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, 1997
[ ] 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 1-10720
ILLINOIS CENTRAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3545405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611-5504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 755-7500
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, 1997, 61,406,831 common shares were outstanding.
<PAGE>
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
FORM 10-Q
Three and Six Months Ended June 30, 1997
CONTENTS
Part I - Financial Information: Page
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 9
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index E-1
2
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements
($ in millions, exce
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Revenues $ 165.6 $ 153.4 $ 337.7 $ 316.0
Operating expenses:
Labor and fringe benefits 47.5 45.4 95.8 92.6
Leases and car hire 10.2 10.9 20.4 21.0
Diesel fuel 9.0 8.8 20.1 17.6
Materials and supplies 8.0 7.7 17.2 16.0
Depreciation and amortization 9.6 8.9 20.8 18.0
Casualty, insurance and losses 3.2 0.9 7.8 5.1
Other taxes 6.0 3.5 12.0 8.6
Other 8.9 10.9 15.9 20.4
Operating expenses 102.4 97.0 210.0 199.3
Operating income 63.2 56.4 127.7 116.7
Other income (expense), net 1.3 0.8 1.4 1.1
Interest expense, net (10.1) (6.9) (20.5) (14.6)
Income before income taxes 54.4 50.3 108.6 103.2
Provision for income taxes 19.4 18.9 39.7 38.7
Net income $ 35.0 $ 31.4 $ 68.9 $ 64.5
Income per share $ 0.56 $ 0.51 $ 1.11 $ 1.04
Weighted average number of
shares of common stock
and common stock
equivalents outstanding 62,247,664 61,816,404 62,216,064 61,781,826
The following notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
ASSETS June 30, 1997 December 31, 1996
Current assets:
Cash and temporary cash investments $ 53.8 $ 59.2
Receivables, net of allowance for doubtful
accounts of $1.2 in 1997 and $1.3 in 1996 101.1 107.0
Secured financing receivable - 32.6
Materials and supplies, at average cost 18.2 17.3
Assets held for disposition 1.3 1.6
Deferred income taxes - current 20.3 20.3
Other current assets 9.3 10.6
Total current assets 204.0 248.6
Investments 11.7 17.5
Properties:
Transportation:
Road and structures, including land 1,437.5 1,375.0
Equipment 264.0 261.2
Other, principally land 41.2 41.5
Total properties 1,742.7 1,677.7
Accumulated depreciation (52.4) (53.6)
Net properties 1,690.3 1,624.1
Other assets 28.0 21.2
Total assets $ 1,934.0 $ 1,911.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 6.4 $ 6.3
Accounts payable 54.4 60.4
Dividends payable 14.1 14.1
Income taxes payable 3.9 1.1
Casualty and freight claims 21.1 21.1
Employee compensation and vacations 19.1 21.4
Taxes other than income taxes 16.4 17.4
Accrued redundancy reserve 4.5 4.9
Other accrued expenses 90.1 85.3
Total current liabilities 230.0 232.0
Long-term debt 599.0 633.7
Deferred income taxes 381.0 356.6
Other liabilities and reserves 128.6 133.6
Contingencies and commitments
Stockholders' equity:
Common stock, par value $.001, authorized
100,000,000 shares, 64,362,831 shares
issued and 61,406,831 shares outstanding 0.1 0.1
Additional paid-in capital 168.7 167.1
Retained income 494.4 453.8
Treasury stock (2,956,000 shares) (67.8) (65.5)
Total stockholders' equity 595.4 555.5
Total liabilities and stockholders'
equity $1,934.0 $ 1,911.4
The following notes are an integral part of the consolidated financial
statements
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
Six Months Ended June 30,
1997 1996
Cash flows from operating activities :
Net income $ 68.9 $ 64.5
Reconciliation of net income to net cash provided
by (used for) operating activities :
Depreciation and amortization 20.8 18.0
Deferred income taxes 18.2 14.9
Equity in undistributed earnings of affiliates,
net of dividends received (0.4) (0.1)
Net gains on sales of real estate (0.9) (1.4)
Cash changes in working capital 1.1 (15.3)
Changes in other assets (1.8) (0.1)
Changes in other liabilities and reserves (6.3) (11.4)
Net cash provided by operating activities 99.6 69.1
Cash flows from investing activities :
Additions to properties (67.9) (54.7)
Acquisition of CCPH (0.2) (146.6)
Proceeds from real estate sales 1.7 2.4
Proceeds from equipment sales 3.1 2.0
Proceeds from sales of investments 0.4 2.7
Secured financing 32.6 -
Other (5.3) (2.5)
Net cash (used for) investing activities (35.6) (196.7)
Cash flows from financing activities :
Proceeds from issuance of debt - 80.5
Principal payments on debt (18.9) (46.0)
Net proceeds (payments) in commercial paper (20.0) 131.0
Dividends paid (28.2) (24.2)
Stock repurchases (2.3) (0.4)
Purchase of subsidiary's common stock - -
Net cash provided by (used for) financing
activities 69.4) 140.9
Changes in cash and temporary cash investments (5.4) 13.3
Cash and temporary cash investments at beginning of
period 59.2 5.0
Cash and temporary cash investments at end of period $ 53.8 $ 18.3
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount capitalized) $ 19.7 $ 15.6
Income taxes $ 17.6 $ 27.6
The following notes are an integral part of the consolidated financial
statements.
<PAGE>
ILLINOIS CENTRAL CORPORATION
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 1996 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 1996 amounts have been
reclassified to conform with the presentation used in the 1997 financial
statements.
Income Per Share
Income per common share of the Company is based on the weighted average
number of shares of common stock and common stock equivalents outstanding
during the period. See also Note 4.
2. Common Stock and Dividends
On June 20, 1997, the Board of Directors approved a quarterly dividend of
$.23 per share which was paid July 9, 1997. The Board intends to continue
its policy of quarterly dividends. Future dividends may be dependent on
the ability of the Illinois Central Railroad Company ("ICRR") and CCP
Holdings, Inc. ("CCPH") to pay dividends to the Company. Covenants of
ICRR's Revolver and CCPH's Revolver require specified levels of tangible
net worth. At June 30, 1997, ICRR and CCPH exceeded their tangible net
worth covenants by $26.0 million and $25.6 million, respectively.
3. Acquisition of CCP Holdings, Inc.
On June 13, 1996, following the effective date of the approval order
issued by the Surface Transportation Board, the Company closed the
purchase of CCPH. The purchase price was $147.1 million in cash and the
assumption of approximately $2.5 million in debt and approximately $17.3
million of capitalized lease obligations existing on acquisition date.
The acquisition has been accounted for under the purchase method of
accounting. Accordingly, the Company has allocated the purchase cost to
CCPH's assets and liabilities as of June 13, 1996. The purchase
accounting allocations were finalized at June 30, 1997 and no significant
adjustments to such allocations were made during the six months ended
June 30, 1997. A summary of the CCPH assets acquired and liabilities
assumed at June 13, 1996, after reflecting the purchase accounting
allocations, is set forth below ($ in millions):
<PAGE>
Cash and Cash Equivalents $ 4.9
Accounts Receivable 14.5
Other Current Assets 11.2
Properties 264.6
Accounts Payable $(16.8)
Other Current Liabilities (12.2)
Deferred Income Taxes (84.6)
Other Liabilities and Reserves (13.3)
4. Pro-Forma Earnings Per Share under SFAS No. 128
In March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"). The new standard is effective for interim and annual
periods ending after December 15, 1997; early adoption is not permitted.
Had SFAS No. 128 been effective January 1, 1996, the effect on previously
reported earnings per share ("EPS") data would have been as follows:
Three Months Six Months
ended June 30, ended June 30,
1997 1996 1997 1996
---- ---- ---- -----
Primary EPS as reported $.56 $.51 $1.11 $1.04
Effect of SFAS No. 128 .01 - .01 .01
----- ------ ------- -------
Basic EPS $.57 $.51 $1.12 $1.05
Fully diluted EBS as
reported $.56 $.51 $1.11 $1.04
Effect of SFAS No. 128 - - - -
------ ------ -------- --------
Diluted EPS $.56 $.51 $1.11 $1.04
====== ====== ======== ========
Basic EPS is computed by dividing net income for the period by the
weighted average number of shares of common stock outstanding during
the period. Diluted EPS is computed based on the assumption that
outstanding stock options are exercised during the period provided the
average common stock market price exceeds the option exercise price.
<PAGE>
The following is a reconciliation of the shares used to calculate Basic and
Diluted EPS at:
Three Months Six Months
ended June 30, ended June 30,
--------------- --------------
1997 1996 1997 1996
--- ---- ---- ----
Shares outstanding at beginning
of period 61,406,831 61,428,469 61,406,831 61,425,094
Effects of options exercised
in the period (a) 2,099 (7,437) 1,104 (1,876)
---------- ----------- ---------- -----------
Shares used in Basic EPS 61,408,930 61,421,032 61,407,935 61,423,218
Assumed exercise of outstanding
options (b) 838,734 562,740 808,129 495,983
---------- ---------- ----------- ----------
Shares used in Diluted EPS 62,247,664 61,983,772 62,216,064 61,919,201
(a) Company policy is to repurchase, in the open market, all shares
issued upon the exercise of stock options. The indicated effects on
shares result from (i) repurchases not always occurring on exact
exercise dates (positive change) or (ii) shares considered exercised
under APB No. 15 (negative change) that are ignored in Basic under
SFAS No.128.
(b) Represents net shares after application of Treasury Stock method.
The policy of actual repurchases above in (a), was not assumed.
5. Receivable Sales Agreement
On January 1, 1997, the Company adopted SFAS 125. The accounting and
reporting of sales relating to ICRR's accounts receivable agreement was
not changed.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
On a consolidated basis total revenues for 1997 increased from the prior
year quarter by $12.2 million or 8.0% to $165.6 million. For the 1997 quarter
ICRR declined $1.5 million and CCPH contributed $17.6 million.
Total freight carloads of 252,941 were up 5.6%, primarily reflecting
inclusion of CCPH which was acquired in June 1996. The traffic increase offset
weak export grain which had a negative impact on the revenue mix.
Grain and grain mill accounted for 15% of the Company's carloads and 24% of
ton-miles in the second quarter of 1997. While 1997's rail rates were higher on
average versus last year and demand for grain domestically was strong as
processors returned to more normal production levels, the negative impact of
weak export grain traffic was only partially offset. Export grain movements are
not expected to improve until the fourth quarter of 1997.
Coal accounted for 24% of the Company's carloads and 25% of ton-miles in
the second quarter of 1997. Against 1996, carloads and ton-miles were up 15% and
3%, respectively, with revenues down 3%. Increased one-time moves and new
business offset production difficulties at several shippers' operations.
Chemicals accounted for 16% of the Company's carloads and 19% of ton-miles
in 1997. Against 1996, carloads, ton-miles and revenues were up 17%, 16% and
11%, respectively, reflecting the new haulage agreement with BNSF entered into
in late 1996.
Paper and Forest Products were 14% of 1997 carloads and 15% of ton-miles.
Carloads were down 5%, ton-miles were up 2% and revenues were down 5% versus
1996.
Bulk Commodities contributed 6% of carloads and 5% of ton-miles in 1997.
Bulk commodities are primarily stone and other construction materials and are
closely tied to state highway projects. This smaller commodity group fluctuates
with the timing of projects as well as the availability of freight cars for this
lower-margin business.
Finally, Intermodal accounted for 20% of loads and 7% of ton-miles. Versus
1996, carloads were up 5%, with ton-miles up 6% and revenues up 11%.
Operating expenses overall increased $5.4 million or 5.6% in 1997. For
1997, CCPH's costs are included for the entire quarter. Labor and fringe costs
were up modestly reflecting cost efficiencies. Leases and car hire returned to
more normal operating levels. Fuel expense reflects the decrease in cost per
gallon (4.0%) offset by increased usage (13.6%). Increased depreciation is a
result of the acquisition of CCPH. The expense categories Casualty, Insurance
and Losses and Other taxes reflect normal operating levels.
<PAGE>
Operating income for 1997 increased by $6.8 million or 12.1% to $63.2
million for the reasons cited above.
Net interest expense of $10.1 million for 1997 increased 46.4% compared to
$6.9 million in 1996. The 1997 expense includes borrowings to support the
acquisition of CCPH.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
On a consolidated basis total revenues for 1997 increased from the prior
year period by $21.7 million or 6.9% to $337.7 million. For the 1997 period ICRR
declined $9.9 million and CCPH contributed $35.3 million.
Total freight carloads of 510,821 were up 8.7%, primarily reflecting
inclusion of CCPH which was acquired in June 1996. The traffic increase offset
weak export grain which had a negative impact on the revenue mix.
Grain and grain mill accounted for 17% of the Company's carloads and 31% of
ton-miles in 1997. While 1997's rail rates were higher on average versus last
year and demand for grain domestically was strong as processors returned to more
normal production levels , the negative impact of weak export grain traffic was
only partially offset. Export grain movements are not expected to improve until
the fourth quarter of 1997.
Coal accounted for 23% of the Company's carloads and 23% of ton-miles in
1997. Against 1996, carloads, ton-miles and revenues were up 23%, 10% and 4%,
respectively. Increased one time moves and new business offset production
difficulties at several shippers' operations.
Chemicals accounted for 15% of the Company's carloads and 17% of ton-miles
in 1997. Against 1996, carloads, ton-miles and revenues were up 15%, 15% and 8%,
respectively, reflecting the new haulage agreement with BNSF entered into in
late 1996.
Paper and Forest Products were 14% of 1997 carloads and 13% of ton-miles.
Carloads were down 4%, revenues were down 5% and ton miles were up 1% versus
1996.
Bulk Commodities contributed 5% of carloads and ton-miles in 1997. Bulk
commodities are primarily stone and other construction materials and are closely
tied to state highway projects. This smaller commodity group fluctuates with the
timing of projects as well as the availability of freight cars for this
lower-margin business.
Finally, Intermodal accounted for 20% of loads and 6% of ton-miles. Versus
1996, carloads were up 8%, ton-miles were up 10% and revenues up 12%.
Operating expenses overall increased $10.7 million or 5.4% in 1997. For
1997, CCPH's costs are included for the entire period. Labor and fringe costs
were up modestly reflecting cost efficiencies. Leases and car hire returned to
more normal operating levels. Fuel expense reflects the increase in cost per
gallon (4.0%) coupled with increased usage (12.9%). Increased depreciation is a
result of the acquisition of CCPH. Other expenses reflect recovery of prior
period expenses in relation to a derailment.
<PAGE>
Operating income for 1997 increased by $11.0 million or 9.4% to $127.7
million for the reasons cited above.
Net interest expense of $20.5 million for 1997 increased 40.4% compared to
$14.6 million in 1996. The 1997 expense includes borrowings to support the
$109.9 million transferred from ICRR in mid-June 1996 in connection with the
acquisition of CCPH.
Liquidity and Capital Resources
Operating Data ($ in millions): Six Months Ended June 30,
-------------------------
1997 1996
---- ----
Cash flows provided by (used for):
Operating activities................... $ 99.6 $ 69.1
Investing activities................... (35.6) (196.7)
Financing activities................... (69.4) 140.9
------- ------
Net change in cash and
temporary cash investments.............. $ (5.4) $ 13.3
======== ======
Cash from operating activities in 1997 and 1996 was primarily net income
before depreciation and deferred taxes.
Investing Data ($ in millions):
Additions to property were as follows:
Six Months Ended June 30,
1997 1996
---- ----
Communications and signals.......... $10.3 $ 5.7
Equipment/rolling stock............... 2.5 18.7
Track and bridges..................... 33.9 24.0
Dry bulk transfer facility............ 15.2 4.5
Other................................. 6.0 1.8
------- -------
Total............................. $67.9 $54.7
===== =====
Property retirements and removals generated proceeds of $4.8 million and
$4.4 million in 1997 and 1996, respectively.
The Company still anticipates that total capital expenditures for 1997 will
be approximately $172 million. These expenditures are expected to be met from
current operations or other available sources.
In June 1996 the Company acquired the stock of CCPH Holdings, Inc. (See
Note 3.) The Company used its own bank credit lines and funds received from ICRR
(a loan of $59.9 million and a $50 million dividend) to complete the $147
million transaction. The acquisition is being treated as a purchase.
Financing Activities
The Company has a $50 million 364-day floating-rate revolving loan
agreement which expires in August 1997. At June 30, 1997, no amounts were drawn
under this agreement. IC Financial leases equipment to ICRR and has
approximately $7.7 million in long-term borrowing agreements which were used to
acquire locomotive and freight car equipment during 1993 and 1991. IC Financial
lease revenue and corresponding expense at ICRR, which is eliminated in
consolidation, was $7.5 million and $7.2 million for the first half of 1997 and
1996, respectively.
In July 1997 and 1996, the Company paid $14.1 million and $12.3 million,
respectively, in cash dividends on its common stock. Dividends from ICRR were
used to fund these payments. Included in the 1996 dividends to the Company is
the March 1996 transfer by ICRR of its ownership in the Chicago Intermodal
Company ("CIC") via a dividend of CIC stock. The book value of the CIC
investment was $5.7 million.
CCPH has a revolving credit agreement with its bank lending group for an
unsecured $50 million revolving credit facility, (the "CCPH Revolver"). The CCPH
Revolver has a $5 million sublimit for letters of credit and expires in 2001.
The revolver can be used for general corporate purposes. Currently, the annual
commitment fee is 30 basis points and borrowings are at the Eurodollar offered
rate plus 75 basis points. At June 30, 1997, CCPH was in compliance and does not
anticipate any difficulty in maintaining compliance with the various financial
covenants contained therein. At June 30, 1997, no amounts were drawn under the
CCPH Revolver.
ICRR has a commercial paper program whereby a total of $200 million can be
issued and outstanding at any one time. The program is supported by a $250
million Revolver (see below). At June 30, 1997, no amounts were outstanding. The
average interest rate on commercial paper for the six month period ended June
30, 1997, was 5.68% with a range of 5.68% to 5.69%. ICRR's public debt is rated
Baa2 by Moody's and BBB by S&P.
In 1994, ICRR entered into a revolving agreement to sell undivided
percentage interests in certain of its accounts receivable, with recourse, to a
financial institution. The agreement, which expires in June 1998, allows for
sales of accounts receivable up to a maximum of $50 million at any one time.
ICRR services the accounts receivable sold under the agreement and retains the
same exposure to credit loss as existed prior to the sale. At June 30, 1997, $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 each for the six
month periods ended June 30, 1997, and 1996. ICRR's accounting and reporting for
the sale of accounts receivable was not changed by the implementation of SFAS
No. 125.
<PAGE>
ICRR has a $250 million Revolver with its bank lending group, which expires
in 2001. Fees and borrowing spreads are predicated on ICRR's long-term credit
ratings. The Revolver is used primarily for backup for ICRR's commercial paper
program but can be used for general corporate purposes. The available amount is
reduced by the outstanding amount of commercial paper borrowings and any letters
of credit issued on behalf of ICRR under the facility. At June 30, 1997, the
full $250 million was available but undrawn.
Certain covenants of ICRR's debt agreements and CCPH's Revolver require
among others specific levels of tangible net worth but not a specific dividend
restriction. At June 30, 1997, ICRR and CCPH exceeded their tangible net worth
covenants by $26.0 million and $25.6 million, respectively. Both ICRR and CCPH
were in compliance with all covenants at June 30, 1997, and do not contemplate
any difficulty maintaining such compliance.
A shelf registration from 1996 can be used to issue an additional $70
million in MTN's or other debt until 2000. Currently, there are no plans to
issue additional debt but capital investments in the terminal facilities and
other ventures could necessitate use.
The Company believes that its available cash, cash generated by its
operations and cash available from the facilities described above will be
sufficient to meet foreseeable liquidity requirements. Additionally, the Company
believes it has access to the public debt market if needed.
Year 2000 Conversion
The Company is accumulating and evaluating the costs associated with
modifying existing software programs for the year 2000. Current estimates are
approximately $2 million. The Company is also evaluating the feasibility of
complete replacement of its "non-2000 compliant" programs. Replacement may be
more economical and provide additional enhancements. A final determination is
expected in the fourth quarter of 1997.
Miscellaneous
ICRR has entered into various diesel fuel collar agreements designed to
mitigate significant changes in fuel prices. As a result, approximately 60% of
ICRR's short-term diesel fuel requirements through July 1998 are protected
against significant price changes.
In January 1997, the United Transportation Union ("UTU") ratified a new
agreement which settles wage and work rule issues through 2000. The UTU
agreement is similar to the nationally negotiated agreement in effect with other
Class I carriers. The main distinction is timing of the various lump sum payouts
and scheduled wage increases. In May 1997, the Brotherhood of Locomotive
Engineers ("BLE") ratified a local agreement which settles wage and work rule
issues through 2000. The BLE agreement increased wage rates approximately 4.9%
upon ratification.
<PAGE>
Long-Term Equity Enhancement Program
The Company paid its twenty-second consecutive quarterly cash dividend on
July 9, 1997. The Board of Directors believes quarterly dividends are an
integral part of its announced Long-Term Equity Enhancement Program designed to
increase stockholder value through dividend payments and stock repurchases.
Actual dividends are declared by the Board based on profitability, capital
expenditure requirements, debt service and other factors. The Board has
determined that cash needs for the CCPH acquisition and other capital
expenditures precluded a Stock Purchase program for 1996 and to date in 1997.
Environmental Liabilities
The Company's operations are subject to comprehensive environmental
regulation by federal, state and local authorities. Compliance with such
regulation requires the Company to modify its operations and expend substantial
manpower and financial resources.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("Superfund"), and similar state and federal laws, the
Company is potentially liable for the cost of clean-up of various contaminated
sites. The Company generally participates in the clean-up at sites where other
substantial parties share responsibility through cost-sharing arrangements, but
under Superfund and other similar laws the Company can be held jointly and
severally liable for all environmental costs associated with such sites.
The Company is aware of approximately 25 contaminated sites at which it is
probably liable for some portion of any required clean-up. Of these, 17 involve
contamination primarily by diesel fuel which can be remediated without material
cost. Five other sites are expected to require more than $1 million in clean-up
costs. At four of these sites other parties are expected to contribute the
majority of the costs incurred. The Company anticipates expenditures of
approximately $2.8 million annually for the investigation and remediation at all
sites.
For all known sites of environmental contamination where the Company's loss
or liability is probable, the Company has recorded an estimated liability at the
time when a reasonable estimate of remediation cost and Company liability can
first be determined. Adjustments to initial estimates are recorded as necessary
based upon additional information developed in subsequent periods. Estimates of
the Company`s potential financial exposure for environmental claims or incidents
are necessarily imprecise because of the difficulty of determining in advance
the nature and extent of contamination, the varying costs of alternative methods
of remediation, the regulatory clean-up standards which will be applied, and the
appropriate allocation of liability among multiple responsible parties. At June
30, 1997, the Company estimated the probable range of its liability to be $11
million to $50 million, and in accordance with the provisions of SFAS No. 5 had
a reserve of $11 million for environmental contingencies. This amount is not
reduced for potential insurance recoveries or third-party contributions.
The risk of incurring environmental liability in connection with both past
and current activities is inherent in railroad operations. Decades-old railroad
housekeeping practices were not always consistent with contemporary standards.
Historically the Company has leased substantial amounts of property to
industrial tenants, and ICRR continues to haul hazardous materials
which are subject to occasional accidental release. Because the
ultimate cost of known contaminated sites cannot be definitively established and
because additional contaminated sites yet unknown may be discovered or future
operations may result in accidental releases, no assurance can be given that the
Company will not incur material environmental liabilities in the future.
However, based on its assessments of the facts and circumstances now known,
management believes that it has recorded adequate reserves for known liabilities
and does not expect future environmental charges or expenditures, based on these
known facts and circumstances, to have a material adverse effect on the
Company`s financial position, results of operations, cash flow or liquidity.
Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). The new statement is effective December 15, 1997; early adoption is not
permitted. When adopted, SFAS No. 128 will require restatement of prior years'
earnings per share. See Note 4 for proforma presentations of the effect of this
new standard.
The FASB has also released Statement of Financial Accounting Standard No.
129 "Disclosure of Information about Capital Structure" ("SFAS No. 129"). The
Company complies with all the requirements of the standard which is effective
for periods ending after December 15, 1997.
In June 1997, the FASB issued two new standards which will be effective for
periods ending after December 15, 1997.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the some prominence as other financial
statements. The Company does not expect to adopt this standard early.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement supersedes FASB Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise," but retains the requirement to report
information about major customers. SFAS No. 131 will not apply to interim
periods until the second year of application. The Company will not adopt this
standard early.
The Company is currently assessing the impact, if any, these standards will
have on its consolidated financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index on page E-1
<PAGE>
ILLINOIS CENTRAL CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
ILLINOIS CENTRAL CORPORATION
/s/ Dale W. Phillips
Dale W. Phillips
Vice President & Chief Financial Officer
/s/ John V. Mulvaney
John V. Mulvaney
Controller
Date: August 12, 1997
19
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
3 By-Laws of Illinois Central Railroad Company,
as amended. (Incorporated by reference to
Exhibit 3 to the Quarterly Report of the Illinois
Central Railroad Company on Form 10-Q for
the three months ended June 30, 1997. (See
File No. 1-7092))
10 Form of Illinois Central Corporation Directors
Deferred Compensation Plan, as amended
and restated effective May 1, 1997.
11 Computation of Income per Common Share E-2
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).
E-1
<PAGE>
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
($ in millions, except share data)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Net income $ 35.0 $ 31.4 $ 68.9 $ 64.5
Calculation of average number of
shares outstanding:
Primary:
Weighted average number of
common shares outstanding 61,408,930 61,421,032 61,407,935 61,423,218
Effect of shares issuable
under stock options 838,734 395,372 808,129 358,608
62,247,664 61,816,404 62,216,064 61,781,826
Fully diluted:
Weighted average number of
common shares outstanding 61,408,930 61,421,032 61,407,935 61,423,218
Effect of shares issuable
under stock options (1) 838,734 374,269 808,129 374,269
62,247,664 61,795,301 62,216,064 61,797,487
Income per common share:
Primary:
Net income $ 0.56 $ 0.51 $ 1.11 $ 1.04
Fully diluted:
Net income $ 0.56 $ 0.51 $ 1.11 $ 1.04
(1) Such items are included in primary calculation. Additional shares
represent differerence between average price of common stock for the period and
the end of period price.
E-2
<PAGE>
ILLINOIS CENTRAL CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective May 1, 1997)
<PAGE>
CERTIFICATE
I, , Secretary of Illinois Central Corporation, hereby certify that the
attached document is a correct copy of the Illinois Central Corporation
Directors Deferred Compensation Plan, As Amended and Restated effective May 1,
1997.
Dated this day of May, 1997.
As Secretary as Aforesaid
(Seal)
<PAGE>
ILLINOIS CENTRAL CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective May 1, 1997)
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . .1
ARTICLE II - COMPENSATION DEFERRAL CONTRIBUTIONS. . . . . . .4
2.1. Compensation Deferral Elections. . . . . . . . . . . .4
2.2. Investment Elections . . . . . . . . . . . . . . . . .6
ARTICLE III - PARTICIPANT SUBACCOUNTS. . . . . . . . . . . . .7
3.1 Stock Unit Subaccounts . . . . . . . . . . . . . . . .7
3.2 Dividends. . . . . . . . . . . . . . . . . . . . . . .7
3.3 Adjustments. . . . . . . . . . . . . . . . . . . . . .8
3.4 Cash Subaccounts . . . . . . . . . . . . . . . . . . .8
3.5 Account Statements . . . . . . . . . . . . . . . . . .8
ARTICLE IV - DISTRIBUTION OF COMPENSATION DEFERRALS. . . . . .9
4.1. Cessation of Deferrals . . . . . . . . . . . . . . . .9
4.2. Manner of Distribution . . . . . . . . . . . . . . . .9
4.3. Time of Distribution . . . . . . . . . . . . . . . . 10
4.4. Form of Distribution . . . . . . . . . . . . . . . . 10
4.5. Distribution Due to Death. . . . . . . . . . . . . . 11
4.6. Change in Distribution Election. . . . . . . . . . . 11
4.7. Unscheduled Withdrawal Right . . . . . . . . . . . . 12
4.8. Hardship Distribution. . . . . . . . . . . . . . . . 14
ARTICLE V - ADMINISTRATION OF THE PLAN . . . . . . . . . . . 15
5.1. Administration by the Committee. . . . . . . . . . . 15
5.2. Powers and Duties of Committee. . . . . . . . . 15
ARTICLE VI - AMENDMENT OR TERMINATION. . . . . . . . . . . . 15
6.1. Amendment or Termination . . . . . . . . . . . . . . 15
6.2. Effect of Amendment or Termination . . . . . . . . . 16
ARTICLE VII - GENERAL PROVISIONS . . . . . . . . . . . . . . 16
7.1. Participants' Rights Unsecured . . . . . . . . . . . 16
7.2. Trust Agreement. . . . . . . . . . . . . . . . . . . 17
7.3. No Guaranty of Benefits. . . . . . . . . . . . . . . 17
7.4. No Enlargement of Rights . . . . . . . . . . . . . . 17
7.5. Spendthrift Provision. . . . . . . . . . . . . . . . 17
7.6. Applicable Law . . . . . . . . . . . . . . . . . . . 18
7.7. Incapacity of Recipient. . . . . . . . . . . . . . . 18
7.8. Corporate Successors . . . . . . . . . . . . . . . . 18
7.9. Unclaimed Benefit. . . . . . . . . . . . . . . . . . 19
7.10. Limitations on Liability. . . . . . . . . . . . 19
7.11. Claims Procedure. . . . . . . . . . . . . . . . 19
7.12. Internal Revenue Service Action . . . . . . . . 20
7.13. Withholding . . . . . . . . . . . . . . . . . . 21
7.14. Notice. . . . . . . . . . . . . . . . . . . . . 21
7.15. Shares Issued under the Plan. . . . . . . . . . 22
7.16 Postponement of Issuance of Common Stock . . . . . . 22
<PAGE>
ILLINOIS CENTRAL CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective May 1, 1997)
The Illinois Central Corporation Directors Deferred Compensation Plan was
initially adopted, effective January 1, 1995, for the Directors of Illinois
Central Corporation. The Plan is hereby amended and restated effective May 1,
1997. The purpose of the Plan is to permit Directors to contribute a portion of
their Compensation on a pre-tax basis toward retirement benefits and to attract,
retain and motivate highly qualified individuals to serve as Directors of
Illinois Central Corporation.
Accordingly, Illinois Central Corporation hereby adopts this amendment and
restatement of the Plan pursuant to the terms and provisions set forth below:
ARTICLE I
DEFINITIONS
Wherever used herein the following terms shall have the meanings
hereinafter set forth:
1.1. "Account" means the account maintained under the Plan by the Committee
in the Participant's name to which Compensation deferrals and earnings, gains
and losses are credited in accordance with the Plan. A Participant shall be
fully vested in the amount in his Account at all times.
1.2. "Board" means the Board of Directors of the Company.
1.3. "Cash Subaccount" means the portion of a Participant's Account that is
not invested in Stock Units.
1.4. "Committee" means the Illinois Central Benefit Administration
Committee that is responsible for the administration of the Plan.
1.5. "Company" means Illinois Central Corporation, a Delaware corporation,
or, to the extent provided in Section 7.8 below, 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.
1.6. "Company Stock" means the common stock of the Company.
1.7. "Compensation" means the fees and other monies paid to a Participant
for service as a Director in any Plan Year, including, but not limited to annual
fees and per-meeting fees.
1.8. "Crediting Interest Rate" means a rate of interest established for
each Plan Year equal to 120 percent of the 120-month rolling average of the U.S.
10-Year Treasury Note rate, determined as of the fifteenth day of the last month
of the preceding Plan Year.
1.9. "Director" means a member of the Illinois Central Corporation Board of
Directors who is not also an employee of the Company or any related company.
1.10. "Fair Market Value" means the closing price of a share of Common
Stock as of a given date on the New York Stock Exchange on such date, or if such
date is not a regular trading date on such Exchange, on the next following
regular trading date.
1.11. "Participant" means a Director of the Company who has completed the
Plan election and enrollment forms provided by the Committee.
1.12. "Plan" means the Illinois Central Corporation Directors Deferred
Compensation Plan as set forth herein and as hereinafter amended from time to
time.
1.13. "Plan Year" means: (i) prior to January 1, 1997, the period that
approximates the calendar year, for which the Company reports income to
Directors on Internal Revenue Service forms; (ii) beginning May 1, 1997, the
12-month period beginning each May 1 and ending on the next following April 30;
and (iii) a short Plan Year beginning January 1, 1997 and ending April 30, 1997.
1.14. "Stock Units" means units equivalent to Common Stock.
1.15. "Stock Unit Subaccount" means the portion of a Participant's Account
that is invested in Stock Units.
1.16. "Termination Date" means the date on which a Participant ceases to be
a Director for any reason.
1.17. Words in the masculine gender shall include the feminine and the
singular shall include the plural, and vice versa, unless qualified by the
context. Any headings used herein are included for ease of reference only and
are not to be construed so as to alter the terms hereof.
ARTICLE II
COMPENSATION DEFERRAL CONTRIBUTIONS
2.1. Compensation Deferral Elections. A. Any Director may elect to become a
Participant in the Plan by completing the election form provided by the
Committee. A Participant may elect to defer the receipt of all or a portion of
the Compensation otherwise payable to him by the Company in any Plan Year until
his Termination Date. The amount of Compensation deferred by a Participant for
any Plan Year shall be a fixed dollar amount (not less than $5,000 or $1,667 for
the short Plan Year beginning January 1, 1997 and ending April 30, 1997), or a
whole number percentage of such Compensation up to one hundred percent (100%) of
such Participant's Compensation.
B. The election form by which a Participant elects to defer Compensation as
provided in the Plan, including the election set forth in paragraph B of Section
2.2, shall be in writing, signed by the Participant, and delivered to the
Committee prior to the first day of the calendar year that includes the first
day of the first Plan Year in which the Compensation to be deferred is otherwise
payable to the Participant; except that:
(1) In the Plan Year in which the Plan was initially implemented, a
Participant was able to elect to defer Compensation for services performed
subsequent to the date of the election, provided that the election form was
delivered to the Committee by January 30, 1995; and
(2) In the Plan Year in which a Participant first becomes eligible to
participate in the Plan, such Participant may make an election, within 30
days after the date the Participant becomes eligible, to defer Compensation
payable for services to be performed subsequent to the date the election
form is delivered to the Committee;
(3) An election to defer Compensation for any Plan Year shall remain
in effect for future Plan Years unless the Participant expressly revokes
such election or completes a new election pursuant to an election or
revocation form delivered to the Committee prior to the first day of the
Plan Year for which such revocation or new election is to be effective.
Except as provided in clause (2) above, a deferral election made by a
Participant shall be irrevocable with respect to all Compensation payable for
services to be performed in the Plan Year next commencing subsequent to the date
the election form is delivered to the Committee.
2.2. Investment Elections. A. All Compensation deferred by a Participant
pursuant to an election form delivered to the Committee for a Plan Year
commencing prior to May 1, 1997 shall be credited to the Participant's Cash
Subaccount.
B. A Participant shall elect, pursuant to a written election described in
Section 2.1, made for any Plan Year commencing on or after May 1, 1997, to have
all or a whole number percentage of the Compensation deferred credited to his
Stock Unit Subaccount or to his Cash Subaccount. The amount credited to either
Subaccount for any Plan Year shall not be less than $2,500. An election made
pursuant to this paragraph B shall be included in the election form for the
applicable Plan Year described in Section 2.1; provided, however, that an
election pursuant to this paragraph for the Plan Year commencing on May 1, 1997
shall be made by a separate written election form delivered by a Participant to
the Committee no later than June 30, 1997. If a Participant does not make an
election pursuant to this paragraph with respect to all or any portion of the
Compensation deferred for any Plan Year, all or such portion of the Compensation
deferred for such Plan Year shall be credited to the Participant's Stock Unit
Subaccount.
ARTICLE III
PARTICIPANT SUBACCOUNTS
3.1 Stock Unit Subaccounts. The portion of the deferred Compensation of a
Participant that is to be credited to his Stock Unit Subaccount pursuant to
Section 2.2, shall be credited as a dollar amount to his Stock Unit Subaccount
as of the date of the Board meeting or the Company shareholders meeting for
which such Compensation would otherwise have been paid to him, and shall be
converted as of such date into Stock Units. Such conversion shall be determined
by dividing the dollar value of the amount of such deferred Compensation by the
Fair Market Value of a share of Common Stock on such conversion date. The number
of Stock Units so determined shall be credited to the Participant's Stock Unit
Subaccount. Any cash balance remaining in the Participant's Stock Unit
Subaccount after such conversion, together with other subsequent credits thereto
pursuant to Section 3.2, shall be converted into Stock Units on the next
conversion date.
3.2 Dividends. Additional credits shall be made to a Participant's Stock
Unit Subaccount in dollar amounts equal to the cash value (or the fair market
value of dividends paid in property other than Common Stock) that the
Participant would have received had he been the owner on each record date of a
number of shares of Common Stock equal to the number of Stock Units credited to
his Stock Unit Subaccount on such date. In the case of a dividend in Common
Stock, additional credits will be made to a Participant's Stock Unit Subaccount
of a number of Stock Units equal to the number of shares of Common Stock that
the Participant would have received had he been the owner on each record date of
a number of shares of such Common Stock equal to the number of Stock Units
credited to his Stock Unit Subaccount on such date. Any cash dividends (or the
value of dividends paid in property other than Common Stock), shall be converted
into Stock Units on the next conversion date as set forth in Section 3.1.
3.3 Adjustments. The aggregate number of shares of Common Stock that may be
issued under the Plan and the number of Stock Units in each Stock Unit
Subaccount shall all be appropriately adjusted as the Committee may determine
for any increase or decrease in the number of shares of issued Common Stock
resulting from a subdivision or consolidation of shares, whether through
reorganization, recapitalization, stock split-up, spin-off, stock distribution
or combination of shares, or other increase or decrease in the number of such
shares outstanding effected without receipt of consideration by the Company.
Adjustments under this Section 3.3 shall be made in the sole discretion of the
Committee, and its decisions shall be binding and conclusive.
3.4 Cash Subaccounts. The balance of a Participant's Cash Subaccount shall
be credited with interest at the Crediting Interest Rate monthly, compounded
annually, until such balance has been distributed to the Participant or his
beneficiaries.
3.5 Account Statements. The Committee shall provide each Participant with a
written statement of his Stock Unit Subaccount and his Cash Subaccount at least
annually. Each Stock Unit Subaccount and each Cash Subaccount shall be
maintained on the books of the Company until full payment of the balance thereof
has been made to the applicable Participant (or the beneficiaries of a deceased
Participant). Except as provided in Section 7.2 below, no funds shall be set
aside or earmarked for any Subaccount, which shall be purely a bookkeeping
device.
ARTICLE IV
DISTRIBUTION OF COMPENSATION DEFERRALS
4.1. Cessation of Deferrals. All Compensation deferrals shall cease upon a
Participant's Termination Date.
4.2. Manner of Distribution. Each Participant shall elect, at the time the
Participant initially elects a Compensation deferral under Section 2.1 above,
the manner of the distribution of his Account upon his Termination Date. The
Participant may elect to have his Account distributed after his Termination Date
as follows:
(a) in a lump sum distribution; or
(b) in substantially equal monthly installment payments over a fixed
period of 5, 10 or 15 years.
If the Participant fails to elect a manner of distribution, the
Participant's Account will be distributed in a manner selected by the Committee.
If the amount in a Participant's Account on, or at any time after, the
Participant's Termination Date is less than $5,000, the Committee shall cause
the amount in such Account to be distributed to the Participant or his
beneficiary in a single lump sum as soon as practicable.
4.3. Time of Distribution. Distribution of a Participant's Account shall be
made or commence as soon as practicable after the Participant's Termination
Date.
4.4. Form of Distribution. The balance of a Participant's Stock Unit
Subaccount shall be distributed in shares of Common Stock or in cash as
designated by the Participant (or his beneficiaries in the event of his death)
by written notice delivered to the Committee prior to the applicable
distribution date. If a timely designation is not received by the Committee,
distribution shall be made in cash or in Common Stock as the Committee shall
decide. In all events, a distribution of the balance of a Participant's Stock
Unit Subaccount in installments, pursuant to clause (b) of Section 4.2, shall be
made in cash. In the event of a distribution in Common Stock, a certificate
representing a number of shares of Common Stock equal to the number of Stock
Units in the Participant's Stock Unit Subaccount, registered in the name of the
Participant (or his beneficiaries), and any remaining cash in the Stock Unit
Subaccount shall be distributed to the Participant (or his beneficiaries). In
the event of a cash distribution, the Participant (or his beneficiaries) shall
receive an amount in cash equal to the aggregate of (i) the number of Stock
Units in the Stock Unit Subaccount to be distributed multiplied by the Fair
Market Value of a share of Common Stock on the applicable distribution date, and
(ii) any remaining cash in the Stock Unit Subaccount.
B. The balance of a Participant's Cash Subaccount shall be distributed to
the Participant (or his beneficiaries) in cash.
4.5. Distribution Due to Death. If a Participant dies before complete
distribution of his Account, any remaining amount in the Participant's Account
shall be distributed to the beneficiary last designated by the Participant in
writing, on a form delivered to the Committee prior to death, in a single lump
sum payment. If a Participant has not designated a beneficiary under the Plan,
or if no designated beneficiary is living on the date for distribution
hereunder, the amount distributable pursuant to this Section shall be
distributed to the Participant's estate. A deceased Participant's Stock Unit
Subaccount will continue to be based upon Stock Units in accordance with
Sections 3.1 and 3.2 until such Subaccount is fully distributed. Interest shall
be credited to a deceased Participant's Cash Subaccount at the Crediting
Interest Rate in accordance with Section 3.3 until such Subaccount is fully
distributed.
4.6. Change in Distribution Election. The Committee may permit a
Participant to change his election pursuant to Section 4.2 as to the manner of
distribution of his Account. A Participant may request such change by written
instrument filed with the Committee. In the event a Participant changes his
election as to the manner of distribution within 12 months prior to his
Termination Date, the amount distributable from such Participant's Account will
be reduced by 10 percent. This reduction is intended to discourage a Participant
from changing his election as to the manner of distribution and prevent a
Participant from being deemed in constructive receipt of his Account upon his
Termination Date.
4.7. Unscheduled Withdrawal Right. A. A Participant may request an
unscheduled withdrawal of all or any portion of his Account during the period he
serves as a Director by written notice to the Committee, provided that the
amount distributable from such Participant's Account will be reduced by 10
percent. If a Participant elects an unscheduled withdrawal under this Section
while a Director, the Participant will not be permitted to elect a Compensation
deferral for a period of twelve months following the date of such withdrawal.
This reduction and ineligibility period is intended to discourage Participants
from requesting unscheduled withdrawals (other than on account of an
unforeseeable emergency pursuant to Section 4.8) and prevent Participants from
being deemed in constructive receipt of their Accounts. A distribution pursuant
to this Section 4.7 shall be in a lump sum and made pursuant to the form of
distribution set forth in Section 4.4.
B. Notwithstanding the foregoing, if a Participant requests an unscheduled
withdrawal within the two year period immediately following a Change in Control
of the Company, the amount distributable from such Participant's Account will be
reduced by six percent (rather than 10 percent, as provided above). For purposes
of this paragraph B, a "Change in Control" of the Company 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 Securities Exchange Act of 1934, as amended (the "Exchange
Act") is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, 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 the
Company's then outstanding securities; provided, however, that for this
purpose, beneficial ownership shall not include shares acquired: (i)
directly from the Company; (ii) in any merger or other business combination
of the Company with one or more other corporations as a result of which the
holders of the outstanding voting stock of the Company immediately prior to
such merger or other business combination own 60 percent or more of the
voting stock of the surviving or resulting corporation; or (iii) by any
employee benefit plan (or related trust) sponsored or maintained by the
Company;
(b) at any time during any period of two consecutive years (not
including any period prior to May 1, 1997) 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 Company'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; or
(c) there is a merger or other business combination of the Company
with one or more other corporations as a result of which the holders of the
outstanding voting stock of the Company immediately prior to such merger or
other business combination own less than 60 percent of the voting stock of
the surviving or resulting corporation.
4.8. Hardship Distribution. On account of an unforeseeable emergency, a
Participant may request, by writing filed with the Committee, that a
distribution be made to him of all or part of the amount then credited to his
Account. The Committee will approve such a distribution to the Participant only
in the event of an unforeseeable emergency. An "unforeseeable emergency" is an
unanticipated emergency that is caused by an event beyond the control of the
Participant and that would result in severe financial hardship to such
Participant if early withdrawal were not permitted. An unforeseeable emergency
that results in severe financial hardship is an unexpected illness or accident
of the Participant or a dependent, loss of a Participant's property due to
casualty, or other similar, extraordinary, unforeseeable circumstances beyond
the control of the Participant. The severe financial hardship may not be
relieved by an early distribution under the Plan to the extent it might
otherwise be relieved through reimbursement or compensation by insurance or
otherwise, by liquidation of a Participant's assets, or by cessation of
Compensation deferrals under the Plan. Any hardship distribution under this
Section will be limited to the amount necessary to meet the emergency. A
distribution under this Section shall be in a lump sum and made pursuant to the
form of distribution set forth in Section 4.4.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.1. Administration by the Committee. The Committee shall be responsible
for the general operation and administration of the Plan and for carrying out
the provisions thereof.
5.2. Powers and Duties of Committee. The Committee shall administer the
Plan in accordance with its terms and shall have all powers necessary to carry
out the provisions of the Plan. The Committee shall interpret the Plan and 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 Participants and other persons. Any such
determination by the Committee shall presumptively be conclusive and binding on
all persons. The regularly kept records of the Company shall be conclusive and
binding upon all persons with respect to all matters contained therein relating
to Participants. All rules and determinations of the Committee shall be
uniformly and consistently applied to all persons in similar circumstances.
ARTICLE VI
AMENDMENT OR TERMINATION
6.1. Amendment or Termination. The Company intends the Plan to be permanent
but reserves the right to amend or terminate the Plan. Any such amendment or
termination shall be made pursuant to a resolution of the Board and shall be
effective as of the date of such resolution. The Company specifically reserves
the right to amend the Crediting Interest Rate provided for in Section 1.9,
provided that any such change will not reduce the amount of interest credited to
a Participant's Cash Subaccount prior to, or otherwise reduce the amount in a
Participant's Cash Subaccount as of, the effective date of the amendment.
6.2. Effect of Amendment or Termination. No amendment or termination of the
Plan shall divest any Participant or beneficiary of the amount in the
Participant's Account, or of any rights to which the Participant would have been
entitled if the Plan had been terminated immediately prior to the effective date
of such amendment. Upon termination of the Plan, distribution of Participants'
Accounts shall be made to Participants or their beneficiaries in the manner
provided by Sections 4.1, 4.2, 4.3 and 4.4, unless the Company determines to
distribute all Accounts in lump sums. No Compensation deferrals shall be
permitted after termination of the Plan.
ARTICLE VII
GENERAL PROVISIONS
7.1. Participants' Rights Unsecured. Except as set forth in Section 7.2,
the Plan at all times shall be entirely unfunded and no provision shall at any
time be made with respect to segregating any assets of the Company for payment
of any benefits hereunder. The right of a Participant or a Participant's
beneficiary to receive a distribution of the Participant's Account hereunder
shall be an unsecured claim against the general assets of the Company, and
neither the Participant nor a beneficiary shall have any rights in or against
any specific assets of the Company.
7.2. Trust Agreement. Notwithstanding the provisions of Section 7.1, the
Company shall enter into a trust agreement ("Trust Agreement") whereby the
Company shall agree to contribute to a trust ("Trust") for the purpose of
accumulating assets to assist the Company in fulfilling its obligations to
Participants hereunder. Such Trust Agreement shall be substantially in the form
of the model trust agreement set forth in Internal Revenue Service Revenue
Procedure 92-64, or any subsequent Internal Revenue Service Revenue Procedure,
and shall include provisions required in such model trust agreement that all
assets of the Trust shall be subject to the creditors of the Company in the
event of insolvency.
7.3. No Guaranty of Benefits. Nothing contained in the Plan shall
constitute a guaranty by the Company or any other person or entity that the
assets of the Company will be sufficient to pay any benefit hereunder. No
Participant or other person shall have any right to receive a benefit or a
distribution of an Account under the Plan except in accordance with the terms of
the Plan.
7.4. No Enlargement of Rights. Establishment of the Plan shall not be
construed to give any Participant the right to be retained as a Director.
7.5. 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.
7.6. Applicable Law. The Plan shall be construed and administered under the
laws of the State of Illinois except to the extent preempted by federal law.
7.7. Incapacity of Recipient. Subject to applicable state law, if any
person entitled to a payment under the Plan is deemed by the Committee to be
incapable of personally receiving and giving a valid receipt for such payment,
then, unless and until claim therefor shall have been made by a duly appointed
guardian or other legal representative of such person, the Committee may provide
for such payment or any part thereof to be made to any other person or
institution then contributing toward or providing for the care and maintenance
of such person. Any such payment shall be a payment for the account of such
person and a complete discharge of any liability of the Company, the Committee,
and the Plan therefor.
7.8. Corporate Successors. The Plan shall not be automatically terminated
by a transfer or sale of assets of the Company, or by the merger or
consolidation of the Company into or with any other corporation or other entity,
but the Plan shall be continued after such sale, merger or consolidation only if
and to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. In the event that the Plan is not continued by the
transferee, purchaser or successor entity, the Plan shall terminate subject to
the provisions of Sections 6.1 and 6.2.
7.9. Unclaimed Benefit. Each Participant or beneficiary shall keep the
Committee informed of his current address. The Committee shall not be obligated
to search for the whereabouts of any person. If the location of a Participant is
not made known to the Committee within three years after the date on which
payment of the Participant's benefits under the Plan may first be made, payment
may be made as though the Participant had died at the end of the three-year
period. If, within one additional year after such three-year period has elapsed,
or, within three years after the actual death of the Participant, the Committee
is unable to locate any beneficiary of the Participant, and, if the Participant
is deceased, payment to the Participant's estate is impracticable for any
reason, then the Company shall have no further obligation to pay any benefit
hereunder to such Participant or beneficiary or any other person and such
benefit shall be irrevocably forfeited.
7.10. Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, none of the Company, any member of the Committee, nor
any individual acting as an employee or agent of the Company or the Committee,
shall be liable to any Participant, former Participant or any beneficiary or
other person for any claim, loss, liability or expense incurred in connection
with the Plan.
7.11. Claims Procedure. If a Participant's or beneficiary's claim for
benefits under the Plan is denied in whole or in part by the Committee, the
Committee will notify the Participant (or beneficiary) of the denial. Such
notification will be made in writing, within 90 days of the date the claim is
received by the Committee. The notification will include: (i) the specific
reasons for the denial; (ii) specific reference to the Plan provisions upon
which the denial is based; (iii) a description of any additional information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and (iv) an explanation of the applicable
review procedures. A claim will be deemed denied if a notification of denial is
not received by the Participant (or beneficiary) within 90 days of the date the
claim is received by the Committee.
The Participant (or beneficiary) has 60 days from the date he receives
notice of a claim denial, or the date the claim is deemed denied, to file a
written request for review of the denial with the Committee. The Committee will
review the claim denial and inform the Participant (or beneficiary) in writing
of its decision within 60 days of the date the claim review request is received
by the Committee. This decision will be final.
7.12. Internal Revenue Service Action. Notwithstanding anything to the
contrary contained in the Plan, (a) if the Internal Revenue Service prevails in
a claim by it that amounts credited to a Participant's Account, and/or earnings
thereon, constitute taxable income to the Participant or his beneficiary for any
taxable year of his, prior to the taxable year in which such credits and/or
earnings are distributed to him, or (b) legal counsel satisfactory to the
Company, and the applicable Participant or his beneficiary, renders an opinion
that the Internal Revenue Service would likely prevail in such a claim, the
balance of such Participant's Account shall be immediately distributed to the
Participant or his beneficiary. For purposes of this Section, the Internal
Revenue Service shall be deemed to have prevailed in a claim if such claim is
upheld by a court of final jurisdiction, or if the Company, or a Participant or
beneficiary, based upon an opinion of legal counsel satisfactory to the Company
and the Participant or his beneficiary, fails to appeal a decision of the
Internal Revenue Service, or a court of applicable jurisdiction, with respect to
such claim, to an appropriate Internal Revenue Service appeals authority or to a
court of higher jurisdiction, within the appropriate time period.
7.13. Withholding. The Company shall withhold from any deferred
Compensation, or any payments made pursuant to Article IV or VI, any amounts
required by applicable federal, state and local tax laws and regulations
thereunder. A Participant may pay any applicable taxes due with respect to any
shares of Common Stock distributed under the Plan in cash or in Common Stock,
either by having the Company withhold a portion of the shares of Common Stock
otherwise distributable, or by delivering to the Company shares of Common Stock
otherwise owned by the Participant.
7.14. Notice. Any notice under the Plan shall be in writing, or by
electronic means, and shall be received when actually delivered, or mailed
postage paid as first class U.S. Mail. Notices shall be directed to the Company
at its principal business office at 455 North Cityfront Plaza Drive, Chicago,
Illinois 60611-5504, to a Director at the address stated on the records of the
Company, and to a beneficiary entitled to benefits at the address stated in the
Participant's beneficiary designation, or to such other addresses any party may
specify by notice to the other parties.
7.15. Shares Issued under the Plan. Shares of Common Stock distributed
under the Plan may be treasury shares of the Company or shares purchased on the
open market. The Company shall reserve such number of shares of Common Stock as
may be issuable under the Plan.
7.16. Postponement of Issuance of Common Stock. The Committee may postpone
any issuance of Common Stock pursuant to the Plan for such time as the
Committee, in its sole discretion, may deem necessary in order to permit the
Company (i) to effect, amend or maintain any necessary registration of the Plan,
or the shares of Common Stock issuable under the Plan, under the Securities Act
of 1933, as amended, or the securities laws of any applicable jurisdiction, (ii)
to permit any action to be taken in order to (A) list such shares of Common
Stock on a stock exchange if shares of Common Stock are then listed on such
exchange, or (B) comply with restrictions or regulations incident to the
maintenance of a public market for its shares of Common Stock, including any
rules or regulations of any stock exchange on which the shares of Common Stock
are listed, or (iii) to determine that such shares of Common Stock and the Plan
are exempt from such registration or that no action of the kind referred to in
(ii)(B) above needs to be taken; and the Company shall not be obligated by
virtue of any terms and conditions of any provision of the Plan to issue shares
of Common Stock in violation of the Securities Act of 1933 or the law of any
government having jurisdiction thereof. Neither the Company nor its directors or
officers shall have any obligation or liability to any Participant or to any
other person with respect to any shares of Common Stock because of such
postponement of issuance.
<PAGE>
IN WITNESS WHEREOF, this amendment and restatement of the Plan has been
executed on behalf of the Company on this day of , 1997.
ILLINOIS CENTRAL CORPORATION
By:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 53800
<SECURITIES> 0
<RECEIVABLES> 101100
<ALLOWANCES> 1200
<INVENTORY> 18200
<CURRENT-ASSETS> 204000
<PP&E> 1690300
<DEPRECIATION> 52400
<TOTAL-ASSETS> 1934000
<CURRENT-LIABILITIES> 230000
<BONDS> 599000
<COMMON> 0
0
0
<OTHER-SE> 595400
<TOTAL-LIABILITY-AND-EQUITY> 1934000
<SALES> 337700
<TOTAL-REVENUES> 337700
<CGS> 210000
<TOTAL-COSTS> 210000
<OTHER-EXPENSES> (1400)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20500
<INCOME-PRETAX> 108600
<INCOME-TAX> 39700
<INCOME-CONTINUING> 68900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68900
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
