-----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, UdpJsk1kpnPVgPFpJ7nR32BEXBKNJua9UNKIjC16UNuzxJFZ5gXgJDFIq7yOWfrv 3P7R9ajbsFncancQTOJdEw== 0000859119-97-000014.txt : 19970815 0000859119-97-000014.hdr.sgml : 19970815 ACCESSION NUMBER: 0000859119-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660429 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 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. 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 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 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 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. 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): 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. 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. 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. 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. 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. 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. 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. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index on page E-1 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 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 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 EX-10 2 ILLINOIS CENTRAL CORPORATION DIRECTORS DEFERRED COMPENSATION PLAN (As Amended and Restated Effective May 1, 1997) 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) 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 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. 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: EX-27 3
5 6-MOS DEC-31-1997 JUN-30-1997 53800 0 101100 1200 18200 204000 1690300 52400 1934000 230000 599000 0 0 0 595400 1934000 337700 337700 210000 210000 (1400) 0 20500 108600 39700 68900 0 0 0 68900 1.11 1.11
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