-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B2qyP0SubaNRAa50N89CPY1jNNeA368ok8TTTZT7naEOI7YeRP9+esAWAwkzleXj ZqaZyrcK6xh7uhe+v1gaAg== 0000859119-96-000015.txt : 19960513 0000859119-96-000015.hdr.sgml : 19960513 ACCESSION NUMBER: 0000859119-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS CENTRAL CORP CENTRAL INDEX KEY: 0000859119 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 133545405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10720 FILM NUMBER: 96559001 BUSINESS ADDRESS: STREET 1: 455 N CITYFRONT PLZ DR STREET 2: 20TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60611-5504 BUSINESS PHONE: 3127557500 MAIL ADDRESS: STREET 1: 455 NORTH CITYFRONT PLAZA DR STREET 2: 455 NORTH CITYFRONT PLAZA DR CITY: CHICAGO STATE: IL ZIP: 60611 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended March 31, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-10720 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 March 31, 1996, 61,428,469 common shares were outstanding. ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES FORM 10-Q Three Months Ended March 31, 1996 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 8 Part II - Other Information: Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit 11 E-1 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income ($ in millions, except share data) (Unaudited) Three Months Ended March 31, 1996 1995 Revenues $ 162.3 $ 167.5 Operating expenses: Labor and fringe benefits 47.2 46.8 Leases and car hire 10.1 13.4 Diesel fuel 8.8 8.8 Materials and supplies 8.3 10.1 Depreciation and amortization 9.1 7.5 Casualty, insurance and losses 4.2 6.2 Other taxes 5.1 5.1 Other 9.2 7.1 Operating expenses 102.0 105.0 Operating income 60.3 62.5 Other income (expense), net 0.3 (0.2) Interest expense, net (7.7) (7.4) Income before income taxes 52.9 54.9 Provision for income taxes 19.8 20.6 Net income $ 33.1 $ 34.3 Income per share $ 0.54 $ 0.54 Weighted average number of shares of common stock and common stock equivalents outstanding 61,742,614 63,820,563 The following notes are an integral part of the consolidated financial statements. ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets ($ in millions) (Unaudited) ASSETS March 31, 1996 December 31, 1995 Current assets: Cash and temporary cash investments $ 11.1 $ 5.0 Receivables, net of allowance for doubtful accounts of $1.4 in 1996 and $2.0 in 1995 58.6 51.5 Materials and supplies, at average cost 15.7 14.9 Assets held for disposition - 7.7 Deferred income taxes - current 18.4 19.1 Other current assets 10.2 2.6 Total current assets 114.0 100.8 Investments 13.3 13.6 Properties: Transportation: Road and structures, including land 1,059.9 1,052.1 Equipment 234.5 225.6 Other, principally land 41.6 41.0 Total properties 1,336.0 1,318.7 Accumulated depreciation (43.4) (44.0) Net properties 1,292.6 1,274.7 Other assets 15.3 15.1 Total assets $1,435.2 $1,404.2 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 12.7 $ 12.4 Accounts payable 62.3 56.6 Dividends payable 12.3 11.9 Income taxes payable 13.2 5.0 Casualty and freight claims 24.9 24.9 Employee compensation and vacations 14.0 16.9 Taxes other than income taxes 12.5 16.3 Accrued redundancy reserves 4.3 4.3 Other accrued expenses 32.9 28.6 Total current liabilities 189.1 176.9 Long-term debt 387.4 383.6 Deferred income taxes 252.7 246.2 Other liabilities and reserves 114.9 127.4 Contingencies and commitments Stockholders' equity: Common stock, par value $.001, authorized 100,000,000 shares, 64,288,084 shares issued and 61,428,469 shares outstanding 0.1 0.1 Additional paid-in capital 166.5 166.3 Retained income 389.0 368.2 Treasury stock (2,859,615 shares) (64.5) (64.5) Total stockholders' equity 491.1 470.1 Total liabilities and stockholders' equity $ 1,435.2 $ 1,404.2 The following notes are an integral part of the consolidated financial statements ILLINOIS CENTRAL CORPORATION AND SUBSIDIAR Consolidated Statements of Cash Flows ($ in millions) (Unaudited) Three Months Ended March 31, 1996 1995 Cash flows from operating activities : Net income $ 33.1 $ 34.3 Reconciliation of net income to net cash provided by (used for) operating activities : Depreciation and amortization 9.1 7.5 Deferred income taxes 7.2 5.2 Equity in undistributed earnings of affiliates, net of dividends received 0.1 (0.2) Net gains on sales of real estate (0.4) 0.1 Cash changes in working capital 2.9 4.8 Changes in other assets (0.3) (0.4) Changes in other liabilities and reserves (12.1) 2.4 Net cash provided by operating activities 39.6 53.7 Cash flows from investing activities : Additions to properties (25.2) (24.0) Proceeds from real estate sales 0.8 1.3 Proceeds from equipment sales 0.6 0.6 Proceeds from sales of investments 0.1 0.2 Other (2.0) (0.4) Net cash (used for) investing activities (25.7) (22.3) Cash flows from financing activities : Proceeds from issuance of debt - - Principal payments on debt (0.9) (3.5) Net proceeds in commercial paper 5.0 10.0 Dividends paid (11.9) (10.6) Stock repurchase program - (16.3) Purchase of subsidiary's common stock - (0.1) Net cash (used for) financing activities (7.8) (20.5) Changes in cash and temporary cash investments 6.1 10.9 Cash and temporary cash investments at beginning of period 5.0 24.2 Cash and temporary cash investments at end of period $ 11.1 $ 35.1 Supplemental disclosure of cash flow information : Cash paid during the year for: Interest (net of amount capitalized) $ 6.1 $ 9.6 Income taxes $ 4.4 $ 0.7 The following notes are an integral part of the consolidated financial statements. 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 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 of the Company is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. 2. Common Stock and Dividends On March 8, 1996, the Board of Directors approved a quarterly dividend of $.20 per share which was paid April 9, 1996. The Board intends to continue its policy of quarterly dividends. Future dividends may be dependent on the Railroad's ability to pay dividends to the Company. The Railroad is no longer subject to specific dividend restrictions. Covenants of the Railroad's Revolver require specified levels of tangible net worth. At March 31, 1996, the Railroad exceeded its tangible net worth covenant by $73.9 million. 3. Stock Repurchase Program In 1995 the Company was in the midst of a $60 million stock repurchase program. A total of 2,475,000 shares of common stock were acquired in 1995 with $16.3 million being spent in the three months ended March 31, 1995. In late 1995, the Board determined that the capital needs to fund the acquisition of CCP Holdings, Inc. (see Note 4), the expansion of the intermodal facility in Chicago and the construction of a bulk terminal facility in Louisiana preclude stock repurchases in 1996. 4. CCP Holdings, Inc. Acquisition On January 17, 1996, the Company announced that it had entered into a definitive agreement to purchase all the stock of CCP Holdings, Inc., for approximately $125 million in cash, the assumption of approximately $14 million in net debt and approximately $18 million of capitalized lease obligations. The Company expects to fund the acquisition using its credit lines and debt issued by the Railroad. The Railroad will transfer the funds to the Company via a combination of dividends and intercompany loans. On April 30, 1996, the STB announced they had voted in favor of the acquisition. Formal written approval, including an effective date of the order, is required before the transaction can be closed. The Company expects the closing to occur in late June or early July. The Company will account for the transaction as a purchase. The total purchase price is subject to various potential adjustments for up to one year after the closing date. CCP Holdings, Inc., has two principal subsidiaries, the Chicago, Central and Pacific Railroad (CCP) and the Cedar River Railroad (CRR). These two railroads comprise a Class II freight system which operates 850 miles of road. CCP operates from Chicago west to Omaha, Nebraska, with connecting lines to Cedar Rapids and Sioux City, Iowa. CRR runs north from Waterloo, Iowa to Albert Lea, Minnesota. CCP Holdings, Inc.'s 1995 revenues were approximately $76 million, its operating ratio was approximately 70%, and its shareholders' equity was approximately $54 million at December 31, 1995. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion below takes into account the financial condition and results of operations of the Company for the periods presented in the consolidated financial statements. Results of Operations Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995 Revenues for 1996 decreased from the prior year quarter by $5.2 million or 3.1% to $162.3 million. The decrease was a result of a 8.2% decrease in the number of carloadings partially offset by a .5% increase in the average freight revenue per carload. In 1996, the Company experienced decreased carloadings in coal (26.0%), chemicals (7.9%), paper (4.1%) and grain and grain mill products (12.5%), partially offset by increased intermodal loads (8.0%). Operating expenses overall declined in the first quarter of 1996 $3.0 million or 2.9%. On a component basis: labor and fringe costs rose reflecting the wage increases negotiated with eight of the eleven unions; leases and car hire declined as a result of decreased traffic volume and continued conversion to ownership and better car management stressing better car turnover; the decline in material and supplies reflects the winding down of the 1995 wheel replacement program; depreciation reflects the shift to ownership; casualty, insurance and losses declined despite a significant derailment primarily on the strength of savings which are a direct result of improved safety and lower settlement costs; and the increase in Other over 1995 is the direct result of losses of joint facility income when another carrier stopped using our track in southern Illinois and an increase in various equipment related costs. Operating income for 1996 decreased by $2.2 or 3.5% to $60.3 million for the reasons cited above. Net interest expense of $7.7 million for 1996 increased 4.1% compared to $7.4 million in 1995. Increased debt burden primarily associated with equipment additions and stock repurchases account for the increase in interest expense. Liquidity and Capital Resources Operating Data: Three Months Ended March 31, 1996 1995 ($ in millions) Cash flows provided by (used for): Operating activities $ 39.6 $ 53.7 Investing activities (25.7) (22.3) Financing activities ( 7.8) (20.5) Net change in cash and temporary cash investments $ 6.1 $ 10.9 Operating activities in 1996 provided $39.6 million in cash, primarily from net income before depreciation and deferred taxes. Additions to property were as follows: Three Months Ended March 31, 1996 1995 ($ in millions) Communications and signals $ 2.9 $ 1.5 Equipment-rolling stock 10.3 10.0 Track and bridges 9.7 10.6 Other 2.3 1.9 Total $ 25.2 $ 24.0 Property retirements and removals generated proceeds of $1.4 million and $1.9 million in 1996 and 1995, respectively. The Company anticipates that capital expenditures for 1996 will be approximately $145 million of which $83 million of base expenditures will concentrate on track maintenance (i.e., renewal of track structures such as bridges) and freight car upgrades. Approximately $20 million will be incurred to expand the Company's intermodal facility in Chicago to service Canadian National Railway. Another $32 million will be spent to construct a bulk transfer facility along the Mississippi River in Louisiana. These expenditures are expected to be met from current operations or other available sources. The aforementioned capital expenditures excludes the January 1996 announcement of the acquisition of CCP Holdings, Inc. for $125 million cash and assumption of debt and capital lease obligations. The Railroad has a commercial paper program whereby a total of $150 million can be issued and outstanding at any one time. The program is supported by a $250 million Revolver with the Railroad's lending group (see below). At March 31, 1996, the commercial paper has been rated A2, P2 and F2 and $62.0 million was outstanding. The Railroad views this program as a significant long-term funding source and intends to issue replacement notes as each existing issue matures. Therefore, commercial paper borrowings are classified as long-term. The Railroad's public debt is rated Baa2 by Moody's and BBB by S&P. In 1994, the Railroad entered into a revolving agreement to sell undivided percentage interests in certain of its accounts receivable, with recourse, to a financial institution. The agreement, which expires in June 1998, allows for sales of accounts receivable up to a maximum of $50 million at any one time. The Railroad services the accounts receivable sold under the agreement and retains the same exposure to credit loss as existed prior to the sale. At March 31, 1996, $48 million had been sold pursuant to the agreement. Costs related to the agreement fluctuate with changes in prevailing interest rates. These costs, which are included in Other Income (Expense), Net, were $.8 million for each of the three month periods ended March 31, 1996 and 1995. In April 1996, the Railroad concluded negotiations with its bank lending group whereby the Railroad's Revolver was amended and restated, for the fourth time since becoming unsecured in September 1993, to expire in 2001. Fees and borrowing spreads are predicated on the Railroad's long-term credit ratings. Currently, the annual facility fee is 15 basis points and borrowings under this agreement are at Eurodollar offered rate plus 22.5 basis points. The Revolver will be used primarily for backup for the Railroad's commercial paper program but can be used for general corporate purposes. The available amount is reduced by the outstanding amount of commercial paper borrowings and any letters of credit issued on behalf of the Railroad under the facility. No amounts have been drawn under the Revolver. At March 31, 1996, the $250 million was limited to $188.0 million because $62.0 million in commercial paper was outstanding. The Company has a $50 million 364-day floating-rate revolving loan agreement which expires in August 1996. To date, no amounts have been drawn under this agreement. The Company's financing/leasing subsidiaries have approximately $10.8 million in long-term borrowing agreements which were used to acquire equipment during 1993 and 1991. 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 and its primary subsidiary the Railroad have access to the public debt market if needed. Various borrowings of the Company's subsidiaries are governed by agreements which contain financial and operating covenants. All entities were in compliance with these covenant requirements at March 31, 1996, and management does not anticipate any difficulty in maintaining such compliance. Certain covenants of the Railroad's debt agreements require specific levels of tangible net worth but not a specific dividend restriction. The Railroad paid dividends to the Company of $107.7 million in 1995, $42.5 million in 1994 and $27.4 million in 1993. At March 31, 1996, the Railroad's tangible net worth exceeded the required level by approximately $73.9 million. To date in 1996, the Railroad has declared and paid dividends of $24.2 million to the Company. The Railroad has entered into various diesel fuel collar agreements designed to mitigate significant changes in fuel prices. As a result, approximately 65% of the Railroad's short-term diesel fuel requirements through June 1996 and 17% for the period July 1996 through June 1997 are protected against significant price changes. The Company 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. Long-Term Equity Enhancement Program The Company paid its seventeenth consecutive quarterly cash dividend on April 9, 1996. The Board 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 of Directors based on profitability, capital expenditure requirements, debt service and other factors. At March 31, 1996, the Railroad exceeded its tangible net worth covenant by $73.9 million. During 1995, the Company acquired a total of 2,475,000 shares in open market transactions for $60 million. While share repurchases were intended to be an annual component of the Long-Term Equity Enhancement Program, the Board concluded that alternative funding needs, most notably the acquisition of CCP Holdings, Inc., the expansion of the intermodal facility in Chicago, and the construction of a bulk transfer facility in Louisiana warranted the suspension of share repurchases in 1996. The Board intends to review the level of stock repurchase annually. 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 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 Company is primarily responsible. 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 30 contaminated sites and various fueling facilities at which it is probably liable for some portion of the clean-up. The Company 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 Company 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 March 31, 1996, the Company estimated the probable range of its estimated liability to be $12.6 million to $48.5 million, and in accordance with the provisions of SFAS No. 5 had a reserve of $12.6 million for environmental contingencies. This amount is not reduced for potential insurance recoveries or third-party contribution where the Company 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 Company 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 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 to have a material adverse effect on the Company`s financial position, results of operations, cash flow or liquidity. CCP Holdings, Inc. Acquisition On January 17, 1996, the Company announced that it had entered into a definitive agreement to purchase all the stock of CCP Holdings, Inc., for approximately $125 million in cash and the assumption of approximately $14 million in net debt and approximately $18 million of capital lease obligations. The Company expects to fund the acquisition using funds from its existing line of credit and the proceeds of public debt issued by the Railroad. The Railroad will transfer the funds to the Company via a combination of dividends and intercompany loans. On April 30, 1996, the STB announced they had voted in favor of the acquisition. Formal written approval, including an effective date of the order, is required before the transaction can be closed. The Company expects the closing to occur in late June or early July. Recent Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held or used by an entity be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Adoption of this standard on January 1, 1996 did not require adjustment to the carrying amount of any long-lived assets or intangibles. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a fair value based method of accounting for stock-based compensation plans. The Company has elected to measure compensation cost using the intrinsic value based method as permitted under SFAS 123. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On May 8, 1996, the Registrant held its Annual Meeting of Stockholders. At the meeting, the stockholders' were asked to vote on three (3) proposals -- (1) the election of Class II Directors until 1999; (2) approval of Illinois Central Railroad Company Incentive 2000 Plan and (3) approval of Illinois Central Corporation's Directors Incentive 2000 Option Plan. Description Vote Recap Proposal No. 1 The election of William B. Johnson, For 35,357,643 Gilbert H. Lamphere, and John V. Against 286,077 Tunney as Class II directors until 1999 Proposal No. 2 The approval of Illinois Central For 34,743,238 Railroad Company Incentive 2000 Plan Against 625,851 Abstain 274,630 No 1 Proposal No. 3 The approval of Illinois Central For 32,144,892 Corporation's For Against 3,171,901 Directors Incentive 2000 Option Plan Abstain 326,927 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index on page E-1 (b) Reports on Form 8-K: A copy of the press release announcing the proposed acquisition of CCP Holdings, Inc. was filed on January 31, 1996. 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: May 9, 1996 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Exhibit Sequential No. Description Page No. 10.1 Form of Illinois Central Corporation Directors Incentive 2000 Option Plan. A 10.2 Form of Illinois Central Railroad Company Incentive 2000 Plan (Incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, for the Illinois Central Railroad Company filed on May xx, 1996. (SEC File No. 1-7092) 11 Computation of Income per common share E-2 (A) Included herein as filed but not reproduced. EX-11 2 EXHIBIT 11 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES COMPUTATION OF INCOME PER COMMON SHARE ($ in millions, except share data) Three Months Ended March 1996 1995 Net income $ 33.1 $ 34.3 Calculation of average number of shares outstanding: Primary: Weighted average number of common shares outstanding 61,425,461 63,623,493 Effect of shares issuable under stock options 317,153 197,070 Fully diluted: Weighted average number of common shares outstanding 61,742,614 63,820,563 Effect of shares issuable under stock options (1) 377,548 206,843 Income per common share: Primary: Net income $ 0.54 $ 0.54 Fully diluted: Net income $ 0.54 $ 0.54 (1) Such items are included in primary calculation. Additional shares represent price of common stock for the period and the end of period price. EX-27 3
5 3-MOS DEC-31-1996 MAR-31-1996 11100 0 58600 1400 15700 114000 1292600 43400 1435200 189100 387400 0 0 0 367600 1435200 162300 162300 102000 102000 (300) 0 7700 52900 19800 33100 0 0 0 33100 .54 .54
EX-10 4 ILLINOIS CENTRAL CORPORATION DIRECTORS INCENTIVE 2000 OPTION PLAN Article 1 Establishment, Purpose and Duration 1.1 Establishment of the Plan. Illinois Central Corporation (the "Company") hereby establishes an incentive compensation plan to be known as the Illinois Central Corporation Directors Incentive 2000 Option Plan (the "Plan") for certain non-employee directors of the Company. The Plan provides for the grant of non-qualified stock options, subject to the terms and provisions set forth herein. 1.2 Purpose of the Plan. The purpose of the Plan is to promote the achievement of the Company's Plan2000 by linking the personal financial interests of the non-employee directors to attainment of those goals. This incentive will promote creation of stockholder value, reward high performance and assist in unifying the efforts of directors and senior managers. This Plan is intended to mirror the Illinois Central Railroad Company Incentive 2000 Plan with the purpose that Directors benefits hereunder will vest in the year 2001 only and in the same proportion that senior management Awards become payable thereunder. 1.3 Effective Date and Duration of the Plan. The Plan has been adopted and authorized by the Board of Directors of the Company for submission to the stockholders of the Company. If the Plan is approved by the affirmative vote of a majority of the shares of the voting stock of the Company entitled to be voted by the holders of stock represented at a duly held stockholders' meeting, it shall be deemed to have become effective as of March 8, 1996 (the"Effective Date"). The date of grant of the options granted under the Plan prior, but subject, to approval of the Plan by stockholders of the Company shall be determined without reference to the date of approval of the Plan by the stockholders of the Company. The Plan shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 7 hereof, until all Shares (as defined in Section 2.21 hereof) subject to the Plan shall have been purchased or acquired or shall have expired or otherwise been terminated in accordance with this Plan. For purposes of operating the Plan, the Company intends to rely on Rule 16b-3 (as defined in Section 2.22 hereof) as in effect on April 30, 1991, until the Commission (as defined in Section 2.6) may otherwise require. Article 2 Definitions Whenever used in the Plan, the following terms shall have the meanings set forth below: 2.1 Award Agreement. "Award Agreement" shall mean any written agreement entered into by and between the Company and an Outside Director, or other document or instrument, setting forth the terms and provisions applicable to an Option granted under the Plan. 2.2 Beneficial Owner. "Beneficial Owner" shall have the meaning given such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. 2.3 Board or Board of Directors. "Board" or "Board of Directors" shall mean the board of directors of the Company. 2.4 Change in Control. A "Change in Control" of the Company shall be deemed to have occurred upon the occurrence of any of the following: (a) any Person is or becomes the Beneficial Owner (except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty day period referred to in Rule 13d-3), directly or indirectly, of securities representing 25% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company or (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company; or (b) at any time during any period of two consecutive years (not including any period prior to January 1, 1996) individuals who at the beginning of such period constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by the 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. 2.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.6 Commission. "Commission" shall mean the United States Securities and Exchange Commission or any successor agency thereto. 2.7 Committee. "Committee" shall mean the Compensation Committee of the Board of Directors. 2.8 Company. "Company" shall mean Illinois Central Corporation, a Delaware corporation, or any successor thereto as provided in Section 8.5 herein. 2.9 Director. "Director" shall mean any individual who is a member of the Board of Directors of the Company. 2.10 Disability. "Disability" shall mean disabled as determined in the sole discretion of the Committee. 2.11 Effective Date. "Effective Date" shall have the meaning set forth in Section 1.3 hereof. 2.12 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. 2.13 Fair Market Value. "Fair Market Value" shall mean the closing sales price of the Shares on the relevant date, as reported on the consolidated tape of the New York Stock Exchange. 2.14 Measurement Area. "Measurement Areas" shall mean the areas of IC's performance that are measured for purposes of determining whether Options will vest under the Plan, as follows: (a) The return on total capital, for the year ended December 31, 2000, calculated as follows: (i) the Company's net income after giving effect to both the financial impact, if any, of the options granted herein and awards earned pursuant to the Illinois Central Railroad Company Incentive 2000 Plan but before giving effect to special or extraordinary items or changes in accounting rules, plus after-tax interest expense; divided by (ii) the average of the Company's total assets less non-interest bearing current liabilities at the beginning and end of such year ("ROTC"); (b) The Company's primary earnings per share for the year ended December 31, 2000, as reported in the Company's audited financial statements, after giving effect to both the financial impact, if any, of the options granted herein and awards earned pursuant to the Illinois Central Railroad Company Incentive 2000 Plan but before giving effect to special or extraordinary items or changes in accounting rules ("EPS"); and (c) The highest consecutive average twenty-day closing price of the Common Stock for the sixteen-month period ending April 30, 2001, determined concurrently with or after the period when such closing price has been not less than $43 for twenty consecutive days, as such closing prices are reported on the consolidated tape of the New York Stock Exchange ("Stock Price"). 2.15 Option. "Option" shall mean a nonqualified stock option to purchase Shares, granted pursuant to Article 6 herein. 2.16 Option Price. "Option Price" shall mean the price at which a Share may be purchased under an Option. 2.17 Outside Director. "Outside Director" shall mean any individual who is a member of the Board of Directors of the Company, but who is not otherwise an employee of the Company or any of the Company's subsidiaries. 2.18 Participant. "Participant" shall mean an Outside Director who has outstanding an Option granted under the Plan. 2.19 Permitted Transferee. "Permitted Transferee" shall have the meaning set forth in Section 6.11 hereof. 2.20 Person. "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). 2.21 Plan. "Plan" shall mean the Illinois Central Corporation Directors Incentive 2000 Option Plan, as set forth herein and as hereinafter amended from time to time. 2.22 Retirement. "Retirement" shall mean the voluntary termination of further service as a director after completion of one or more full three-year terms as determined in the sole discretion of the Committee. 2.23 Rule 16b-3. Rule 16b-3 shall mean Rule 16b-3 promulgated by the Commission under the Exchange Act, or any successor rule or regulation thereto. 2.24 Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time, or any successor act thereto. 2.25 Shares. "Shares" shall mean shares of common stock of the Company, par value $.001 per share. Article 3 Administration of the Plan 3.1 Appointment of the Committee. The Plan shall be administered by the Committee, subject to the restrictions set forth herein. 3.2 Authority of the Committee. The Committee shall have all power, discretion, and authority necessary to interpret and administer the Plan in a manner which is consistent with the Plan's provisions; provided, however, that in no event shall the Committee have the power to determine the criteria for eligibility to participate in the Plan, the number of Options or Shares subject to Options granted under the Plan, the timing of the grant of Options under the Plan or the Option Price, all of which determinations shall be automatically made pursuant to the provisions of the Plan. The Committee may, subject to the provisions of the Plan, establish such rules and regulations as it deems necessary or advisable for the proper administration of the Plan, and may make determinations and may take such other action in connection with or in relation to the Plan as it deems necessary or advisable. Each determination and decision made by the Committee shall presumptively be final, conclusive, and binding for all purposes and upon all Persons. Article 4 Shares Subject to the Plan 4.1 Number of Shares. Subject to adjustment as provided in Section 4.2 herein, the total number of Shares available for grant under the Plan shall be three hundred thousand (300,000). Shares issued pursuant to the Plan may consist of authorized and unissued Shares or Shares which have been or may be held by the Company in treasury, as determined from time to time by the Board. The grant of an Option shall reduce the number of Shares available for grant under the Plan by the number of Shares subject to such Option. 4.2 Adjustments in Authorized Shares. The number of Shares subject to the Plan and to Options granted under the Plan shall be adjusted as follows: (a) in the event that the number of outstanding Shares is changed by any stock dividend, stock split or combination of Shares, the number of Shares subject to the Plan and to Options previously granted thereunder shall be proportionately adjusted, (b) in the event of any merger, consolidation or reorganization of the Company with any other corporation or corporations, there shall be substituted on an equitable basis as determined by the Board of Directors, in its sole discretion, for each Share then subject to the Plan and for each Share then subject to an Option granted under the Plan, the number and kind of shares of stock, other securities, cash or other property to which the holders of Shares of the Company are entitled pursuant to the transaction, and (c) in the event of any other change in the capitalization of the Company, the Committee shall provide for an equitable adjustment in the number of Shares then subject to the Plan and to each Share then subject to an Option granted under the Plan. In the event of any such adjustment, the exercise price per Share shall be proportionately adjusted. Article 5 Eligibility 5.1 Eligibility. Persons eligible to participate in the Plan are Outside Directors serving on the Board on March 8, 1996 and continuing in office after the 1996 Annual Meeting of Stockholders. Article 6 Options 6.1 Grant of Options. Subject to the subsequent approval of the Plan by the stockholders of the Company as set forth in Section 1.3, each individual who is an Outside Director on the Effective Date and continuing in office after the 1996 Annual Meeting of Stockholders shall be granted, on the Effective Date, an Option to purchase thirty-seven thousand five hundred (37,500) Shares. 6.2 Limitation on Grant of Options. Other than those grants of Options set forth in Section 6.1 herein, no additional Options shall be granted under the Plan. 6.3 Award Agreement. Each Option shall be evidenced by a written Award Agreement that shall specify the Option Price, the terms for payment of the Option Price, the expiration date of the Option, and the number of Shares subject to the Option, and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent with the Plan. 6.4 Option Price. The exercise price per Share for each Share which may be purchased pursuant to an Option shall equal 150% of the Fair Market Value of a Share on the date the Option is granted, which is $37.875. 6.5 Expiration of Options. Each Option shall expire, and all rights to purchase Shares thereunder shall cease, on the date ten (10) years from the date on which the Option was granted. 6.6 Performance Goals for Vesting. Vesting of granted options to Participants shall be determined solely by reference to the extent the Company attains the goals relating to each of the Measurement Areas. Subject to the provisions of Section 6.9, the goals relating to each of the Measurement Areas are as follows: ROTC: 14%; EPS $4; and Stock Price minimum and target goals, $43 and $50, respectively. The percentage of the Option that will vest and shall be exercisable under the Plan relating to each of the Measurement Areas is 70% -- Stock Price; 15% - -- ROTC; and 15% -- EPS. Whether an Option vests and is exercisable under the Plan will be first determined by reference to the Stock Price goals. If Company performance fails to attain the minimum Stock Price goal, no Options shall vest. Accordingly, the percentages of an Option that may vest under the Plan relating to ROTC and EPS will not vest unless the minimum Stock Price is attained. 6.7 Vesting of Shares Subject to Option. Except as otherwise provided in Section 6.8 hereof, each Option granted under the Plan shall vest and first become exercisable on April 30, 2001 pursuant to the following schedule: (a) if the Stock Price is less than $43, zero percent (0%) of each Option shall vest and become exercisable; (b) if the Stock Price is $43, options on 7,031 shares (70% of 25%) of the total grant shall vest and become exercisable; (c) if the Stock Price is $50 or higher, options on 26,250 shares (70% of 100%) of the total grant shall vest and become exercisable; and (d) if the Stock Price is between $43 and $50, the percentage of each Option that shall vest and become exercisable shall be interpolated. In addition, if the ROTC or EPS goal is attained, the number of Options which would otherwise vest by virtue of the Stock Price will be increased by an additional 15% of the applicable vesting amount for each of the two goals achieved. 6.8 Vesting Upon a Change in Control. In the event of a Change in Control, one hundred percent (100%) of each Option granted under the Plan shall vest and become fully exercisable, prorated for the number of completed months between the Effective Date and the date of the Change in Control. 6.9 Adjustment of Option Price. In the event that the number of outstanding Shares is changed by any stock dividend, stock split or combination of Shares, the Option Price, the EPS goal and the Stock Price minimum and target goals shall be proportionably adjusted, and in the event of any other change in the capitalization of the Company, the Committee shall provide for a proportionate adjustment to such Option Price, the EPS goal and the Stock Price minimum and target goals. 6.10 Effect of Termination of Directorship. In the event that a Participant ceases to be a Director on or before April 30, 2001 for any reason, Options held by such Participant or such Participant's Permitted Transferees will vest and become exercisable to the extent such Options would have vested and become exercisable under the terms of the Plan if the Participant had remained a Director until April 30, 2001, but prorated according to the number of full months the Director actually served during the period from the Effective Date to the date of termination. 6.11 Exercise of Options. A person entitled to exercise an Option may do so by delivery of a written notice to that effect specifying the number of Shares with respect to which the Option is being exercised and any other information the Committee may prescribe. The notice shall be accompanied by payment and the Participant's copy of any and all Award Agreements. All notices or requests provided for herein shall be delivered to the Secretary of the Company. Except as otherwise provided in an Award Agreement, the Participant may pay the Option Price per Share upon exercise of any Option (a) in cash, (b) in cash received from a broker-dealer to whom the Participant has submitted an exercise notice consisting of a fully endorsed Option (however, in the case of a Participant subject to Section 16 of the Exchange Act, this payment option shall only be available to the extent such Participant complies with Regulation T issued by the Federal Reserve Board), (c) by delivering Shares having an aggregate Fair Market Value on the date of exercise equal to the Option Price, (d) by directing the Company to withhold such number of Shares otherwise issuable upon exercise of such Option having an aggregate Fair Market Value on the date of exercise equal to the Option Price, or (e) by any combination of (a), (b), (c) and (d). In the case of an election pursuant to (a) or (b) above, cash shall mean cash or a check issued by a federally insured bank or savings and loan, and made payable to Illinois Central Corporation. In the case of a Participant who is subject to Section 16 of the Exchange Act and who elects payment pursuant to (d) above, to the extent required under Section 16 of the Exchange Act and the rules and regulations promulgated thereunder, the election must be made in writing either (i) within the ten (10) business days beginning on the third business day following release of the Company's quarterly or annual summary of earnings and ending on the twelfth business day following such day, or (ii) at least six (6) months prior to the date of exercise of such Option. In lieu of a separate election governing each exercise of an Option, a Participant may file a blanket election with the Committee which shall govern all future exercises of Options until revoked by the Participant. The Company shall issue, in the name of the Participant, stock certificates representing the total number of Shares issuable pursuant to the exercise of an Option as soon as reasonably practicable after such exercise, provided that any Shares purchased by a Participant through a broker-dealer pursuant to clause (b) above shall be delivered to such broker-dealer in accordance with 12 C.F.R. Sect. 220.3(e)(4) or any other applicable provision of law. 6.12 Taxes. At the time of the exercise of any Option, as a condition of the exercise of such Option, the Company may require the Participant to pay the Company an amount equal to the amount of the tax the Company or any subsidiary may be required to withhold to obtain a deduction for federal and state income tax purposes as a result of the exercise of such Option by the Participant or to comply with applicable law. At any time when a Participant is required to pay an amount required to be withheld under applicable income tax or other laws in connection with the exercise of an Option, the Participant may satisfy this obligation in whole or in part by (a) in cash, (b) directing the Company to withhold such number of Shares otherwise issuable upon exercise of such Option having an aggregate Fair Market Value on the date of exercise equal to the amount of tax required to be withheld, (c) delivering Shares having an aggregate Fair Market Value equal to the amount required to be withheld, or (d) by any combination of (a), (b) or (c). In the case of payment of taxes pursuant to (a) above, cash shall mean cash or a check issued by a federally insured bank or savings and loan, and made payable to Illinois Central Corporation. In case of payment of taxes pursuant to (b) or (c) above, the Participant's election must be made on or prior to the date of exercise and shall be irrevocable. The Committee may disapprove any election or delivery or may suspend or terminate the right to make elections or deliveries. In the case of a Participant who is subject to Section 16 of the Exchange Act, to the extent required by Section 16 and the rules and regulations promulgated thereunder, an election to withhold Shares must be made in writing either (a) six months prior to the exercise date, (b) during a period beginning on the third business day following the date of release for publication of the Company's quarterly or annual summary consolidated statements of revenue and income and ending on the twelfth business day following such date or (c) more than six months and one day from the later of the date of the grant of the Option hereunder to such person or the date of the most recent transaction by such person which is treated as a purchase of Shares pursuant to the Exchange Act and the rules and regulations thereunder, and which is not exempt from Section 16(b) of the Exchange Act. In lieu of a separate election governing each exercise of an Option, a Participant may file a blanket election with the Committee which shall govern all future exercises of Options until revoked by the Participant. 6.13 Transferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than (a) by will or by the laws of descent and distribution, or (b) to the extent permitted by Rule 16b-3 and solely for the purposes of estate planning by or on behalf of the Participant, by transfer to members of such Participant's family, family partnerships or trusts, provided that the sole beneficiaries of such trusts consist of the Participant and members of the Participant's family. Any person or entity to which an Option has been transferred in accordance with clause (a) or (b) of the preceding sentence is referred to elsewhere in this Plan as a "Permitted Transferee." All Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or such Participant's Permitted Transferees. 6.14 Postponement of Exercise. The Committee may postpone any exercise of an Option for such time as the Committee in its sole discretion may deem necessary in order to permit the Company (a) to effect, amend or maintain any necessary registration of the Plan or the Shares issuable upon the exercise of an Option under the Securities Act or the securities laws of any applicable jurisdiction, (b) to permit any action to be taken in order to (i) list such Shares on a stock exchange if Shares are then listed on such exchange or (ii) comply with restrictions or regulations incident to the maintenance of a public market for its Shares, including any rules or regulations of any stock exchange on which the Shares are listed, or (c) to determine that such Shares and the Plan are exempt from such registration or that no action of the kind referred to in (b)(ii) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of any Option or any provision of the Plan to recognize the exercise of an Option or to sell or issue Shares in violation of the Securities Act or the securities laws of any applicable jurisdiction thereof. Article 7 Amendment or Termination of the Plan 7.1 Termination or Amendment. The Board or Committee may terminate, suspend, or amend the Plan, in whole or in part, from time to time, without the approval of the stockholders of the Company to the extent allowed by law; provided, however, that (a) no Plan amendment shall be effective until approved by the stockholders of the Company insofar as stockholder approval thereof is required in order to the Plan to continue to satisfy the requirements of Rule 16b-3 under the Exchange Act, and (b) the provisions of the Plan relating to the number of Options or Shares subject to Options granted under the Plan, the timing of the grant of Options under Plan or the Option Price may not be amended more than once every six (6) months, except to comply with changes in the Code and the Employee Retirement Income Security Act, or the rules and regulations under each. The Committee may correct any defect or supply an omission or reconcile any inconsistency in the Plan or in any Option granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the Plan. 7.2 Options Previously Granted. Unless required by law, no termination, amendment, or modification of the Plan shall in any material manner adversely affect the rights of any holder of an Option previously granted under the Plan, without the written consent of the Participant holding such Option. Article 8 Miscellaneous 8.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 8.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provisions had not been included. This Plan is intended to comply with all applicable requirements of Rule 16b-3 or its successors under the 1934 Act, insofar as Participants subject to Section 16 of the 1934 Act are concerned. To the extent any provision of the Plan does not so comply, the provision shall, to the extent permitted by law and deemed advisable by the Committee, be deemed null and void with respect to such Participants. 8.3 Beneficiary Designation. Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in the event of his or her death (and/or who may exercise the Participant's vested Options following his or her death). Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his or her lifetime. In the absence of any such designation or in the event that all designated beneficiaries have predeceased the Participant, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate (and, subject to the terms and provisions of the Plan, any unexercised vested Options may be exercised by the administrator or executor of the Participant's estate). 8.4 No Right of Nomination. Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Director for reelection by the Company's stockholders. 8.5 Successors. All obligations of the Company under the Plan with respect to Options granted hereunder shall be binding on any successor to the Company, whether as a result of a Change in Control or otherwise. 8.6 Governing Law. To the extent not preempted by Federal law, the Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of Illinois. 8.7 Rights as Stockholders. A Participant or a Permitted Transferee shall have no rights as a stockholder with respect to any Shares covered by an Option or receivable upon the exercise of an Option until the Participant or Permitted Transferee shall become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or other distributions or rights in respect to such Shares for which the record date is prior to the date on which the Participant shall have in fact become the holder of record of the Shares acquired pursuant to the Option. -----END PRIVACY-ENHANCED MESSAGE-----