution of the General Assembly of Illinois calling for an 
 outright grant of land for the Raihoad project. 
 
 The building of the Railroad and the grant of land in aid 
 thereof was the most important subject debated in the Thirty- 
 first Congress during the ten months of its session, from Decem- 
 ber 1849 to September 1850. At this time, Lincoln had his first 
 
 i 7 ] 
 
debate with Stephen A. Douglas, who came to Illinois from 
 Brandon, near Middlebury, Vermont, home of Middlebury Col- 
 lege, founded fifty years before in 1800. Douglas arrived in 
 lUinois in the autumn of 1833. He was a schoolteacher at first, 
 and during that time he learned the fundamental principles 
 of the legal profession, so that he was able to hang out his 
 shingle as a practicing lawyer at the age of twenty-one. One 
 year later he became State's Attorney for Morgan County, 
 Illinois. Two years more and he was in the Illinois Legislature. 
 Then occurred his first debate with Lincoln. He worked with 
 Lincoln as a fellow member of the Legislature in supporting 
 the Central Railroad feature of the Internal Improvement Bill 
 of 1837. Douglas, however, opposed certain other provisions of 
 the Bill, He became Secretary of State of Illinois when he was 
 twenty-seven years old, and before he reached his twenty-eighth 
 birthday, he was a judge of the Supreme Court of the state. 
 
 In December 1843, several months after Sidney Breese took 
 his seat in the United States Senate, Stephen A. Douglas took 
 his in the House of Representatives. 
 
 During Douglas's campaign for the United States Senate in 
 1846, he pledged to the people of Illinois that if elected, he 
 would direct his efforts to obtaining from the Federal Govern- 
 ment an outright grant of land, instead of the pre-emption 
 rights which had been advocated by Judge Breese. 
 
 Also, he joined with Lincoln in urging upon the electorate, 
 and indeed in promising to it, that he would obtain a branch of 
 the Railroad to Chicago. This promise, perhaps more than any 
 other, resulted in his being elected to the Senate. 
 
 Both Senator Douglas and Senator Breese introduced bills in 
 the Senate in behalf of the Central Railroad. The bill introduced 
 by Judge Breese favored the grant of pre-emption rights directly 
 to a private corporation. Senator Douglas sought a direct grant 
 of land, not to a raihoad company, but to the State of Illinois. 
 Senator Douglas's bill was thoroughly debated and passed the 
 Senate on May 4, 1848. 
 
 Lincoln made an important speech explaining the provisions 
 of the bill when it reached the House of Representatives. In 
 spite of the teamwork between Congressman Lincoln and Sena- 
 
 l 8 } 
 
tor Douglas, in the main supported by Judge Breese, the bill was 
 defeated. 
 
 As a result of this defeat, Douglas di'afted a new bill, which 
 was introduced at the opening of Congi-ess in 1849. Judge 
 Breese had been defeated for the senatorship by General James 
 Shields, but Sliields was both a personal and a political friend 
 of Douglas's and did all in his power to promote the bill. 
 The debates in both houses were participated in not only by 
 Abraham Lincoln, but also by Daniel Webster of Massachu- 
 setts, Henry Clay of Kentucky, and John C. Calhoun of South 
 Carolina, known as "tlie Great Triumvirate." It was in this un- 
 usual political atmosphere that Douglas and his colleagues, 
 including Lincoln, laid tlieir plans for the final fight for the 
 Ilhnois Land-Grant Bill. During these spuited debates, many 
 changes were made in the original bill as proposed by Douglas. 
 Finally, on April 29, 1850, Douglas's bill became the main order 
 of business in the Senate. It called for a grant to IlHnois of a 
 right-of-way through the Federal lands and of alternate sections 
 of land having a width of six miles on each side of the proposed 
 railroad; the railroad was to extend from the junction of the 
 Ohio and Mississippi Rivers to the southern terminus of the 
 State Canal, with branches to Chicago and Galena. The condi- 
 tion of the grant in the bill was that the lands would revert to 
 the Federal Government if the railroad was not be sun within 
 two years and finished within ten. 
 
 This was the first proposal seriously considered for granting 
 lands for aid in the construction of a railroad, notwithstanding 
 that it had been the long-established policy of the Federal 
 Government to gi-ant public lands to aid in building pubhc 
 roads and canals. 
 
 As a recognition of the character of the land— it was wilder- 
 ness and prairie— and the diflBculty of using it for the construc- 
 tion of the raihoad and for development, the price fixed in tlie 
 bill which the Govermnent was to receive for alternate sections 
 which it retained was $2.50 an acre; this was double the mini- 
 mum which was placed by the Government on the alternate 
 sections that were gi-anted to the Railroad. The purpose of 
 this provision was to enable the Government to receive as 
 
 £ 9 } 
 
much for the alternate sections which it retained as it would 
 otherwise receive for the entire area. There were spirited de- 
 bates over this and other provisions of the bill. Senator Henry 
 Clay strongly supported the bill, and in his debate said: "I 
 happen to know something personally of the interior of the 
 State of Illinois. . . . Now, this road will pass directly through 
 the Grand Prairie lengthwise, and there is nobody who knows 
 anything of that Grand Prairie who does not know that the 
 land is utterly worthless for any present purpose— not because 
 it is not fertile, but for want of wood and water and from 
 the fact that it is inaccessible, wanting all facilities for reach- 
 ing a market or for transporting timber, so that nobody will 
 go there and settle while it is so destitute of all the advan- 
 tages of society and the conveniences which arise from a social 
 state. And now, by constructing this road through the prairie, 
 through the center of Illinois, you bring millions of acres of 
 land immediately into the market which will otherwise remain 
 for years and years entirely unsalable." 
 
 On May 3, 1850, the Douglas bill was passed in the Senate by 
 a vote of twenty-six to fourteen. At the time of its passage, 
 President Zachary Taylor was ill, and before the bill reached 
 him for his signature, he died of pneumonia. He was succeeded 
 by Vice President Millard Fillmore, who signed the bill on 
 September 20, 1850. It is reported that not only Senator Douglas 
 and his supporters, including the "Great Whig," Henry Clay, 
 but also Abraham Lincoln and his group, who had worked 
 dihgently for many years to obtain this result, were greatly 
 elated at the successful completion of their efforts. Late in 
 September 1850, Congress adjourned. 
 
 CHARTER OF ILLINOIS CENTRAL RAILROAD 
 COMPANY (FEBRUARY 10, 1851) 
 
 When the Illinois Legislature assembled in January 1851, 
 Lincoln and several of his associates, who had been working for 
 the legislation under which the Illinois Central Railroad might 
 be organized, asked Governor French of Illinois to present to 
 the Legislature the proposal for constmction of the lines as 
 
 [ 10 ] 
 

 ILLINOIS CENTRAL MISSISSIPPI PACKET AT CAIRO 
 
passed by Congress. In this request, it was agreed that the 
 Raihoad would pay tlie State of IHinois in Heu of ad valorem 
 taxes such percentage of the gross earnings of the Raihoad as 
 the Legislature might decide. This provision gave rise to the 
 so-called Charter Tax on the Railroad, whose lines were later 
 constructed 705 miles in length in the state. 
 
 Thus, it came about that the bill to incorporate the Illinois 
 Central Railroad Company was introduced in the Illinois Senate 
 on January 14, 1851, and a substitute bill was introduced in the 
 Assembly on February 5. After much debate and many amend- 
 ments, there was included the requirement that in lieu of other 
 taxes, the Railroad should pay into the State Treasury 5% of the 
 gross operating revenues of the land-grant lines in Illinois, plus 
 a state tax which would have the effect of bringing the total tax 
 up to 7% of the Railroad's gi'oss operating revenues. The unique 
 provision that the Governor of Illinois should serve as a member 
 ex officio of the Board of Directors of the Railroad Company 
 was also added. 
 
 Under the terms of the legislation, the Railroad Company 
 had four years in which to complete its main line as therein 
 described, and six years to complete the branches mentioned in 
 the legislation. 
 
 On Thursday, February 6, 1851, the Illinois Senate passed 
 the Illinois Central bill by a vote of 23 to 2, and on the follow- 
 ing Monday, February 10, the Illinois House of Representatives, 
 including Abraham Lincoln, passed it by a vote of 72 to 2. On 
 the afternoon of the 10th, Governor Augustus C. French affixed 
 his signature to tlie Charter. Thus, after many years of effort on 
 tlie part of Lincoln and his associates, the first Federal land 
 grant to aid in the construction of a railroad was completed and 
 the Illinois Central Railroad Company came into being. 
 
 The Illinois Central Railroad, under the terms of the Con- 
 gressional Land-Grant Act and the IHinois State Charter, re- 
 ceived approximately 2,595,000 of the 11,000,000 acres of public 
 lands in Illinois. There was one provision which had a serious 
 effect on the ability to finance the Raihoad. This provision pro- 
 hibited tlie Railroad from selling any of the lands thus received 
 until the Federal Government had sold all of its lands in the 
 
 [ 12 ] 
 
alternate sections within the land-grant zones. It meant that 
 the Railroad had to look elsewhere to finance the initial con- 
 struction. This was because it could not and did not receive 
 sufficient proceeds from the sale of the grant-in-aid lands until 
 later. 
 
 ORGANIZATION AND EARLY 
 FINANCING OF THE RAILROAD 
 
 On March 19, 1851, five weeks after the granting of the 
 Charter, tlie incorporators of the Illinois Central Raihoad Com- 
 pany met at No. 1 Hanover Street, New York City, to complete 
 the organization of the Company and to develop plans for 
 financing construction. At this first meeting of the incorporators, 
 and at the meeting of its first Board of Directors which fol- 
 lowed, Augustus C. French, Governor of Illinois, in his capacity 
 as ex officio member of the Board in accordance with the terms 
 of the Charter, was present and acted with the other Directors 
 in developing plans for financing construction. At the meeting 
 of the incorporators, sufficient funds were raised by those pres- 
 ent to make the guaranty-of-good-faith deposit of $200,000 with 
 the State of Illinois, in accordance with the requirement of the 
 Railroad's Charter. There was also raised at that time $300,000 
 to meet the expenses of the organization of the Raihoad. The 
 Board elected Robert Schuyler, an Eastern capitalist, as Presi- 
 dent. 
 
 In April 1851, the President submitted to the Board a finan- 
 cial plan, which was adopted. The plan provided for the issue 
 of $17,000,000 of Construction Bonds secured by a mortgage on 
 the 2,000,000 acres of the Railroad's lands, as well as the right- 
 of-way and the other assets of the Raihoad, and provided for 
 the setting aside of 250,000 acres of land as security for the 
 payment of interest on the Construction Bonds. 
 
 The Bonds were to be issued under a Deed of Trust dated 
 September 1, 1851. They matured on April 1, 1875. All proceeds 
 from the sale of the lands granted to the Railroad (other than 
 those set aside for interest) were required to be applied to the 
 retirement of the Bonds. 
 
 One million dollars of capital stock was required by the 
 
 [ 13 } 
 
Charter, and it was provided therein that this might be in- 
 creased from time to time to an amount which would not exceed 
 the cost of the road and appurtenances. All of the stock, accord- 
 ing to the plan, was to be held by the Directors and their 
 friends, so that the control of the Railroad would remain in 
 their hands. 
 
 Thus, it came about that the success of the financing of the 
 Illinois Central depended upon the sale of the Construction 
 Bonds. 
 
 The Directors engaged the former Secretary of the Treasury 
 in the Cabinet of President Polk, Robert J. Walker of Missis- 
 sippi, to seek funds abroad. He was authorized to negotiate for 
 the sale in the United States (if he was unable to sell them 
 abroad) of from $5,000,000 to $10,000,000 principal amount of 
 Illinois Central Construction Bonds. With Captain David A, 
 Neal of Salem, Massachusetts, and President Schuyler, Walker 
 sailed for Livei^pool on September 13, 1851. In England, they 
 called upon the political leaders of that day for assistance in 
 obtaining funds for the Illinois Central. Among such leaders 
 were Palmerston, Bright, and Cobden. Negotiations were con- 
 ducted with the great banking firm of Baring Brothers, with 
 George Peabody, the noted banker who was associated with 
 Junius S. Morgan, and with several other banking firms. After 
 two months of strenuous negotiations. Walker and Neal failed 
 to obtain subscriptions to the Construction Bonds or a loan of 
 any kind even though any loan was to bear 6% interest and was 
 to be secured by some 2,000,000 acres of Illinois land. 
 
 Finally, in January 1852, Captain Neal, after many efforts to 
 obtain financial support not only from Baring Brothers, but 
 from the Rothschilds and other important financial groups in 
 the City of London, returned to New York. 
 
 During the absence abroad of President Schuyler and Captain 
 Neal, several of the Directors had made progress in the sale of 
 Construction Bonds in the United States. The incorporators 
 themselves and the Directors and bankers in Boston, Hartford, 
 New York, and Philadelpliia had subscribed for some $4,000,000 
 of 7% Construction Bonds at par with the privilege of purchas- 
 ing ten shares of stock at par for each $1,000 of Bonds held. 
 
 t 14 } 
 
This accomplishment encouraged the financial world, and 
 when news reached London, the matter was reconsidered, and 
 by August 1852 a London loan of $5,000,000 bearing interest at 
 6% was fully subscribed. This subscription, together with the 
 sale of the $4,000,000 of Construction Bonds in America— a total 
 of $9,000,000— improved tlie credit of the Illinois Central so 
 that the Railroad was able to complete negotiations with British 
 iron manufacturers, who in the light of the success of the 
 financing plan were ready to accept Illinois Central Bonds at 
 par in payment for large quantities of iron rails needed for 
 construction. Initial contracts were made with British manu- 
 facturers for some 80,000 tons of rail and other iron. This 
 purchase was the largest that had been made up to that time 
 by any one company. 
 
 Following the sale of the Construction Bonds, tlie credit of 
 the Raihoad improved to the point where it was able to buy 
 additional iron rail and iron for construction purposes. To this 
 end, representatives of the Raihoad met with several City 
 of London bankers, among them the American-bom London 
 banker and financier, George Peabody, a partner of Junius S. 
 Morgan, father of J. Pierpont Morgan and one of the founders 
 of Morgan, Grenfell and Company of 18 Old Broad Street in the 
 City of London. These gentlemen greatly assisted the repre- 
 sentatives of the Railroad in making necessary purchases. 
 
 In the 1850's, the 705 miles of railroad, the so-called Charter 
 Lines, to be constructed in Illinois made up the largest trans- 
 portation project, in mileage and in cost, up to that time in the 
 history of the country. The financing of this project was an 
 enormous undertaking. The Erie Canal covered a distance of 
 some 360 miles from Albany to BuflFalo and had cost the State 
 of New York over $12,000,000. The Erie Raihoad had built lines 
 covering some 337 miles at a cost of about $20,000,000 raised 
 by corporate financing. The construction and equipment of rail- 
 roads in the East had cost per mile from $60,000 to $120,000. 
 
 The fact that the Illinois Central was to be a water level route 
 with minimum grades and curves, due to relatively level topog- 
 raphy and the absence of heavy forests, led to the belief that 
 its single-track lines could be constructed and equipped at less 
 
 [ 15 ] 
 
than one-half the minimum eastern figure, or $30,000 per mile. 
 This opinion was confirmed by the actual costs. The financing 
 even of these lower costs, however, was a tremendous affair. 
 This was particularly true because of the public demands for 
 construction of branches to growing centers of population, such 
 as the 200-mile branch to Chicago, which had at that time less 
 than 50,000 inhabitants. 
 
 Chicago granted to die Illinois Central in June 1852 a 300- 
 foot right-of-way, then in the bed of Lake Michigan, on which 
 to enter the city. Chicago had no paved streets and its sidewalks 
 were made of planks hewed from the forest. It had no protec- 
 tive wall against the high waters created by storms on Lake 
 Micliigan. The right-of-way ran between Twelfth and Randolph 
 Streets, some 400 feet east of the west line of Michigan Avenue. 
 In consideration of this grant, the Illinois Central was required 
 to construct and maintain a breakwater from the Chicago River 
 to the city limits. 
 
 The development of this unusual railroad entrance to the 
 city involved the purchase of the giounds on which the old 
 Fort Dearborn Reservation had been built. This purchase by 
 the Railroad was made from the War Department of the 
 Federal Government for the sum of $45,000. The Railroad also 
 purchased from private landowners substantial acreage and 
 riparian rights upon which to build its station, yards, and shop 
 facilities. 
 
 Thus, the Raihoad made an important investment in the lake 
 front real estate of Chicago, wliich after 100 years of economical 
 railway use became, and now is, a valuable asset.* 
 
 LINCOLN'S ACTIVITIES FOR THE RAILROAD 
 DURING ITS CONSTRUCTION (1852-1860) 
 
 In view of the fact that Abraham Lincoln was employed by 
 the lUinois Central as its attorney during the eight-year period 
 
 " In 1952, after freeing the air rights of this property by the refunding and 
 extinguishing of many mortgage Hens by the creation of the First Consohdated 
 Mortgage of 1949, the first important sale of air rights was made to the Pruden- 
 tial Life (Assurance) Insurance Company of America in order that it might 
 build its forty-one-story Mid-America office building, which is estimated to cost 
 
 C 16 } 
 
when the hne to Chicago was built and the Fort Dearborn 
 property was acquired, it would appear that he was extremely 
 active in this unusual development. During the construction 
 of the Chicago branch, he was retained by the Railroad and 
 was regularly employed by it until his nomination for the 
 Presidency of the United States in 1860. 
 
 The Railroad issued fifty years ago a brochure entitled 
 Abraham Lincoln as Attorney of the Illinois Central Railroad 
 Company. This brochure contains reproductions of original 
 documents in Lincoln's handwriting. Its text records that Mason 
 Brayman, the General Counsel of the Raikoad in the early 
 1830's, who retained Lincoln and who was afterwards a General 
 in the Union Army, and James F. Joy, who later was General 
 Counsel for the Railroad and with whom Lincohi was associated 
 in the most important case involving the Illinois Central Rail- 
 road—the McLean County tax case— consulted with Lincoln as 
 attorney in matters generally affecting the Railroad and em- 
 ployed him to try many cases in various parts of the state. 
 
 When Abraham Lincohi was practicing law at Springfield, 
 soon after the incorporation of the Illinois Central on February 
 10, 1851, he received an appointment as one of the attorneys 
 of the Railroad, which is shown bv these documents and other 
 records still in existence. Some of them are reproduced in the 
 brochure published in 1905. 
 
 In reproductions of Lincoln's own handwriting in that bro- 
 chure, it appears that he dealt with an important Constitutional 
 question involving the terms of the Special Charter of the 
 Railroad. The question was: "Can there be any valid pre- 
 emption of sections of land, alternate to the sections granted to 
 the Illinois Central Raihoad Company?" After stating that the 
 Illinois Central Railroad had asked his opinion on this question, 
 he begins his opinion by writing: "This is a legal construction 
 of 'an act to appropriate the proceeds of tlie sales of the public 
 lands, and to grant pre-emption rights'. Approved Sep. 4, 1841, 
 5 U. S. Stat, at Large 453." The opinion continues by revievdng 
 
 in the neighborhood of $50,000,000. This is the first building of what promises 
 to be one of the most outstanding office building developments in any city in 
 America. 
 
 [ 17 } 
 
the various provisions of this and other statutes and concludes 
 under date of March 6, 1856, as follows: "The final allotment of 
 the alternate sections to the Illinois Central Railroad Company 
 by the General Land Office was made on the 13th day of March 
 1852— It is my opinion that persons who settled on these re- 
 served sections prior to the date of said 'final allotment' might 
 have valued preemptions; and that those who settled thereon 
 after the date of said allotment, cannot." 
 
 It is significant that the question dealt with in the above- 
 mentioned opinion was fitigated in the Courts of Illinois. The 
 Supreme Court of the state held in harmony with Lincoln's 
 opinion {Walker v. Herrick, 18 Illinois Supreme Court Reports 
 at p. 570). 
 
 Abraham Lincoln was associated with Brayman and Joy in 
 the much-discussed McLean Countij tax case against the Illinois 
 Central Railroad Company. It unquestionably was the most 
 important case ever handled for the Railroad by Lincoln, and 
 it is the case that has attracted the most attention on the part 
 of Lincoln biographers and students. Its significance was very 
 great during the Panic of 1857, when the Attorney General of 
 the state brought it against the Railroad. It would have been 
 fatal to the solvency of the Raihoad had Abraham Lincoln not 
 won it and relieved the Railroad from the payment of the 
 taxes alleged to be due by the tax officers not only of McLean 
 County, but of other counties through which the Railroad ran. 
 The case has always been recognized as one of the most im- 
 portant, if not the most important, that had come before the 
 Courts of Illinois. It was important not only to the Railroad, but 
 also to the state at this stage of the depression. Had the Court 
 determined that the counties could assess the Railroad, notwith- 
 standing the Charter provision fixing the amount of the tax, the 
 Railroad would have been bankrupt. In other words, if every 
 county and municipality, notwithstanding the provision in the 
 Charter, could levy taxes against the Raihoad, the result would 
 have been intolerable. On the other hand, if the Court should 
 decree, as indeed it did, that tlie Charter tax provision was 
 Constitutional, then the danger to botli the state and the Rail- 
 road was removed. Injunctions against the tax collectors were 
 
 [ 18 ] 
 
filed by Brayman and Gridley, with whom Lincoln was asso- 
 ciated as counsel for the Illinois Central. Both were friends and 
 neighbors of Lincoln's, and it is said that Brayman regarded 
 him as one of the ablest lawyers in Illinois. Following the report 
 of Lincoln's success in this case, the Illinois Central in its 
 brochure refers to the largest legal fee that he had ever received 
 and up to that time the largest paid by the Raihoad. Lincoln 
 brought suit to collect it. In referring to this— photographic 
 copies of such proceedings being in Abraham Lincoln's own 
 writing in his case in assumpsit against the Railroad, No. 1475— 
 the brochme states: "It was intimated to Mr. Lincoln, how- 
 ever, that if he would bring suit for his bill in some court 
 of competent jurisdiction, and judgment were rendered in 
 his favor, the judgment would be paid without appeal." There- 
 upon he brought suit in assumpsit in the Circuit Court of 
 McLean County at the April term, 1857. The case was tried 
 by Lincoln before Judge David Davis (who afterwards was a 
 Justice of the Supreme Court of the United States ) as the pre- 
 siding judge of the Circuit Court. The jury returned a verdict 
 for Lincoln in the amount due in accordance with his claim, and 
 judgment was rendered in his behalf. The judgment was en- 
 tered on Tuesday, June 27, 1857. 
 
 It is most likely, as stated by the Raihoad, that its then 
 General Counsel had advised Lincoln that while he recognized 
 the value of Lincoln's services, still, the payment of so large a 
 fee without protest to a Western country lawyer would em- 
 barrass him with the Board of Directors in New York, who 
 would not understand, as would a lawyer, the importance of the 
 case and the consequent value of these services. 
 
 There appears in the brochure a photograph of Lincoln taken 
 at the time he was an attorney for the Illinois Central Raihoad 
 in the early '50's, and some ten years before he left for Wash- 
 ington following his nomination for the Presidency. There also 
 appears a photograph of the pass issued by the Railroad, No. 
 312C, dated December 1857, directing: "Pass Hon. A. Lincoln, 
 Attorney for Company until December 31, 1858, unless other- 
 wise ordered. Signed by J. C. Clark, Superintendent." The 
 documents in possession of the Railroad indicate that passes 
 
 C 19 ] 
 
were issued to Lincoln during the '50's. In those days, a pass 
 was issued to a lawyer when he was retained by the Railroad. 
 
 Lincoln's personal services as a surveyor and an attorney were 
 rendered principally for the Railroad. From the time when his 
 family came to Illinois in 1830 until he left for Washington to 
 take the oath of office as President in 1861, he moved exten- 
 sively about Illinois, first as a candidate for the Legislature and 
 later as a member thereof, as a Congiessman, and also as 
 attorney for the Railroad. Thus, he became well known in many 
 Illinois Central cities and towns. He handled various cases for 
 the Railroad not only in the Illinois Eighth Judicial Circuit, but 
 in the Supreme Court of the state. The knowledge that he had 
 gained as a legislator made him unusually useful to the Railroad 
 in several suits involving attempts to assess taxes by the state and 
 by many of its counties. As stated above, the McLean County 
 tax case is said to have been his most important legal victor^^ 
 Indeed, Paul M. Angle, one of his biogi'aphers, speaks in his book 
 of Lincoln's professional services for the Railroad as follows: 
 "The Illinois Central may well be proud of Abraham Lincoln— 
 not because he afterwards became President of the United 
 States, but because as an attorney he served his client superla- 
 tively well." 
 
 It is generally agreed that the legal fees received by Lincoln 
 from the Railroad enabled him to finance and carry on his in- 
 creasing political activities in the state and the rest of the 
 nation, including his important debates with Senator Stephen 
 A. Douglas.* It is probable that these activities so effectively 
 brought him to the attention of the people of the whole country 
 that he was elected President. Also, it is likely that his public 
 
 * Allan Nevins, referring to the $5,000 fee that Lincoln received in the 
 McLean tax case, wrote as follows: "The sum was important, for it enabled 
 Lincoln the next year to drop his law business for the senatorial campaign. Still 
 other important cases might be mentioned." The Emergence of Lincoln, Charles 
 Scribner's Sons, p. 356. Nevins (ibid., p. 356, fn. 14) also quotes from a speech 
 made by Senator Douglas at Henry, Illinois, as reported in the Chicago Daily 
 Times of October 5, 1858: "Can you Republicans deny that this day and this 
 hour your candidate, Abraham Lincoln, is the agent and attorney of the Illinois 
 Central Railroad, making stump speeches on its money? Can you deny that he 
 received from the company a single fee of $5,000 for procuring a decree releas- 
 ing its property from tax action in McLean County, thus taking the side of the 
 company against the people whose votes he is now asking?" 
 
 [ 20 } 
 
activities in the early 1850's were a major factor in arousing the 
 financial interests abroad and at home to gi-asp the opportmiity, 
 which they were first mi willing to take, to finance the construc- 
 tion of the Railroad and the development of the territory that 
 it served. 
 
 LINCOLN AND POLITICS 
 
 STEPHEN A. DOUGLAS, "tHE LITTLE GIANt" 
 
 (1852-1860) 
 
 Although Lincoln differed greatly with Stephen A. Douglas 
 on many matters, their debates served well the objective which 
 they both cherished and incessantly strove to accomplish— the 
 building of tlie Railroad and the development of Illinois and 
 of Mid-America, the Valley of the Mississippi. 
 
 Claude G. Bowers, the historian and diplomat, writes thus 
 of Douglas: "Stephen A. Douglas was one of the most majestic 
 figures in American history. . . . He envisioned . . . the west- 
 ward march of an adventurous people to the redemption of 
 the wilderness. ... It was his statesmanship that made States 
 and Territories and ushered them into the council chamber of 
 the nation; it was his prescience that planned the binding of 
 the East and West with bands of steel, and it was he who led 
 the way." 
 
 In recognition of Douglas's accomplishment in obtaining from 
 the Federal Government an outright giant of land, instead of 
 pre-emption rights, and a branch of the Illinois Central to 
 Chicago, his tomb and monument overlooks the Railroad's 
 tracks and yards along Michigan Avenue in Chicago. Part of 
 the lake shore property constituting the Railroad's entrance to 
 Chicago was owned by Senator Douglas. He sold the Railroad 
 this right-of-way along the lake. He also gave several acres of his 
 Oakenwald Estate to be used for a great seat of learning. His 
 idea and generosity have contributed to the establishment of 
 the University of Chicago. 
 
 Stephen A. Douglas was born at Brandon, Vermont, only a 
 short distance from that respected liberal arts institution, Mid- 
 dlebury College, now 155 years old. His family had assisted in 
 the founding of the privately supported college in 1800 and 
 
 [ 21 } 
 
had shared the work of hewing the logs and quarrying the stone 
 for its first buildings. His youth was spent in this academic 
 environment, which enabled him at the age of twenty years to 
 make his way in the new world at Winchester, Illinois, not- 
 withstanding that he arrived without funds and without em- 
 ployment awaiting him. His father died when Douglas was at 
 an early age, leaving liim penniless and without influential 
 friends. But in his youth, spent in the intellectual atmosphere 
 of the nearby college, he had become resourceful. 
 
 The impressions and learning derived from the years spent 
 in those environs served him well as he sought his fortune 
 by teaching school and practicing law in the wilderness of Illi- 
 nois, and they may have had a considerable part in creating in 
 him the idea of a seat of learning on Cliicago's South Side. 
 
 Nearly 150 years after Douglas lived in Vermont, Middlebury 
 College conferred its highest honor, the degree of Doctor of 
 Laws, upon Wayne A. Johnston, the able President of the 
 Railroad which Douglas had helped to bring into existence. 
 
 Douglas believed in the future of Chicago as a great indus- 
 trial city and in the territory along the Railroad. He purchased 
 from the Railroad some 6,000 acres of prairie and marshland 
 in the vicinity of Lake Calumet, near Chicago. His action gave 
 confidence to the Railroad's project for developing the region. 
 Throughout the trying period of building the Charter Lines, 
 Senator Douglas gave words of encouragement and instilled 
 confidence in this, the largest project in railroad building and 
 regional development that the country had witnessed up to 
 that time. 
 
 As hereinbefore stated, in 1857 the country was experiencing 
 a depression, and the outlook for the Railroad was so bad that 
 President Osborn rushed to Europe to reassure the security 
 holders. In the fall of 1858, the Auditor of the State of Illinois 
 brought the suit herein described against the Railroad for 
 the collection of taxes claimed to be due for 1857. The pendency 
 of this suit and the Railroad's lack of available cash during 
 the rapidly growing depression led the officers and Directors 
 of the Railroad to make an assignment for the benefit of 
 creditors to save the Company from the bankruptcy courts. 
 
 C 22 } 
 
Lincoln's aid was enlisted to stave off the state's tax suit, and he 
 assisted in keeping the Railroad functioning as its attorney in 
 this matter. 
 
 During this anxious period, the great debates between Lin- 
 coln and Douglas occurred. On July 9, 1858, 30,000 people 
 heard Douglas at the Fremont House on Lake Street, Chicago, 
 reply to a recent speech delivered by Lincoln. This reply pre- 
 ceded a series of debates held in the principal cities of Illinois. 
 Special Illinois Central trains were run from Chicago to Galena 
 and Springfield and from other points to cities and towns where 
 from July to November the debates were held. The earnings of 
 the Railroad vastly improved, and Lincoln restored confidence 
 in its future. Also, the financial condition of the Railroad was 
 vastly improved by Lincoln's success in the Supreme Court of 
 Illinois in the above-described tax case, the importance of which 
 cannot be overemphasized. Its decision in March 1860 held with 
 Lincoln's contention that the valuation of the Illinois Central 
 for purposes of taxation should be made on the same basis as 
 that of other railroads in the state. This victory was a turning 
 point for Lincoln and the Illinois Central. The Court con- 
 firmed the contention that the Railroad's Charter tax payments 
 amounting to 7% of its gross revenues were all that were law- 
 fully due the state. Charles LeRoy Brown, a Chicago lawyer 
 who studied the case, has said: "Measured by money involved, 
 this service was by far the most important of Lincoln's legal 
 services. Measured by the obstacles to be surmounted, those 
 services were remarkable. . . . The decision rescued the Com- 
 pany from foreclosure and financial collapse. Had the Illinois 
 Central failed in 1860, it would have been disastrous to the 
 State of Illinois. No re-organized corporation would have agreed 
 to pay the so-called seven per cent charter tax." 
 
 One of Lincoln's questions to Douglas in the debates was: 
 "Can the people of a United States ten-itory, in a lawful way . . . 
 exclude slavery from its limits prior to the formation of a State 
 Constitution?" Douglas's forthright reply— "In my opinion the 
 people of a territory . . . have the lawful means to introduce 
 slavery or exclude it as they please, for the reason that slavery 
 cannot exist a day or an hour anywhere unless it is supported 
 
 [ 23 } 
 
by local police regulations"— had the result of splitting the 
 Democratic Party and thus bringing about the election of 
 Lincoln as President of the United States. 
 
 While attorney for the Railroad, Lincoln had many close 
 friends among the officers of the Railroad and elsewhere in its 
 organization. Many actively supported his candidacy. These 
 Illinois Central associations trained and conditioned him for 
 leadership and assisted him in reaching the high oflBce of 
 President. 
 
 President William McKinley recognized this when he said of 
 Lincoln: "The best training he had for the Presidency, after all, 
 was his twenty-three years' arduous experience as a lawyer 
 traveling in the circuit of his district and state. . . . Here he met 
 in forensic conflict . . . some of the most powerful legal minds 
 of the West." 
 
 Lincoln also came to know and trust George B. McClellan, 
 the Chief Engineer and Vice President of the Illinois Central 
 from 1857 to 1860. McClellan was in command of the Ohio 
 Volunteers, and he later earned military laurels in the West 
 Virginia Campaign. As President of the United States, Lincoln 
 gave McClellan in 1861 the command of the Army of the Poto- 
 mac and later the command of the entire United States Army. 
 
 General McClellan earlier had come to the attention of the 
 officers and Directors of the Illinois Central when they had seen 
 the report of the survey which Jefferson Davis, then Secretary 
 of War, had arranged for McClellan to make in order to locate 
 the most feasible railroad route between the Mississippi River 
 and Oregon. 
 
 The Illinois Central owes much to General McClellan, and 
 he owed much to Abraham Lincoln and the Railroad. In the 
 depression of 1857-1858, when the credit of the Railroad was 
 at its lowest point, it was McClellan's economical operation and 
 his ingenuity in providing traffic by hauling ice from between 
 the railroad trestle and breakwater at Chicago to the larger 
 towns in southern Ilhnois that enabled him to meet the Rail- 
 road's payroll and saved the Railroad from financial disaster. 
 
 No railroad in the country provided more high-ranking 
 officers both for the Union Army and for the Confederate Army. 
 
 i 24 } 
 
ILLINOIS CENTRAL CIVIL WAR TROOP TRAIN 
 
In addition to McClellan, the list of Illinois Central men who 
 occupied places of great responsibility in the Union Army 
 includes, among many others, Generals Burnside, Banks, Dodge, 
 Logan, Stuart, Wyman, and Turchin. 
 
 Equally distinguished generals and other officers came from 
 many of the railroads in the South, below the Mason and Dixon 
 Line. They were officers and directors of small raihoads that 
 had been iDuilt by cotton farmers and others. These lines, many 
 years later, were acquired and merged into the Illinois Central 
 System. Perhaps the most distinguished of these Confederate 
 officers was General P. G. T. Beauregard, who manifested a 
 great respect for Abraham Lincoln, as recorded by Professor 
 T. Harry Williams in the Southern Biogi'aphy Series, published 
 by the Louisiana State University Press. General Beauregard, 
 at the end of his distinguished career, wrote, in expressing his 
 regret that he could not accept the invitation of the president 
 of the Lincoln Memorial League to participate in ceremonies 
 honoring Abraham Lincoln at Springfield, that he would be 
 present in spirit to pay homage "to the memory of a great and 
 a good man." In this communication, in referrmg to Lincoln, 
 he said, "At his untimely taking off, his life was invaluable; a 
 proud people had suffered humiliation. His life was of extraor- 
 dinary importance to the country he served so well, with a clear 
 intellect— and loved so profoundly, with a big and guileless 
 heart."* 
 
 The list of railroad officers who served the Army of the Con- 
 federacy is a long and distinguished one. Among them is 
 General Smith, who had been a director of one of the southern 
 railroads, and another was Judah P. Benjamin, successively 
 Attorney General, Secretary of War, and Secretary of State in 
 the Confederate Cabinet, who had been a director and General 
 Counsel of the southern lines of what came to be known as the 
 Illinois Central System. 
 
 The Railroad also furnished many of its skilled workers to 
 build gunboats and other craft for the Navy at Mound City, 
 near Cairo, and elsewhere. 
 
 "This communication is to be found in the Lincoln Memorial League Papers 
 of the Illinois State Historical Library, Springfield, in a letter written by General 
 Beauregard to R. B. Hoover, April 5, 1889. 
 
 [ 26 } 
 
From the beginning to the very end of the conflict between 
 the North and South, the IlUnois Central, and the raihoads in 
 the South which later became part of the Illinois Central Sys- 
 tem, not only contributed distinguished leaders to both sides, 
 but moved crowded troop trains and supplies. Indeed, the first 
 troop train to move was an Illinois Central train. 
 
 Howard Gray Brownson, the historian, has this to say: "The 
 Illinois Central was of incalculable value to the country during 
 the Civil War. The least important service was the reduced 
 rates for troops and supplies. Of far greater influence was the 
 fact that such troops and supplies could be transported at all. 
 . . . Had it not been for the Illinois Central, the vast resources 
 of the Central West could not have been placed at the disposal 
 of the Government as easily as they were, the operations of the 
 Army would have been hampered and restricted, and the ulti- 
 mate success of the national cause delayed that much." 
 
 The experience of the Illinois Central as a defense agency of 
 first importance to the Government should always be remem- 
 bered. In dealing with our railroads as to rates, as to competi- 
 tion \\dth other transportation agencies, and as to maintenance 
 of sound financial structures, our people, including our legisla- 
 tive bodies, both Federal and state, should preserve and 
 strengthen them as our most effective private agency for na- 
 tional defense.* 
 
 ** President Eisenhower is to be commended in having appointed recently a 
 committee at Cabinet level to deal with the problem of strengthening the rail- 
 roads' competitive position. Such appointment is responsive to a growing 
 realization that for some time railroad transportation has not been a monopoly, 
 but has been highly competitive with airUnes carrying not only passengers but 
 also freight, with large truck companies, and with barge lines and other water 
 transportation. The situation no longer requires the fixing of rates for railroad 
 transportation lines, as was thought necessary, on the basis of monopoly, at the 
 time of the passage of the Interstate Commerce Act and the creation of the 
 Interstate Commerce Commission as the governmental agency to regulate the 
 railroad companies. 
 
 It has become abimdantly clear that there has occurred in America a revolu- 
 tion in the field of transportation. Our economy has in every respect been 
 aflFected by this revolution. 
 
 Undue burdens have been placed upon the taxpayer, the investor, the shipper, 
 and the ultimate consumer. During the latter part of the last century, and as 
 late as three decades ago, it was apparent that the railroads of the country had 
 a virtual monopoly in transportation between our cities, with the exception of 
 cities served by water transport. Today, transport methods include movement 
 
 [ 27 } 
 
of goods and people not only by rail, but by air and by water. The shipper has 
 the wide selection he should have. The interest of all the people requires that 
 we substitute, for the purely rail transport, transportation by rail, by air, and 
 by water, and that the different methods of transport be correlated with and 
 supplement each other. This is essential in the important contribution of trans- 
 portation companies to tlie defense of the country in time of war and to its 
 prosperity in time of peace. The shipper and the traveler should have the 
 freedom of election as to the use of our transportation systems, whether by truck 
 on our highways, by rail, by air freight carriers, or by a combination of these 
 methods of transportation. There should be physically integrated systems of 
 transport. These systems should include our vast rail facilities, pipelines, coastal 
 and intercoastal waterways, inland water transportation, and the rapidly grow- 
 ing air services carrying cargo and passengers. This should be possible, and 
 the necessary legislative and other action should be taken so that the result 
 will be a competitive system of transportation that includes all forms of transport 
 and that eliminates the monopoly element formerly characteristic of our trans- 
 port system. 
 
 Mass production has been a fundamental of our increasing national economy, 
 as has also the distribution of products not only throughout the continental 
 market, but to the international markets. This cannot be successfully maintained 
 and expanded unless there is dynamic and efficient transportation tlirough all 
 of the modern forms that have developed, particularly during the last quarter of 
 a century. There must be expedition; there must be safety; and there must be 
 primarily a dependable form of transport at a reasonable cost in terms of man- 
 power and money. Rates should be determined on the basis of fair compensation 
 and not fixed to restrain a monopoly which no longer exists. The policy of our 
 legislators and of our rate-making bodies has been one that has not been helpful 
 to the best development of our economy and the best service to all of our people. 
 
 An appreciation of the fundamentals involved was had when all tlie people 
 recognized that tlie goverrmient, through land grants and otherwise, had a great 
 responsibility and even a duty to develop undeveloped areas in our vast territory. 
 This is the story of the improvement policies of Abraham Lincoln, of Senator 
 Douglas, and of many others, as set forth above. The time has come when a 
 new emphasis should be given, and those things done in the best interests of all 
 classes of people that will realistically bring about a revolution in the right 
 direction to improve the transportation of our country, that will result in an 
 economic growth and a pubUc service that can only be brought about in this 
 manner. 
 
 The necessity for such relief is more and more recognized by the pubHc. The 
 reahzation of the necessity to deal fairly with the railroads is found in the under- 
 lying criticism of tlie recent proposal of the Congress for a $101,000,000,000 
 highway construction program to be carried out over the next ten years. 
 
 The public interest requires that there be a better understanding and treat- 
 ment of the railroads, which have so well served the pubHc interest and the 
 country in times of war as well as in times of peace. 
 
 The combined investment in our railroads during a period of a century and a 
 quarter represents approximately $35,000,000,000, or only about a third of the 
 enormous sum proposed for highway developments. This highway proposal 
 deserves more serious study. It obviously puts our Federal Government into the 
 business of constructing highways, the greater part of tlie cost of which would 
 eventually come out of the taxes paid by the general pubhc, our industrial and 
 other corporations, and the railroads. 
 
 [ 28 } 
 
It must have been with the greatest of satisfaction that while 
 he was an attorney for the IHinois Central Raihoad Abraham 
 Lincoln participated in the change from sparsely populated 
 prairie and woodlands to a relatively highly developed agricul- 
 tural territory and the beginning of what was later to be a 
 highly industrialized territory. Relatively few people inhabited 
 the State of Illinois when the construction of the Railroad 
 began. During its construction, many thousands of workmen 
 were brought into the territory. They came from New England, 
 New York, Ohio, Virginia, Kentucky, Ireland, Germany, Scan- 
 dinavia, Denmark, and Poland. The Railroad, through its Chief 
 Engineer, Colonel R. B. Mason, recruited many workmen in 
 Europe. As a result of this effort, 1,000 men came directly 
 from Ireland. Many cargoes of rail and iron were brought 
 across the Atlantic. Not only the primitive conditions had to be 
 contended with, but fevers and other illnesses as well. 
 
 GROWTH OF ILLINOIS DUE TO THE 
 RAILROAD (1852-1860) 
 
 As soon as the Railroad was completed, it operated many 
 excursions which helped greatly in the settlement and develop- 
 ment of the territory. The newcomers required police protection 
 greater than that which could be supplied by local authorities. 
 Other raihoads similarly suffered. A man who was to become 
 famous as a detective, Allan Pinkerton, a Scotsman, was en- 
 gaged on February 1, 1855. He established a police agency at 
 Chicago which was primarily devoted to the service of the 
 Illinois Central. As a result of his acquaintance with Lincoln 
 during this trying period, he accompanied the President-elect 
 to Washington for the inauguration and there founded and 
 headed the United States Secret Service, which functioned so 
 successfully that Pinkerton became world-famous. 
 
 The "Charter Lines" were completed in less than five years 
 from the date tliat they were started. Along with the construc- 
 tion of the Railroad went the construction of telegraph lines on 
 its right-of-way. These were used not only for the purpose of 
 the Raihoad, but for the public generally. Thus was formed, 
 
 [ 29 ] 
 
with the assistance of the inventor, Samuel F. B. Morse, the 
 Ilhnois Central Telegraph Company, which built telegraph 
 lines the entire length of the Railroad. The success of the tele- 
 graph line in the operation of trains is shown by the statement 
 attributed to Colonel Mason that he "infinitely preferred a 
 single-track with a telegraph to a double-track without it." 
 
 During this formative period, the Illinois Central operated 
 the first sleeping cars ever used in the West. They carried to the 
 new region from long distances Indians and men in frontier cos- 
 tumes. During the same period, the steam locomotive went 
 through many changes. Its power was greatly increased. In- 
 stead of burning wood, the Illinois Central at its Paducah, 
 Kentucky, shops and elsewhere changed the mechanism so 
 that it would burn coal. This effort began early in 1855, and 
 within a short time the fuel of the locomotive was changed from 
 wood to coal. As a result of this very important accomplish- 
 ment, the coal lands in southern Illinois and western Kentucky 
 rapidly began to be developed, and the coal industry has con- 
 tinued to be one of the greatest traffic assets of the Illinois 
 Central. The Railroad employed an eminent geologist, John 
 W. Foster, to assist in the development of coal beginning in 
 1853. 
 
 As a result of these forward movements in settling land and 
 developing industries in the territory in the decade between 
 1850 and 1860, the improved acreage increased enormously. So 
 did the population. Many farms were opened up along the line 
 of the Raihoad. In this same decade, the population of the 
 covmties through which the Railroad ran increased over 150% 
 in contrast with the 52% increase elsewhere in Illinois where 
 there was no raihoad. The value of farm lands in these counties 
 rose from less than $100,000,000 to over $400,000,000. 
 
 In this single decade, the territory served by the Illinois Cen- 
 tral in Illinois established the state as the leading com- and 
 wheat-producing state in the Union, and second in the value 
 of livestock. 
 
 Whereas the mineral resources of Illinois were quite mide- 
 veloped in 1850, they became of tremendous importance, par- 
 ticularly the lead mines near Galena and the coal mines in the 
 
 [ 30 ] 
 
vicinity of East St. Louis. This was the beginning of a great 
 transformation of a vast area which had been quite unproduc- 
 tive as a prairie wilderness into a territory of unusually active 
 agricultural and industrial importance. 
 
 As early as 1857, not only was the Illinois Central the world's 
 longest railroad under one management, but it was recognized 
 as the best-built and best-equipped railroad in the Central 
 West, At that time, the Railroad represented an investment 
 of $21,500,000, or only a little more than $30,000 a mile. At 
 that time too, there were only 140,340 shares of stock out- 
 standing, in respect to which only $3,500,000 had been paid. 
 The funded debt was under $20,000,000, and it was divided 
 into obligations some of which bore interest at the rate of 6% 
 and others of which bore interest at the rate of 7%. The floating 
 debt of the Raihoad was only a httle over $3,000,000. A large 
 part of this debt was held abroad, where the first Construction 
 Bonds were sold. The English holders of the Railroad's securities 
 had a powerful influence in its affairs. Some of the most out- 
 standing men in England were the holders of these shares, men 
 like Richard Cobden, William Gladstone, William Peel, Alexan- 
 der Haldane, and Stephen Cunard. It is significant that notsvith- 
 standing the business depression in 1857, Illinois Central stock 
 was selling at $120 a share in the open market, and the Com- 
 pany's Bonds were selling at par or better. The American Rail- 
 road Journal at that time stated: "No other Companv enjo\ed 
 the unHmited confidence of money lenders of England and 
 America to the same extent." 
 
 Beginning in 1858, in order to move traffic from the Charter 
 Lines and other lines in the North to the South and to the port 
 of New Orleans, it was necessary to utilize steamboats and steam 
 packets on the Mississippi River, particularly at the Cairo inlet 
 until the opening of the Cairo bridge on October 29, 1889. In the 
 early part of 1858, a contract was entered into with a group of 
 steamboat owners operating to and from St. Louis for the 
 establishment of an "Illinois Central Line" of packets to handle 
 through passenger and freight business between Cairo and 
 New Orleans as well as to and from Memphis, Vicksburg, and 
 other principal river ports. Among others who obtained a job 
 
 C 31 ] 
 
on the new Illinois Central Line of packets was Samuel Clemens 
 of Hannibal, Missouri, who later of course wrote under the 
 name of Mark Twain, For two years— 1859 and 1860— he piloted 
 the famous river packets "Crescent City" and "New Falls City." 
 
 Vice President McClellan, who brought about this combina- 
 tion of rail and river transportation, became interested in the 
 possibility of trade through the port of New Orleans with Latin 
 America. He was the first officer of the Company to take definite 
 steps toward the development of trade beyond the borders of 
 the United States. Since that time, the Raihoad has sent its 
 trade representatives not only to South America, but more 
 recently to South Africa. 
 
 In furtherance of the use of steamboats on the Mississippi 
 River to expedite service in conjunction with the rail traffic, the 
 Railroad undertook the replacement of ferry service through 
 the construction of bridges. The first bridge constructed was at 
 Dubuque, Iowa. The Railroad was the first in the United States 
 to receive authority from the Federal Government to span the 
 Mississippi River. This authority was granted in an Act of 1850. 
 The construction of this bridge became a matter of great public 
 interest. It is said to have cost more than $1,000,000 and in- 
 volved tlie building, on the Illinois side, of an enormous tunnel. 
 The contract for its construction was with the Keystone Bridge 
 Company, whose President was Andrew Carnegie. Carnegie 
 had started his career as a railroad superintendent, incidentally. 
 TrafiBc moved over bridges spanning the Mississippi and partly 
 by steam packet on the river and the railroads constructed to 
 the north and south of Cairo until the Cairo extension was 
 completed, when through passenger and freight train service 
 was established between Chicago and New Orleans. Tliis serv- 
 ice involved the linking up of the many lines built in the south- 
 em states wdth the many lines constructed first in Illinois and 
 later in the states surrounding it. Among the southern lines 
 which were thus connected was tlie first railroad built in the 
 Mississippi Valley, the West Feliciana Railroad. 
 
 As a result of the joining of these lines, the industrial and 
 agricultiual development of the Mississippi Valley rapidly in- 
 creased. This was the beginning of tlie great industrial grow^ 
 
 [ 32 } 
 
MARK TWAIN's MISSISSIPPI RIVER PACKET 
 
in the important cities served by the western hnes, such as the 
 Sioux City western hnes, in the areas where hvestock and 
 agricultural products had been greatly increased. Thus Water- 
 loo and Sioux City, Iowa, and Omaha, Nebraska, became live- 
 stock and meat-packing centers. Cedar Rapids, Iowa, became 
 a center for the manufacture of cereal products and other 
 articles, as did Indiimapolis and St. Louis. The industrial 
 development in Louisville, Memphis, and Jackson, Mississippi, 
 has been very impressive, as has the growth of the steel and 
 iron industry at Birmingham, Alabama, and the cotton and 
 lumber products industry at Vicksburg. Through lease lines, 
 Shreveport has served the great oil refineries of Louisiana and 
 Texas; and Baton Rouge, often called "the Cradle of Synthetic 
 Rubber," and a center for petroleum products and aluminum 
 products, has reached a development perhaps greater than that 
 of any other city of its character in this country. More recently, 
 great chemical centers have been developed and served by the 
 Railroad, particularly the one at Calvert City, Kentucky. 
 
 Thus, it has come about that the industrial development that 
 Abraham Lincoln and his associates dreamed of, in the early 
 days of the construction of the Railroad and the gi^owth of the 
 territory that it served, has been realized. In fact, their hopes 
 have probably been sm-passed. Throughout the 1830's, '40's, 
 and '50's, and until Lincoln was called to his gi^eatest service 
 at Washington, he contributed greatly, as attorney for the 
 Illinois Central and as a political leader, to this development. 
 
 The great variety of the development was possible only 
 because of the rapid construction of the Illinois Central. The 
 history of railroad construction is the history of a great deal 
 of legal activity dealing with questions of right-of-way, trespass, 
 property damage, and related controversies. The Illinois Cen- 
 tral experience followed the general pattern. 
 
 Lincoln's first right-of-way court action case was tried by him 
 as counsel for the Railroad on April 16, 1853. He was associated 
 with the local attorney for the Railroad, General Asahel Gridley. 
 Many such suits were brought against the Railroad. Lincoln's 
 activity as attorney for the Railroad is shown by his letter 
 of September 23, 1854, addressed to Company Solicitor Mason 
 
 [ 34 } 
 

 THE RAILROADS CONTRIBUTION TO THE LIVE STOCK INDUSTRY 
 
Brayman, notifying the Solicitor that he was drawing on the 
 Company for $100. In his letter, Lincoln stated: "The reason 
 I have taken this liberty is that since last fall, by your request, 
 I have declined all new business against the road, and out of 
 which I suppose I could have realized several hundred dollars. 
 Have attended, bodi at DeWitt and here, to a great variety of 
 little business for the Company, most of which, however, re- 
 mains unfinished, and [I] have received nothing. I wish now 
 to be charged with this sum, to be taken into account on 
 settlement." 
 
 It is apparent that Lincoln continued to be actively engaged, 
 if not exclusively so, in similar work for the Railroad, since on 
 September 14, 1855, he wrote as follows to James F. Joy, the 
 General Counsel of the Railroad: "I have today drawn on 
 you in favor of the McLean County Bank ... for $150. This 
 is intended as a fee for all service done by me for the Illinois 
 Central Railroad since last September within the counties of 
 McLean and De Witt. Within that time ... I have assisted for 
 tlie Road in at least fifteen cases ( I believe one or two more ) 
 and I have concluded to lump them oflF at ten dollars a case." 
 
 Particularly during the middle '50's, the growth and indus- 
 trial development of Illinois was tremendous. The building of 
 the Railroad was heralded at home and abroad. Experienced 
 writers and advertising men were employed by the Railroad, 
 among them Augustus Dickens, brother of Charles Dickens. 
 Pamphlets were prepared, as well as newspaper and magazine 
 articles, describing the resources, advantages, and agricultural 
 and industrial opportunities of the territory through which the 
 Illinois Central Railroad was being constructed. 
 
 There appeared in the Memphis Daily Appeal in 1857 the 
 following: ". . . the great Ilhnois Central Railroad . . . with ten 
 thousand placards . . . stuck in every hotel, barroom, steamboat, 
 and barbershop, in all colors and shapes, and with advertise- 
 ments and agencies, high and low, ... is making more noise at 
 present than perhaps any other road in the Union." 
 
 In response to this publicity there came from New England 
 and the Middle Atlantic states many young men who also 
 heeded the advice of Horace Greeley, one of the founders of 
 
 [ 36 ] 
 
the Republican Party, the foremost anti-slavery leader, and 
 a man who is credited witli having greatly assisted in the elec- 
 tion of Lincoln as President. Greeley's advice to the youth of 
 America during this period was "Go west, young man."* 
 
 Among the large number of young men who were later to 
 become the leaders in the industrial and agricultural activities 
 in the newly opened area was Leslie Ernest Sunderland, the 
 inventor of the tapered barrel stave and later of barbed wire. 
 
 Following his invention of a tapered barrel stave to replace 
 the uncertain straight hogshead stave, an invention which en- 
 abled the barrel to utihze the forces resulting from the tapered 
 character of the stave better to transport turpentine and other 
 products of the forest and of agriculture, he went to Joliet, 
 IlHnois. There he built a factory which was the forerunner of 
 several factories on the east side of the Mississippi River, the 
 last one near Baton Rouge, Louisiana, on the line of the West 
 Feliciana Railroad, which was later to become a part of the 
 Illinois Central System. 
 
 The invention was the result of experiments conducted at 
 Green Springs Plantation on the James River m Virginia, where 
 the inventor was in charge of a large sawmill operation em- 
 ploying some 300 Negro workers. Although at that time the 
 slaves had not been freed by Lincoln, the inventor treated them 
 as free men by reason of his admiration of the position taken by 
 Lincoln. This led to liis being particularly interested in moving 
 west, where Lincoln was carrying on his activities in behalf of 
 the freedom of slave labor. The inventor saw the possibilities 
 of the timbered area in IlHnois and the Mississippi Valley 
 through which it was proposed that the Railroad be constructed. 
 It is significant that Sunderland, aldiough in the South, enhsted 
 in tlie Union Army at a small town near Baton Rouge, and 
 thereafter went north to participate as a soldier in the support 
 of Lincoln and the Union. 
 
 During his development of these manufacturing plants, Sun- 
 derland had occasion to visit the great areas to the west of the 
 
 * Greeley found this expression in an article by J. B. L. Soule in the Terre 
 Haute Express. See John Bartlett, Familiar Quotations, 12th edn., ed. Christo- 
 pher Morley, Little, Brown, 1950, p. 505. 
 
 [ 37 ] 
 
Mississippi River, and, being impressed with the lack of mate- 
 rials for building fences, which he had been accustomed to see 
 in New England, such as timber for rail fences or stone for 
 stone-wall fences, and having made a financial success of his 
 tapered barrel stave factories, he turned his inventive skill to 
 the development of barbed wire to be used to fence the fertile 
 areas, in order that they might be protected from roving cattle 
 and horses sufficiently to be tilled for wheat and other cereal 
 crops. This was a great boon not only to the development of 
 industrial plants for the manufacture of barbed wire, but also 
 to the production of wheat and other cereals, which greatly 
 increased the traffic of the railroads. Among the first barbed 
 wire mills was the one at Oskaloosa, Iowa, and the last barbed 
 wire mill was being completed when the inventor met his un- 
 timely death at Great Bend, Kansas. Subsequently, the patents 
 for the barrel stave and barbed wire were acquired by large 
 corporations, which had a very important influence on the 
 industrial and agricultural development of the territory, in the 
 Mississippi Valley particularly. These tapered barrel stave and 
 barbed wire developments were some of the many that fol- 
 lowed in the wake of the railroad. 
 
 During this period and subsequently, the Railroad was 
 privileged to be under the direction of great industrial and 
 railroad leaders, among whom were Robert Schuyler, who had 
 been the President of the New York & New Haven and three 
 other railroads, and who was known as America's first "Raihoad 
 King"; Robert Rantoul, Jr., Massachusetts statesman and law 
 associate of Daniel Webster, and successor to Webster in the 
 United States Senate; Gouverneur Morris of New York, banker 
 and railway promoter, and the son of Gouverneur Morris of 
 Revolutionary fame; William H. Aspinwall, New York merchant, 
 steamship operator, builder, and first President of the Panama 
 Railroad; and Henry Grunnell, New York merchant and chief 
 backer of Arctic expeditions. 
 
 The leadership of these men and a long list of others was 
 later carried on by such outstanding industrial and raihoad 
 figures as William H. Osborn, John M. Douglas, and Judge 
 Sidney Breese. 
 
 [ 38 } 
 
As the Railroad grew, not only in the North but in the South, 
 many financial leaders in England and this country supported 
 its development. Some years later, the work of these early 
 leaders was carried on by John Newell, a native of Newbury- 
 port, Massachusetts, who had worked with Colonel Mason's 
 engineers in 1852, and who advanced to the positions of Vice 
 President in 1869 and President in 1871. Newell's successor as 
 President was Wilson G. Hunt, who had been associated with 
 Samuel F. B. Morse, Cyrus W. Field, Peter Cooper, and Abram 
 S. Hewitt in the early development of the American telegraph 
 system and the laying of the first Atlantic cable. 
 
 It is significant that Hunt was one of the original trustees of 
 Cooper Institute of New York, where Abraham Lincoln made 
 his first great speech in the East. Hunt had been, prior to his 
 election as President, a Director of the Illinois Central Raihoad 
 for some years. 
 
 Later, the work of these leaders was taken over by Stuyvesant 
 Fish, the son of Hamilton Fish, Secretary of State in the Cabinet 
 of President Grant. Grant's association with the Illinois Central 
 and General McClellan's were such that General Meade is 
 reported to have said, "Had there been no McClellan, there 
 would have been no Grant," 
 
 Among the members of the Board of Directors of the Rail- 
 road serving with Stuyvesant Fish was Edward H. Harriman, 
 who was to be succeeded as a member of the Board and Chair- 
 man of the Executive Committee thereof by liis son, W. Averell 
 Harriman, the present Governor of the State of New York. 
 Through the younger Harriman's influence and leadership, in 
 association with Eugene W. Stetson, the headquarters of the 
 Railroad was moved from New York City to Chicago, and the 
 personnel of the Board of Directors changed to include indus- 
 trialists and leaders from cities located on the line of the 
 Raihoad. 
 
 Thus was stimulated the great industrial development which 
 was begun during the period when Abraham Lincoln, as attor- 
 ney, was actively assisting in its development. 
 
 The accomplishments of this development might have been 
 otherwise had Lincoln been willing to be diverted from his 
 
 [ 39 ] 
 
service to the Railroad and to the community that it served. The 
 temptation to give up his services as a lawyer to the Railroad 
 and his political activities came to him following his Cooper 
 Institute speech in New York. His reputation as a railroad 
 lawyer while acting for the Illinois Central attracted the atten- 
 tion of Erasmus Coming, President of the powerful New York 
 Central Railroad System. Coming's cousin and a friend of 
 Lincoln's, James B. Merwin, is reported to have brought about a 
 conference with Lincoln the morning following his Cooper Insti- 
 tute address. During it, Coming is said to have offered Lincoln 
 the position of General Counsel for the New York Central Rail- 
 road System at a salary of $10,000. Lincoln's comment was the 
 question, What could he do with $10,000? It is reported that 
 after seriously considering the matter for some days, he refused 
 this tempting offer. Thus, Abraham Lincoln put the service to his 
 fellow men and his country ahead of his personal fortunes. Had 
 he not refused this ofiFer, the history of this country would be 
 very different. After making this great and fateful decision, Lin- 
 coln continued the practice of law as attorney for the Illinois 
 Central and his political activities, which gained him the 
 greatest honor that any citizen could receive, the Presidency of 
 the United States.* 
 
 ** Abraham Lincoln thus put service to his fellow man first. Tliis not only was 
 characteristic of his life but explains his many accomplisliments. It was charac- 
 teristic also of liis fellow leaders and of the leaders of the generation of his 
 parents. Such services were not uncommon among these generations. They set 
 the pattern for future generations in the development of our country. Such 
 leaders placed first the development of the community in which they lived and 
 after that their own comforts and interests. These services were rendered as the 
 result of great sacrifices and explained the strong, virile character of the people 
 who made America possible, and great men like Lincoln and Stephen A. Douglas 
 set the example which not only was followed by the leaders of their generation 
 but now is being followed by the leaders in the professions and in the business 
 enterprises of today. 
 
 The freedoms that they succeeded in obtaining for themselves and others, that 
 were greatly cherished, and that were passed on have been aptly described as 
 the four principal freedoms: 
 
 1. Service and sacrifice 
 
 2. Thrift and economy 
 
 3. Pay as you go 
 
 4. Right to work 
 
 Abraham Lincoln's reputation as a lawyer was an enviable one and aroused 
 the acclaim of the leaders of the Bench and Bar. 
 
 The late Joseph H. Choate, when Ambassador to the Court of St. James, 
 
 [ 40 } 
 
In a conversation on topics relating to the Civil War, Eugene 
 Delano related an incident in illustration of Lincoln's magna- 
 nimity, which he was told by the late Francis Lynde Stetson, a 
 friend of Burlingame's and the late senior member of the New 
 York law firm of Stetson Jennings and Russell, of which firm 
 Grover Cleveland was a partner for the four-year period inter- 
 vening between his two terms as President of the United States. 
 The name of this firm was later changed to its present name of 
 Davis, Polk, Wardwell, Sunderland & Kiendl. 
 
 Some three months after Lincoln's inauguration, Burlingame 
 called at the White House in the evening on a friendly visit. 
 The President appeared depressed and discouraged. Finally, 
 Burlingame said, "Mr. President, there is something troubling 
 you. What is it?" "Yes," replied Lincoln, "I am troubled. The 
 South is united and the Nortli is divided. Unless the North can 
 be united, this contest is hopeless for them. There is only one 
 man who can unite them." "And who is he?" Burlingame in- 
 quired. "Stephen A. Douglas," replied the President, impres- 
 sively, "and I want you to see him and repeat my words to him." 
 
 Burlingame said he often met Douglas and on the next occa- 
 sion would make a point of repeating the conversation— probably 
 within a day or two. "No," said the President, "that will not do. 
 I want you to see him now." "But it is eleven o'clock already," 
 Burlingame protested. "No matter, see him tonight," was the 
 reply. 
 
 delivered an address on Lincoln's career before the Edinburgh Philosophical 
 Institute, on November 13, 1900, stating: 
 
 "1 lay great stress on Lincoln's career as a lawyer — much more than his 
 biographers do — because in America a state of tilings exists wholly different from 
 that which prevails in Great Britain. The profession of the law always has been — 
 and is to this day — the principal avenue to public life; and I am sure that his 
 training and experience in the Courts had much to do with tlie development of 
 those forces of intellect and character which he soon displayed on a broader 
 arena. 
 
 "It was in political controversy, of course, that he acquired his wide reputa- 
 tion, and made his deep and lasting impression upon the people of what had 
 now become the powerful State of Illinois, and upon tlie people of the Great 
 West; to whom the pohtical power and control of the United States were already 
 surely and swiftly passing from the older Eastern States. It was his reputation 
 and this impression and the familiar knowledge of his character which had come 
 to them from his local leadership that happily inspired the people of the West 
 to present him as their candidate, and to press him upon the RepubHcan Conven- 
 tion of 1860, as the fit and necessary leader in the struggle for life which was 
 before the Nation." 
 
 [ 41 ] 
 
Impressed by his manner, Burlingame went oflF and found 
 himself at midnight ringing the doorbell at Douglas's house. 
 After some parley at the window, and recognition of his noc- 
 turnal visitor, Douglas admitted him and they entered liis 
 library. In a few words, Burlingame explained the situation and 
 then repeated the President's words. Douglas was silent for a 
 moment; then he raised his arm and brought his clenched fist 
 down with a bang on the table. "By God, I'll do it!" he said. 
 Afterwards, he made his famous speech which created the party 
 of War Democrats. 
 
 Lincoln's service to the country was prematurely ended by 
 an assassin's bullet on Good Friday, April 14, 1865. The last 
 tribute of the Railroad to its former attorney and policy maker 
 was the flag-draped funeral train which brought Lincoln's mor- 
 tal remains on the historic journey past thousands of silent and 
 tearful mourners from the Capitol at Washington, D.C., to his 
 modest, grief-stricken home in Springfield, Illinois. His remains 
 were brought to lie in state in the Capitol at Springfield, where 
 the funeral service was held on Tuesday, May 2, 1865. The 
 funeral service was very simple. The eulogy for "the Man 
 of the Ages" ended with Lincoln's own words, spoken in his 
 second inaugural address. At that time, he was unquestion- 
 ably thinking of the war as finished and had no hatred of the 
 vanquished in his soul, but rather a passion for a united country 
 which he loved: "With malice toward none, with charity for all, 
 with firmness in the right, as God gives us to see the right, let 
 us strive on to finish the work we are in; to bind up the nation's 
 wounds; to care for him who shall have borne the battle, and 
 for his widow and for his orphan; to do all which may achieve 
 and cherish a just and lasting peace among ourselves and with 
 all nations." 
 
PART II 
 
 THE EXPANSION OF THE RAILROAD INTO 
 
 THE ILLINOIS CENTRAL SYSTEM 
 
 
"Ti^usT as in the states on the eastern seaboard numerous 
 '^^ relatively short raihoads had grown up in the 1830's and 
 1840's, so in the 1840's and 1850's many such railroads grew 
 up in the states west of the Allegheny Mountains, including 
 those along the Mississippi River. With the completion of these 
 relatively short raihoads in the Mid- West, competition became 
 acute because of the freedom which existed for building with- 
 out any real limitations by the states of incorporation. One of 
 the chief means resorted to by companies to protect themselves 
 from the effects of the competition was consolidation, merger, 
 or lease of rival and tributary lines. The discovery of gold in 
 California also led to the construction of long lines from the 
 Mid- West to California— which in turn led to further competi- 
 tion and resultant consolidations. In the 1860's, this trend was 
 noticeable, and many of the large systems were beginning to 
 take shape, so that by 1869 the following had acquired con- 
 siderable mileage: the Chicago & Northwestern, 1,300; the 
 Milwaukee & St. Paul, 1,000; the Pennsylvania, 2,400; the 
 
 [ 45 } 
 
Reading, 1,150; and the New York Central & Hudson River, 
 1,000. 
 
 Consistent with this trend, one of the early actions of the 
 Illinois Central beyond the construction of its original Charter 
 Lines was to lease the Dubuque & Sioux City Raihoad, which 
 had been incorporated so that a railroad could be built from 
 Dubuque— across the Mississippi from Dunleith, Ilhnois, the 
 northern terminus of the Illinois Central's lines— to Sioux City. 
 
 To facilitate the financing and construction of the westerly 
 extension of the Dubuque & Sioux City Railroad from Iowa 
 Falls, Iowa, a land grant had been secured and a subsidiary, 
 the Iowa Falls & Sioux City Raihoad Company, had been 
 incorporated to build from Iowa Falls west to Sioux City. 
 
 On September 27, 1866, the Dubuque & Sioux City Company 
 had leased the Cedar Falls & Minnesota Railroad, extending 
 from Cedar Falls, Iowa, to the Minnesota border, a line planned 
 to be 76 miles long, 14 miles of which had been completed. On 
 September 13, 1867, the Dubuque & Sioux City Company leased 
 its railroad to the Ilhnois Central for twenty years and the latter 
 also assumed the lease of the Cedar Falls & Minnesota Raihoad. 
 As in the case of the Illinois Central, the Dubuque & Sioux City 
 had raised money by the sale of First Mortgage Bonds and 
 Construction Bonds. 
 
 By 1871, the Iowa Falls & Sioux City hue was completed. 
 A bridge over the Mississippi connecting Dunleith and Du- 
 buque had been finished on January 1, 1869, so that there was 
 a continuous line of raihoad operated by the Illinois Central 
 west to Sioux City. It is interesting to note tliat no direct con- 
 nection between Chicago and Dubuque was built by the Illinois 
 Central until it was done as an incident to the construction 
 started in 1887 of a railroad from Chicago to Freeport with a 
 branch to Dodgeville and Madison, Wisconsin. 
 
 In 1870, the construction of a railroad by the Illinois Central 
 from Cairo, Illinois, to Columbus, Kentucky, a distance of 24 
 miles, was proposed in order to connect witli the Mobile & 
 Ohio Railroad and through tliat line with the southern roads 
 generally. 
 
 i 46 } 
 
In the meantime, several southern roads had been con- 
 structed running north from New Orleans through Jackson, 
 Mississippi, and Memphis, Tennessee, and connecting other 
 cities in Mississippi, Louisiana, and Tennessee. In 1873, the 
 Illinois Central extended its influence over 547 miles of road 
 southward from the Ohio River at Cairo to New Orleans, 
 through agreement with the Mississippi Central and the New 
 Orleans, Jackson & Great Northern. The latter was chartered 
 in 1852, and its line from New Orleans to Canton, Mississippi, 
 206 miles in length, was opened in 1859. The Mississippi Central 
 was chartered by the States of Mississippi and Tennessee in 
 1852. Its line was opened from Canton to Jackson, Tennessee, 
 in 1860 and extended to the Ohio River opposite Cairo in 1873, 
 making its total length 343 miles. Both of these roads were 
 reorganized in 1877 and as reorganized were merged on 
 November 8, 1877, into the Chicago, St. Louis & New Orleans 
 Railroad Company. 
 
 RAILROAD OPERATIONS IN THE SOUTH 
 
In 1881, the gauge of the southern Hnes, which had been 
 wide, was standardized to become the same as that of the 
 Illinois Central and most other American railroads. 
 
 In January 1883, the Illinois Central leased the Chicago, St. 
 Louis & New Orleans Railroad and operated it as its southern 
 division so that through trains could be run from Chicago to 
 New Orleans over its own tracks. Six years later, on October 29, 
 1889, the Cairo bridge comiecting Cairo and East Cairo was 
 completed and the 921-mile through route became an all-rail 
 system. 
 
 In the intervening period and later, the IlHnois Central, 
 through lease or merger or consolidation, extended its lines to 
 St. Louis on the west and into the coal fields of Southern 
 
Illinois and Kentucky on the east. Eventually it extended them 
 into fourteen states in all to form the "Main Line of Mid- 
 America." 
 
 Because the System was a result, as in the case of all the large 
 railroad systems of the country, of the combining of numerous 
 shorter raihoads, the corporate structure of the Illinois Central 
 became quite involved. So did its debt structure, since most of 
 the acquired lines were covered by at least one mortgage. 
 
 At the peak in 1927, there were still in existence some 15 
 mortgages securing 26 different issues of Bonds, a collateral 
 indenture secured by Bonds on seven railroads constituting 
 parts of the system, and the Cairo bridge mortgage, in addition 
 to the 40-year 4%% Debentures due in 1966 and two collateral 
 issues due in 1934 and 1936. There were an aggregate of 33 
 separate issues outside of Equipment Trusts. ( Three issues were 
 paid oflF during tlie 1930's so that as of December 31, 1941, there 
 were 30 separate issues, and as of December 31, 1948, 31 
 separate issues and some 20 mortgages. Prior to 1945, there 
 were 22 wholly owned carrier subsidiaries in the System, some 
 of which were active and some inactive.) 
 
 This was the picture of Illinois Central when the depression 
 of the 1930's struck. 
 
PART III 
 
 THE SIMPLIFICATION OF THE DEBT 
 
 AND CAPITAL STRUCTURE 
 
 OF THE ILLINOIS CENTRAL RAILROAD 
 
 1938 THROUGH MAY 1955 
 
 THE DEPRESSION OF THE 1930'S AND ITS 
 EFFECT ON THE RAILROAD 
 
 LIBRARY 
 
 UNIV&RSITY OF \Wm\g 
 

 lyi |s|HE STORY of piogiess of the Illinois Central Railroad Com- 
 ^ pany since the depression of the 1930's and more actively 
 since the end of World War II is one of the success, first, of the 
 financial and corporate programs originated and worked out 
 largely tlirough the efforts of Eugene W, Stetson as Chairman 
 of the Executive Committee, and, second, of the operating 
 improvements largely initiated and put into effect by the former 
 General Manager and since the end of World War II the 
 President, Wayne A. Johnston.* 
 
 * Present Directors and Executive Committee members are shown in the 
 footnote to page 65. Eugene W. Stetson, a member of the Board since 1932, has 
 been Chairman of the Executive Committee since 1942, and Wayne A. Johnston 
 has been a member of this Committee since he became President in 1945. 
 
 Messrs. Stetson and Johnston have had tlie unanimous support of an able 
 Board of Directors. From the beginning the Raihoad has had Boards of Directors 
 which have been composed of leaders in business. In addition to a long line of 
 distinguished Governors of Illinois there have been in tlie past such outstanding 
 business leaders as J. Ogden Armour, John Jacob Astor, Vincent Astor, William 
 Waldorf Astor, John W. Auchincloss, Pierre Chouteau, Jr., James C. Fargo, 
 Stanley Field, Stuyvesant Fish, Robert W. Goelet, Edward H. Harriman, OHver 
 Harriman, W. Averell Harriman, Abram S. Hewitt, James F. Joy, Robert S. 
 
 C 53 ] 
 
The following is a brief description of the reduction of the 
 Illinois Central's debt to manageable proportions and the sim- 
 plification of that debt and the corporate structure,*** as well as 
 of operating and business advances. Particular emphasis is 
 given to many capital changes that the Illinois Central has been 
 able to accomplish during 1953 and 1954 and through May 
 1955 in continuation of its debt reduction program, which was 
 undertaken in a major way in the late '30's, These changes 
 include the replacing, with series of Bonds carrying lower 
 interest rates, of Bonds bearing higher rates, and through the 
 replacing, in part with Debentures, of its outstanding 6% Non- 
 Cumulative Convertible PrefeiTcd Stock, and in calling and 
 paying on March 1, 1955, all of its Preferred Stock, 
 
 Such steps were made practicable by the great improvement 
 in the Railroad's credit, due to the matters related herein, as well 
 as to the prevailing Federal policy of low interest rates. In this 
 connection, it may be noted that consideration by the officers 
 and members of the Board of Directors may be given, if interest 
 rates become sufficiently low hereafter, to the re-refunding 
 of some or all of its Consolidated Mortgage Bonds which now 
 
 Lovett, J. Pierpont Morgan (whose partner in his London firm of Morgan, 
 Grenfell & Company, George Peabody, had been helpful in establishing the 
 credit of the Railroad in the City of London which enabled the sale of its first 
 construction bonds and the purchase of large quantities of steel rails and iron 
 from the British), Levi P. Morton, James Norris, Jerome J. Hanauer, Charles A. 
 Peabody, John G. Shedd, and Cornelius Vanderbilt, among otliers. Mr. Edward H. 
 Harriman, after obtaining control, continued as a director until his death in 1909. 
 In 1923 his son, William Averell Harriman, tlien twenty-two years old, became a 
 director, in fact the youngest director in the history of the Railroad. He con- 
 tinued as a director until he went into pubhc service, first as Secretary of Com- 
 merce and later in many important posts. For many years as Chairman of the 
 Executive Committee he was of unusual and great service to the Railroad. He 
 resigned in 1946 and his post as Chairman of tlie Executive Committee was 
 filled by Mr. Eugene W. Stetson and that of director and a member of tlie 
 Executive Committee by the author. Since Mr. William Averell Harriman served 
 the Railroad in these capacities for upwards of thirty years, following the twenty- 
 six years (1883-1909) of the service of his father, together the Harrimans have 
 contributed of their skills to the Railroad for a period of more tlian half of the 
 Raihoad's life. By reason of the substantial stock interest in the Railroad of the 
 Union Pacific Railroad Company of which Mr. E. Roland Harriman, the brother 
 of Mr. W. Averell Harriman, is Chairman of the Board of Directors, the Harri- 
 man family has made important contributions to the Railroad and to the territory 
 it serves. 
 
 *■ " For details as to the simplification of the debt and corporate structure of 
 the Railroad, see Appendix B hereof. 
 
 [ 54 } 
 
carry a 3^% interest rate or will carry this rate after November 1, 
 1955, at which time the redemption prices on some of these 
 issues will also be reduced. 
 
 The Illinois Central, unlike a large number of railroads, has 
 never had to go "through the wringer" to reduce its debt and 
 to simplify its debt and corporate structure. It was able to save 
 itself the grief and expense suffered by many railroads, notably 
 the New Haven,* the Erie, the Seaboard, the Missouri Pacific,* * 
 and the Frisco among others, that were forced into the courts 
 to meet their twofold problem. Although severely pressed, hke 
 aU railroads, by low earnings during the depression years of the 
 1930's and handicapped in the 1940's by the threat of a top- 
 heavy load of debt, with many of its early maturities non-call- 
 able, the Illinois Central was, thanks to the foresight and 
 energy of its above-named officers, the remainder of its manage- 
 ment, and its Board, able to put its house in order without resort 
 to the help of the courts. With the completion of this long strug- 
 gle by the sale of its First Mortgage Bonds, Series H, in Septem- 
 ber of 1954 and with the completion of the ehmination of its 
 6% Non-Cumulative Convertible Preferred Stock on March 1, 
 1955 (the latter in part through conversions increased by the 
 sale in January 1955 of Debentures), and with a record net 
 income for 1953 of about $26,370,000 and a net income for 1954 
 of about $22,000,000— the management and Board may properly 
 look back with a feeUng of accomplishment, take stock, and 
 briefly record the principal steps along the way. 
 
 The simplification and reduction of the $383,000,000 debt of 
 the Illinois Central were accomplished during the depression 
 years, the war years, and the post-war years under very trying 
 circumstances. During the depression era of the 1930's, which 
 precipitated the equity receivership or bankruptcy of 81,100 
 miles of railroads of the continental United States, the Illinois 
 
 * See Sunderland, "A Brief History of the Reorganization of the New York, 
 New Haven and Hartford Railroad Company, 1947," and Notes appended 
 thereto. "On July 31, 1940, the number of steam railways in receivership or 
 trusteeship was 107. They accounted for 76,989 miles of road operated, or 31.04 
 per cent of the entire railroad mileage." I.C.C. 54th Annual Report, 1940. 
 
 ** The Missouri Pacific Railroad has been operated by the Federal Court? 
 since March 1933 — nearly twenty-two years. 
 
 [55] 
 
Central, along with many other railroads, was forced to curtail 
 drastically maintenance of road and equipment in order to 
 avoid resort to the courts. A steep decline in revenues occurred 
 during this era. Operating revenues in 1933 were $88,000,000 
 as contrasted with $181,000,000 in 1929. Rigid control of ex- 
 penses enabled the Illinois Central to earn its fixed charges, 
 except in the years 1931, 1932, 1934, and 1935, when it failed to 
 do so by $3,513,064, $3,505,943, $2,964,646, and $9,838,590, 
 respectively. Funds and working capital were inadequate to 
 make the expenditures necessary to rehabilitate roadway and 
 structures and equipment, with the result that large amounts 
 of maintenance work had to be deferred. 
 
 In addition, during World War II years, the Illinois Central's 
 facilities were severely taxed and large expenditures were 
 needed so that troops and war materials could be expeditiously 
 and eflBciently transported. Along the lines of its railroad in 
 the Mississippi Valley, some seventy munitions and other war 
 plants, as well as many military camps, were located. 
 
 Also, as a result of the war, the port of New Orleans became 
 the second largest port in the United States, and about 30% of 
 the business in and out of this port by railroad has been, and is 
 now, handled by the Illinois Central. Furthermore, not only 
 during the war years but subsequently, the demands on the 
 Raihoad were greatly increased, and large sums were required 
 to meet these demands, pay for the necessary deferred mainte- 
 nance, and service its bonded indebtedness. 
 
 During the early years of the '30's, the annual interest on all 
 debt was approximately $16,500,000, in contrast to almost one- 
 third that amount at the present time. 
 
 In order to carry on, the Illinois Central was required in the 
 spring of 1932 to borrow from the Reconstruction Finance 
 Corporation. Prior to doing so, it satisfied the requirement of 
 offering evidence that it was unable to borrow money else- 
 where. This was hardly surprising, for the faith of the workers, 
 the management, and the Board in the destiny of the Illinois 
 Central was not then shared by the investing public. 
 
 The condition of this loan and its later extension was that 
 there should be maintained collateral at a certain ratio, and also 
 
 I 56 } 
 
THE railroad's CONTRIBUTION TO THE COTTON INDUSTRY 
 
that cash dividends on stock should not be paid. There was a 
 further condition that at least $350,000 or approximately 1% 
 should be paid in each year, but the Raihoad was allowed to 
 spend that amount in the purchase of its own Bonds provided 
 the Bonds purchased were deposited as additional collateral. 
 This requiiement is significant in view of the Railroad's plan to 
 acquire debt not only then but in subsequent years so as to 
 strengthen its financial condition. 
 
 The foregoing, and the financial problems mentioned below, 
 required unusual and expert attention in their solution, par- 
 ticularly because of tlie burden of making provision for the 
 liquidation of the indebtedness due to the Reconstruction 
 Finance Corporation. Of course, the Raihoad had to stop all 
 dividends, but it was always able to meet its payroll even 
 though, as business dried up, the payroll had to be reduced. 
 
 On October 27, 1931, for the first time since 1859, the Rail- 
 road Company passed the payment of dividends on its Common 
 Stock. For approximately forty-five years before 1931, the 
 Raihoad had averaged payments of nearly 7% on its outstanding 
 Stock. Up to that time, only one other railroad had a longer 
 record of annual payment of dividends. The Railroad was forced 
 to suspend the payment of dividends because it showed, in the 
 '30's, the net deficits mentioned above, notwithstanding its un- 
 usually drastic curtailments and economies in maintenance of 
 railroad and equipment, in train operations, and in every other 
 branch of railroading. The extent of the depression of the '30's 
 was emphasized by the fact that, with the exception of the years 
 1858 and 1859, dividends had been paid regularly since 1852. 
 The Raihoad's Stock, which sold on the security markets in 
 1930 for $136.75, soon fell to $4.75 a share in June 1932. 
 
 The loyalty of the ofiicers and of the employees is demon- 
 strated by tlie fact that at that time the ofiicers voluntarily took 
 a cut in salary and the raihoad brotherhoods and unions con- 
 sented to a general temporary 10% wage reduction. This co- 
 operation from the ofiicers, the employees, the railroad brother- 
 hoods, and the unions encouraged the management and the 
 Board and was of the greatest help. 
 
 [ 58 } 
 
For a generation that did not live and struggle through the 
 darkness of the Great Depression of the 1930's, it would be hard 
 to visualize die tragedies it brought. They were utterly devastat- 
 ing to many of our people. Certainly, no employer was immune 
 from the depression's searing impact as the business of America 
 everywhere ground slowly almost to a stop while the whole 
 world, gripped in panic, wanted not coal, or products of the 
 farm, or products of the forest, or merchandise, or services, but 
 only cash. 
 
 All railroads, of course, need freight and passengers so that 
 their trains may run and bring prosperity to the cities and 
 towns and villages which they serve. But, at the depth of the 
 depression, few people were in a position to buy or to travel 
 and, consequently, only a trickle of the former traflBc went over 
 the Ilhnois Central lines. 
 
 So it came about that railroad employment on tlie Illinois 
 Central fell almost 55% from the high of 1929 to the low of 1933. 
 This was a particularly distressing situation to the management 
 and the Directors because of the plight of the loyal and able 
 wage earners who were forced out of work. In 1929, the average 
 number of employees was 55,917; in 1933 it was 25,353. But it 
 is significant that this reduction was made necessary by the 
 fact that while operating revenues in 1929 were, as already 
 pointed out, $181,000,000, they were only $88,000,000 in 1933, 
 and that net income had fallen from $13,800,000 to $150,000. 
 
 Towards the middle of the 1930's, the depression began to 
 end. All employers could feel a weight lifted from them as 
 America, with its usual optimism and courage, again went to 
 work and started to buy. Slowly revenues began to increase for 
 the Raihoad, and the increase continued and may even have 
 been accelerated as the grim specter of war hovered over 
 Europe, to materiahze in World War II and to extend itself to 
 the whole world. We must, however, always remember that 
 the prosperity which goes with peace rests on a surer founda- 
 tion and is more satisfying and more constructive than that 
 engendered by war. With the coming of peace, the Illinois 
 Central was able to enlarge the pa)Toll, to rehire many of its old 
 and faithful workers, to build up its working capital, to reduce 
 
 C 59 } 
 
its funded debt, and at the same time to repair the damage to 
 its physical property resulting from the low earnings of the 
 depression years and the unavailability of materials during the 
 war years. Every eflFort was made to reinstate as rapidly as pos- 
 sible the employees who had been thus forced out of employ- 
 ment. The number of employees was greatly increased, so that 
 by 1945, 41,330 were employed. But in that war year, operating 
 revenues were $237,000,000 and net income nearly $11,500,000. 
 
 Since 1945, earnings have risen. In 1953, operating revenues 
 were over $308,000,000 and net income was over $26,300,000. 
 It is interesting to note that although average wages continued 
 to rise in each year from 1945, when tliey were $2,459, to 1953, 
 when they were $4,354, the average number of employees was 
 gradually reduced to 35,555 in 1953 and 34,492 in 1954. The 
 ability of management to make this substantial reduction in 
 employees required to handle the increased business indicates 
 a high degi^ee of eflBciency. This has been accomplished largely 
 by, among other things, increased use of labor-saving devices 
 and rearrangement of train schedules resulting from the diesel- 
 ization in recent years. 
 
 This alertness of management has been favorably commented 
 on in an unsolicited pamphlet prepared by the American Insti- 
 tute of Management, a non-profit organization which has made 
 a series of studies of various industries in the United States. 
 
 The decentralization of our many large industries has resulted 
 in many new plants being placed along the line of the Railroad, 
 which have employed large numbers of people, many of whom 
 formerly were employed by the Railroad. 
 
 In the late 1930's, the management and the Board studied the 
 Railroad's debt and agreed on a program. They started to 
 reduce funded debt by purchase and initiated a program de- 
 signed to meet in advance, so far as practicable, the threat of 
 the large amount of debt maturing between 1950 and 1955, 
 which as of December 31, 1929, aggregated approximately 
 $192,000,000. The larger part of this debt, that which matured 
 between 1950 and 1954, was non-callable. As will be seen here- 
 after, on July 31, 1949, the early-maturing debt had been re- 
 duced to about $81,000,000, and the OflFers of Exchange made 
 
 t 60 ] 
 
in 1949 resulted in further substantial reductions of the total 
 outstanding amount of this portion of the debt. 
 
 As will appear, beginning with 1949, the IlUnois Central was 
 able to initiate, and by 1954 accomplish, a simplification of its 
 debt sti^ucture while effecting during the latter part of the 
 1940's a substantial simplification of its corporate structure. 
 Thus, the intensive action of the Chairman of the Executive 
 Committee, the President, and members of the Board of Direc- 
 tors, and the many who worked with them, has resulted in cut- 
 ting down the number of mortgages and other debt indentures 
 from about thirty in the 1930's to a single Consolidated Mort- 
 gage, dated November 1, 1949, wliich is a direct first lien on 
 over 5,953 miles of the System, and in reducing the approxi- 
 mately twenty-two wholly owned carrier subsidiaries compris- 
 ing the System in 1939 to five in 1954. These practical forward 
 steps were taken toward consolidating the raihoad companies 
 formerly comprising the System into a single corporate entity, 
 the Illinois Central Railroad Company.* 
 
 THE RAILROAD'S RECOVERY FROM THE 
 
 DEPRESSION — INCREASED DIVIDENDS ON ITS 
 
 COMMON STOCK 
 
 As a result of the planning and unusual efficiency in opera- 
 tions of the management and the employees and also because 
 of the sacrifices made by each— following the disallowance by 
 the Court of the claim in the Guttmann Preferred Stockholders' 
 suit that the 6% Preferred Stock dividend was cumulative, which 
 had it been allowed would have cost the Raihoad many millions 
 of dollars and delay in the payment of dividends on its Common 
 Stock— dividends on the Preferred Stock were resumed on April 
 16, 1948, seventeen years after the break in the seventy-two-year 
 dividend record in 1931. On January 20, 1950, payment of 
 dividends on the 1,357,978 shares of Common Stock outstand- 
 ing was resumed. Dividends were paid at the rate of 3% in 1950, 
 4% in 1951, and 5% in 1952; and following the call of the Pre- 
 ferred Stock and its conversion, share for share, into Common 
 
 * See Appendix B, 
 
 t 61 } 
 
on January 31, 1955, the dividend on the Common was in- 
 creased, on February 18, 1955. This demonstrated to a substan- 
 tial degiee that the financial difficulties of the Raihoad had 
 been in large part overcome, and the Railroad returned to its 
 role as a dividend-paying railroad. 
 
 The record of the Railroad during and following the most 
 difficult period in the history of railroad financial problems, 
 when so many of our Class I raihoads had to submit to national 
 bankruptcy proceedings, is an outstanding one. 
 
 With the threat of the bond maturities abated as a result of 
 the debt reduction program discussed under the next subhead- 
 ing of this chapter, the management of the Railroad was also 
 able to embark in the last few yeais on an extensive Dieseliza- 
 tion Program. The Illinois Central's delay in this respect, as com- 
 pared with many other raihoads, was due primarily, as indicated 
 below, to the fact that the "first things first" rule was applied, 
 which meant that the debt problem had to be met before other 
 problems were solved. But there is also the fact that the manage- 
 ment realized that with its water level straight routes, steam 
 power was not at the disadvantage that it was on railroads with 
 more difficult terrain. The Railroad's management had also par- 
 ticipated in developing coal-turbine power and had hoped that 
 it would be developed to a point where it would be more effi- 
 cient than oil-diesel power. This would have been particularlv 
 helpful because of the Railroad's large and expanding coal 
 traffic. While progress has been made in the experiments with 
 the coal-turbine locomotives, as well as with gas-turbine and oil- 
 turbine locomotives, it was not great enough, in the manage- 
 ment's opinion, by the time the Railroad's financial problems 
 were being solved to warrant the Railroad's further delaying to 
 start a gradual changeover to diesel power. The Railroad accord- 
 ingly began its changeover with switching, then dieselized its 
 through north-and-south passenger service; after that it acquired 
 all-purpose freight diesels and used them on an expanding num- 
 ber of those lines where the most effective use could be made 
 of diesel power. 
 
 Accordingly, by the end of 1954, the Raihoad had purchased, 
 largely under Equipment Trust financing, 163 switch-transfer 
 
 [ 62 ] 
 
diesel locomotives, 96 all-purpose (freight) locomotives, and 
 42 passenger locomotives, which cost about $40,700,000. It 
 scheduled for 1955 the purchase of 70 all-pm-pose (freight) 
 locomotives to cost an additional $11,700,000; they have now 
 been delivered and are in operation. The Raihoad estimates 
 that to complete the Dieselization Progi'am after 1955, it would 
 require about 225 aU-purpose locomotives at a present estimated 
 cost of about $37,800,000. It is the intention to spread the 
 acquisition of this equipment over a number of years. 
 
 Because of the financing of the diesel locomotives— as well as 
 new banana, automobile, coal, hopper, box, and flat cars which 
 the Railroad has acquired (or is acquiring in 1955) and wliich 
 are needed for tlie greatly increased traffic in the Mississippi 
 Valley, the port of New Orleans, and for the movement of coal 
 to the Great Lakes for transshipment— fixed charges, which 
 include the Equipment Trust dividends, have been increased 
 above the lower level they would have reached as a result of 
 the Bond payments and acquisitions, as has been stated above. 
 
 The approximate principal amount of equipment obligations 
 as of December 31, 1954, was $59,114,000 and the annual 
 maturity requirements for 1954 were approximately $8,800,000. 
 However, the annual maturities are only approximately $300,000 
 over current depreciation on equipment of approximately 
 $8,500,000. Maturities of equipment obligations in the '30's 
 annually averaged approximately $6,400,000. 
 
 As of November 2, 1955, the total amount of interest-bearing 
 mortgage debt is estimated to be approximately $128,000,000 
 and the amount of annual mortgage interest thereon approxi- 
 mately $4,500,000. 
 
 It is generally recognized that the man to whom the principal 
 credit is due is Eugene W. Stetson, Chairaian of the Executive 
 Committee and a Director since 1932, the year in which the 
 depression was the greatest. He devoted his major attention 
 during the war years to dealing with the problems they pre- 
 sented, including the judicious retirement of debt, and since the 
 war years he has concentrated particularly on the simplification 
 of the debt program, the continuance of the retirement of debt, 
 and refunding debt when possible on better terms. His saga- 
 
 [ 63 } 
 

 \ 
 
 'K 
 
 
 *^ 
 
 
 
 
 THE RAILROAD S CONTRIBUTION TO THE COAL INDUSTRY 
 
cious counsel in financial affairs was a beacon light to the late 
 President Beven as it has been to President Johnston. Stetson's 
 contribution to solving the financial problems of the Raihoad, 
 Johnston's outstanding expertness as a raihoad operator, and 
 the harmonious relations between them and the members of 
 the Board of Directors and the Executive Committee— these 
 are important factors in tlie explanation of the present strong 
 financial and operating situation of the Raihoad. f 
 
 t The Board of Directors and Executive Committee 
 (as constituted December 30, 1952) 
 
 *Wayne a. Johnston Chicago 
 
 Preside7it, Illinois Central Railroad 
 
 Hugh M. Comer Sylacauga, Alabama 
 
 Chairman of the Board, Avondale Mills 
 
 Stephen Y. Hord Chicago 
 
 Brown Brothers, Harriman & Company 
 
 *WiLLiAM R. King Memphis 
 
 Presideyit, William R. Moore Dry 
 Goods Company 
 
 James R. Leavell Ocean Springs, Mississippi 
 
 DoNOLD B. LouRiE Chicago 
 
 President, The Quaker Oats Company 
 
 Howard H. Rath Waterloo, Iowa 
 
 President, Rath Packing Company 
 
 Edwin J, Spiegel St. Louis 
 
 President, Gaylord Container Corporation 
 
 *Eugene W. Stetson New York 
 
 Chairman, Executive Committee, 
 Illinois Central Railroad 
 
 Adlai E. Stevenson Springfield, Illinois 
 
 Governor, State of Illinois, ex officio 
 
 *Edwin S. S. Sunderland New York 
 
 Davis Polk Wardwell Sunderland & 
 Kiendl 
 
 Solon B. Turman New Orleans 
 
 President, Lykes Brothers Steamship 
 Company, Inc. 
 
 Louis Ware Chicago 
 
 President, International Minerals & 
 Chemicals Corporation 
 
 ** Executive Committee. 
 
 As constituted on June 1, 1955, the Board has one additional Director, who 
 was elected following an increase in the number of Directors approved at the 
 annual meeting of May 19, 1954. He is Dwight P. Robinson, Jr., Chairman, 
 Board of Trustees, Massachusetts Investors Trust. The present Governor of 
 Illinois, a member ex officio of the Board of Directors, is William G. Stratton. 
 
 i 65 } 
 
*Thomas E. Wilson Chicago 
 
 Chairman of the Board, Wilson & 
 Company 
 
 ^Robert E. Wood Chicago 
 
 Chairman of the Board, Sears Roebuck 
 & Company 
 
 It should be remembered that these things were accom- 
 phshed not only imder the heavy bm^den of the Reconstruction 
 Finance Corporation indebtedness, but under the necessity of 
 dealing with many unusual and difiBcult financial problems. 
 Among these was the necessity of considering the need of the 
 people of New Orleans for new terminal facilities. This need 
 was largely a result of the heavy war traffic, and later the 
 increase of traffic due to the development of the port, to which 
 the Railroad made and is making a substantial contribution. It 
 is understandable that the public officials and people of New 
 Orleans and Louisiana desired new railroad terminal facilities. 
 These might well have required very large expenditures by the 
 Railroad. Fortunately, through the eflForts of President Johnston 
 and Vice President and Chief Engineer Charles H. Mottier, a 
 satisfactory arrangement was worked out under which the 
 Illinois Central became a tenant in a new terminal. 
 
 Among other financial and operating problems which were 
 solved during this difiBcult period was the following important 
 one: In 1941, it was learned that the fifty-year-old Cairo bridge, 
 which spans the Ohio River at Cairo, Illinois, and is the longest 
 raihoad bridge in the world, would have to be replaced pur- 
 suant to reports of the United States Army Engineers. The 
 estimated cost in so doing was between $10,000,000 and 
 $15,000,000. This problem came during the period when the 
 Raihoad had insufiBcient working capital. As a result of studies 
 made by the Engineering Department of the Railroad, under 
 the supervision of Mottier, a novel plan was developed to renew 
 the superstructure on the existing substructure of the bridge. 
 This unique plan was carried out and materially reduced the 
 cost of the reconstructed bridge. 
 
 Other financial problems dealt with during this period were 
 those involving the Central of Georgia Railroad Company, a 
 
 [ 66 } 
 
THE LONGEST RAILROAD BRIDGE IN THE WORLD, 
 AT CAIRO, ILLINOIS 
 
former subsidiary, and the charter tax suit filed by the State of 
 IlHnois. 
 
 It is to the credit of the lUinois Central that throughout the 
 foregoing difficult periods it continued to discharge its responsi- 
 bility to the communities served both in the Mississippi Valley 
 and in the western states. 
 
 As the first land-grant railroad in America, the Illinois Central 
 pioneered in large-scale agricultural promotion and maintained 
 the high level of this activity not only during the depression 
 period but subsequently. 
 
 Originally, the Railroad's lines penetrated a largely undevel- 
 oped region. The Railroad was dependent to a very large degree 
 on the prosperity of agriculture and industry in the region 
 which it served. 
 
 Its record of accomplishment in agricultural development 
 has been unusual. As long ago as the spring of 1866, it moved 
 substantial quantities of choice strawberries to the Chicago 
 markets. This was the beginning of fruit shipments under 
 refrigeration on railroads in the United States. 
 
 The growth of agriculture, including animal husbandry, and 
 of industry in the territory served by the Railroad from 1850 
 to the turn of the century was probably without a parallel in 
 this or any other country. The population of the fourteen states 
 served by the Railroad increased 4-fold; the value of farm 
 products increased 13-fold; the value of manufactured products 
 increased 28-fold; while the aggregate wealth of these states 
 increased 16-fold. 
 
 The Railroad's increasingly active association with the agri- 
 cultural colleges in the states served by it has been carried on 
 since the early days without interruption due to depressions. 
 This is a signal accomplishment. 
 
 More importantly, through the operation of trains carrying 
 agricultural exhibits, as well as industrial exhibits of improved 
 agricultural and other machinery, teamwork between the Rail- 
 road and shippers has been developed. This cooperation is an 
 important factor in the Railroad's increased traflBc. 
 
 Thomas E. Wilson, a member of the Executive Committee 
 and of the Board of Directors for many years, has been the 
 
 [ 68 } 
 
THE RAILROADS CONTRIBUTION TO THE GRAIN INDUSTRY 
 
prime mover in the development of animal husbandry by 4-H 
 Clubs and by other young people of the rapidly developing 
 Mississippi Valley and the agricultural states served by the 
 Railroad to the west. One important result of this outstanding 
 work is that young people generally are remaining in their home 
 territories and are actively participating in their development. 
 Notwithstanding these very urgent and difficult problems, the 
 Illinois Central Railroad made substantial expenditures for 
 essential maintenance, improvements, and equipment. The fol- 
 lowing tabulation, covering a portion of the rearmament period 
 prior to our entrance into World War II, the war, and the post- 
 war period, shows clearly that the management did not stint on 
 property improvements in order to further its financial re- 
 habilitation program. The $259,000,000 spent on property in the 
 years 1941 to 1954, inclusive, may be considered in the light of 
 the investment in transportation property as of December 31, 
 1954, of $768,000,000 before depreciation and amortization of 
 $235,000,000. It is also to be noted that the major portion of 
 these property improvements were necessarily made in the 
 post-war period, due in part to the stringent material situation 
 that existed during the war. These improvements contributed 
 substantially to the earning power of the property. 
 
 Gross 
 Additions 
 Total and 
 Cash Net Funded Net Current Cash Betterments 
 Income during Debt at Assets at Dividends to Property 
 Tear (A) End of Year End of Year during Year during Year 
 , Thousands ,, 
 
 1941 $17,955 $368,603 $19,536 — $20,377 
 
 1942 34,961 342,394 31,344 — 9,381 
 
 1943 39,477 305,539 30,102 — 7,359 
 
 1944 32,880 282,110 31,309 — 8,016 
 
 1945 32,272 256,818 50,544 — 5,894 
 
 1946 19,019 241,874 41,667 — 13,643 
 
 1947 27,142 229,596 39,329 — 17,577 
 
 1948 33,939 233,987 47,814 $1,119 23,641 
 
 1949 29,437 238,672 46,320 1,119 38,157 
 
 1950 42,849 216,268 47,983 5,193 18,465 
 
 1951 31,307 205,593 32,973 5,193 31,094 
 
 1952 36,512 204,324 38,176 5,872 21,272 
 
 1953 39,235 193,468 37,758 7,229 20,559 
 
 1954 35,581 188,629 37,306 7,909 23,869 
 
 (A) Net income plus depreciation, retirements, and amortization. 
 
 [ 70 } 
 
Change, or Totals, Change, or Totals, 
 
 between End of between End of 
 
 1 940 and 1954, 1 944 and 1 954, 
 
 Thousands Thousands 
 
 Funded debt reduced by: $176,448 $93,481 
 
 Net current assets increased by: 29,661 5,997 
 
 Total spent on property 259,304(B) 214,171(B) 
 
 Cash dividends paid 33,634 33,634 
 
 Total $499,047 $347,283 
 
 Deferred expenditures on property 59, 114(B) 59, 114(B) 
 
 Balance $439,933 $288,169 
 
 Cash net income $452,566(A) $327,293(A) 
 
 (A) Net income plus depreciation, retirements, and amortization. 
 
 (B) Payment of $59,114,000 of which was deferred to later years in the form 
 of Serial Equipment ObUgations outstanding in that amount as of December 31, 
 1954. 
 
 Thus, the Ihinois Central has begun its second century o£ 
 service to the Mississippi Valley and the vast areas east and 
 west of it without, as has been said, having had to seek the pro- 
 tection of the courts. The accomplishment of maintaining its 
 financial integrity, when a large number of the railroads of the 
 United States had to seek assistance, and of reducing its debt 
 and simplifying its corporate structure is not only one in which 
 the public in the Mississippi Valley and the Mid-West should 
 have great pride but one from which it should derive a sense 
 of well-being, safe in the knowledge that it may depend upon 
 this great railroad system for service essential to the prosperity 
 of all interests. Credit for tliis accomplishment is due not only to 
 management and Directors, stockholders and creditors, but to 
 the shippers. It has been frequently said by those who are 
 familiar with the situation that the relationship between the 
 shippers and the Illinois Central is an outstanding one, and that 
 in no other section of the country has there been a greater 
 demonstration of teamwork than by those who use this trans- 
 portation facility and those who endeavor to make it useful. 
 
 In addition to the agricultural and industrial developments 
 referred to above, since December 31, 1952, the date of the 
 first publication of the Brochure, such developments have 
 
 [ 71 } 
 
greatly increased, not only in the improvement and variety of 
 agricultural, animal husbandry, forestry, and chemical and in- 
 dustrial fields of activity, but in the location in the territory of 
 many new industries resulting in greatly improved traffic, par- 
 ticularly in the transportation of coal and chemicals. During the 
 past two years, and particularly during the latter part of the 
 first quarter of 1955, the expansion of plants heretofore con- 
 structed and the location of new industries in the Mississippi 
 Valley have resulted in a very marked improvement in the 
 traffic of the Railroad. Not only are new industries being added, 
 but existing industries served by the Railroad are continually 
 expanding and have spent some $200,000,000 on plant expansion 
 since 1948. During the same period, through the first 9 months 
 of 1954, 803 new industries were located on the Railroad's lines. 
 In 1954, the Raihoad's industrial department arranged for the 
 location of 108 new industries along the Railroad and assisted 
 in the expansion of 24 existing industries. Within the past two 
 years, the Atomic Energy Plant at Kevil, Kentucky, started 
 operations, as did plants of the B. F. Goodrich Chemical Divi- 
 sion, the Pennsylvania Salt Company, Pittsburgh Metallurgical, 
 and National Carbide at Calvert, Kentucky. 
 
 Other important operations were recently established along 
 the Railroad's lines by the International Harvester Company, at 
 Memphis and Chicago; E. I. duPont, at Memphis; Spencer 
 Chemical, at Vicksburg; Cargill, at Natchez; Ford Motor, at 
 Memphis; U.S. Rubber Company, at New Orleans; Westing- 
 house, at Vicksburg; General Electric, at Bloomington, Illinois; 
 Sears, Roebuck, at Gulfport, Mississippi; Armour, at Memphis 
 and Kankakee, Illinois; Caterpillar Tractor and Borg-Wamer, 
 at Decatur, Illinois; Anheuser-Busch, at New Orleans; and many 
 others. 
 
 One of the most significant and encouraging trends in the 
 Railroad's territory is the development and rapid expansion of 
 what might be called chemical centers at Louisville and Calvert, 
 Kentucky; Woodstock, Tennessee; and Tuscola, Illinois. The 
 basic chemical industries located in these areas not only produce 
 profitable traffic, but are stable producers, and due to their 
 
 [ 72 } 
 
extensive research are constantly developing new sources of 
 traffic. 
 
 Coal constitutes the largest single volume commodity handled 
 by the Railroad. In 1953 and again in 1954, the Railroad estab- 
 lished for itself for the second consecutive year an all-time high 
 in the handling of this commodity. Furthermore, in 1954, it was 
 the only railroad among the fourteen top coal-carrying railroads 
 to increase the number of cars of coal handled. 
 
 Another respect in wliich the Railroad made an outstanding 
 accomplishment in 1954 was in the improved condition of its 
 bad-order cars. In 1954, the Raihoad advanced its position 
 among Class I railroads of the country to the position of fourth, 
 as a result of its having less than 2% of bad-order cars. During 
 this period, in its own car shops, the Railroad built a large num- 
 ber of cars, many of which had special features which made 
 possible the more economical transportation of commodities as 
 bulk rather than in individual packages. 
 
 During the years 1953 and 1954, a large number of these cars 
 were put into service, and the Dieselization Program of the 
 Railroad was greatly advanced by the purchase of "all-purpose" 
 freight diesels as well as switch-transfer diesels and passenger 
 diesels. This resulted in large operation savings. In the present 
 year, 1955, some seventy additional "all-purpose" freight diesels 
 have been put into service, leaving a relatively small number of 
 diesels to be thereafter purchased and financed. 
 
 In addition to the unusually well-maintained cars of the 
 various types required for maximum public service, some 800 
 steam locomotives are in good order and are being economically 
 used, particularly in the coal traffic areas. 
 
 It is desirable that there be an accurate record of the action 
 of the management, the Executive Committee, and the Board 
 of Directors which made these results possible. 
 
 THE METHODS BY WHICH, UNDER THE GREATEST OF DIFFICULTIES, 
 THE DEBT STRUCTURE WAS SIMPLIFIED ARE HEREIN OUTLINED AND 
 THEN SET FORTH IN DETAIL. 
 
 The story of the debt reduction is recorded in the testimony, 
 exhibits, and findings in the Federal Court in the Preferred 
 
 I 73 ] 
 
stockholders' suit brought against the Illinois Central by Alex- 
 ander Guttmann." This proceeding was brought for the purpose 
 of questioning the soundness of the judgment of the manage- 
 ment, Executive Committee, and Board in the conduct of the 
 financial affairs of the Railroad in not declaring Preferred Stock 
 dividends though such dividends were covered in certain years. 
 In addition to the story which is told in the text, pertinent 
 testimony is quoted in Appendix A below. While it is true that 
 the Preferred Stock involved in this suit has now been retired, 
 the testimony covered the field of Directors' responsibility gen- 
 erally, and specifically the pohcy adopted by the Directors to 
 reduce the funded debt to manageable proportions. Considera- 
 tion of the testimony gives a first-hand view of the way in which 
 the program was initiated and developed. While tlie pleadings 
 in the above-mentioned suit embraced the period from 1937 to 
 1947, the case was tried in the spring of 1950 and the testimony 
 in effect covers the Railroad's actions tlu'ough 1949. The record 
 in this case is discussed herein in some detail ( and in Appendix 
 A ) in order to show the basis of the policy of the management 
 and Directors. 
 
 In addition, there will be briefly described the steps involved 
 in the debt reduction program which was carried on until 1952. 
 These include the creation of the Consolidated Mortgage of 
 November 1, 1949, and the Offers of Exchange of the first series 
 of Consolidated Mortgage Bonds, Series A, B, and C, all carry- 
 ing 3^% coupons after November 1, 1955; the making of con- 
 tracts in May 1952 with insurance companies for the private 
 placement of $25,000,000 of Series D 4'A% Bonds ($13,000,000 of 
 which were sold on June 5, 1952, and $12,000,000 of which were 
 sold on April 1, 1954); and the sale of $62,000,000 of Series E 
 3%% Bonds in the fall of 1952. 
 
 There also are briefly described the steps taken since 1952 in 
 reducing the interest rates carried by many outstanding security 
 
 " This case involved the question of whether dividends should have been 
 paid on the non-cumulative Preferred Stock, which was retired on March 1, 
 1955, in the years 1937-1947. The trial court upheld the decision of tlie manage- 
 ment not to pay dividends during tlie period in question. The trial court's judg- 
 ment is reported in 91 F. Supp. 285 (1950). This was unanimously affirmed by 
 the Court of Appeals for tlie Second Circuit in 189 F. 2d 927 (1951), and 
 certiorari was denied by the Supreme Court in 342 U.S. 867 ( 1951 ) . 
 
 [ 74 } 
 

 {■m¥$ 
 
 
 
 THE RAILROAD S CONTRIBUTION TO THE STEEL INDUSTRY 
 
issues by refunding at lower interest rates. These include the 
 refunding of the Raihoad's $34,743,000 of Forty Year 4%% 
 Debentures due in 1966, called for redemption on February 1, 
 1954, in part by the sale of $15,000,000 of Series F S%% Bonds 
 in January 1954, by a $12,000,000 bank loan secured by $12,- 
 000,000 of Series D Bonds made on February 1, 1954, and by 
 treasury funds; the sale on April 1, 1954, of the $12,000,000 of 
 Series D Bonds and the payment of the bank loan with pro- 
 ceeds of the sale; the sale of $25,000,000 of Series G 3M% 
 Bonds on August 25, 1954, in refunding of the $25,000,000 
 of Series D Bonds; the sale in September of 1954 of $60,000,000 
 of Series H 3/8% Bonds, to refund the then outstanding Series E 
 Bonds; and the sale in January of 1955 of $18,000,000 of 3J^% 
 Sinking Fund Debentures, this sale being intended to supply 
 funds that might be necessary for the redemption of the 6% 
 Convertible Preferred Stock, which the Railroad decided to call 
 on December 30, 1954, for redemption on March 1, 1955. Owing 
 to the fact that conversion of the Preferred Stock was made in 
 substantial quantity by the cut-oflF date, January 31, 1955, there 
 were left only 5,925 shares of Preferred Stock to be re- 
 deemed on March 1, 1955, which required $343,650. Debentures 
 amounting to $12,533,000 were reacquired by the Railroad at 
 their principal amount, and the remaining proceeds of the 
 Debentures were accordingly made available to the Railroad 
 for general capital purposes. 
 
 Finally, certain comments on the Consolidated Mortgage will 
 be made. 
 
 THE DETERMINED DEBT REDUCTION POLICY OF 
 
 THE DIRECTORS OF THE ILLINOIS CENTRAL 
 
 THROUGH 1949 
 
 The nature of the financial problem facing the Railroad in 
 the late 1930's and during the World War II years and there- 
 after was the subject of testimony in the Guttmann case, the 
 facts of which as they bear on our problem are here given ( and 
 quotations from oflBcers' and Directors' testimony are given in 
 Appendix A). Facts found by the trial court and not disturbed 
 
 C 76 ] 
 
or questioned in any way by the appellate courts* show the 
 origin of the problem and the solution decided on by the man- 
 agement and the Directors. They show that from the late 1930' s 
 it was the policy of the Railroad to reduce its outstanding 
 funded indebtedness as rapidly as possible. 
 
 In 1932, the financial condition of the Illinois Central was 
 grave. The fixed charges on its indebtedness, then amounting to 
 $16,452,837, were so large in relation to its earnings, reduced 
 by the depression, that in that year the Railroad would have 
 found it very difiicult to avoid default in the payment of such 
 interest without the assistance of the Reconstruction Finance 
 Corporation, which loaned it $3,863,000 for the purpose of meet- 
 ing the interest. The Railroad continued to obtain loans from the 
 R.F.C., to meet maturing debt and for other purposes. In 1937, 
 it had to borrow $10,000,000 more from the R.F.C. in order to 
 meet the maturity of an issue of $12,500,000 in notes, so that its 
 outstanding loans from that source amounted to $35,185,000. 
 
 On December 31, 1937, the Railroad had a total outstanding 
 indebtedness of $367,588,175, and interest charges for the year 
 1937 amounted to about $15,536,090. In that year, it was facing 
 its second financial crisis and, because of the deficits of the 
 prior years and its heavy fixed charges, was on the verge of 
 reorganization under the bankruptcy statutes. 
 
 In 1937, the Directors of the Railroad were also faced with 
 the maturity in 1939 of the $35,185,000 of the notes to the 
 R.F.C. An extension of these notes to 1944 was arranged and 
 they were paid oflF in 1943. 
 
 One of the most serious problems facing the Illinois Central 
 and its Directors in 1937 was meeting the heavy indebtedness 
 maturing in the years 1950, 1951, 1952, 1953, and 1955, totalhng 
 $188,456,000, of which $134,791,000 in the aggregate became 
 due in 1950, 1951, 1952, and 1953 and was non-callable. In view 
 of the critical condition of the Railroad in the late 1930's and 
 the absolute necessity of taking care of this indebtedness, its 
 Directors determined upon a program to reduce the indebted- 
 ness and the heavy annual interest charges thereon by purchas- 
 
 * Some necessary adjustment of the amounts stated has been made and some 
 additional facts have been added. 
 
 [ 77 ] 
 
ing outstanding Illinois Central Bonds. This program of debt 
 reduction was inaugurated in 1939 when the Directors negoti- 
 ated a supplemental agreement with the Reconstruction Finance 
 Corporation whereby the Railroad was permitted, as stated 
 above, to apply the amount of 1% cash payment against principal 
 required to be made to the R.F.C. toward the purchase of out- 
 standing Bonds which would be pledged as further collateral 
 for the R.F.C. loan. 
 
 This program of purchasing outstanding bonds of the Rail- 
 road for the purpose of reducing the amount of its heavy early- 
 maturing indebtedness was followed from 1939 to the time of 
 the financing in 1952. 
 
 As a result of the purchases of the Illinois Central's outstand- 
 ing Bonds in the open market, the total amount of its indebted- 
 ness was reduced by $114,231,900 as of December 31, 1949, 
 and a saving resulted to the Railroad of $20,269,952 principal 
 amount over what it would have cost if these obligations had 
 been paid at maturity. ( The purchases also resulted in a saving 
 through December 31, 1949, of $19,663,529 in interest charges 
 which would otherwise have had to be paid. As of December 31, 
 1950, the amount of saving in interest charges was $24,075,778. ) 
 
 As part of the debt reduction program the Directors of the 
 Railroad in the fall of 1945 authorized an invitation for tenders 
 of $53,794,000 face amount of its non-callable Bonds due in the 
 years 1950, 1951, and 1952. Although Bonds were tendered in 
 the amount of approximately $32,000,000, the prices at which 
 they were tendered were such that the Directors accepted only 
 $15,464,000 at an average price of 95% of their par value. 
 
 As a further step in its debt reduction program, the Directors 
 of the Railroad in December 1945 made plans to attempt a 
 refinancing through a new mortgage or extension of certain 
 portions of the indebtedness. Under this plan, it was proposed 
 to issue two classes of Bonds, one of which would be off^ered in 
 exchange for certain non-callable Bonds maturing in 1951 or 
 1952 and the other of which would be used to redeem callable 
 Bonds maturing in 1955. In January 1946, the stockholders of 
 the Illinois Central authorized the creation of a new mortgage 
 for the purpose of securing the proposed new Bonds. In May 
 
 [ 78 } 
 

 til a ^ 
 
 T'J'^" - /-'ft 
 
 •M;- yd ^ 
 
 11 ^i^^i^^x^l^j 
 
 
 '::Ci'S-~:^-4^^ 
 
 THE RAILROADS CONTRIBUTION TO TRAFFIC 
 IN THE PORT OF NEW ORLEANS 
 
1946, an exchange offer was made under the terms of which it 
 could not be declared operative until at least 50% in principal 
 amount had been deposited under the plan. Even though the 
 rate of interest on the new Bonds was increased and the Offer 
 of Exchange extended, the amount of Bonds required to be 
 deposited was not forthcoming and the offer was declared 
 inoperative and the plan abandoned. 
 
 During the progress of the debt re-purchase program, a claim 
 was made in 1947 by some holders of Preferred Stock that the 
 Stock was in effect cumulative, and in 1948 a suit was brought 
 as herein indicated by such Preferred stockholders in which 
 this claim was asserted. If the claim had been successful, the 
 Company would have been obligated to pay approximately 
 $12,300,000 of past dividends covering the period from Janu- 
 uary 1, 1937, to the end of 1947. At this time, the attorneys for 
 the Railroad, the firm of Davis Polk Wardwell Sunderland & 
 Kiendl, of which the author is a member and Eastern Counsel 
 for the Railroad, made a very extensive examination of the legal 
 questions involved and advised the Railroad as to the manner 
 of defending the litigation. With tlie advice of the senior mem- 
 ber of the firm, the late John W. Davis, the author, his partners, 
 Theodore Kiendl and S. Hazard Gillespie, Jr., and their asso- 
 ciates, Chester F. Leonard and Francis W. Phillips, the litigation 
 was dealt with on behalf of the Railroad in the District Court, 
 the Second Circuit Court of Appeals, and the United States 
 Supreme Court, which finally sustained the position taken by 
 the Raihoad upon the advice of the above-mentioned attorneys. 
 
 During the progress of the handling of this matter, the debt 
 reduction program was carried on, although the wisdom and 
 propriety of doing it was a matter of serious consideration for 
 the management, because of the large amount involved in the 
 Preferred Stock suit. With the successful completion of the 
 litigation, the program could be continued further with con- 
 fidence in its wisdom. Had this litigation not been successfully 
 handled and completed, the story of the balance of the debt 
 reduction program and simplification of the debt and corporate 
 structure of the Railroad, herein detailed, could not have been 
 written. 
 
 [ 80 } 
 
In testifying in the Guttmann case with respect to the unsuc- 
 cessful Exchange Offer of 1946, Eugene W, Stetson stated: 
 
 Q. Mr. Stetson, just before we recessed you told us that the 
 exchange offer of 1946 did not succeed. What did that mean 
 to you, what significance did the failure of the exchange offer 
 have for you as a banker and as a director of the Illinois 
 Central Railroad? A. That the pubHc did not think that we 
 had gotten our debt sufficiently reduced. 
 
 Q. SuflBciently reduced for what purpose? A. For the pur- 
 pose of a new mortgage on the property. 
 
 Q. To establish the credit of the road? A. To establish the 
 credit of the road, that is correct. 
 
 Q. What did the Illinois Central do after this exchange offer 
 was dropped in June, 1946; what steps did the Illinois Central 
 take thereafter? A. We continued to buy bonds. 
 
 Q. In 1946 and 1947? A. Yes. 
 
 In the early part of 1948, the Directors of the Railroad invited 
 tenders of certain of its non-callable Bonds due in the early 
 1950's, and pursuant to this invitation Bonds were purchased in 
 the principal amount of $13,647,500. 
 
 Pursuing the plan of debt reduction, the Directors in Septem- 
 ber 1949 made a new and different Offer of Exchange to holders 
 of certain Bonds maturing in the years 1951, 1953, and 1955 
 totalling over $52,200,000 face amount. A new Consolidated 
 Mortgage dated November 1, 1949, was created on the proper- 
 ties of the Illinois Central for the purpose of this oflFer and three 
 series of Bonds (Series A, B, and C) issuable thereunder, 
 maturing in 1974 and 1979, were offered in exchange on the 
 terms set forth in the Offer of Exchange dated September 15, 
 1949. As a result of the Offer, $25,637,000 principal amount of 
 exchangeable Bonds were turned in. 
 
 With respect to the 1949 Exchange Offer, Stetson stated that 
 about $20,000,000 of the Bonds exchanged under the Offer 
 came from three large insurance companies and that he re- 
 garded the Offer as a success from the standpoint of getting 
 these wise buyers to exchange, but he did not regard it a success 
 
 [ 81 } 
 
with respect to the balance of the bondholders. However, from 
 the over-all standpoint, he thought that it was a success and 
 that the Railroad's credit position had been materially im- 
 proved. As to what led to the Board's declaring a Common 
 dividend in January of 1950, he indicated that there was a 
 feeling that with the insurance companies being willing to 
 exchange their Bonds and they being such wise buyers, the 
 Railroad was "over what might be termed a financial hump" in 
 the long road back from 1937 to the end of 1949. He felt that 
 the Raihoad had reached a point in its program where, while 
 it was not "entirely out of the woods," he did "see daylight from 
 my point of view." And in the Guttmann case,** Stetson further 
 testified: 
 
 ** United States District Court Judge Galston found in the Guttmann case 
 on the testimony quoted herein and in Appendix A and other testimony and evi- 
 dence that the pohcy of the management and Directors was sound, and that 
 proper discretion was exercised. The Court said: 
 
 There then remains for determination the question whether discretion 
 was justifiably exercised in the instant case. The matter is not one of simple 
 arithmetic, as the plaintifiF would have us beHeve. The net earnings must 
 be integrated with other dominant considerations. First of all there are 
 matters arising out of the economy of the nation as it survived the depres- 
 sion period; the abnormal industrial activity which had its beginning at the 
 outbreak of World War II, even before we entered the war ourselves; the 
 necessity for planning ahead with a knowledge of increasingly high labor 
 and commodity costs; the uncertainty as to the duration of the war and 
 what its effect would be on the economy of the nation; whether a depres- 
 sion period would set in following cessation of hostilities, and if so, when; 
 what the nature and extent of such depression would be, together with 
 other related general economic conditions, including increasing statutory 
 control or supervision of industry. Specifically, in addition to the fore- 
 going economic variables or indeterminants, the defendant was concerned 
 with its own particular problems. First of all was its obhgation to continue 
 as a going concern. That it owed not only to its shareholders and bond- 
 holders, but primarily to the people of the State of Illinois. It had acquired 
 a charter from that State to operate a railroad. The grant of the charter 
 necessarily imposed obhgations upon the railroad company to the people of 
 the State of Illinois. Those obligations obviously included the continued 
 operation of the road for the convenience of the public, and hkewise 
 entailed the necessity for safe operation. To continue as a going concern 
 two important considerations confronted the board of directors. One was 
 the physical up-keep; the other was its financial ability to meet its 
 obligations. 
 
 Its physical properties were in bad shape. Likewise its financial structure, 
 and its weaknesses and pressing necessity for improvement, were described 
 by the president, the chairman of the board, and other directors. They 
 acted in their best judgment, indeed seeking financial advice from other 
 
 [ 82] 
 
Q. Mr. Stetson, looking back over that period of 1939 down 
 to 1949, when your successful exchange offer occurred, from 
 your knowledge of the road during the period, from your 
 knowledge as a banker, do you believe that that exchange 
 offer in 1949 could have been a success without the inter- 
 vening bond pm-chasing program? A. Definitely not. 
 
 Wayne A. Johnston, in commenting on the 1949 Offer of Ex- 
 change, testified that he was also of the opinion that the Offer 
 of Exchange was a success, but that it would not have been if 
 the bond-purchasing program had not preceded it. 
 
 In December 1949, a further Offer of Exchange was made 
 whereby Consolidated Mortgage Series C Bonds (due in 1974) 
 
 experts in the field of finance in order to make their own conclusions doubly 
 certain. . . .(91 F. Supp. 285, pp. 297-298.) 
 The findings of the District Judge were unanimously affirmed by the Court 
 of Appeals for the Second Circuit (189 F. 2d 927) and the United States 
 Supreme Court denied certiorari (342 U.S. 867). (Davis Polk Wardwell Sunder- 
 land & Kiendl — John W. Davis, Theodore Kiendl, S. Hazard Gillespie, Jr., and 
 Francis W. PhiUips — counsel for defendant, IlUnois Central Railroad Company. ) 
 The United States Court of Appeals for the Second Circuit, in unanimously 
 affirming the District Court, said through Circuit Judge Frank, 189 F. 2d 927, 
 at p. 928: 
 
 The trial court's findings of facts — which are amply supported by the 
 evidence and unquestionably are not "clearly erroneous" — establish that 
 the directors acted well within their discretion in withholding declarations 
 of dividends on the non-cumulative preferred stock up to the year 1948. 
 In so holding, we assume, arguendo, that, as plaintiff insists, the standard 
 of discretion in weighing the propriety of the non-declaration of dividends 
 on such preferred stock is far stricter than in the case of non-declaration of 
 dividends on common stock. For, on the facts as found and on the evidence, 
 we think the directors, in not declaring dividends on the preferred in 
 the years 1937-1947, adopted a reasonable attitude of reluctant but con- 
 tingent pessimism about the future, an attitude proper, in the circum- 
 stances, for persons charged, on behalf of all interests, with the manage- 
 ment of this enterprise.2 
 In footnote 2 the Court of Appeals said: 
 
 That the directors were not acting in the interest of the common stock- 
 holders in disregard of the interest of the preferred appears from the fol- 
 lowing: The Union Pacific Railroad holds about 25% of the outstanding 
 common stock (i.e., 348,700 shares out of a total of 1,357,994) and was 
 therefore pretty obviously in control of the Roard of Directors. Yet, that 
 same Railroad holds about 52% of the outstanding preferred shares (i.e., 
 98,270 out of a total of 186,457). Union Pacific would plainly be better off 
 if the plaintiff were successful in this suit. 
 
 The interest of the public was involved in the reduction of funded debt. 
 For railroads with excessive fixed charges, in periods of stress tend to skimp 
 maintenance and not to improve service. 
 
 [ 83 ] 
 
were offered for certain Bonds maturing in 1953, and $3,220,000 
 principal amount of these Bonds were exchanged. 
 
 In connection with the Raihoad's debt reduction program 
 from 1939 through 1949, its Directors sought and obtained the 
 advice and recommendations of Kuhn, Loeb & Co. acting 
 through George W. Bovenizer, a partner experienced in raihoad 
 finance; the Guaranty Trust Company of New York; and the 
 Continental Illinois National Bank & Trust Company. They 
 also got the suggestions of Jesse H. Jones, then Secretary of 
 Commerce and head of the Reconstruction Finance Corpora- 
 tion; Commissioner Charles D. MahaflBe of the Interstate Com- 
 merce Commission; Pierrepont V. Davis, President of Harriman 
 Ripley & Co. Incoi-porated; his associate, T. Herbert Shriver; 
 Henry C. Breck of the Union Securities Company; and others. 
 In fact, the use of railroad funds for reducing indebtedness, 
 with a consequent saving in interest, rather than for the pay- 
 ment of dividends, was expressly urged and endorsed by the 
 Interstate Commerce Commission in 1942. 
 
 As a result of the creation of the new Consolidated Mortgage 
 in 1949 and the successful exchange of long-term Consolidated 
 Mortgage Bonds for early-maturing prior Hen Bonds, the credit 
 position of the Railroad was materially improved because in- 
 vestor acceptance of its long-term financing medium had been 
 established and because its short-term debt problem had been 
 eased by the amount of the exchanges. The Railroad had prac- 
 tically surmounted its financial difficulties insofar as the in- 
 debtedness maturing in the early 1950's was concerned. 
 
 DEBT SIMPLIFICATION AND REDUCTION 
 1950 TO 1952 
 
 By 1950, the principal amount of Bonds maturing in that year 
 had been reduced to $1,853,000, consisting of two issues which 
 were retired as they matured. In addition, in 1950, the Railroad 
 purchased about $7,128,400 of Bonds maturing between 1951 
 and 1955. 
 
 In 1951, the Railroad retired $12,546,000 principal amount of 
 Bonds consisting of fourteen issues maturing in that year and 
 
 C 84 ] 
 
purchased about $2,229,000 principal amount of Bonds matur- 
 ing between 1952 and 1955. As a result, as of March 25, 1952, 
 there were outstandmg $26,684,500 of Bonds due from 1952 
 through 1955 in addition to $62,107,820 principal amount of 
 Joint Refunding Mortgage Bonds, Series A, B, C, and D, due 
 December 1, 1963. During 1952, the Illinois Central was able to 
 make provision for the retirement of all these Bonds by the 
 issuance of additional series of Bonds under the Consolidated 
 Mortgage, and the use of $8,682,332 of treasury funds for debt 
 principal pavTnents, including call premiums. 
 
 Sale of Series D Consolidated 
 (First) Moi'tgage Bonds 
 
 The Company, by entering into purchase agreements dated 
 May 29, 1952, with seven insurance companies, assured its 
 being able to pay or acquire all its remaining outstanding early- 
 maturing Bonds ( $26,684,500 as above stated maturing in 1952 
 tlirough 1955). 
 
 By these purchase agreements, it was given ( 1 ) the right to 
 sell ( and it sold ) at their principal amount and accrued interest 
 on June 5, 1952, an aggregate of $13,000,000 of Consohdated 
 Mortgage Thiity Year 4/1% Bonds, Series D, to seven insurance 
 companies, and (2) the right to sell not exceeding $12,000,000 
 principal amount tliereof on or about April 1, 1954, at their 
 principal amount and accrued interest. The $13,000,000 of 
 Series D Bonds were sold to provide funds which, together with 
 other funds in the treasury, permitted the Company to pay at 
 maturity or purchase all of the $13,479,500 principal amount of 
 Bonds maturing between April 1, 1952, and the end of 1953, 
 and all of the indentures securing these Bonds were satisfied bv 
 September 17, 1952. At the time of the making of these purchase 
 agreements, it was the intention, and was so provided, that the 
 $12,000,000 of Series D Bonds which the Railroad had a right 
 to sell in 1954 were to be sold in order to provide the Raihoad 
 with funds to the extent necessary to enable it to purchase or 
 pay at maturity the principal amount of Refunding Mortgage 
 Bonds maturing November 1, 1955, and then outstanding in 
 the amount of about $12,000,000. 
 
 [ 85 } 
 

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Sale of Series E Consolidated 
 (First) Mortgage Bonds 
 
 Immediately upon the completion of the Series D financing 
 in June 1952, consideration was given to the advisability of 
 issuing $75,000,000 principal amount of Consolidated Mortgage 
 Series E Bonds, the proceeds to be used toward the redemption 
 of (1) the $62,107,820 principal amount of Joint First Refund- 
 ing Mortgage Bonds due in 1963 and ( 2 ) the Refunding Mort- 
 gage Bonds due in 1955. The wisdom of attempting such financ- 
 ing was the subject of many conferences with representatives 
 of Kuhn, Loeb & Company, Harriman Ripley & Company, and 
 Union Securities Corporation, all financial advisers of the Rail- 
 road, and with one of the insurance companies holding a large 
 amount of the Railroad's Bonds. The advice received indicated 
 that the Series E Bonds could probably be sold at a better price 
 by the Railroad to underwriters on a negotiated contract for 
 public distribution than by sealed public bidding. During the 
 course of these discussions the Interstate Commerce Commis- 
 sion's order with respect to exemption from competitive bidding 
 on an Atlantic Coast Line application* appeared, containing 
 language so broad as to preclude any advance negotiations or 
 discussions generally by any applicant for exemption. It was felt 
 necessary to secure clarification from the Commission. A confer- 
 ence with Commissioner Mahaffie led to the decision ( 1 ) to sell 
 $62,000,000 principal amounts of Bonds, instead of $75,000,000, 
 and (2) to hold discussions with certain other investment 
 bankers including Halsey, Stuart & Company, Morgan Stanley 
 & Company, and the First Boston Corporation. In view of the 
 fact that two investment houses confirmed the advice of the 
 Company's financial advisers, Kulin, Loeb & Company, Harri- 
 man Ripley & Company, and Union Securities Corporation, that 
 a better price could be received on a negotiated contract 
 than at sealed pubfic bidding, an application for exemption of 
 $62,000,000 of Series E Bonds from sealed public bidding was 
 prepared and filed on July 11, 1952. Because interventions were 
 
 " Atlantic Coast Line Railroad Company Competitive Bidding Exemption, 
 Finance Docket No. 17748 decided June 18, 1952. 
 
 [ 87 } 
 
made to the Commission in opposition to the apphcation, the 
 matter was set for hearing; and the hearing and subsequent 
 proceedings eventuated in an order of the Commission dated 
 August 18, 1952, denying the apphcation, which was received 
 in New York on August 20th. 
 
 The Ilhnois Central deemed it imperative to have a purchase 
 contract signed some days in advance of the first date required 
 for pubhcation of the redemption notice for the Joint First 
 Refunding Mortgage Bonds (i.e., September 1, 1952). An Exec- 
 utive Committee meeting was held on August 20th at which it 
 was decided to invite bids at sealed public bidding to be 
 received on August 27, 1952. Invitations to bid were accordingly 
 sent out on the 20th, and on the 27th bids were received from 
 a group headed by Halsey, Stuart & Company and from a group 
 headed by the three investment houses which had been advisers 
 to the Railroad. The Railroad accepted the highest bid, that of 
 the former group, 97.347 for 3%% Bonds, and, on the basis of this 
 contract, called for redemption on December 1, 1952, the 
 $62,107,820 principal amount of Joint Refunding Mortgage 
 Bonds. The $62,000,000 principal amount of Consohdated Mort- 
 gage 3/8% Bonds, Series E, were sold pursuant to contract on 
 September 25, 1952, at which time a satisfaction of the lien of 
 the Joint First Refunding Mortgage was delivered, the securing 
 of satisfactions of all other prior lien mortgages except the 
 Refunding Mortgage having been completed in anticipation of 
 such closing. 
 
 With the sale of the Series E Bonds, the funded debt of the 
 Illinois Central had been reduced by December 31, 1952, to an 
 aggregate amount of $204,324,000, consisting of the following 
 three funded debt issues and equipment obligations: (1) $103,- 
 857,000 aggregate principal amount of Consolidated Mortgage 
 Bonds* (not including the $12,000,000 Series D Bonds to be 
 sold in 1954 to refund, on or before 1955, the Refunding 
 Mortgage Bonds which were outstanding in the amount of 
 $11,899^000 principal amount on December 31, 1952), (2) 
 $34,743,000 principal amount of Forty Year ( Debenture ) 4%% 
 Bonds due 1966, and (3) $735,000 principal amount of Chicago, 
 
 * Consisting of Series A due 1979, $3,972,000; B due 1979, $5,519,000; C due 
 1974, $19,366,000; D due 1982, $13,000,000; E due 1982, $62,000,000. 
 
 C 88 ] 
 
Memphis, & Gulf Railroad Company 3% Bonds, due 1962, and, 
 as of December 31, 1952, $53,090,000 principal amount of that 
 railroad's equipment obligations. 
 
 REFUNDING OF DEBT AT FAVORABLE INTEREST 
 RATES FROM 1952 TO MAY 1955 
 
 Sale of Series F Consolidated ( First ) Mortgage Bonds 
 
 and the Redemption of the $34,743,000 Forty 
 
 Year 4%% Debentures 
 
 In the fall of 1953, interest rates had considerably improved 
 and the Railroad's earnings had continued to improve to the 
 extent that it decided to discuss with its bankers the practica- 
 bility of selling on favorable terms a new series of Consolidated 
 Mortgage Bonds. The proceeds from this sale, together with 
 the proceeds of the sale of the $12,000,000 of Series D Bonds, 
 which the insurance companies were under contract to purchase 
 on April 1, 1954, and such additional treasury funds as were 
 necessary, would be applied to call on December 1, 1953, for 
 redemption on February 1, 1954, the $34,743,000 of the Com- 
 pany's Fort)^ Year A%m Debentures. The bankers advised that it 
 was practicable to sell Consolidated Mortgage Thirty Year 
 Bonds, Series F, in December and that about $15,000,000 of 
 them could be sold on favorable terms. In view of the above- 
 mentioned purchase contracts providing that the Railroad could 
 sell the Series D Bonds on April 1, 1954, negotiations between 
 the bankers and the Raihoad's officers led to the recommenda- 
 tion that the Railroad not try to seU such Bonds on February 1, 
 1954, when it would need the money towards paying the 
 Debentures. Instead, it was advised to negotiate a bank commit- 
 ment for a two-month loan of $12,000,000 on a note to be dated 
 February 1, 1954, to mature on April 1, 1954, to bear interest at 
 the bank's prime interest rate on February 1, 1954, and to be 
 secured by the pledge of $12,000,000 of Series D Bonds, such 
 note to be paid by the proceeds of the sale of said Series D 
 Bonds to the insurance companies on April 1, 1954. Such a 
 commitment was negotiated with a bank under date of Novem- 
 ber 24, 1953. In view of the fact that the time schedule then 
 
 [ 89 ] 
 
under consideration required the start of the call of redemption 
 of the Debentures on December 1, 1953, which would be prior 
 to the receipt of the proceeds of the sale of the Series F Bonds 
 (and of the Series D Bonds), another commitment was nego- 
 tiated with the bank also dated November 24, 1953. In this 
 commitment, the bank agreed that upon request of the Railroad 
 on February 1, 1954, it would lend $15,000,000 on the Railroad's 
 note to mature in one year or less, to bear interest at the rate of 
 3/4% per annum, and to be secured by the pledge of $15,000,000 
 of Series F Bonds and short-term United States Government 
 obligations continuously having a value equal to 20% of the loan. 
 An Invitation to Bid dated December 11, 1953, for the Series F 
 Bonds was issued by the Railroad requesting bids on December 
 21, 1953. At that time, four bids were received, all for bonds 
 bearing a proposed interest rate of 3^%, the bids being at prices 
 which would result in net interest costs to the Railroad ranging 
 from about 3.79% to 3.86%. The Railroad accepted the best bid, 
 which was only 3.79%, whereas the net cost to the Company for 
 the Series E Bonds had been about 4.03%. The $15,000,000 of 
 Series F Bonds were sold on January 15, 1954, and the proceeds 
 were deposited on February 1, 1954, with the trustee of the 
 Debenture Indenture, together with the $12,000,000 proceeds 
 of the bank loan received on that date and other Company 
 funds sufficient to redeem the Debentures on February 1, 1954, 
 at the redemption price of 102/2% and accrued interest. 
 
 The Debentures were redeemed; and on April 1, 1954, the 
 $12,000,000 of Series D Bonds that were pledged as security 
 for the two-month bank loan were sold to the insurance com- 
 panies pursuant to the May 29, 1952, purchase contracts and 
 the two-month bank loan was paid. 
 
 Sale of Series G First Mortgage Bonds to Refund 
 Consolidated Mortgage Series D Bonds 
 
 As interest rates generally continued to improve for financing 
 purposes, the Board of Directors of the Railroad in May 1954* 
 
 * At the annual meeting of stockholders held on May 19, 1954, charter 
 amendments were approved to change the Common Stock of the Company from 
 
 [ 90 } 
 
authorized the sale of a new series of Bonds (Series G) in an 
 amount sufficient to refund the $25,000,000 of Series D Bonds, 
 which carried a 4/4% interest coupon. The Consohdated Mort- 
 gage contained a provision that following the satisfaction of the 
 Company's Joint Refunding Mortgage (wliich was satisfied on 
 September 25, 1952, in connection with the sale of the Series E 
 Bonds ) and the satisfaction of the Refunding Mortgage, Bonds 
 of any series issued under the Consohdated Mortgage (other 
 than Series A, B, and C) could be entitled "First Mortgage 
 Bonds." Accordingly, the Company requested the trustee of the 
 Refunding Mortgage to satisfy this Mortgage, which it did 
 under date of July 8, 1954, following deposit of funds by the 
 Raihoad and an agreement by the Raihoad to keep currently 
 on deposit with the trustee an amount equal to 105% of the sum 
 of ( 1 ) the principal amount of Refunding Mortgage Bonds out- 
 standing and (2) the interest thereon to November 1, 1955. 
 
 THE EDGEWOOD CUT-OFF 
 
 The Indenture under which the Forty Year 4^% Debentures 
 had been issued provided that so long as the Debentures were 
 outstanding, the Railroad would not subject to any lien the so- 
 called Edgewood Cut-OflF, owned by the Southern Illinois & 
 Kentucky Railroad Company, a wholly owned subsidiary of the 
 Railroad, unless the Debentures were given an equal lien on 
 this property. The Edgewood Cut-Off is a line of raihoad about 
 127 miles in length, running from Edgewood in Effingham 
 County, Illinois, to Metropolis Junction in Massic County, 
 Illinois. The Consolidated Mortgage provided that upon the 
 satisfaction of the Debenture Indentiue, the Railroad would 
 subject the Edgewood Cut-Off to the lien of the Consolidated 
 Mortgage. Accordingly, the Railroad applied to the Interstate 
 Commerce Commission for permission to acquire the properties 
 of tlie Southern Illinois & Kentucky Railroad Company, and 
 the Commission on June 3, 1954, authorized such purchase. 
 
 $100 par value to stock without par value and to split it two shares for one 
 share, and to spUt the $100 par value 6% Preferred Stock two shares for one 
 share, making the par value of the new shares $50 per share. 
 
 [ 91 } 
 
The purchase was accomphshed on July 1, 1954, and a Supple- 
 mental Indenture of that date was delivered to the trustee of 
 the Consolidated Mortgage conveying the Edgewood Cut-Off. 
 
 ISSUE AND SALE OF $25,000,000 SERIES G FIRST MORTGAGE BONDS 
 
 With the satisfaction of the Refunding Mortgage and the 
 conveyance to the Raihoad of the Edgewood Cut-Off, the 
 Consolidated Mortgage had become a first lien on all of the 
 Railroad's owned mileage at that time an aggregate of 5,955.30 
 miles. This was stated in the circular for the Series G Bonds, 
 which were called First Mortgage Twenty-six Year Bonds, 
 Series G. An Invitation to Bid for $25,000,000 was issued by the 
 Raihoad on July 13, 1954, and on July 29, 1954, four bids were 
 received, all for bonds bearing a 3/4% coupon, the bids being at 
 prices which would result in net interest costs to the Raihoad 
 ranging from about 3.316% to 3.34%. 
 
 The best bid, which involved a cost of 3.316% to the Railroad, 
 was accepted. It will be noted that the interest cost to the 
 Raihoad of about 3.32% contrasted with the very much higher 
 costs of the series issued only a few years before, particularly 
 the Series D 4^4% Bonds. 
 
 Sale of Series H First Mortgage 
 
 Bonds to Refund the Consolidated 
 
 Mortgage Series E Bonds 
 
 While steps were being taken for the closing on August 25, 
 1954, of the sale of the First Mortgage Series G Bonds, con- 
 sideration was given to the question of whether the outstand- 
 ing Consolidated Mortgage Series E Bonds then reduced to 
 $60,628,000 could be refunded by a new series bearing an 
 interest rate comparable to the 3.32% rate of the First Mortgage 
 Series G Bonds. The Board of Directors of the Railroad decided 
 to offer at competitive bidding $60,000,000 of First Mortgage 
 Series H Bonds, and under date of August 27, 1954, an Invita- 
 tion to Bid was sent out by the Raihoad, bids being requested 
 for September 9, 1954. Two bids were received for Bonds bear- 
 
 [ 92 ] 
 
ing a 3/8% coupon rate, one at a net interest cost to the Railroad 
 of about 3.41% and the other at a cost of about 3.44%. 
 
 The best bid was accepted by the Railroad and the Con- 
 solidated Mortgage Series E Bonds were called for redemption 
 on November 1, 1954. 
 
 After giving effect to the redemption of the Series E Bonds, 
 the total funded debt including equipment obligations had 
 been reduced to $191,131,000 as of September 30, 1954, a 
 reduction of $192,147,272 or 50% from the $383,278,672 of debt 
 at the close of 1927. Whereas there were 33 issues other than 
 equipment obligations in 1927, the funded debt on September 
 30, 1954, consisted only of Consolidated (First) Mortgage 
 Bonds, and the small Chicago, Memphis 6- Gulf issue, aggregat- 
 ing $129,223,000. This contrasted with comparable debt in 1941 
 of about $328,000,000 consisting of about 30 issues. 
 
 Issue and Sale of Twenty-five Year 3/27o 
 
 Sinking Fund Debentures and the Redemption 
 
 of the 6% Preferred Stock, Series A 
 
 During 1954, consideration was from time to time given to 
 the desirability of replacing the 6% Preferred Stock, Series A, 
 with Debentures carrying a favorable interest rate. This was 
 because of the saving that could be secured for the Raihoad by 
 its being able to have the benefit of the interest on Debentures 
 as a deductible expense for income tax purposes in contrast to 
 the Railroad's having to pay income tax on the funds used to 
 pay dividends on the Preferred Stock. Following the sale of 
 the First Mortgage Series H Bonds, the Board of Directors in 
 November decided to offer for sale at competitive bidding 
 $18,000,000 of Twenty-five Year Sinking Fund Debentures 
 which would carry a sinking fund of $800,000 a year beginning 
 January 1, 1959, and running to January 1, 1979. The amount 
 of this sinking fund was a rough estimate of the amount of tax 
 saving each year if the Preferred Stock were called for redemp- 
 tion and if the Debentures were issued for the purpose of pro- 
 viding funds towards such redemption. At the same time, the 
 
 i 93 } 
 
Railroad decided to call on December 30, 1954, the Preferred 
 Stock for redemption on March 1, 1955, provided a favorable 
 contract could be made for the sale of Debentures. Invitations 
 to Bid were accordingly sent out on December 1, 1954, request- 
 ing bids for December 15, 1954. Four bids w^ere received for 
 the Debentures. Three of the bids were for coupon rates of 3/2% 
 and at prices which would result in net interest costs to the 
 Railroad ranging from about 3.55% to 3.60%, the fourth bid being 
 for a coupon rate of 3/8% and at a cost to the Raihoad of about 
 3.64%. 
 
 The best bid was accepted by the Railroad and the Preferred 
 Stock was called for redemption on the basis of that bid. The 
 Debentures were sold on January 6, 1955. 
 
 The Preferred Stock was by its terms convertible share for 
 share into Common Stock up to the close of business on January 
 31, 1955. By that date, only 5,925 Preferred shares were un- 
 converted into Common shares, and redemption of these shares 
 required only $343,650. Of the proceeds, $12,533,000 was used 
 to reacquire at their principal amount $12,533,000 of Deben- 
 tures. The remaining proceeds of the sale of the Debentures 
 after payment of the redemption price of such outstanding 
 Preferred Stock accordingly became available for "capital pur- 
 poses" in accordance with the Interstate Commerce Commis- 
 sion's order approving the issuance and sale of the Debentures. 
 
 Assuming the sale of the Debentures as of December 31, 1954 
 (less the $12,533,000 repurchased), the aggregate funded debt 
 of the Railroad including equipment obligations of $59,114,000 
 was $194,096,000. The annual interest on funded debt, which 
 was $16,905,137 in 1927, was reduced to $6,353,519 as of 
 December 31, 1954, a reduction of about 62%. 
 
 The first table following shows, for the years from the end 
 of 1941 through 1954, the funded debt exclusive of equipment 
 obligations, equipment obligations, the total funded debt, and 
 interest on the funded debt. The second table is a list of the 
 issues which were outstanding in 1941. 
 
 THE SUCCESS OF THE DEBT REDUCTION AND DEBT SIMPLIFICATION 
 PROGRAM IS GRAPHICALLY SHOWN BY THESE TABLES AS WELL AS 
 
 C 94 ] 
 
BY THE MAP ON THE INSIDE OF THE COVERS HEREOF, AS OF THE 
 END OF 1954, PICTURING A SINGLE MORTGAGE NOW COVERING SUB- 
 STANTIALLY ALL OF THE LINES OF THE SYSTEM. 
 
 As heretofore indicated, however, it is contemplated that if 
 interest rates are sufficiently favorable hereafter, the Rail- 
 road may well be able to refund the Series F Bonds, which 
 carry a 3^% coupon, and the Series A, B, and C Bonds, which 
 after November 1, 1955, will carry 3^% coupons, the coupons 
 presently being at higher rates because of the terms of the Offer 
 of Exchange under which these Bonds were originally issued. 
 
 
 Funded Debt 
 
 
 
 Interest on 
 
 
 Exclusive of 
 
 
 
 Funded Debt 
 
 December 
 
 Equipment 
 
 Equipment 
 
 Total 
 
 during Year 
 
 31 of: 
 
 Obligations 
 
 Obligations 
 
 Funded Debt 
 
 Ended 
 
 1941 
 
 $328,028,665 
 
 $40,574,000 
 
 $368,602,665 
 
 $15,046,053 
 
 1942 
 
 307,876,325 
 
 34,518,000 
 
 342,394,325 
 
 14,549,177 
 
 1943 
 
 263,627,005 
 
 41,912,214 
 
 305,539,219 
 
 13,203,352 
 
 1944 
 
 245,798,305 
 
 36,311,720 
 
 282,110,025 
 
 11,827,501 
 
 1945 
 
 225,634,970 
 
 31,182,995 
 
 256,817,965 
 
 11,217,739 
 
 1946 
 
 215,822,170 
 
 26,052,000 
 
 241,874,170 
 
 10,424,456 
 
 1947 
 
 204,843,970 
 
 24,752,000 
 
 229,595,970 
 
 9,801,627 
 
 1948 
 
 184,950,670 
 
 49,036,000 
 
 233,986,670 
 
 9,361,575 
 
 1949 
 
 180,852,705 
 
 57,819,000 
 
 238,671,705 
 
 9,486,415 
 
 1950 
 
 168,276,615 
 
 47,991,000 
 
 216,267,615 
 
 9,140,722 
 
 1951 
 
 153,374,220 
 
 52,219,000 
 
 205,593,220 
 
 8,538,970 
 
 1952 
 
 151,234,000 
 
 53,090,000 
 
 204,324,000 
 
 9,102,379 
 
 1953 
 
 137,886,000 
 
 55,582,000 
 
 193,468,000 
 
 7,674,628 
 
 1954 
 
 129,515,000 
 
 59,114,000 
 
 188,629,000 
 
 7,049,582 
 
 FUNDED DEBT (EXCLUSIVE OF EQUIPMENT OBLIGATIONS) 
 
 OUTSTANDING DECEMBER 31, 1941 
 
 Amount 
 
 Name of Issue Maturity Outstanding 
 
 1. Reconstruction Finance Corporation Note May 1944 $35,140,000 
 
 2. Reconstruction Finance Corporation Note Nov. 1950 1,927,660 
 
 3. Illinois Central Sterling Collateral Trust 3 V^'s July 1950 5,261,000 
 
 4. Illinois Central Extended SVs's Dec. 1950 1,000,000 
 
 5. Illinois Central Cairo Bridge 4's Dec. 1950 2,944,000 
 
 6. Illinois Central First SVz's Jan. 1951 2,482,000 
 
 7. Illinois Central First 4's Jan. 1951 1,500,000 
 
 8. Illinois Central Litchfield Division 3's Jan. 1951 3,031,000 
 
 9. Illinois Central Springfield Division 31^ 's Jan. 1951 1,998,000 
 
 10. Illinois Central Sterling 3's Mar. 1951 2,494,000 
 
 11. Illinois Central Sterling 4's Apr. 1951 2,493,000 
 
 i 95 ] 
 
12. Illinois Central Extended 3J/2's Apr. 1951 2,976,000 
 
 13. Chicago, St. Louis & New Orleans 5's June 1951 11,251,000 
 
 14. Chicago, St. Louis & New Orleans 3V^'s June 1951 1,359,000 
 
 15. Illinois Central St. Louis Division & Terminal 3's July 1951 2,228,000 
 
 16. Illinois Central St. Louis Division & Terminal 31/2 's July 1951 7,205,000 
 
 17. Illinois Central Western Lines 4's Aug. 1951 4,261,000 
 
 18. Illinois Central Omaha Division 3's Aug. 1951 3,841,000 
 
 19. Chicago, St. Louis & New Orleans, Memphis Divi- 
 
 sion 4's Dec. 1951 3,228,000 
 
 20. Illinois Central Collateral Trust 4's* Apr. 1952 14,930,000 
 
 21. Illinois Central Purchased Lines 31/2 's July 1952 10,523,000 
 
 22. Illinois Central Louisville Division & Terminal 31/2 's July 1953 22,231,500 
 
 23. Illinois Central 4's Nov. 1953 23,037,000 
 
 24. Illinois Central Refunding 4's Nov. 1955 39,337,000 
 
 25. Illinois Central Refunding 5's Nov. 1955 13,447,000 
 
 26. Chicago, Memphis & Guff 3's Dec. 1962 735,000 
 
 27. Illinois Central— Chicago, St. Louis & New Orleans 
 
 Joint Refunding 5's A and B Dec. 1963 46,287,805 
 
 28. Illinois Central— Chicago, St. Louis & New Orleans 
 
 Joint Refunding 41/2's C Dec. 1963 15,891,000 
 
 29. Illinois Central Debenture 434's Aug. 1966 35,000,000 
 
 30. Illinois Central 4% Leased Line Stock Certificates.... — • 9,989,700 
 
 '^ The Collateral Trust 4's of 1952 were secured by bonds of seven mortgage issues on parts 
 of the Railroad System. 
 
 THE CONSOLIDATED (FIRST) MORTGAGE 
 
 In creating the Consolidated Mortgage, the Ilhnois Central 
 sought to establish a mortgage which would, as a result of the 
 refunding of prior lien mortgages, eventually become a single 
 lien on, among other things, the physical properties of the Rail- 
 road System other than certain "excepted properties."* This has 
 
 " The "excepted properties" included among other things ( 1 ) all securities of, 
 or claims of the Illinois Central against, the following three railroad companies, 
 which are excluded because they operate suburban transportation properties in 
 the Chicago area: the South Chicago Railroad Company, Blue Island Railroad 
 Company, and Kensington & Eastern Railroad Company; (2) the Southern 
 Illinois & Kentucky Railroad Company, which owns a so-called cut-off extending 
 from Edgewood to Metropolis, Illinois, which railroad the Illinois Central could 
 not pledge because of a negative pledge covenant in the indenture securing the 
 Debentures referred to above and which now has been merged into tlie Illinois 
 Central; (3) two leased line railroads, which constitute the line from Shreveport, 
 Louisiana, to Meridian, Mississippi, via Vicksburg; and (4) tlie Chicago, 
 Memphis & Gulf Railroad Company, which was excluded because the Illinois 
 Central is not a guarantor of the principal of the outstanding Mortgage Bonds 
 on this property — it only guarantees the payment of the interest to the date of 
 
 [ 96 } 
 
now been accomplished. The Ihinois Central needed a modem 
 general mortgage under which prior lien mortgages could be 
 refunded because, for one thing, there were in existence only 
 two general Refunding Mortgages each of which was primarily 
 a junior mortgage covering merely about one-half of the system, 
 the Refunding Mortgage covering the northern half and the 
 Joint First Refmiding Mortgage the southern. In order for the 
 Company to be able to approach its 1950-1955 maturities with 
 confidence, it was necessarv as set forth above for it to reduce 
 by purchase to the extent it was capable the debt maturing in 
 that period, and in addition it was desirable for it to create a 
 medium which bv the end of that period would, if practicable, 
 be close to a first mortgage on substantially the whole system 
 instead of the rather junior mortgage it would be at the start. 
 Accordingly, in setting up the Consolidated Mortgage with a 
 view to having it operate in accordance with the September 15, 
 1949, Offer of Exchange, the management had in mind that the 
 Consolidated Mortgage should provide as it did for refunding 
 all prior lien Bonds, about $143,000,000 as of that time, as well 
 as, when the Debenture Agreement of 1966 should have been 
 satisfied,** the bonding of additions and betterments upon a 
 sound basis. 
 
 IMPROVEMENT IN LIEN, 1949-1955 
 
 Under the Consolidated Mortgage, there was pledged, in 
 addition to equipment and other property, the Illinois Central's 
 interest in about 5,850 miles of railroad in the Svstem, but the 
 Mortgage was a first lien on only about 617 miles of railroad and 
 a junior lien of varying degrees on the remainder. As to the 
 southern half of the System, which was o-wned by the Chicago, 
 St. Louis & New Orleans Railroad Company, the interest 
 pledged by the Illinois Central was that of lessee of the New 
 Orleans Company and as owner of the stock of that company 
 
 maturity of such Bonds, which is also the date of the expiration of the lease 
 under which the property is being operated. See map on inside of covers. 
 
 *' This Agreement contained a negative pledge covenant preventing during 
 the life of the Debentures the issuance of Bonds (other than for refunding) 
 under any new mortgage. As stated above, the Debenture Indenture was satis- 
 fied on February 1, 1954. 
 
 r 97 } 
 
subject to the lease and to the rights of the holders of a small 
 percentage of Leased Line Stock Certificates then outstanding. 
 In order to see the extent to which this lien position has been 
 improved by the recent financing, by the acquisition in 1951 
 by the Illinois Central of the properties of the merged Chicago, 
 St. Louis & New Orleans Railroad Company, and by the recent 
 merger with the Illinois Central of the subsidiary owning the 
 Edgewood Cut-Off, the following table is set out showing the 
 mileage covered by the Consohdated Mortgage at the time of 
 its creation and as of December 31, 1954. 
 
 November 1 December 31 
 
 1949 1954 
 
 /—Ohio River— ^ ^—Ohio River— ^ 
 
 North South North South 
 
 First lien 55 562 2,996 2,957 
 
 Second lien, subject to first lien of: 
 
 Refunding Mortgage 4%-5% 1955 181 
 
 Joint Refunding Mortgage 4%-4V^%-5% 1963 148 
 
 Western Lines 4% 1951 402 
 
 Omaha Division 3% 1951 133 
 
 Collateral Trust 4% 1953 736 
 
 Litchfield Division 3% 1951 97 
 
 Cherokee & Dakota First Mortgage 5% 1952* 127 
 
 Cedar Rapids & Chicago 5% 1952* 42 
 
 Yazoo & Mississippi Valley 5% 1952* 122 
 
 Third lien, subject to first lien of: 
 
 3%-3i/2%-4% 1951 (Charter Lines) 705 
 
 Springfield Division 31/2% 1951 113 
 
 St. Louis Division & Terminal 3%-3i/2% 1951 199 
 
 Purchased Lines 3V^% 1952 480 
 
 Rantoul 5% 1952* 52 
 
 Chicago, Havana & Western 5% 1952* 130 
 
 Canton, Aberdeen & Nashville 5% 1952* 88 
 
 Louisville Division & Terminal 3^^% 1953.... 646 
 
 Chicago, St. Louis & New Orleans 3V2%-5% 
 
 1951 563 
 
 Chicago, St. Louis & New Orleans, Memphis 
 
 Division 4% 1951 97 
 
 Fourth lien, subject to first lien of: 
 
 Chicago, Madison & Northern 5% 1952* 173 
 
 2,889 2,962 2,996 2,957 
 
 2,889 2,996 
 
 Total 5,851 5,953 
 
 • Pledged under Illinois Central Collateral Trust 4% 1952. 
 
 [ 98 ] 
 
At the time of the creation of the ConsoUdated Mortgage, 
 there were pledged $63,685,000 principal amount of various 
 prior lien Bonds and in addition the Bonds which were turned 
 in under the September 15, 1949, Offer of Exchange. By the 
 time of the December 20, 1949, Offer of Exchange, the amount 
 of such prior lien Bond collateral then pledged had increased 
 to $127,984,000 principal amount. 
 
 In contrast to the 1949 lien position, with the completion in 
 1954 of the Series G and related financing the Consolidated 
 Mortgage became, in the opinion of counsel, a first lien on all 
 of the owned mileage, 5,953.26 miles of railroad, subject only 
 to excepted encumbrances as that term is defined in the Con- 
 solidated Mortgage. This is shown graphically on the map on 
 the inside of the front cover hereof. 
 
 The reduction of the debt structure to practically one mort- 
 gage has resulted and will continue to result in substantial 
 benefit to the Illinois Central because of the simplification of 
 the accounting required as contrasted with that required with 
 respect to the numerous mortgages until recently in existence. 
 But by far the most important advantage is the fact that there 
 has thus been created for the Illinois Central a single financing 
 medium with a first lien on practically the whole System, a 
 medium which, as has already been demonstrated, has a higher 
 credit rating. The improvement in the Illinois Central's credit 
 which aheady has taken place is illustrated by the difference in 
 the cost of money for the Series D Bonds and the Series G 
 Bonds. The Series D Bonds were sold on a 4.25% basis, whereas 
 the Series G Bonds were sold on a 3.32% basis, principally 
 because of the improvement in the lien position of the Consoli- 
 dated Mortgage by virtue of (1) the satisfaction of some 
 eighteen prior lien issues, (2) continued good earnings, and 
 (3) to some extent a general lowering of interest rates in 1954. 
 It is submitted that the vast improvement in the corporate and 
 debt structure of the Illinois Central, as well as its substantial 
 earning power, has reestablished its credit and reinstated it as 
 one of the top railroad credit risks in the country. 
 
 [ 99 } 
 
PROVISIONS OF THE CONSOLIDATED 
 (FIRST) MORTGAGE 
 
 The Consolidated Mortgage is modern in all respects, and in 
 keeping with the dex'elopment of railroad mortgages contains 
 many provisions which although protective of the bondholders 
 yet are designed to keep the Railroad from being placed in a 
 strait jacket. 
 
 The refmiding provisions are usual. In addition to providing 
 for the issuance of Bonds to refund all prior lien Bonds, the 
 Mortgage provides for issuance of Bonds to refund prior debt 
 which may be created in connection with acquisitions of prop- 
 erty made after the date of the Mortgage. 
 
 The provisions for issuing Bonds to capitalize expenditures 
 for improvements and the like are somewhat unusual. Whereas 
 many years ago raihoads were generally permitted under their 
 mortgages to bond additions and betterments for 100% of cost, 
 as distinguished from depreciated value at the time of bonding, 
 modern railroad mortgages have in general been tightened up 
 greatly so as to permit the bonding only of riet additions and 
 betterments and then only to the extent of 75%, GGysfo, and in 
 at least one case 50% thereof. The bonding provisions of the 
 Consolidated Mortgage in this respect (which became opera- 
 tive upon the retirement of the Company's 4%% Bonds due in 
 1966) permit the bonding to the extent of 66%% of the gross 
 expenditures for acquisition or construction of lines of railroad, 
 branches, or extensions or lines of motor, air, water, or pipe line 
 transportation, and the bonding to the extent of 66^^3% of the 
 net expenditures generally for additions and betterments other 
 than equipment and those above described, in both cases on a 
 cumulative basis. 
 
 The Mortgage provided that the Illinois Central could issue 
 $36,953,000 of "free" or "forthwith" Bonds. This was partly a 
 recognition of the great reduction in bonded debt which had 
 been accomplished by the time the Mortgage was created. The 
 $15,000,000 of Series F Bonds were issued as forthwith Bonds, 
 so that there now remain $21,953,000 of Bonds which, if it 
 
 [ 100 } 
 
should need to borrow and is for any reason unable to do so 
 under any other provision of the Mortgage, the Illinois Central 
 will be able to issue merely upon requesting the Mortgage 
 trustee to authenticate and deliver them. 
 
 The Mortgage contains a covenant whereby the Illinois 
 Central will not at any time pledge Consolidated Mortgage 
 Bonds to secure other indebtedness beyond certain limitations 
 spelled out in the Mortgage. This provision is designed to 
 prevent the Bonds from time to time sold by the Illinois Central 
 from being substantially diluted in case of bankruptcy where 
 the holder of another obligation secured by a very much larger 
 amount of Consolidated Mortgage Bonds might be able to prove 
 a claim on the basis of the pledged Bonds, a problem which 
 arose in many of the railroad reorganizations of the 1930's. 
 
 Also in accordance with recent practice, the Mortgage pro- 
 vides for a sinking fund, providing for the Series A, B, and C 
 Bonds and by virtue of the Supplemental Indentures creating 
 them the Series F, G, and H Bonds. This is an annual sinking 
 fund of 1% of the aggregate principal amount of the Bonds of 
 these series theretofore authenticated and delivered, payable if 
 earned in the preceding calendar year. 
 
 Wliile the Consolidated Mortgage is a lien on aU equipment 
 owned at the date thereof, or thereafter acquired subject to 
 existing Equipment Trust obligations, additional Bonds cannot 
 be issued with respect to equipment purchased or increases in 
 the equity in equipment owned subject to equipment obliga- 
 tions. It provides, as most modern railroad mortgages do, 
 because of the experiences of various of the reorganized roads 
 in recent years, that it may be subordinated to enable the 
 Illinois Central to refinance any equipment agreement or to 
 comply with the provisions of any existing equipment agree- 
 ment and also may be subordinated, within five years after 
 acquisition of such equipment, to any equipment agreement 
 created in respect to equipment acquired after the date of the 
 Mortgage. 
 
 The Mortgage also provides that with certain limitations the 
 provisions may be modified with the approval of the holders at 
 any time of 66%% of the Bonds outstanding which would be 
 
 [ 101 ] 
 
aflFected by such modification. The recent history of raihoad 
 reorganization demonstrates the desirabihty of a company's 
 being able to request of its bondholders changes made neces- 
 sary or desirable by the passage of time. 
 
 CONCLUSION 
 
 Wliile the depression of the 1930's presented a severe test of 
 the ability of the Illinois Central to handle its cumbersome 
 funded debt structure, yet this was but the result of a reversal 
 of the trend of the previous decade when this debt had been 
 greatly increased to take care of the large outlays made to 
 expand and improve the Railroad. In fact, if it were not for the 
 expenditures made in the 1920's for these improvements, the 
 Illinois Central could never have handled the capacity traflBc 
 tendered to it in World War II. Nevertheless, the lesson taught 
 by the depression was the need both for reduction and for 
 simplification of debt structure. 
 
 The foregoing shows how well both objectives have been 
 realized. Not only has the Company slashed its funded debt 
 to manageable proportions, but it has created a single medium 
 by which it can handle its future financing. Through this 
 medium it can now raise money for any proper corporate pur- 
 pose. The Illinois Central can now face its future financial 
 problems with confidence. 
 
 It is obvious that in reference to the future of the IlHnois 
 Central, as well as the present, its debt reduction and capital 
 simplification are, and increasingly will be, very important 
 factors in reaching conclusions as to financing, working capital, 
 income reserves, and capital distribution, as to setting aside 
 reserves for taxes, interest, and sinking funds, and as to arriving 
 at a fair and proper amount that can be distributed as dividends 
 to the shareholders. 
 
 During the last two decades, and particularly during the 
 period since 1946, every eflFort has been made to put the Rail- 
 road in sound financial condition. This, it is believed, has been 
 accomplished. It is submitted that the action over this period, 
 detailed in the foregoing, warrants tliis conclusion. 
 
 [ 102 ] 
 
It would appear that not only has there been normal mainte- 
 nance, but the percentage of bad-order equipment, which is 
 now less than 27c, has been decreased; and this is reassuring. 
 As hereinbefore detailed, the Railroad has provided sinking 
 funds on its debt issues, but it is fortunate in having also pro- 
 vided, through acquisition and otherwise, sufficient Bonds to 
 take care of tlie sinking fund requirements for several years 
 to come. 
 
 Clearly, action on the part of the management and of the 
 Board of Directors as set forth above demonstrates an earnest 
 desire to do all that may properly and reasonably be done in 
 behalf of the stockholders. The public interest is paramount in 
 any consideration of what may fairly and properly be dis- 
 tributed as dividends. As hereinbefore set forth, dividends were 
 restored on the Common Stock following tlie restoration of 
 dividends on the then-existing Preferred Stock. The Guttmann 
 litigation created a situation in which no action could be taken 
 in respect to payment of dividends on the Common Stock until 
 the question was settled as to whether the Railroad would have 
 to provide a substantial amount of cash in response to this 
 threatened claim, which might well have so affected, had it 
 been successful, the cash situation of the Railroad as to have 
 seriously interfered with the purchase of Bonds and the simpH- 
 fication of the capital structure of the Railroad. As soon as the 
 litigation was terminated successfully in the United States 
 Supreme Court, in favor of the Raihoad, as hereinbefore stated 
 in more detail, dividends were resumed on the old $100 par 
 value Common Stock, first at the rate of 3%, and then a year 
 later at 4%, a vear later at 5%, and more recently at a rate equiva- 
 lent on the old Stock to 6%— 3% having been paid on the Stock 
 after its split into two shares for one in May of 1955. 
 
 It thus appears that the sound debt structiu'e of the Railroad 
 permits the directors to do what they have conscientiously been 
 desirous of doing for several years, which is to give the fullest 
 consideration to the distribution of such amount on the Stock as 
 the financial situation of the Railroad could reasonably permit. 
 The answer as to just what that amount is, is a very complex 
 one. There must be taken into account many factors. Perhaps 
 
 [ 103 } 
 
the first among them is the annual requirements for expendi- 
 tures in maintenance of road and equipment and the purchase 
 of new motive power. The following table is informative on 
 the subject of the amounts of these requirements during the 
 relatively recent past: 
 
 
 Gross Expenditures 
 
 
 Gross Expenditures 
 
 Year 
 
 for Road &f Equipment 
 
 Year 
 
 for Road &f Equipment 
 
 1947 
 
 $17,576,663 
 
 1951 
 
 $31,093,985 
 
 1948 
 
 23,640,705 
 
 1952 
 
 21,272,115 
 
 1949 
 
 38,157,212 
 
 1953 
 
 20,558,803 
 
 1950 
 
 18,465,488 
 
 1954 
 
 23,869,541 
 
 The average for the eight years given above is $24,329,314. 
 
 It is important that these expenditures be carefully analyzed 
 and classified as to whether they are extraordinaiy or normal. 
 Any such consideration might reach the conclusion that a fair 
 approximate annual figure as of the present time and as of 
 the foreseeable immediate future is in the neighborhood of 
 $20,000,000. 
 
 In this connection, it should be borne in mind that deprecia- 
 tion in 1954 supplied about $13,400,000 in cash. In any such 
 consideration there must be taken into account what is often 
 described as "economic" depreciation, as distinguished from 
 "accounting" depreciation, which has been increasing. 
 
 In studying what may be described as "cash flow," which 
 gives a dollar result, a portion of which may be properly dis- 
 tributed as dividends, there must first be determined what are 
 the normal property expenditures required to be made. When 
 this determination is made, consideration must be given to 
 material and labor costs and as to whether or not they are 
 reasonably stable. Only after giving consideration to these 
 factors may a reasonably accurate conclusion be arrived at. 
 Earnings, of course, must first be set aside for such purposes. 
 
 As sinking funds have been provided for and have been cur- 
 rently provided, as shov^oi above, there remains an estimated 
 amount of earnings out of which to pay dividends in the amount 
 thus to be determined. Of course, the determination as to what 
 amount can be properly paid on the Common Stock, now that 
 
 [ 104 ] 
 
the Railroad's Preferred Stock has been retired, presents a 
 problem which, after taking into account all of these factors, 
 among others, resolves itself into one of judgment based upon 
 experience and the knowledge of the transportation and eco- 
 nomic situation of the country and of the territory served by 
 the Railroad. 
 
 The problem of making this determination in the public 
 interest and in the interest of the holders of debt and the holders 
 of the Capital Stock is quite different for a railroad, by reason 
 of its being in effect a public utility, from what it is for an 
 industrial company, such as an automobile company. 
 
 It is reported that Mr. Alfred Sloan has publicly stated that 
 it is the policy of General Motors to pay dividends equivalent 
 to about 75% of earnings. It is thought by the management of 
 General Motors and others that such a policy is eminently fair 
 to stockholders. It is also a matter of general knowledge that 
 the average electric public utility company distributes by way 
 of dividends between 70 and 75% of its earnings while earning 
 less than the Illinois Gentral has earned on its invested capital. 
 
 Conservatively, it may be assumed that the right answer lies 
 between 50 and 75% depending upon the special needs of the 
 property in regard to maintenance and debt financing. Probably 
 the percentage of earnings to be declared out in dividends is 
 generally nearer 55 or 60%. 
 
 In dealing with the income of the Illinois Central, the follow- 
 ing statement of reported net income is significant: 
 
 
 
 Excess or (Deficit) 
 
 Excess of Reported 
 
 
 Reported 
 
 of Rep. Net Income 
 
 Net Income over 60% 
 
 Year 
 
 Net Income 
 
 vs. Av. Net Income 
 
 of Av. Net Income 
 
 1947 
 
 $15,039 
 
 $(6,425) 
 
 $ 2,161 
 
 1948 
 
 20,949 
 
 (515) 
 
 8,071 
 
 1949 
 
 16,328 
 
 (5,136) 
 
 3,450 
 
 1950 
 
 29,412 
 
 7,948 
 
 16,534 
 
 1951 
 
 18,398 
 
 (3,066) 
 
 5,520 
 
 1952 
 
 23,204 
 
 1,740 
 
 10,326 
 
 1953 
 
 26,369 
 
 4,905 
 
 13,491 
 
 1954 
 
 22,014 
 
 550 
 
 9,136 
 
 The average net income for the last eight years is $21,464,000 
 
 60% of such average net income for the last eight years is $12,878,000 
 
 [ 105 } 
 
Thus, 60% of the average net income for the past eight years 
 is equal to about $4.18 per share on the basis of the 3,082,945 
 shares presently outstanding. But there are many things to con- 
 sider before the management and Board may feel justified in 
 declaring the present $3 dividend on the split Stock or $6 on the 
 old $100 Stock. 
 
 Attention has been aptly called to the fact that a railroad, as 
 a public service and utility company, is in quite a different cate- 
 gory than an industrial company or a bank with respect to the 
 amount of earnings that may be safely distributed. The indus- 
 trial company like an automobile company may overnight in- 
 crease the selling price of its product, whereas the railroad 
 company must apply to the Interstate Commerce Commission 
 for an increase in rates, and if increased rates are granted, it 
 may be a substantial period of time before they can be put into 
 eflFect. In many cases, a bank can safely and properly distribute 
 as dividends as high as possibly 75% or even more of its income. 
 This is particularly true when the bank is not confronted with 
 any substantial capital, maintenance, or other unusual expendi- 
 tures which must be paid out of earnings. 
 
 The conscientious director of a transportation company is 
 constantly endeavoring to weigh the foregoing and similar 
 factors in order that he may fairly and properly distribute to 
 the stockholders the amount of income that they are entitled 
 to receive. 
 
 In this connection, the appraisal of these factors results in the 
 endeavor to arrive at some formula. True, it can never be an 
 exact formula, since it is based upon forecasts of earnings and 
 expenses and financial obligations which have to be met. This 
 inexact but helpful formula is often described, as heretofore 
 stated, as the "cash flow" forecast. All of the factors must be 
 weighed in the light of past experience and probable future 
 conditions. Paramount among tliese considerations is the public 
 interest. 
 
 Obviously, an important factor, if not now the most important 
 factor, is what relief may properly be accorded by the Congiess 
 in the elimination of unrealistic rate and other controls by 
 
 C 106 } 
 
reason of the railroad industry's having long since ceased to be 
 monopolistic, which it was some fifty or more years ago. 
 
 The foregoing reference to the report of the President's 
 Transportation Committee clearly indicates that relief must be 
 accorded the railroads in this connection so that they can com- 
 pete with subsidized competitors such as trucks, waterways, and 
 airplane companies. 
 
 The railroads are not asking for subsidies. If they can be 
 given fair treatment by the lifting of unnecessary regulation and 
 restriction, they can compete successfully with other forms of 
 transportation, particularly if they are permitted to supplement 
 their rail transportation service with other forms of transporta- 
 tion service. 
 
 These comments are made because of the unusual achieve- 
 ment, hereinbefore set forth in detail, of the Illinois Central in 
 doing all within the power of management and the Board of 
 Directors to reduce and unify its debt structure and simplify 
 its capitalization as well as operate its property safely and 
 eflBciently. Under these circumstances, this commendable ac- 
 complishment is entitled to receive assistance of the Federal and 
 state governments in giving the Railroad every opportunity to 
 compete with other forms of transportation on a fair and 
 equitable basis. Clearly this is imperative not only in the interest 
 of the Raihoad, its creditors, and its stockholders, but also in 
 the public interest. 
 
I 
 
APPENDIX A 
 
 Excerpts from Testimony of the Principal 
 
 OflBcers and Certain Directors in the Case of 
 
 Alexander Guttmann and Others against 
 
 the Illinois Central Railroad Company 
 
 Eugene W. Stetson, Chairman of the Executive Committee, testi- 
 fied as follows in the trial in the Guttmann case with respect to the 
 bond-purchasing program of the Railroad prior to 1950, the year of 
 the trial: 
 
 Q.* Mr. Stetson, could you tell me what your opinion was in the 
 year 1944, with respect to the advisability of continuing the pur- 
 chase of bonds at that time? A. Well, my opinion in 1944 was the 
 same opinion that I personally had beginning in about 1939 or 
 1940 and in particular up to the present time, and still is the same, 
 to the effect that I feel quite stiongly that the Illinois Central 
 Raihoad, if it is going to be a first class raihoad and serve the 
 public and promptly pay, as it has done, all of its interest over a 
 period of another hundred years to its bondholders and continue 
 to pay dividends to its preferred stockholders and its common 
 stockholders, should have a smaller debt structure than that which 
 exists even today. So my feeHng, I am sure, in 1944 was even 
 stronger than it is today because we had a larger debt. 
 
 William R. King, one of the Directors, also testified on this subject: 
 
 Q. You had been purchasing bonds through this period from 
 1940 down to that time? A. Yes. 
 
 Q. Did you approve of this program of purchasing bonds? 
 A. I certainly did. 
 
 Q. Why? A. In the first place because I had always believed 
 that no company can go broke by paying its debts, and in the 
 second place I felt that the only way we could build this company 
 to an extent, in its financial position to the extent that the short 
 term bondholders would exchange their bonds for long term 
 bonds, would be through further purchase of the bonds. 
 
 The late General Clifford W. Gaylord, another Director, testified: 
 
 Q. And do you recall that the board undertook a program of 
 purchasing bonds commencing about 1939 and 1940? A. Yes, sir, 
 that was our general plan, a general scheme of operating the 
 railroad. 
 
 " By Theodore Kiendl of Davis Polk Wardwell Sunderland & Kiendl, counsel 
 for the IlHnois Central. 
 
 [ 111 } 
 
Q. And you continued to make those purchases in 1941 and 
 1942 and right down to the present time, is that not correct? 
 A. Yes, that is correct. 
 
 Wayne A. Johnston, President of IlHnois Central and a Director, 
 testified: 
 
 Q. Mr. Johnston, you have served as a director of the Illinois 
 Central Railroad from March 16, 1945 to the present time? A. I 
 did, sir. 
 
 Q. During that period of time from 1945 to 1947 did you con- 
 sider the question of whether the Illinois Central Railroad could 
 declare dividends on its preferred stock? A. On many occasions. 
 
 Q. What was your conclusion during that period from 1945 to 
 1947? A. That they should not be declared. 
 
 Q. And why? A. Well, we had set upon a program of rehabili- 
 tating the property, on bond purchases in order to get in as many 
 of the early maturities as we could, having in mind that we had 
 quite a serious problem in connection with the refinancing of our 
 bonds in 1950 to 1955. 
 
 George W. Bovenizer of Kuhn, Loeb & Company gave the follow- 
 ing testimony: 
 
 Q. And do you recall that a substantial amount of that debt 
 maturing between 1950 and 1955 was non-callable? A. The most 
 of it was, all but the Refundings in 1955. 
 
 Q. Do you recall the amount of net income in general that the 
 Illinois Central had in 1937? A. I have the amount appKcable to 
 charges. That is $2,063,842.* 
 
 Q. Could you tell us if you have given any consideration to the 
 effect on that net income, assuming it should continue over the 
 succeeding years, the position of the Illinois Central with such 
 income to meet its maturities? A. Well, if it kept on at that rate, 
 and that was the best period of business activity since the depres- 
 sion, for the subsequent sixteen years through 1953 would produce 
 only about $33,000,000 toward meeting these heavy maturities. 
 
 Q. In that period of 1950 to 1955? A. Through 1953. 
 
 Q. Through 1953. Do you know that commencing in 1939 the 
 Illinois Central purchased over the years 1939 to the present time 
 a substantial amount of its outstanding bonds? A. I believe they 
 started in 1939 with sinking fund money that otherwise would 
 have gone in cash to the RFC on their loan. 
 
 Q. That is correct; and then they continued in 1940-1941? 
 A. Yes. 
 
 • Net income. In 1937, $18,808,276 was available for fixed charges. 
 
 [ 112 } 
 
Q. Did you advise with the management and the board regard- 
 ing this bond purchasing program? A. I did. 
 
 Q. Did you approve it? A. Yes, sir. 
 
 Q. Did you recommend it? A. I did. 
 
 Q. What were your reasons for recommending the bond pur- 
 chase program? A. I reasoned this way: That with all these non- 
 callable bonds outstanding and covering the best property of the 
 system, in the eyes of the investor we would never get any place 
 unless we could get them in or get them on a basis where they 
 would be willincr to take a blanket mortsjasfe, as there were twentv- 
 three mortgages on the northern lines of the system, and I believe 
 five on the southern lines — twenty-eight in all. 
 
 Q. Did that number of mortgages present a problem in refinanc- 
 ing? A. A tremendous problem — couldn't do anything with it. 
 
 APPENDIX B 
 
 Simplification of Corporate Structure 
 
 In addition to its constructive program of debt reduction and 
 simplification, the management of the Illinois Central during the 
 past decade has carried out a thoroughgoing revamping of the Sys- 
 tem's corporate structure also aimed at simplification. Prior to 1945, 
 there were approximately twenty-two wholly owned carrier sub- 
 sidiaries in the System,' some of which were active and some in- 
 
 * Baton Rouge, Hammond & Eastern Railroad Company 
 Benton Southern Railroad Company 
 Bloomington Southern Railroad Company 
 Blue Island Railroad Company t 
 Canton, Aberdeen & Nashville Railroad Company 
 Chicago, Memphis & Gulf Railroad Companyl 
 Chicago, St. Louis & New Orleans Railroad Company 
 Dubuque & Sioux City Railroad Company 
 Dunleith & Dubuque Bridge Company 
 Fredonia & Reeds Railroad Company 
 Golconda Northern Railway Company 
 Gulf & Ship Island Railroad Company 
 Herrin Northern Railroad Company 
 Kensington & Eastern Railroad Company! 
 
 Louisville, New Orleans & Texas Railway Company of Arkansas 
 Meridian, Brookhaven & Natchez Railroad Company 
 Omaha Bridge & Terminal Railway Company 
 South Chicago Railroad Companyf 
 Southern Illinois & Kentucky Railroad Companyf 
 St. Louis, Belleville & Southern Railway Company 
 Yazoo & Mississippi Valley Railroad Company 
 
 \ "Excepted Properties" as defined by the Consolidation Mortgage. 
 
 [ 113 ] 
 
active. On April 17, 1935, the Company's stockholders authorized 
 the merger of all subsidiaries north of the Ohio River into the parent 
 company. No action was taken pursuant to this authorization until 
 1945. From 1945 to 1951, the properties of fifteen subsidiaries were 
 transferred to the Illinois Central and their corporate existence 
 terminated.*** In 1951, the properties of the Chicago, St. Louis & 
 New Orleans Railroad Company, the lines of which comprised a 
 substantial portion of the southern main line of the System, were also 
 merged into the Illinois Central. With the satisfaction of the Deben- 
 ture Indenture on February 1, 1954, the Railroad was freed from a 
 limitation therein which prevented it from merging the 127-mile 
 Edgewood Cut-Off, discussed above. Under the Consolidated Mort- 
 gage, the Railroad upon the satisfaction of the Debenture Indenture 
 was obligated to subject the Cut-Off to the Consolidated Mortgage, 
 and at the annual meeting held on May 19, 1954, the stockholders 
 of the Railroad authorized the merger into it of the Southern Illinois 
 & Kentucky Railroad Company, the Railroad's wholly owned sub- 
 sidiary which owned the Cut-Off. On the same date, the stockholders 
 of the subsidiary authorized the merger; and upon approval by the 
 Interstate Commerce Commission, the Edgewood Cut-Off was ac- 
 quired by the Railroad and was subjected to the lien of the Con- 
 solidated Mortgage by a Supplemental Indenture dated July 1, 1954. 
 As a result of this simplification of corporate structure, a substantial 
 saving of franchise taxes has been achieved, and, more important, the 
 corporate operations of the System have been sensibly consolidated. 
 
 ** As of December 18, 1945, properties of the Mississippi Valley Company 
 were acquired, and as of December 25, 1945, properties of the Gulf & Ship Island 
 Railroad Company. As of July 1, 1946, properties of the following subsidiaries 
 were acquired: Baton Rouge, Hammond & Eastern Railroad Company; Benton 
 Southern Railroad Company; Bloomington Southern Railroad Company; Du- 
 buque & Sioux City Railroad Company; Dunleith & Dubuque Bridge Company; 
 Fredonia & Reeds Railroad Company; Golconda Northern Railway Company; 
 Herrin Northern Railroad Company; Louisville, New Orleans & Texas Railway 
 Company of Arkansas; Meridian, Brookhaven & Natchez Railroad Company; 
 Omaha Bridge & Terminal Railway Company; St. Louis, Belleville & Southern 
 Railway Company; and Yazoo & Mississippi Valley Railroad Company. All 
 the above-mentioned companies were dissolved. The Company has also been 
 authorized to acquire the properties of the Blue Island Railroad Company and 
 Kensington & Eastern Railroad Company. 
 
 [ 114 ] 
 
APPENDIX C 
 
 Credit Given to Carlton J. Corliss, Author Main Line of Mid- 
 America, Published by the Creative Age Press at the Time of the 
 Railroad's Centennial, February 10, 1951, and to the Members of 
 the "Centennial Committee" 
 
 Wayne A. Johnston, President of the Illinois Central, fortunately 
 was able to obtain the expert and unusually valuable services of 
 Carlton J. Corliss in preparing for the centennial celebration the 
 story of the Railroad, which was published under the title Main 
 Line of Mid-America by the Creative Age Press. This outstanding 
 publication has been most useful as a reference book, and many 
 favorable comments on it have been received. A very important serv- 
 ice was thus rendered by Corliss. In connection with this publication, 
 he had the invaluable help not only of Jolinston but of the members 
 of the "Centennial Committee," composed of George M. Crowson, 
 assistant to the President, as Chairman, and Messrs. Albritton, 
 Fitzpatrick, Kimbel, Larsen, Martin, Mottier, WilHngham, and 
 Joseph H. Wright. These and former oflBcers were able with other 
 students of the Raihoad and the territory to produce a compendium 
 of essential data as to the organization of the Railroad and its 
 development. 
 
 I 115 } 
 
BIBLIOGRAPHY 
 
 J. H. Parmelee, "The Railroad Situation 1950," submitted at hear- 
 ings before the Sub-committee on Domestic Land and Water Trans- 
 portation of the Senate Interstate and Foreign Commerce Commit- 
 tee, held pursuant to Senate Resolution 50, 81st Congress, on April 
 4 and 6, 1950. 
 
 "Statistical Summaries," Association of American Railroads. 
 
 "Monthly Comments on Transportation Statistics," Interstate Com- 
 merce Commission. 
 
 "American Railway Car Institute Report" of August 4, 1950. 
 
 "Transportation in America," Association of American Railroads, 
 1947. 
 
 "Quiz on Railroads and Railroading," Association of American 
 Railroads. 
 
 John L. Beckley, "All the Railroads Want Is a Fair Deal," The 
 Readers Digest, July 1950. 
 
 Edwin S. S. Sunderland, "Railroad Reorganizations," address as 
 Chairman, Committee on Bankruptcy, Association of the Bar of the 
 City of New York, before the National Conference on Debtor Relief 
 Laws, December 7, 1935. 
 
 Edwin S. S. Sunderland, "Legislative Developments Affecting the 
 Credit of Railroads and Their Ability to Meet Emergency Trans- 
 portation Demands," address at the Joint Annual Meeting of the 
 American Bar Association Section of Corporation, Banking and 
 Business Law and the Canadian Bar Association, at Washington, 
 D.C., September 19, 1950. 
 
 Carlton J. Corliss, Main Line of Mid-America — The Story of the 
 Illinois Central, Creative Age Press, 1951. 
 
 Wayne A. Johnston, "The IlHnois Central Heritage — 1851-1951," a 
 centenary address by the President, Illinois Central Railroad Com- 
 pany, February 8, 1951, before the Newcomen Society in North 
 America. 
 
 Souvenir Book of One Hundredth Anniversary, issued at the 
 Illinois Central Railroad Company anniversary dinner, 1951. 
 
 Abraham Lincoln as Attorney for the Illinois Central Railroad, 
 facsimile reproductions of original papers in Lincoln's handwriting. 
 Issued by the Illinois Central Railroad, and published for it by the 
 Cinthrop Warren Printing Company, 1905. 
 
 Nicolay and Hay, Abraham Lincoln, Century Company. 
 
 Henry C. Whitney, Life on the Circuit with Lincoln, Estes & 
 Lanriat, 1892. 
 
 Albert A. Woldman, Lawyer Lincoln, Houghton Mifflin Company, 
 1936. 
 
 [ 116 ] 
 
Major J. B. Merwin, "A Great and Fateful Decision," as told to 
 Charles T. White in the Islew York Evening Sun, February 12, 1917. 
 
 John W. Starr, Jr., Lincoln and the Railroads, Dodd, Mead & 
 Company. 
 
 Frederick Trevor Hill, Lincoln the Lawyer, Century Company. 
 
 The Memoirs of General George B. McClellan. 
 
 Carl Sandburg, Abraham Lincoln — The Prairie Years, Charles 
 Scribner's Sons. 
 
 Albert J. Beveridge, Abraham Lincoln, 1809-1858. 
 
 Jesse. W. Weik, The Real Lincoln — A Portrait, Houghton MifHin 
 Company. 
 
 William H. Herndon and Jesse W. Weik, Abraham Lincoln — The 
 True Story of a Great Life, D. Appleton & Company. 
 
 The Illinois Central Railroad Company Magazine. 
 
 Interstate Commerce Commission reports. 
 
 Bond offering circulars issued in connection with pubHc sale of 
 Bonds and Debentures. 
 
 New York Stock Exchange listing applications. 
 
 A Study of the Illinois Central Railroad — Main Line of Mid- 
 America, Harriman Ripley & Company. 
 
 T. Harry Williams, P. G. T. Beauregard— Napoleon in Gray, 
 Southern Biography Series, Louisiana State University Press. 
 
 Joseph H. Choate, an address on Abraham Lincoln's career before 
 the Edinburgh Philosophical Institute on November 13, 1900. 
 
 [ 117 } 
 
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