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 June 30, 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 June 30, 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
Six Months Ended June 30, 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 12
Signatures 13
Exhibit Index E-1
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statemements of Income
($in millions)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June
1996 1995 1996 1995
Revenues $149.4 $156.5 $312.0 $324.5
Operating expenses:
Labor and fringe
benefits 44.3 47.5 91.5 94.3
Leases and car hire 14.2 12.4 27.9 28.3
Diesel fuel 8.4 8.3 17.2 17.1
Materials and supplies 7.6 8.4 15.9 18.6
Depreciation and
amortization 7.6 7.9 15.6 14.7
Casualty, insurance and
losses 0.9 1.4 5.1 7.6
Other taxes 3.4 5.4 8.5 10.5
Other 10.7 11.0 20.2 18.1
Operating expenses 97.1 102.3 201.9 209.2
Operating income 52.3 54.2 110.1 115.3
Other income, net 1.1 1.2 1.6 1.5
Interest expense, net (6.2) (7.7) (13.0) (14.4)
Income before income
taxes and extraordinary
item, net 47.2 47.7 98.7 102.4
Provision for income
taxes 17.7 17.9 39.0 38.4
Income before extra-
ordinary item, net 29.5 29.8 59.7 64.0
Extraordinary item, net - (11.4) - (11.4)
Net income $29.5 $18.4 $59.7 $52.6
The following notes are an integral part of the consolidated
financial statements.
-3-
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
June 30, December 31,
1996 1995
ASSETS
Current Assets:
Cash and temporary cash
investments $9.6 $3.0
Receivables, net of
allowance for doubtful
accounts of $1.5 in 1995
and $2.0 in 1995 47.6 46.0
Materials and supplies,
at average cost 15.5 14.9
Assets held for disposition - 7.7
Loans to affiliates 15.9 11.7
Deferred income taxes-current 18.5 19.1
Other current assets 5.8 2.5
Total current assets 112.9 104.9
Investments 13.4 13.5
Loans to affiliates 79.9 26.9
Properties:
Transportation:
Road and structures, including
land 1,075.8 1,052.1
Equipment 158.3 143.5
Other, principally land 41.5 41.0
Total properties 1,275.6 1,236.6
Accumulated depreciation (35.2) (37.1)
Net properties 1,240.4 1,199.5
Other assets 14.7 14.7
Total assets $ 1,461.3 $ 1,359.5
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term
debt $5.6 $10.7
Accounts payable 46.6 52.1
Income taxes payable 2.9 6.9
Casualty and freight claims 24.9 24.9
Employee compensation and
vacations 17.1 16.9
Taxes other than income taxes 12.4 16.3
Accrued redundancy reserves 4.3 4.3
Other accrued expenses 35.8 28.4
Total current liabilities 149.6 160.5
Long-Term debt 505.2 373.9
Deferred income taxes 249.3 235.7
Other liabilities and reserves 112.5 124.4
Congingencies and commitments
Stockholder's equity:
Common stock authorized, issued
and outstanding $100 shares, $1
par value - -
Additional paid - in capital 129.5 129.6
Retained income 315.2 335.4
Total stockholder's equity 444.7 465.0
Total liabilities and stock-
holder's equity $ 1,461.3 $ 1,359.5
The following notes are an integral part of the consolidated financial
statements.
-4-
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
Six Months Ended June 30,
1996 1995
Cash flows from operating activities:
Net income $ 59.7 $ 52.6
Reconciliation of net income to net
cash provided by (used for)
operating activities :
Extraordinary item, net - 11.4
Depreciation and amortization 15.6 14.7
Deferred income taxes 14.2 9.8
Equity in undistributed earnings
of affiliates, net of dividends
received (0.1) (0.3)
Net gains on sales of real estate (1.4) (0.2)
Cash changes in working capital (11.3) (11.0)
Changes in other assets (0.1) (2.5)
Changes in other liabilities
and reserves (11.9) (4.0)
Net cash provided by operating
activities 64.7 70.5
Cash flows from investing activities :
Additions to properties (53.5) (49.1)
Proceeds from real estate sales 2.4 1.5
Proceeds from equipment sales 2.0 1.5
Loans to affiliates (57.2) -
Proceeds from sales of investments 0.2 (17.8)
Other (3.8) (1.0)
Net cash (used for) investing
activities (109.9) (64.9)
Cash flows from financing activities :
Proceeds from issuance of debt - 200.0
Principal payments on debt (5.0) (222.3)
Net proceeds (payments) in commercial
paper 131.0 55.0
Dividends paid (74.2) (41.3)
Purchase of subsidiary's common stock - (0.1)
Net cash provided by (used for)
financing activities 51.8 (8.7)
Changes in cash and temporary cash
investments 6.6 (3.1)
Cash and temporary cash investments at
beginning of period 3.0 12.2
Cash and temporary cash investments at end
of period $ 9.6 $ 9.1
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount capitalized) $ 14.3 $ 19.5
Income taxes $ 27.6 $ 27.6
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
For the six month period ended June 30, 1996, the Railroad has
paid cash dividends of $74.2 million to IC. The Railroad is no
longer subject to specific dividend restrictions. Covenants of
the Railroad's Revolver require specified levels of tangible net
worth. At June 30, 1996, the Railroad exceeded its tangible net
worth covenant by $30.6 million.
In March 1996, the Railroad transferred its ownership in the
Chicago Intermodal Company ("CIC") via a dividend of CIC stock to
IC. The book value of the CIC investment was $5.7 million.
3. CCP Holdings, Inc. Acquisition
On June 12, 1996, the Railroad used proceeds it received from the
issuance of Commercial Paper (average interest rate 5.52% and
average maturity 30 days) to pay a $50.0 million dividend to IC
and to loan $59.9 million (5.625% per annum) to IC. IC used the
$109.9 million and its bank credit lines to acquire CCP Holdings,
Inc. ("CCPH"). The transaction closed June 13, 1996, following
the effective date of the approval order issued by the Surface
Transportation Board ("STB").
CCPH has two principal operating subsidiaries - the Chicago
Central and Pacific Railroad ("CCPR") and the Cedar River Railroad
("CRR") - which together comprise a Class II railroad system
operating 850 miles of road. CCPR operates from Chicago west to
Omaha, Nebraska, with connecting lines to Cedar Rapids and Sioux
City, Iowa. CRR runs from Waterloo, Iowa north to Albert Lea,
Minnesota.
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 June 30, 1996 Compared to Three Months Ended June
30, 1995
Revenues for 1996 decreased from the prior year quarter by $7.1
million or 4.5% to $149.4 million. The decrease was a result of a 4.2%
decrease in the number of carloadings coupled with a 1.7% decrease in
the average freight revenue per carload. The most significant factor
affecting both declines was the lack of export grain in 1996 compared
with the high levels of 1995. In 1996, the Railroad experienced
decreased carloadings in coal (9.4%), paper and forest products (3.6%)
and grain and grain mill products (20.0%), partially offset by
increased intermodal loads (13.4%).
Operating expenses overall declined in the second quarter of 1996
$5.2 million or 5.1%. On a component basis: labor and fringe costs
declined reflecting decreased volume and less overtime primarily caused
by congestion in 1995 offset by the wage increases negotiated with
eight of the eleven unions; leases and car hire reflect normal
operations, whereas last year reflects the favorable effects of
adjustments for capitalized leases; the decline in material and
supplies reflects the winding down of the 1995 AAR mandated wheel
replacement program; other taxes declined reflecting actual expenses
versus the previously recorded estimates; and casualty, insurance and
losses reflect insurance claim settlements of approximately $2.5
million each period.
Operating income for 1996 decreased by $1.9 or 3.5% to $52.3
million for the reasons cited above.
Net interest expense of $6.2 million for 1996 decreased 19.4%
compared to $7.7 million in 1995. The 1996 expense includes $.3
million from increased commercial paper borrowings to support the
$109.9 million transferred to the Railroad's parent in June 1996.
Overall in 1996, average borrowings have been greater than 1995 and
interest rates have been lower.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30,
1995
Revenues for 1996 decreased from the prior year by $12.5 million
to $312.0 million. The decrease was a result of a 6.3% decrease in the
number of carloadings coupled with a .6% decrease in the average
revenue per carload. In 1996, the Railroad experienced decreased
carloadings in coal (18.3%), chemicals (4.0%) grain and grain products
(15.9%) paper and forest products (2.8%) partially offset by increased
intermodal loads (10.7%).
Operating expenses overall declined in 1996 $7.3 million or 3.5%.
On a component basis: labor and fringe costs declined reflecting
decreased volume and less overtime offset by the wage increases
negotiated with eight of the eleven unions; the decline in material and
supplies reflects the winding down of the 1995 wheel replacement
program; casualty, insurance and losses declined on the strength of
savings which are a direct result of improved safety and lower
settlement costs; other taxes declined reflecting actual expenses
versus the previously recorded estimates; and the increase in Other
over 1995 is the direct result of losses of joint facility income when
another carrier stopped using our tracks in southern Illinois and an
increase in various equipment related costs.
Operating income for 1996 decreased by $5.2 million or 4.5% to
$110.1 million for the reasons cited above.
Net interest expenses of $13.0 million for 1996 decreased 9.7%
compared to $14.4 million in 1995. The 1996 expense includes $.3
million from increased commercial paper borrowings to support the
$109.9 million transferred to the Railroad's parent in June 1996.
Overall in 1996, average borrowings have been greater than 1995 and
interest rates have been lower.
Liquidity and Capital Resources
Operating Data:
Six Months Ended June 30,
1996 1995
($ in millions)
Cash flows provided by (used for):
Operating activities $ 64.7 $ 70.5
Investing activities (109.9) (64.9)
Financing activities 51.8 (8.7)
Net change in cash and
temporary cash investments $ 6.6 $ (3.1)
Operating activities in 1996 provided $64.7 million in cash,
primarily from net income before depreciation and deferred taxes.
Additions to property were as follows:
Six Months Ended June 30,
1996 1995
(in millions)
Communications and signals $ 5.7 $ 3.6
Equipment-rolling stock 17.5 19.3
Track and bridges 24.0 21.7
Other 6.3 4.5
Total $ 53.5 $ 49.1
Property retirements and removals generated proceeds of $4.4
million and $3.0 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 structure
including bridges) and freight car upgrades. Approximately $20
million will be incurred to expand the Railroad's intermodal facility
in Chicago to serve 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
$200 million can be issued and outstanding at any one time. The
program is supported by a $250 million Revolver with the Railroad's
lending group (see below). At June 30, 1996, the commercial paper has
been rated A2, P2 and F2 and $188.0 million was outstanding. The
average interest rate on commercial paper for the six month period
ended June 30, 1996 was 5.61% with a range of 5.41% to 6.06%. 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 June 30, 1996,
$50 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
$1.5 million and $1.8 million for the six month periods ended June 30,
1996 and 1995, respectively.
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 extended 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 June 30, 1996, the $250 million was
limited to $62.0 million because $188.0 million in commercial paper was
outstanding.
On July 30, 1996, the Railroad issued $50 million of 7.12% medium
term notes due 2001 and $30 million of 6.85% medium term notes due 1999
(together the "MTN's). The MTN's were issued under a $200 million
shelf registration declared effective July 23, 1996.
The Railroad has entered into various diesel fuel collar
agreements designed to mitigate significant changes in fuel prices. As
a result, approximately 17% of the Railroad's short-term diesel fuel
requirements 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.
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 June 30, 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 June 30,
1996, the Railroad exceeded its tangible net worth covenant by $30.6
million. Through July 1996, the Railroad has declared and paid total
dividends of $94.4 million to IC, which includes the March 1996
transfer by the Railroad of its ownership in the Chicago Intermodal
Company ("CIC") via a dividend of CIC stock. The book value of the CIC
investment was $5.7 million.
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 June
30, 1996, the Railroad estimated the probable range of its estimated
liability to be $13.9 million to $48.5 million, and in accordance with
the provisions of SFAS No. 5 had a reserve of $13.9 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 June 12, 1996, the Railroad used proceeds it received from the
issuance of Commercial Paper (average interest rate 5.52% and average
maturity 30 days) to pay a $50.0 million dividend to IC and to loan
$59.9 million (5.625% per annum) to IC. IC used the $109.9 million and
its bank credit lines to acquire CCP Holdings, Inc. ("CCPH"). The
transaction closed June 13, 1996, following the effective date of the
approval order issued by the Surface Transportation Board ("STB").
CCPH has two principal operating subsidiaries - the Chicago
Central and Pacific Railroad ("CCPR") and the Cedar River Railroad
("CRR") - which together comprise a Class II railroad system operating
850 miles of road. CCPR operates from Chicago west to Omaha, Nebraska,
with connecting lines to Cedar Rapids and Sioux City, Iowa. CRR runs
from Waterloo, Iowa north to Albert Lea, Minnesota.
Recent Accounting Pronouncements
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.
In June 1996, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 125-Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125"). SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The standard is
effective for events occurring after December 31, 1996 and is to be
applied prospectively. Earlier or retroactive application is not
permitted. The Railroad is reviewing the standard to ascertain its
impact on its receivable sales program. No determination has been made
to date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index on page E-1
(b) Reports on Form 8-K:
Form 8-K in response to Item 5, was filed May 15, 1996.
Amendment No. 1 to this Form 8-K was filed July 15, 1996.
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: August 13, 1996
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
4 Amendment No. 1, dated as of April 29, 1996 to
the Third Amended and Revolving Credit
Agreement,between Illinois Central Railroad
Company and The First National Bank of Boston
initially dated as of April 2, 1993, amended and
restated as of October 27, 1993,further amended
and restated as of November 1, 1994,and further
amended and restated as of April 28, 1995.
27 Financial Data Schedule (This exhibit is required to
be submitted electronically pursuant to the rules
and regulations of the Securities and Exchange
Commission and shall not be deemed filed for the
purposes of Section 11 of the Securities Act of 1933
or Section 18 of the Securities Exchange Act of 1934).
(A) Included herein as filed but not reproduced
Third Amended and Revolving Credit Agreement
AMENDMENT NO. 1
This Amendment No. 1 (this "Amendment"), dated as of April 29, 1996, is
entered into among the parties hereto in connection with that certain
Third Amended and Restated Revolving Credit Agreement, initially dated
as of April 2, 1993, amended and restated as of October 27, 1993, further
amended and restated as of November 1, 1994 , and further amended and
restated as of April 28, 1995 (as in effect from time to time, the "Credit
Agreement") among Illinois Central Railroad Company, a Delaware corporation
(the "Borrower"), The First National Bank of Boston, as administrative
agent (the "Administrative Agent") and as competitive bid agent (the
"Competitive Bid Agent"), Bank of America Illinois as co-agent (the
"Co-Agent"), and the several banks and other lenders party thereto (the
"Banks"). Capitalized terms which are used herein without definition
and which are defined in the Credit Agreement shall have the meanings
given to those terms in the Credit Agreement.
Sect. 1. Amendments to the Credit Agreement. Subject to the satisfaction
of the conditions precedent set forth in Sect. 3 hereof, the Credit
Agreement is hereby amended as follows:
Sect. 1.1 Applicable Margin. The definition of Applicable Margin in
Section 1 of the Credit Agreement is hereby amended by replacing clauses
(a) through (g) of such definition with the following:
"(a) "BB" or less or "Ba2" or less (as applicable) or if no Rating is
available, then during such period the Applicable Margin shall be, with
respect to (i) Base Rate Loans, 0.25% per annum, (ii) Eurodollar Standby
Loans, 0.625% per annum, (iii) C/D Rate Loans, 0.750% per annum, and (iv)
the Facility Fee, 0.375% per annum;
(b) "BB+" or "Ba1" (as applicable), then during such period the
Applicable Margin shall be, with respect to (i) Base Rate Loans, 0% per
annum, (ii) Eurodollar Standby Loans, .500% per annum, (iii) C/D Rate Loans,
.625% per annum, and (iv) the Facility Fee, .250% per annum;
(c) "BBB-" or "Baa3" (as applicable), then during such period the
Applicable Margin shall be, with respect to (i) Base Rate Loans, 0% per
annum, (ii) Eurodollar Standby Loans, .313% per annum, (iii) C/D Rate Loans,
.438% per annum, and (iv) the Facility Fee, .188% per annum;
(d) "BBB" or "Baa2" (as applicable), then during such period the
Applicable Margin shall be, with respect to (i) Base Rate Loans, 0% per
annum, (ii) Eurodollar Standby Loans, .225% per annum, (iii) C/D Rate Loans,
.350% per annum, and (iv) the Facility Fee, .150% per annum;
(e) "BBB+" or "Baa1" (as applicable), then during such period the
Applicable Margin shall be, with respect to (i) Base Rate Loans, 0% per
annum, (ii) Eurodollar Standby Loans, 0.200% per annum, (iii) C/D Rate Loans,
0.325% per annum, and (iv) the Facility Fee, 0.125% per annum; or
(f) "A-" or "A3" (as applicable), then during such period the Applicable
Margin shall be, with respect to (i) Base Rate Loans, 0% per annum, (ii)
Eurodollar Standby Loans, 0.170% per annum, (iii) C/D Rate Loans, 0.295%
per annum, and (iv) the Facility Fee, 0.100% per annum; or
(g) "A" or higher or "A2" or higher (as applicable), then during such
period the Applicable Margin shall be, with respect to (i) Base Rate Loans,
0% per annum, (ii) Eurodollar Standby Loans, 0.150% per annum, (iii) C/D
Rate Loans, 0.275% per annum, and (iv) the Facility Fee, 0.085% per annum."
Sect. 1.2. Maturity. The definition of Revolving Credit Commitment
Termination Date in Section 1 of the Credit Agreement is hereby amended
by replacing the date "April 28, 2000" with the date "April 28, 2001" in
clause (a) of such definition.
Sect. 1.3. Investments. Section 9.3 of the Credit Agreement is hereby
amended by: (a) deleting the word "and" from the end of clause (e) of Section
9.3; (b) replacing the period at the end of clause (f) of Section 9.3 with
the phrase ";and" at the end of such clause; and (c) adding the following
new clause (g) at the end of Section 9.3:
"(g) Investments in CCP Holdings, Inc., a Delaware corporation, and its
Subsidiaries, provided that, immediately after giving effect to such
Investments, such Persons constitute wholly-owned Subsidiaries (directly
or indirectly) of the Parent."
Sect. 1.4. Net Worth. The text of Section 9.9 of the Credit Agreement is
hereby amended in its entirety to read as follows:
"The Borrower will not permit Consolidated Tangible Net Worth at any time
to be less than the sum of (a) $335,000,000, plus (b) 50% of cumulative
positive Consolidated Net Income for each fiscal quarter of the Borrower
in which the Borrower had a positive Consolidated Net Income beginning
with the quarter commencing on January 1, 1996 and ending on the date as
of which the calculation is made, with no deductions for any fiscal
quarter of the Borrower in which the Borrower had a consolidated net loss,
plus (c) 100% of the proceeds of each issuance of the Borrower's capital
stock after December 31, 1995 and 100% of proceeds from each equity capital
contribution made by the Parent to the Borrower after December 31, 1995.
For purposes of this Section 9.9 only, on any date of determination
Consolidated Tangible Net Worth shall be computed by subtracting from
the amount of Consolidated Tangible Net Worth as otherwise determined in
accordance with the definition thereof contained in Sect. 1 hereof the
aggregate amount of Investments made pursuant to Sect. 9.3(g) hereof
outstanding on such date (without duplication to the extent (if any)
such Investments also constitute Distributions independently reducing
Consolidated Tangible Net Worth pursuant to the definition thereof)."
Sect. 1.5. Leverage. Section 9.10 of the Credit Agreement is hereby
amended by replacing the figure "0.55" with the figure "0.60". Further,
the definition of Consolidated Funded Debt in Section 1 of the Credit
Agreement is hereby amended by deleting the phrase "(a)" from the second
line of such definition and deleting the phrase "plus (b) Consolidated
Rental Obligations," from the fourth line of such definition.
Sect. 1.6. Miscellaneous. Section 19 of the Credit Agreement is hereby
amended by adding the following new sentence at the end of Section 19:
"THE BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO
ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS."
Sect. 1.7. Compliance Worksheet Form. The form of Compliance Certificate
attached to the Credit Agreement as Exhibit E thereto is hereby replaced
with the updated form thereof attached to this Amendment as Exhibit E
hereto, reflecting the provisions of this Amendment.
Sect. 2. Representations and Warranties. The Borrower hereby represents
and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this Amendment and all
other instruments and agreements (if any) required to be executed and
delivered by the Borrower in connection with the transactions contemplated
hereby or referred to herein (collectively, the "Amendment Documents"),
and the performance by the Borrower of its obligations and agreements
under the Amendment Documents and the Credit Agreement as amended hereby,
are within the corporate power and authority of the Borrower, have been
authorized by all necessary corporate proceedings on behalf of the
Borrower, and do not and will not contravene any applicable provision
of law or any of the Borrower's Charter, by-laws or any stock provision
or any amendment thereof, or of any material indenture, agreement,
instrument or undertaking binding upon the Borrower.
(b) The Amendment Documents and the Credit Agreement as amended
hereby constitute legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting generally the enforcement of creditors' rights, and except
that the availability of equitable remedies may be subject to the
discretion of the court before which such remedies are sought.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution,
delivery or performance by the Borrower of the Amendment Documents or
the Credit Agreement as amended hereby, or the consummation by the Borrower
of the transactions contemplated hereby or referred to herein.
(d) The representations and warranties contained in Sect. 5 of the Credit
Agreement were correct at and as of the date made. Except to the extent that
the facts upon which such representations and warranties were based have
changed in the ordinary course of business (which changes, either singly or
in the aggregate, have not been materially adverse) or as a result of
matters permitted or contemplated by the Credit Agreement, after giving
effect to the provisions hereof, such representations and warranties are
correct in all material respects at and as of the date hereof.
(e) The Borrower has performed and complied in all material respects with
all terms and conditions required by the Credit Agreement to be performed or
complied with by it prior to or at the time hereof, and as of the date
hereof, after giving effect to the provisions hereof, there exists no
Default or Event of Default.
Sect. 3. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of the following conditions precedent
on and as of the date hereof:
(a) Each of the Banks and the Borrower shall have executed and
delivered this Amendment, and shall have furnished to the Administrative
Agent an original counterpart hereof signed by such Person.
(b) The representations and warranties contained in Section 2 hereof
shall be correct as of the date of this Amendment.
(c) All proceedings in connection with the transactions contemplated by
the Amendment Documents and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Administrative Agent and its special
counsel, and the Administrative Agent and such special counsel shall have
received all such counterpart originals or certified copies of such related
documents as the Administrative Agent or such special counsel may reasonably
request.
Sect. 4. Miscellaneous Provisions. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions
of the Credit Agreement shall remain the same and shall be unaffected
hereby. It is declared and agreed by each of the parties hereto that
the Credit Agreement, as amended hereby, shall continue in full force and
effect, and that this Amendment and the Credit Agreement shall be read and
construed as one instrument.
(b) THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW DOCTRINES.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account
for more than one counterpart signed by each party hereto by and against
which enforcement hereof is sought.
(d) The Borrower hereby agrees to pay promptly all reasonable out-of-pocket
costs and expenses incurred by the Administrative Agent in connection with
the preparation of this Amendment (including the reasonable legal fees,
disbursements, and expenses of the Administrative Agent's special counsel).
Sect. 5. Effective Date. Upon the satisfaction of the conditions
precedent set forth in Sect. 3 hereof, this Amendment shall be deemed
effective as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment, by their respective officers thereunto duly authorized.
ILLINOIS CENTRAL RAILROAD COMPANY
By:
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
Name:
Title:
BANK OF AMERICA ILLINOIS
By:
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.
By:
Name:
Title:
THE TORONTO DOMINION BANK,
CAYMAN ISLAND BRANCH
By:
Name:
Title:
DEPOSIT GUARANTY NATIONAL BANK
By:
Name:
<PAGE>
Title:
KLEINWORT BENSON LIMITED
By:
Name:
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:
Name:
Title:
THE NORTHERN TRUST COMPANY
By:
Name:
Title:
FORM OF COMPLIANCE CERTIFICATE
[Date]
To the Banks that are parties
to the Credit Agreement referred
to below
c/o The First National Bank of Boston
as Administrative Agent
100 Federal Street
Boston, Massachusetts 02110
Attention: Transportation Division 01-08-01
Ladies and Gentlemen:
Reference is made to the Third Amended and Restated Revolving Credit
Agreement, dated as of April 2, 1993, amended and restated as of October
27, 1993, further amended and restated as of November 1, 1994, and further
amended and restated as of April 28, 1995 as the same is amended, modified,
extended, or restated and in effect from time to time (such agreement, as
amended and in effect from time to time, the "Credit Agreement"), among
Illinois Central Railroad Company (the "Borrower"), the lenders named
therein, such other lenders as may become parties thereto from time to
time, Bank of America Illinois as Co-Agent and The First National Bank of
Boston as Administrative Agent and Competitive Bid Agent. Capitalized
terms which are used herein without definition and which are defined in
the Credit Agreement shall have the same meanings herein as in the Credit
Agreement.
The Borrower hereby certifies to each of you as follows: (a) the
information furnished in the calculations attached hereto was true and
correct as of the last day of the fiscal [quarter/year] next preceding
the date of this certificate; (b) as of the date of this certificate,
there exists no Default or Event of Default [except for ___________ ];
and (c) the financial statements delivered herewith were prepared in
accordance with Generally Accepted Accounting Principles applied on a
basis consistent with prior periods (except, in the case of quarterly
statements, for provisions for footnotes and, in all cases, except as
disclosed therein).
IN WITNESS WHEREOF, the undersigned has executed this Compliance
Certificate as of the date first written above.
ILLINOIS CENTRAL RAILROAD
COMPANY
By:
Name:
Title:
WORKSHEET
Covenant Compliance for the Period Ending ________________
Sect. 9.9 Consolidated Tangible Net Worth
A.$335,000,000____________B.Plus 50% of cumulative positive
Consolidated Net Income for all quarters
commencing with quarter beginning on 1/1/96
____________C.Plus 100% of proceeds of capital stock
issued after 12/31/95 and the proceeds of
any equity capital contribution made by the
Parent after 12/31/95
____________
D.Equals: Minimum Required Consolidated
Tangible Net Worth (A+B+C)
____________
E.Actual Consolidated Tangible Net Worth (as
per definition) of $____________ less
outstanding Investments of $__________
made pursuant to Sect. 9.3(g) ____________
Sect. 9.10 Debt to Capitalization Ratio
A.Consolidated Indebtedness for borrowed money
(including, without limitation, capitalized leases)
equals Consolidated Funded Debt____________
B.Plus Consolidated Tangible Net Worth____________
C.Equals: Total Capitalization (A+B)____________
D.Actual Debt to Capitalization Ratio (A to C):____________
E.Maximum permitted Debt to Capitalization Ratio:0.60 to 1.00
Sect. 9.11. Consolidated EBIT Coverage
AConsolidated Net Income before taxes:____________
B.Minus extraordinary gains included in Consolidated Net Income____________
C.Plus Consolidated Interest Charges (without duplication)____________
D.Equals: Consolidated EBIT:____________
E.Consolidated Interest Charges____________
F.Actual Consolidated EBIT Coverage ratio (D to E):____________G.
Minimum required Consolidated EBIT Coverage ratio:3.35 to 1.00
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9600
<SECURITIES> 0
<RECEIVABLES> 47600
<ALLOWANCES> 1500
<INVENTORY> 15500
<CURRENT-ASSETS> 112900
<PP&E> 1275600
<DEPRECIATION> 35200
<TOTAL-ASSETS> 1461300
<CURRENT-LIABILITIES> 149600
<BONDS> 505200
<COMMON> 0
0
0
<OTHER-SE> 444700
<TOTAL-LIABILITY-AND-EQUITY> 1461300
<SALES> 312000
<TOTAL-REVENUES> 312000
<CGS> 201900
<TOTAL-COSTS> 201900
<OTHER-EXPENSES> (1600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13000
<INCOME-PRETAX> 98700
<INCOME-TAX> 39000
<INCOME-CONTINUING> 59700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59700
<EPS-PRIMARY> 0
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</TABLE>
