SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-7092
ILLINOIS CENTRAL RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-2728842
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611-5504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 755-7500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
As of March 31, 1996, 100 common shares were outstanding.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF ILLINOIS CENTRAL
CORPORATION AND MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTIONS H(1) (a) AND (b) OF THE FORM 10-Q AND IS THEREFORE
FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
FORM 10-Q
Three Months Ended March 31, 1996
CONTENTS
Part I - Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
ILLINOIS CENTRAL RAILROAD COMPANY
Consolidated Statements of Income
($ in millions)
(Unaudited)
Three Months
Ended March 31,
1996 1995
Revenues $ 162.3 $ 167.5
Operating expenses:
Labor and fringe benefits 47.2 46.8
Leases and car hire 13.7 16.0
Diesel fuel 8.8 8.8
Materials and supplies 8.3 10.1
Depreciation and amortization 8.0 6.8
Casualty, insurance and losses 4.2 6.2
Other taxes 5.1 5.1
Other 9.2 6.6
Operating expenses 104.5 106.4
Operating income 57.8 61.1
Other income, net 0.5 0.3
Interest expense, net (6.8) (6.7)
Income before income taxes 51.5 54.7
Provision for income taxes 21.3 20.5
Net income $ 30.2 $ 34.2
The following notes are an integral part of the consolidated
financial statements.
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
ASSETS March 31, 1996 December 31, 1995
Current assets:
Cash and temporary cash
investments $8.2 $3.0
Receivables, net of allowance
for doubtful accounts of $1.4
in 1996 and $2.0 in 1995 52.4 46.0
Materials and supplies, at
average cost 15.7 14.9
Assets held for disposition - 7.7
Loans to affiliates 22.8 11.7
Deferred income taxes - current 18.4 19.1
Other current assets 5.0 2.5
Total current assets 122.5 104.9
Investments 13.2 13.5
Loans to affiliates 14.0 26.9
Properties:
Transportation:
Road and structures,
including land 1,059.2 1,052.1
Equipment 152.0 143.5
Other, principally land 41.6 41.0
Total properties 1,252.8 1,236.6
Accumulated depreciation (35.4) (37.1)
Net properties 1,217.4 1,199.5
Other assets 15.1 14.7
Total assets $1,382.2 $1,359.5
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of
long-term debt $ 11.0 $ 10.7
Accounts payable 56.8 52.1
Dividends payable - -
Income taxes payable 14.4 6.9
Casualty and freight claims 24.9 24.9
Employee compensation and
vacations 14.0 16.9
Taxes other than income
taxes 12.5 16.3
Accrued redundancy reserves 4.3 4.3
Other accrued expenses 32.8 28.4
Total current liabilities 170.7 160.5
Long-term debt 378.2 373.9
Deferred income taxes 243.1 235.7
Other liabilities and reserves 112.5 124.4
Contingencies and commitments
Stockholder's equity:
Common stock authorized,
issued and outstanding
100 shares, $1 par value - -
Additional paid-in capital 129.8 129.6
Retained income 347.9 335.4
Total stockholder's equity 477.7 465.0
Total liabilities and
stockholder's equity $1,382.2 $1,359.5
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flors
($ in millions)
(Unaudited)
Three Months Ended March 31
1996 1995
Cash flows from operating activities :
Net income $ 30.2 $ 34.2
Reconciliation of net income to
net cash provided by (used for)
operating activities :
Depreciation and amortization 8.0 6.8
Deferred income taxes 8.1 4.7
Equity in undistributed earnings
of affiliates, net of dividends
received 0.1 (0.2)
Net gains on sales of real estate (0.4) 0.2
Cash changes in working capital 2.2 1.5
Changes in other assets (0.5) (0.4)
Changes in other liabilities and
reserves (11.6) 2.0
Net cash provided by operating
activities 36.1 48.8
Cash flows from investing activities :
Additions to properties (24.5) (21.1)
Proceeds from real estate sales 0.8 1.3
Proceeds from equipment sales 0.6 0.6
Proceeds from sales of investments 0.1 0.1
Intercompany loans 1.8 (0.6)
Other (2.3) (0.4)
Net cash (used for) investing activities (23.5) (20.1)
Cash flows from financing activities :
Proceeds from issuance of debt - -
Principal payments on debt (0.4) (3.2)
Net proceeds (payments) in commercial
paper 5.0 10.0
Dividends paid (12.0) (22.3)
Purchase of subsidiary's common stock - (0.1)
Net cash (used for) financing
activities (7.4) (15.6)
Changes in cash and temporary cash
investments 5.2 13.1
Cash and temporary cash investments at
beginning of period 3.0 12.2
Cash and temporary cash investments at
end of period $ 8.2 $ 25.3
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount
capitalized) $ 5.8 $ 9.0
Income taxes $ 4.4 $ 0.7
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
Except as described below, the accompanying unaudited
consolidated financial statements have been prepared in
accordance with accounting policies described in the 1995 Annual
Report on Form 10-K and should be read in conjunction with the
disclosures therein.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. Interim
results are not necessarily indicative of results for the full
year. Certain 1995 amounts have been reclassified to conform
with the presentation used in the 1996 financial statements.
Income Per Share
Income per common share has been omitted as the Railroad is a
wholly-owned subsidiary of Illinois Central Corporation ("IC").
2. Equity and Restrictions on Dividends
To date, the Railroad has paid dividends of $24.2 million in
1996. The Railroad is no longer subject to specific dividend
restrictions. Covenants of the Railroad's Revolver require
specified levels of tangible net worth. At March 31, 1996, the
Railroad exceeded its tangible net worth covenant by $73.9
million.
3. CCP Holdings, Inc. Acquisition
On January 17, 1996, IC announced that it had entered into a
definitive agreement to purchase all the stock of CCP Holdings,
Inc., for approximately $125 million in cash, the assumption of
approximately $14 million in net debt and approximately $18
million of capitalized lease obligations. IC expects to fund the
acquisition using its credit lines and debt issued by the
Railroad. The Railroad will transfer the funds to IC via a
combination of dividends and intercompany loan. On April 30,
1996, the STB announced they had voted in favor of the
acquisition. On April 30, 1996, the STB announced they had
voted in favor of the acquisition. Formal written approval,
including an effective date of the order, is required before the
transaction can be closed. IC expects the closing to occur in
late June or early July.
CCP Holdings, Inc. has two principal subsidiaries, the Chicago,
Central and Pacific Railroad (CCP) and the Cedar River Railroad
(CRR). These two railroads comprise a Class II freight system
which operates 850 miles of road. CCP operates from Chicago west
to Omaha, Nebraska, with connecting lines to Cedar Rapids and
Sioux City, Iowa. CRR runs north from Waterloo, Iowa to Albert
Lea, Minnesota. CCP Holdings, Inc.'s 1995 revenues were
approximately $76 million, its operating ratio was approximately
70%, and its shareholders' equity was approximately $54 million
at December 31, 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below takes into account the financial condition and
results of operations of the Railroad for the periods presented in the
consolidated financial statements.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March
31, 1995
Revenues for 1996 decreased from the prior year quarter by $5.2
million or 3.1% to $162.3 million. The decrease was a result of a 8.2%
decrease in the number of carloadings partially offset by a .5%
increase in the average freight revenue per carload. In 1996, the
Railroad experienced decreased carloadings in coal (26.0%), chemicals
(7.9%), paper (4.1%) and grain and grain mill products (12.5%),
partially offset by increased intermodal loads (8.0%).
Operating expenses overall declined in the first quarter of 1996 $1.9
million or 1.8%. On a component basis: labor and fringe costs rose
reflecting the wage increases negotiated with eight of the eleven
unions; leases and car hire declined as a result of decreased traffic
volume and continued conversion to ownership and better car management
stressing better car turnover; the decline in material and supplies
reflects the winding down of the 1995 wheel replacement program;
depreciation reflects the shift to ownership; casualty, insurance and
losses declined despite a significant derailment primarily on the
strength of savings which are a direct result of improved safety and
lower settlement costs; and the increase in Other over 1995 is the
direct result of losses of joint facility income when another carrier
stopped using our track in southern Illinois and an increase in various
equipment related costs.
Operating income for 1996 decreased by $3.3 or 5.4% to $57.8 million
for the reasons cited above.
Net interest expense of $6.8 million for 1996 increased 1.5% compared
to $6.7 million in 1995. Increased debt burden primarily associated
with equipment additions account for the increase in interest expense.
Liquidity and Capital Resources
Operating Data:
Three Months Ended March 31,
1996 1995
($ in millions)
Cash flows provided by (used for):
Operating activities $ 36.1 $ 48.8
Investing activities (23.5) (20.1)
Financing activities ( 7.4) (15.6)
Net change in cash and
temporary cash investments $ 5.2 $ 13.1
Operating activities in 1996 provided $36.1 million in cash,
primarily from net income before depreciation and deferred taxes.
Additions to property were as follows:
Three Months Ended March 31,
1996 1995
($ in millions)
Communications and signals $ 2.9 $ 1.5
Equipment-rolling stock 9.6 7.1
Track and bridges 9.7 10.6
Other 2.3 1.9
Total $ 24.5 $ 21.1
Property retirements and removals generated proceeds of $1.4
million and $1.9 million in 1996 and 1995, respectively.
The Railroad anticipates that capital expenditures for 1996 will
be approximately $114 million of which $83 million of base expenditures
will concentrate on track maintenance (i.e., renewal of track
structures such as bridges) and freight car upgrades. Approximately
$20 million will be incurred to expand the Railroad's intermodal
facility in Chicago to service Canadian National Railway. These
expenditures are expected to be met from current operations or other
available sources.
The Railroad has a commercial paper program whereby a total of
$150 million can be issued and outstanding at any one time. The
program is supported by a $250 million Revolver with the Railroad's
lending group (see below). At March 31, 1996, the commercial paper has
been rated A2, P2 and F2 and $62.0 million was outstanding. The
Railroad views this program as a significant long-term funding source
and intends to issue replacement notes as each existing issue matures.
Therefore, commercial paper borrowings are classified as long-term.
The Railroad's public debt is rated Baa2 by Moody's and BBB by S&P.
In 1994, the Railroad entered into a revolving agreement to sell
undivided percentage interests in certain of its accounts receivable,
with recourse, to a financial institution. The agreement, which
expires in June 1998, allows for sales of accounts receivable up to a
maximum of $50 million at any one time. The Railroad services the
accounts receivable sold under the agreement and retains the same
exposure to credit loss as existed prior to the sale. At March 31,
1996, $48 million had been sold pursuant to the agreement. Costs
related to the agreement fluctuate with changes in prevailing interest
rates. These costs, which are included in Other Income (Expense), Net,
were $.8 million for each of the three month periods ended March 31,
1996 and 1995.
In April 1996, the Railroad concluded negotiations with its bank
lending group whereby the Railroad's $250 million Revolver was amended
and restated, for the fourth time since becoming unsecured in September
1993. The amendment reduced various facility fees and borrowing
spreads, lowered the tangible net worth requirement beginning in the
second quarter and changed the expiration date to 2001. Fees and
borrowing spreads are predicated on the Railroad's long-term credit
ratings. Currently, the annual facility fee is 15 basis points and
borrowings under this agreement are at Eurodollar offered rate plus
22.5 basis points. The Revolver will be used primarily for backup
for the Railroad's commercial paper program but can be used for general
corporate purposes. The available amount is reduced by the outstanding
amount of commercial paper borrowings and any letters of credit issued
on behalf of the Railroad under the facility. No amounts have been
drawn under the Revolver. At March 31, 1996, the $250 million was
limited to $188.0 million because $62.0 million in commercial paper was
outstanding.
The Railroad believes that its available cash, cash generated by
its operations and cash available from the facilities described above
will be sufficient to meet foreseeable liquidity requirements.
Additionally, the Railroad believes it has access to the public debt
market if needed.
Various borrowings of the Railroad are governed by agreements
which contain financial and operating covenants. All entities were in
compliance with these covenant requirements at March 31, 1996, and
management does not anticipate any difficulty in maintaining such
compliance.
Certain covenants of the Railroad's debt agreements require
specific levels of tangible net worth but not a specific dividend
restriction. The Railroad paid dividends to IC of $107.7 million in
1995, $42.5 million in 1994 and $27.4 million in 1993. At March 31,
1996, the Railroad's tangible net worth exceeded the former level by
approximately $73.9 million. The calculation under the new levels will
be done at June 30, 1996. To date in 1996, the Railroad has declared and
paid dividends of $24.2 million to IC.
The Railroad has entered into various diesel fuel collar
agreements designed to mitigate significant changes in fuel prices. As
a result, approximately 65% of the Railroad's short-term diesel fuel
requirements through June 1996 and 17% for the period July 1996 through
June 1997 are protected against significant price changes.
The Railroad continues to negotiate with its three remaining
operating unions on a local level, while no agreements are pending
agreements may be reached that require significant lump sum payments.
It is too early to determine if separate agreements will be reached but
management believes available funding sources will be sufficient to
meet any required payments.
Environmental Liabilities
The Railroad's operations are subject to comprehensive
environmental regulation by federal, state and local authorities.
Compliance with such regulation requires the Railroad to modify its
operations and expend substantial manpower and financial resources.
Under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("Superfund"), and similar state
and federal laws, the Railroad is potentially liable for the cost of
clean-up of various contaminated sites. The Railroad has been notified
that it is a Potentially Responsible Party at sites ranging from those
with hundreds of potentially responsible parties to sites at which the
Railroad is primarily responsible. The Railroad generally participates
in the clean-up at sites where other substantial parties share
responsibility through cost-sharing arrangements, but under Superfund
and other similar laws the Railroad can be held jointly and severally
liable for all environmental costs associated with such sites.
The Railroad is aware of approximately 30 contaminated sites and
various fueling facilities at which it is probably liable for some
portion of the clean-up. The Railroad paid approximately $6.3 million
in 1995 toward the investigation and remediation of those sites, and
anticipates future expenditures of between $1 million and $2 million
annually. Furthermore, recent amendments to the Clean Air Act require
the Environmental Protection Agency to promulgate regulations
restricting the level of pollutants in locomotive emissions which could
impose significant retrofitting requirements, operational
inefficiencies or capital expenditures in the future.
For all known sites of environmental contamination where Railroad
loss or liability is probable, the Railroad has recorded an estimated
liability at the time when a reasonable estimate of remediation cost
and Railroad liability can first be determined. Adjustments to
initial estimates are recorded as necessary based upon additional
information developed in subsequent periods. Estimates of the
Railroad`s potential financial exposure for environmental claims or
incidents are necessarily imprecise because of the difficulty of
determining in advance the nature and extent of contamination, the
varying costs of alternative methods of remediation, the regulatory
clean-up standards which will be applied, and the appropriate
allocation of liability among multiple responsible parties. At March
31, 1996, the Railroad estimated the probable range of its estimated
liability to be $12.6 million to $48.5 million, and in accordance with
the provisions of SFAS No. 5 had a reserve of $12.6 million for
environmental contingencies. This amount is not reduced for potential
insurance recoveries or third-party contribution where the Railroad is
primarily liable.
The risk of incurring environmental liability in connection with
both past and current activities is inherent in railroad operations.
Decades-old railroad housekeeping practices were not always consistent
with contemporary standards, historically the Railroad leased
substantial amounts of property to industrial tenants, and the Railroad
continues to haul hazardous materials which are subject to occasional
accidental release. Because the ultimate cost of known contaminated
sites cannot be definitively established and because additional
contaminated sites yet unknown may be discovered or future operations
may result in accidental releases, no assurance can be given that the
Railroad will not incur material environmental liabilities in the
future. However, based on its assessments of the facts and
circumstances now known, management believes that it has recorded
adequate reserves for known liabilities and does not expect future
environmental charges or expenditures to have a material adverse effect
on the Railroad's financial position, results of operations, cash flow
or liquidity.
CCP Holdings, Inc. Acquisition
On January 17, 1996, IC announced that it had entered
into a definitive agreement to purchase all the stock of CCP Holdings,
Inc., for approximately $125 million in cash, and the assumption of
approximately $14 million in net debt and approximately $18 million of
capitalized lease obligations. IC expects to fund the
acquisition using funds from its existing line of credit and the
proceeds of public debt issued by the Railroad. The Railroad will
transfer the funds to IC via a combination of dividends and
intercompany loans. On April 30, 1996, the STB announced they had
voted in favor of the acquisition. Formal written approval, including
an effective date of the order, is required before the transaction can
be closed. IC expects the closing to occur in late June or early July.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 121 - Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held or used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable.
Adoption of this standard on January 1, 1996 did not require adjustment
to the carrying amount of any long-lived assets or intangibles.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a
fair value based method of accounting for stock-based compensation
plans. The Railroad has elected to measure compensation cost using the
intrinsic value based method as permitted under SFAS 123.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index on page E-1
(b) Reports on Form 8-K:
None
ILLINOIS CENTRAL RAILROAD COMPANY
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Railroad has duly caused this report to be signed on
its behalf by the undersigned hereto duly authorized.
ILLINOIS CENTRAL RAILROAD COMPANY
/s/ DALE W. PHILLIPS
Dale W. Phillips
Vice President & Chief
Financial Officer
/s/ JOHN V. MULVANEY
John V. Mulvaney
Controller
Date: May 9, 1996
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
10 Form of Illinois Central Railroad
Company Incentive 2000 Plan A
(A) Included herein as filed but not reproduced
ILLINOIS CENTRAL RAILROAD COMPANY
INCENTIVE 2000 PLAN
Article 1
Establishment, Purpose and Duration
1.1 Establishment of Plan. Illinois Central
Railroad Company (the "Company") hereby establishes an
incentive compensation plan to be known as the Illinois
Central Railroad Company Incentive 2000 Plan (the "Plan") for
certain management employees of Illinois Central Railroad
Company and its Affiliated Companies (as defined in Section
2.1). The Plan permits the payment of cash awards, subject
to the terms and provisions set forth herein.
1.2 Purpose of Plan. The purpose of the Plan is
to focus sharply the attention of management on the goals of
the Illinois Central Corporation Plan2000 and to provide
incentive compensation based upon attainment of those goals.
This incentive will promote creation of stockholder value,
reward high performance and assist in the further development
and retention of high performing management team.
1.3 Effective Date and Duration of the Plan. The
Plan has been adopted and authorized by the Board of Directors
for submission to the stockholders of IC. If the Plan is
approved by the affirmative vote of a majority of the shares
of the voting stock of IC entitled to be voted by the holders
of stock represented at a duly held stockholders' meeting, it
shall be deemed to be effective as of the date of approval by
the stockholders of IC. The Plan shall remain in effect,
subject to the right of the Board of Directors to terminate
the Plan at anytime pursuant to Article 6 hereof, until all
Awards (as defined in Section 2.2), if any, have been paid in
accordance with this Plan.
Article 2
Definitions
Wherever used herein the following terms shall have
the meanings hereinafter set forth:
2.1 Affiliated Company. "Affiliated Company"
shall mean a business entity, or predecessor of such entity,
if any, which is a member of a controlled group of
corporations which includes the Company.
2.2 Award. "Award" shall mean the cash
remuneration payable to an Eligible Employee pursuant to the
Plan.
2.3 Beneficial Owner. "Beneficial Owner" shall
have the meaning given such term in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act.
2.4 Board or Board of Directors. "Board" or "Board
of Directors" shall mean the Board of Directors of Illinois
Central Corporation.
2.5 Change in Control. A "Change in Control"
of IC shall be deemed to have occurred if:
(a) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (except
that a person shall be deemed to be the "beneficial
owner" of all shares that any such person has the
right to acquire pursuant to any agreement or
arrangement or upon exercise of conversion rights,
warrants, options or otherwise, without regard to
the sixty day period referred to in such Rule),
directly or indirectly, of securities representing
25% or more of the combined voting power
of IC's then outstanding securities; provided, however,
that the following acquisitions shall not
constitute a Change in Control: (i) any acquisition
directly from IC,(ii) any acquisition by
IC or (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by
IC; or
(b) at any time during any period of two
consecutive years (not including any period prior
to January 1, 1996) individuals who at the
beginning of such period constituted the Board (the
"Incumbent Board") cease for any reason to
constitute at least a majority of the Board;
provided, however, that any individual becoming a
director subsequent to such date whose election, or
nomination for election by the IC's stockholders,
was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board
shall be considered as though such individual were
a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened election contest (as such
terms are used in Rule 14a-11 or Regulation 14A
promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents
by or on behalf of a person other than the Board.
2.6 Code. "Code" shall mean the Internal
Revenue Code of 1986, as amended from time to time.
2.7 Committee. "Committee" shall mean the
Compensation Committee of the Board of Directors of IC. The
Committee shall be comprised of two or more members of the
Board of Directors. All members of the Committee shall
satisfy the "outside" director requirements of Section 162(m).
2.8 Common Stock. "Common Stock" shall mean shares
of common stock of IC, par value $.001 per share.
2.9 Company. "Company" shall mean Illinois Central
Railroad Company, a Delaware corporation, or any successor
corporation or other entity resulting from a merger or
consolidation into or with the Company or a transfer or sale
of substantially all of the assets of the Company.
2.10 Disability. "Disability" shall mean
"disabled" within the meaning of the Illinois Central Railroad
Company Supplemental Executive Retirement Plan.
2.11 Effective Date. "Effective Date" shall have
the meaning set forth in Section 1.3 hereof.
2.12 Eligible Employee. "Eligible Employee" shall
mean any employee of the Company in Salary Grades A, B, C, D,
E, F, G, 1, 2 and 3.
2.13 Exchange Act. "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to time,
or any successor act thereto.
2.14 IC. "IC" shall mean Illinois Central
Corporation, a Delaware corporation, or any successor
corporation or other entity resulting from a merger or
consolidation into or with IC or a transfer or sale of
substantially all of the assets of IC.
2.15 Incentive Period. "Incentive Period" shall
mean the period commencing on the Effective Date and ending
on April 30, 2001.
2.16 Measurement Area. "Measurement Areas" shall
mean the areas of IC's performance that are measured for
purposes of determining whether Awards may be earned and paid
under the Plan, as follows:
(a) IC's return on total capital, for the
year ended December 31, 2000, calculated as
follows: (i) IC's net income after giving effect to
both Awards earned under the Plan and the financial
impact, if any, of the options granted under the
Illinois Central Corporation Directors Incentive
2000 Option Plan but before giving effect to
special or extraordinary items or changes in
accounting rules, plus after-tax interest expense;
divided by (ii) the average of IC's total assets
less non-interest bearing current liabilities at
the beginning and end of such year ("ROTC");
(b) IC's primary earnings per share for the
year ended December 31, 2000, as reported in IC's
audited financial statements, after giving effect
to both Awards earned under the Plan and the
financial impact, if any, of the options granted
under the Illinois Central Corporation Directors
Incentive 2000 Option Plan but before giving effect
to special or extraordinary items or changes in
accounting rules ("EPS"); and
(c) The highest consecutive average twenty-
day closing price of the Common Stock for the
sixteen-month period ending April 30, 2001,
determined concurrently with or after the period
when such closing price has been not less than $43
for twenty consecutive days, as such closing prices
are reported on the consolidated tape of the New
York Stock Exchange ("Stock Price").
2.17 Retirement. "Retirement" shall mean either
Normal Retirement or Early Retirement within the meaning of
the Illinois Central Railroad Company Supplemental Executive
Retirement Plan.
2.18 Plan. "Plan" shall mean the Illinois Central
Railroad Company Incentive 2000 Plan, as set forth herein and
as hereinafter amended from time to time.
2.19 Section 162(m). "Section 162(m)" shall mean
the provisions of Code Section 162(m) and the regulations
implementing such provisions issued by the Internal Revenue
Service.
Article 3
Administration of the Plan
3.1 Appointment of the Committee. The Plan shall
be administered by the Committee, subject to the restrictions
set forth herein.
3.2 Authority of the Committee. The Committee
shall have all power, discretion and authority necessary to
interpret and administer the Plan in a manner which is
consistent with the Plan's provisions. The Committee shall
determine all questions arising in the administration,
interpretation, and application of the Plan, including but not
limited to, questions of eligibility and the status and rights
of Eligible Employees. The Committee may, subject to the
provisions of the Plan, establish such rules and regulations
as it deems necessary or advisable for the proper
administration of the Plan, and may make determinations and
may take such other action in connection with or in relation
to the Plan as it deems necessary or advisable. Each
determination and decision made by the Committee shall
presumptively be final, conclusive and binding for all
purposes and upon all persons.
3.3 Committee Certification. The Committee shall
certify in writing, prior to payment of any Award hereunder
to an Eligible Employee, the extent to which the goals for
each of the Stock Price, ROTC and EPS Measurement Areas were
satisfied.
Article 4
Eligibility
4.1 Eligibility. Persons eligible to participate
in Plan are Eligible Employees as of the Effective Date and
persons who become Eligible Employees after the Effective Date
but before January 1, 2000.
Article 5
Awards Under the Plan
5.1 Performance Goals for Awards. Awards earned
by and paid to Eligible Employees shall be determined solely
by reference to the extent IC attains the goals relating to
each of the Measurement Areas. Subject to the provisions of
Section 5.7, the goals relating to each of the Measurement
Areas are as follows: ROTC: 14%; EPS $4; and Stock Price
minimum, target and maximum goals, $43, $50 and $60,
respectively. The percentage of an Award that may be earned
and shall be paid under the Plan relating to each of the
Measurement Areas is 70% -- Stock Price; 15% -- ROTC; and 15%
- -- EPS. Whether an Award is earned and paid under the Plan
will be first determined by reference to the Stock Price
goals. If IC's performance fails to attain the minimum
Stock Price goal, no Award shall be earned or paid to Eligible
Employees. Accordingly, the percentages of an Award that may
be earned under the Plan relating to ROTC and EPS may not be
earned unless the minimum Stock Price is attained.
5.2 Calculation of Awards. ROTC, EPS and Stock
Price shall be certified by the Committee. If the Stock
Price is less than $43 (as adjusted from time to time in
accordance with Section 5.7 hereof), no Awards will be made
under the Plan. If the Stock Price is equal to or greater
than the minimum goal (as may be adjusted), Awards earned and
paid under the Plan shall be calculated as follows:
(a) If only the Stock Price minimum, target
or maximum goal is attained, Eligible Employees
shall be entitled to receive 70% of the minimum
target or maximum Award set forth in the following
table, respectively, for their employment Salary
Grade, determined in accordance with Section 5.6.
If the Stock Price is between the Stock Price
minimum, target and maximum goals, the amount of an
Award shall be interpolated between the minimum and
target or target and maximum Awards, as the case
may be.
Salary
Grade Threshold Award Target Award Maximum Award
A $750,000 $3,000,000 $6,000,000
B $500,000 $2,000,000 $4,000,000
C $437,500 $1,750,000 $3,500,000
D $250,000 $1,000,000 $2,000,000
E $187,500 $ 750,000 $1,500,000
F $125,000 $ 500,000 $1,000,000
G $ 62,500 $ 250,000 $ 500,000
1 $ 43,750 $ 175,000 $ 350,000
2 $ 37,500 $ 150,000 $ 300,000
3 $ 31,250 $ 125,000 $ 250,000
(b) If the ROTC goal is attained, an
additional 15% of the applicable Award (based upon
attainment of the Stock Price goal) as set forth in
the table above or interpolated, shall be earned
and paid.
(c) If the EPS goal is attained, an
additional 15% of the applicable Award (based upon
attainment of the Stock Price goal) as set forth in
the table above or interpolated, shall be earned
and paid.
In no event shall total Awards under this Plan exceed $30
million at Target or $60 million at Maximum Awards. In the
event that total Awards under this Plan exceed such Target or
Maximum Awards, actual Awards shall be prorated among Eligible
Employees.
5.3 Payment of Awards. Awards will be paid to
Eligible Employees within 90 days following the earliest to
occur of a Change in Control or the end of the Incentive
Period. Except as otherwise provided in Sections 5.4 and 5.5,
Awards will be paid only to Eligible Employees who are
employed by the Company or an Affiliated Company on the last
day of the Incentive Period.
5.4 Calculation of Awards in the Event of Death,
Disability or Retirement. Awards will be paid to an Eligible
Employee whose termination of employment occurs on account of
death, Disability or Retirement, in an amount equal to the
amount that such Eligible Employee would have received under
the terms of the Plan if he had remained employed until the
last day of the Incentive Period, but prorated according to
the number of full months the Eligible Employee actually
worked during the Incentive Period. Such Award will be paid
at the same time and in the same manner as other Awards.
5.5 Calculation of Awards in the Event of a Change
in Control. In the event of a Change in Control, Awards will
be payable to Eligible Employees who are employed by the
Company or an Affiliated Company on the date of the Change in
Control at the greater of Target Award or actual Award earned,
determined by performance during the prior 12 months,
prorated for the number of completed months in the Incentive
Period prior to the Change in Control. Awards will be paid
to Eligible Employees within 90 days following a Change in
Control.
5.6 Change in Salary Grade; New Hires. An employee
who first becomes a Eligible Employee after the Effective
Date, shall be entitled to an Award equal to the amount of
Award he or she would have received under the terms of the
Plan, but pro rated according to the number of full months in
which such employee actually was an Eligible Employee during
the Incentive Period. The Award of an Eligible Employee whose
Salary Grade changes during the Incentive Period shall be
calculated according to the number of months worked in each
Salary Grade.
5.7 Adjustment of Performance Goals. In the event
that the number of outstanding shares of Common Stock is
changed by any stock dividend, stock split or combination of
the shares of Common Stock, the EPS goal and the Stock Price
minimum, target and maximum goals shall be proportionately
adjusted, and in the event of any other change in the
capitalization of IC, the Committee shall provide for a
proportionate adjustment to such EPS and Stock Price goals.
Article 6
Amendment or Termination of the Plan
6.1 Amendment or Termination. The Board or
Committee may terminate, suspend, or amend the Plan, in whole
or in part, from time to time, without the approval of the
stockholders of IC to the extent allowed by law; provided,
however, that no Plan amendment shall be effective until
approved by the stockholders of IC insofar as stockholder
approval thereof is required in order for the Plan to continue
to satisfy the requirements of Section 162(m).
The Committee may correct any defect or supply an
omission or reconcile any inconsistency in the Plan or in any
Award granted hereunder in the manner and to the extent it
shall deem desirable, in its sole discretion, to effectuate
the Plan.
Article 7
Miscellaneous
7.1 Gender and Number. Except where otherwise
indicated by the context, any masculine term used herein also
shall include the feminine; the plural shall include the
singular and the singular shall include the plural.
7.2 No Right of Employment. Establishment of the
Plan shall not be construed to give any Eligible Employee the
right to be retained in the service of the Company for any
particular period or to limit the Company's right to discharge
an employee for any reason at any time.
7.3 Spendthrift Provision. No interest of any
person or entity in, or right to receive a distribution under,
the Plan shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest
or right to receive a distribution be taken, either
voluntarily or involuntarily for the satisfaction of the debts
of, or other obligations or claims against, such person or
entity, including claims for alimony, support, separate
maintenance and claims in bankruptcy proceedings.
7.4 Withholding. The Company may withhold from any
Award paid an amount necessary to pay any taxes or other
deductions required by law to be withheld.
7.5 Severability. In the event any provision of
the Plan shall be held illegal or invalid for any reason, such
illegality or invalidity shall not effect the remaining
provisions of the Plan, and the Plan shall be construed and
enforced as if such illegal or invalid provision had not been
included. This Plan is intended to comply with all applicable
requirements of Section 162(m) insofar as participants covered
by such section are concerned. To the extent any provision
of the Plan does not so comply, the provisions shall, to the
extent permitted by law and deemed advisable by the Committee,
be deemed null and void with respect to such participants.
7.6 Governing Law. To the extent not preempted by
Federal law, the Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the
State of Illinois.
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<PERIOD-END> MAR-31-1996
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0
0
<OTHER-SE> 477700
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<SALES> 162300
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