-----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, P8OOVlNoBmFhJz6JcXCw/Yejl5BBqH0pFVLBSl8BzJ2qa5fsrNnBOflFMWXgwPtT MwQkLD33qSJDilM5OqJCqg== 0000859119-98-000008.txt : 19980505 0000859119-98-000008.hdr.sgml : 19980505 ACCESSION NUMBER: 0000859119-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980504 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: SEC FILE NUMBER: 001-10720 FILM NUMBER: 98609717 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 COMMISSON 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, 1998 [ ] 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, 1998, 61,926,470 common shares were outstanding. ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES FORM 10-Q Quarter Ended March 31, 1998 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 of Income ($ in millions, except share data) (Unaudited) Three Months Ended March 31, 1998 1997 Revenues $ 181.6 $ 172.1 Operating expenses: Labor and fringe benefits 51.8 48.3 Leases and car hire 10.6 10.2 Diesel fuel 8.8 11.1 Materials and supplies 10.1 9.2 Depreciation and amortization 11.4 11.2 Casualty, insurance and losses 2.9 4.6 Other taxes 5.9 6.0 Other 12.1 7.0 Special charge 36.5 - Operating expenses 150.1 107.6 Operating income 31.5 64.5 Other income (expense), net 1.2 0.1 Interest expense, net (10.0) (10.4) Income before income taxes 22.7 54.2 Provision for income taxes 9.5 20.3 Net income $ 13.2 $ 33.9 Basic income per share $ 0.21 $ 0.55 Weighted average number of shares of common stock 61,526,611 61,406,940 Diluted income per share $ 0.21 $ 0.55 Weighted average number of shares of common stock and dilutive potential common shares 62,076,420 62,207,817 The following notes are an integral part of the consolidated financial statements. 3 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets ($ in millions) (Unaudited) ASSETS March 31, 1998 December 31, 1997 Current assets: Cash and temporary cash investments $ 22.4 $ 34.1 Receivables, net of allowance for doubtful accounts of $1.4 in 1998 and $1.2 in 1997 169.9 122.7 Materials and supplies, at average cost 16.5 15.4 Assets held for disposition 1.6 1.3 Deferred income taxes - current 18.3 18.3 Other current assets 8.5 7.4 Total current assets 237.2 199.2 Investments 12.2 12.1 Properties: Transportation: Road and structures, including land 1,555.5 1,526.4 Equipment 272.8 270.8 Other, principally land 41.3 41.3 Total properties 1,869.6 1,838.5 Accumulated depreciation (72.0) (69.7) Net properties 1,797.6 1,768.8 Other assets 30.3 29.3 Total assets $ 2,077.3 $ 2,009.4 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term deb $ 24.7 $ 24.5 Accounts payable 58.2 65.5 Dividends payable - 14.1 Income taxes payable 1.3 - Casualty and freight claims 13.0 13.0 Employee compensation and vacations 34.2 21.5 Taxes other than income taxes 13.9 19.1 Accrued redundancy reserve 3.8 3.9 Other accrued expenses 106.4 93.5 Total current liabilities 255.5 255.1 Long-term debt 624.9 572.2 Deferred income taxes 414.1 409.2 Other liabilities and reserves 129.6 130.1 Contingencies and commitments Stockholders' equity: Common stock, par value $.001, authorized 100,000,000 shares, 65,147,079 shares issued and 61,926,470 share outstanding 0.1 0.1 Additional paid-in capital 183.9 172.7 Retained income 546.6 547.4 Treasury stock (3,220,609 shares) (77.4) (77.4) Total stockholders' equity 653.2 642.8 Total liabilities and stockholders' equity $ 2,077.3 $ 2,009.4 The following notes are an integral part of the consolidated financial statements. 4 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows ($ in millions) (Unaudited) Three Months Ended 1998 1997 Cash flows from operating activities : Net income $ 13.2 $ 33.9 Reconciliation of net income to net cash provided by (used for) operating activities : Depreciation and amortization 11.4 11.2 Deferred income taxes 4.9 8.4 Equity in undistributed earnings of affiliates, net of dividends received (0.2) (0.1) Net gains on sales of real estate (0.5) 0.1 Cash changes in working capital (35.3) (9.7) Changes in other assets (1.0) (0.5) Changes in other liabilities and reserves (0.5) (3.6) Net cash provided by (used for) operating act (8.0) 39.7 Cash flows from investing activities : Additions to properties (41.9) (25.5) Proceeds from real estate sales 0.6 0.3 Proceeds from equipment sales 0.5 0.1 Secured financing - 32.6 Other 1.4 0.4 Net cash provided by (used for) investing activities (39.4) 7.9 Cash flows from financing activities : Proceeds from issuance of debt - - Principal payments on debt (1.5) (11.3) Net change in commercial paper 54.3 (20.0) Dividends paid (28.3) (14.1) Proceeds from exercise of stock options 11.2 - Stock repurchase program - (0.3) Net cash provided by (used for) financing activities 35.7 (45.7) Changes in cash and temporary cash investments (11.7) 1.9 Cash and temporary cash investments at beginning of period 34.1 59.2 Cash and temporary cash investments at end $ 22.4 $ 61.1 Supplemental disclosure of cash flow information : Cash paid during the year for: Interest (net of amount capitalized) $ 14.3 $ 11.1 Income taxes $ 3.2 $ 0.4 The following notes are an integral part of the consolidated financial statements. -5- ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Merger Agreement and Special Charge On February 10, 1998, the Company and Canadian National Railway Company ("CN") entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Blackhawk Merger Sub, Inc. (the "Purchaser"), a wholly owned subsidiary of CN, commenced a tender offer (the "Offer") to purchase 46,051,761 of the outstanding shares of the Company's Common Stock (the "Shares") at a price of $39.00 per share. The Company's Board of Directors unanimously approved the Merger Agreement and the transactions contemplated. Subject to satisfaction of customary conditions, the Purchaser will be merged with and into the Company (the "Merger") and each Share not purchased in the Offer will be converted into an amount of CN common stock equal to the fraction obtained by dividing (1) $39.00 by (2) the average closing price of the CN common stock (the "Average Closing Price") over the 20 day trading period ending two trading days prior to the effective time of the Merger; provided that if such Average Closing Price is less than $43.00, then the Average Closing Price will be deemed to be $43.00 and if such Average Closing Price is greater than $64.50, then the Average Closing Price will be deemed to be $64.50. The 46,051,761 shares purchased pursuant to the Offer, which closed March 13, 1998, were deposited in an independent, irrevocable voting trust while CN and the Company await review of the transaction by the STB. Neither the acquisition of the Company shares pursuant to the Offer nor the Merger will be subject to STB approval of the combination. Pursuant to the Merger Agreement, subject to consultations with the Company and after giving good faith consideration to the views of the Company, CN shall have final authority over the development, presentation and conduct of the STB case, including over decisions as to whether to agree to or acquiesce in conditions. The Company shall take no regulatory or legal action in connection with the STB without CN's consent. The STB could impose conditions or restrictions as it relates to CN's acquisition of control of the Company. If the STB does not approve CN's acquisition of control of the Company or CN deems any conditions imposed by the STB unacceptable, CN would have the obligation to sell all the Company common shares held by the voting trust. A Special Charge ("Special Charge") for $36.5 million was recorded in the first quarter of 1998 for costs associated with the CN Merger Agreement. The Special Charge includes $19.3 million for consulting, 6 legal and accounting services and other fees and expenses and $17.2 million for costs relating primarily to payments under various compensation plans payable following the change in control. The largest amount included of this $17.2 million is approximately $11 million for payments under the Incentive 2000 Plan. A number of executive officers of the Company who are covered by Employment Security Agreements will be entitled to receive between two or three years of severance benefits if within two years after the change in control, their employment is terminated by the Company without cause or they resign with good reasons. The amount that may be paid under Employment Security Agreements, if any, is not determinable and has not been recorded in the Special Charge. The Employee Stock Purchase Plan and the Management Employee Discounted Stock Purchase Plan were terminated following the closing of the Offer. 2. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting policies described in the 1997 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. Income Per Share Basic income per share is based on the weighted average number of common stock outstanding and diluted income per share is based on the weighted average number of shares of common stock and dilutive potential common shares for the period. 3. Common Stock and Dividends On February 20, 1998, the Board of Directors declared a quarterly dividend of $.23 per share to shareholders of record on March 6, 1998 which was paid March 25, 1998. Future dividends may be dependent on the ability of the Illinois Central Railroad Company ("ICR") and CCP Holdings, Inc. ("CCPH") to pay dividends to the Company. Covenants of ICR's Revolver and CCPH's Revolver require specified levels of tangible net worth. At March 31, 1998, ICR and CCPH exceeded their tangible net worth covenants by $17.1 million and $32.1 million, respectively. 7 4. Receivable Sales Agreement On January 8, 1998, the Company terminated its revolving agreement to sell undivided percentage interests in certain of its accounts receivable, with recourse, to a financial institution. 5. Litigation ICR is one of several defendants in a New Orleans class action in which a jury has returned a verdict against the ICR for $125 million in punitive damages as a result of a tank car fire. The Louisiana Supreme Court has vacated the judgment for technical reasons and remanded the case to the trial court for further proceedings. While the final outcome of this proceeding cannot be determined, in the opinion of management, based on present information, the ultimate resolution of this case will not have a material adverse effect on the Company's financial position, results of operations, cash flow or liquidity. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 On a consolidated basis, total revenues for 1998 increased from the prior year quarter by $9.5 million or 5.5% to $181.6 million. Most of the changes in revenue were attributable to four categories. Revenues from the transport of milled grain products and by-products were up $4 million (25%) reflecting overall strength in the domestic feed market plus strong exports of vegetable oil and soybean meal. Revenues from the transport of metals were up $4.5 million (71%) as a result of several factors, including: a customer's newly constructed steel melt- shop began taking inbound raw material late last year and shipping outbound steel in the first quarter; a customer's newly expanded plant increased production; plus some short-term spot moves of scrap and steel. Revenues from providing terminal and other rail services increased $4.6 million (46%), including the newly operational dry-bulk terminal in Convent, Louisiana. These gains were offset by a $6 million (22%) decrease in revenues from the transport of grain as very weak export demand continued and a milder winter in the north which benefitted the Mississippi River as an alternative mode of transportation. 8 Operating expenses, excluding the Special Charge, increased $6.0 million or 5.6% to $113.6 million. Labor and fringe benefits reflected more normal levels of expense this year compared to last year which benefitted from the reduction of certain compensation related accruals. Materials and supplies was higher this year than last because more scheduled maintenance was performed in 1998 than was possible during 1997's harsher winter. Other expenses returned to more normal levels of expense contrasted with last year which benefitted from the recovery of prior period expenses. Operating income for 1998, excluding Special Charge, increased by $3.5 million or 5.4% to $68.0 million for the reasons cited above. Net interest expense of $10.0 million for 1998 decreased 3.8% compared to $10.4 million in 1997. Income tax expense, including the Special Charge, was higher primarily due to nondeductible expenses associated with the Special Charge. Liquidity and Capital Resources Operating Data ($ in millions): Three Months Ended March 31, 1998 1997 ---- ---- Cash flows provided by (used for): Operating activities................ $ (7.6) $39.7 Investing activities................ (39.8) 7.9 Financing activities.............. 35.7 (45.7) ----- ------ Net change in cash and temporary cash investments $(11.7) $ 1.9 ======= ====== Cash used for operating activities in 1998 was primarily the termination of the receivable sales agreement and cash from operating activities in 1997 was primarily net income before depreciation and deferred taxes. Investing Data ($ in millions): Additions to property were as follows: Three Months Ended March 31, 1998 1997 ---- ---- Communications and signals..... $3.2 $ 4.2 Equipment/rolling stock........ 3.4 - Track and bridges.............. 11.3 15.1 Bulk transfer facility......... 22.8 - Other......................... 1.2 6.2 ----- ----- Total......................... $41.9 $25.5 ===== ===== Property retirements and removals generated proceeds of $1.1 million and $.4 million in 1998 and 1997, respectively. The Company anticipates that capital expenditures for 1998 will be approximately $116 million. Replacement expenditures of $92 million will concentrate on track maintenance, bridges and freight car upgrades. Productivity and expansion expenditures will total $24 million. These expenditures are expected to be met from current operations or other available sources. Financing Activities The Company has a $50 million 364-day floating-rate revolving loan agreement which expires in August 1998. At March 31, 1998, no amounts were drawn under this agreement. IC Financial leases equipment to ICR and has approximately $1.6 million in long-term borrowing agreements which were used to fund the acquisition of locomotive and freight car equipment during 1993 and 1991. IC Financial lease revenue and corresponding expense at ICR, which is eliminated in consolidation, was $3.4 million and $4.7 million for the first quarter of 1998 and 1997, respectively. In the first quarter of 1998 and 1997, the Company paid $28.3 million and $14.1 million, respectively, in cash dividends on its common stock. Dividends from ICR were used to fund these payments. 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 25 basis points and borrowings are at the Eurodollar offered rate plus 62.5 basis points. The credit agreement contains various financial covenants including minimum consolidated tangible net worth, minimum interest coverage and maximum leverage ratio. At March 31, 1998, CCPH was in compliance and does not anticipate any difficulty in maintaining compliance with such covenants. At March 31, 1998, this facility was undrawn. ICR has a commercial paper program whereby a total of $200 million can be issued and outstanding at any one time. The program is supported by a $250 million Revolver with the ICR's lending group (see below). At March 31, 1998, $54.3 million was outstanding. The average interest 9 rate on commercial paper for the quarter ended March 31, 1998, was 5.73% with a range of 5.71% to 5.81%. ICR's public debt is rated Baa2 by Moody's and BBB by S&P. ICR's debt is on credit watch negative as a result of the merger of the Company and Canadian National Railway. In 1994, ICR entered into a revolving agreement to sell undivided percentage interests in certain of its accounts receivable, with recourse, to a financial institution. This agreement was terminated on January 8, 1998. ICR serviced the accounts receivable sold under the agreement and retained the same exposure to credit loss as existed prior to the sale. Costs related to the agreement fluctuated with changes in prevailing interest rates. These costs, which are included in Other Income (Expense), Net, were $.2 and $.8 million for the quarters ended March 31, 1998 and 1997. ICR has a $250 million Revolver with its bank lending group, which expires in 2001. Fees and borrowing spreads are predicated on ICR'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 is used primarily for backup for ICR'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 ICR under the facility. No amounts have been drawn or letters of credit issued under the Revolver. At March 31, 1998, $195.7 million was available. Certain covenants of ICR's debt agreements and CCPH's Revolver require among others specific levels of tangible net worth but not a specific dividend restriction. At March 31, 1998, ICR and CCPH exceeded their tangible net worth covenants by $17.1 million and $32.1 million, respectively. Both ICR and CCPH were in compliance with all covenants at March 31, 1998, and do not contemplate any difficulty maintaining such compliance. ICR has a shelf registration from 1996 which 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 replacing maturing MTN's, 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 10 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Many of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on recent assessments, the Company determined that it will be required to modify or replace portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue can be mitigated. However, if such modifications and conversions are not made, or are delayed, the Year 2000 Issue could have a material impact on the operations of the Company. The Company has initiated formal communications with all of its suppliers and large customers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 Issue. There can be no guarantee that the systems of other companies on which the Company's systems rely will be converted on a timely basis, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have material adverse effect on the Company. In October 1997, the Company entered into an agreement to replace approximately 40 percent of its non-Year 2000 compliant programs with new software and will utilize both internal and external resources to replace and test the software for Year 2000 modifications. The Company began converting its remaining computer systems with internal resources earlier in 1997. The Company expects to spend approximately $8.5 million to $10.0 million from 1997 through 1999 to modify and replace its computer systems. Of the total project cost, approximately $3.0 million is attributable to the purchase of new software. The Company plans to complete conversion of non-Year 2000 compliant programs during 1998. However, user acceptance testing will continue into 1999. Installation of new software programs should be completed during the first quarter of 1999. The total cost of the project is being funded through operating cash flows. Maintenance or modification costs will be expensed as incurred, while the costs of new software will be capitalized and amortized over the software's useful life. Accordingly, the Company does not expect the amounts required to be expensed over the next two years to have a material effect on its financial position or results of operations. The amount of spending to date was approximately $2.7 million. 11 The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. Miscellaneous In April 1998, the Company announced a 15-year marketing alliance with CN and Kansas City Southern Railway Company. The alliance will offer shippers new competitive options in a rail freight transportation network linking key north-south continental freight markets. In addition, the marketing alliance will give shippers access to Mexico's largest rail system. Under terms of the marketing alliance, the companies will coordinate sales and marketing, operations, fleets, and information systems, but not for traffic movements where any two of them provide the only direct rail service. ICR has entered into various diesel fuel collar agreements designed to mitigate significant changes in fuel prices. As a result, approximately 50% of the Railroad's short-term diesel fuel requirements through June 1998 are protected against significant price changes. Long-Term Equity Enhancement Program The Company paid its twenty-fifth consecutive quarterly cash dividend on March 25, 1998. Actual dividends are declared by the Board based on profitability, capital expenditure requirements, debt service and other factors, including the CN Merger Agreement. 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 12 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 23 contaminated sites at which it is probably liable for some portion of any required clean-up. Of these, 15 involve contamination primarily by diesel fuel which can be remediated without material cost. Five other sites are expected to require more than $1 million each in clean-up costs. At three of these sites other parties are expected to each contribute the majority of the costs incurred. 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, 1998, the Company estimated the probable range of its liability to be $9.0 million to $45 million, and in accordance with the provisions of SFAS No. 5 had a reserve of $9.0 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 leased substantial amounts of property to industrial tenants, and ICR 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. 13 Litigation ICR is one of several defendants in a New Orleans class action in which a jury has returned a verdict against the ICR for $125 million in punitive damages as a result of a tank car fire. The Louisiana Supreme Court has vacated the judgment for technical reasons and remanded the case to the trial court for further proceedings. While the final outcome of this proceeding cannot be determined, in the opinion of management, based on present information, the ultimate resolution of this case will not have a material adverse effect on the Company's financial position, results of operations, cash flow or liquidity. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index on page E-1 14 ILLINOIS CENTRAL CORPORATION Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. ILLINOIS CENTRAL CORPORATION /s/ John V. Mulvaney John V. Mulvaney Vice President & Chief Financial Officer /s/ Douglas A. Koman Douglas A. Koman Controller Date: May 04, 1998 15 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Exhibit Sequential No. Description Page No. 11 Computation of Income per Common Share E-2 27 Financial Data Schedule (This exhibit is required to be submitted electronically pursuant to the rules and regulations of the Securities and Exchange Commission and shall not be deemed filed for the purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934). E-1 ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES COMPUTATION OF INCOME PER COMMON SHARE ($ in millions, except share data) Three Months Ended March 31, 1998 1997 Net income $ 13.2 $ 33.9 Calculation of average number of shares outstanding: Basic: Weighted average number of common shares outstanding 61,526,611 61,406,940 Diluted: Weighted average number of common shares outstanding 549,809 800,877 Effect of shares issuable under stock options 549,809 800,877 62,076,420 62,207,817 Income per common share: Basic: Net income $ 0.21 $ 0.55 Diluted: Net income $ 0.21 $ 0.55 E-2 (1) Such items are included in basic calculation. Additional shares represent difference between average price of common stock for the period and the end of the period price. EX-27 2
5 3-MOS MAR-31-1998 MAR-31-1998 22400 0 169900 1400 16500 237200 1869600 72000 2077300 255500 624900 0 0 0 653200 2077300 181600 181600 150100 150100 (1200) 0 10000 22700 9500 13200 0 0 0 13200 0.21 0.21
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