SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 15, 1996
Illinois Central Railroad Company
Exact name of Registrant as specified in its charter
Delaware 1-7092 36-2728842
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
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
Item 5. Acquisition and Disposition of Assets
The Illnois Central Railroad Company ("the Railroad")
is a wholly owned subsidiary of Illinois Central Corporation
("IC"). On January 17, 1996, IC announced a definitive agreement
for the acquisition of CCP Holdings, Inc. ("CCPH"). The purchase
price will be approximately $125 million in cash, and the assumption
of approximately $14 million in net debt, and approximately $18
million of capitalized lease obligations. The cash price is adjusted
for any unscheduled prepayments of long-term debt prior to closing.
Additionally, the actual purchase price is subject to various potential
adjustments for up to one year after the closing date. The application
for the required approval of the Surface Transportation Board (the
"STB") was filed January 31, 1996. On April 30, 1996, the STB announced
they had voted in favor of the acquisition. Formal written approval,
was issued May 13,1996, and is effective June 13, 1996, after which the
transaction can be closed. IC expects the closing to occur in late June
or early July.
IC is purchasing the stock of CCPH (See Exhibit 2) from CCPH's
three stockholders and will account for the acquisition using the
purchase method of accounting. CCPH has two principal operating
subsidiaries - the Chicago Central and Pacific Railroad ("CCPR")
and the Cedar River Railroad ("CRR") - which together comprise a
Class II railroad system operating 850 miles of road. CCPR operates
from Chicago west to Omaha, Nebraska, with connecting lines to Cedar
Rapids and Sioux City, Iowa. CRR runs from Waterloo, Iowa north to
Albert Lea, Minnesota.
The audited consolidated financial statements of CCPH as
of and for the years ended December 31, 1995 and 1994 and the
unaudited consolidated financial statements of CCPH as of March 31,
1996 and for the three months ended March 31, 1996 and 1995 are
included herein. (See Index at page 4.)
IC expects to use its existing bank credit lines and funds
received from its operating subsidiary, the Illinois Central Railroad
Company (the "Railroad"). The Railroad expects to use its existing
bank lines, commercial paper or newly issued medium-term notes to
provide it the monies needed to dividend or loan up to $100 million
to IC for the acquisition.
In addition to the historical financial statements of
CCPH, included herein are unaudited Pro Forma condensed consolidated
financial statements of IC including CCPH for the periods outlined in
the Index to Pro Forma Financial Information on page F-21.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired
See Index at page 4
(b) Pro Forma financial information
See Index at page F-21
(c) Exhibits
See Exhibit Index at E-1.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereto duly authorized.
ILLINOIS CENTRAL RAILROAD COMPANY
John V. Mulvaney
Controller
Date: May 15, 1996
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
CCP HOLDINGS, INC.:
INTERIM:
Consolidated Statements of Income for the three months
ended March 31, 1996 and 1995 F-1
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995 F-2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 F-3
Notes to Consolidated Financial Statements F-4
YEAR END:
Report of Independent Public Accountants F-6
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 F-7
Consolidated Balance Sheets at December 31, 1995 and 1994 F-8
Consolidated Statements of Cash Flows for years ended
December 31, 1995, 1994 and 1993 F-9
Notes to Consolidated Financial Statements F-10
Index to Unaudited Pro Forma Financial Information F-21
CCP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 and 1995
(In 000'S)
(Unaudited)
1996 1995
REVENUES $21,614 $15,553
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization 10,646 11,656
Depreciation and amortization 1,597 1,373
Total operating expenses 12,243 13,029
Income from operations 9,371 2,524
OTHER INCOME (EXPENSE):
Interest expense (768) (1,074)
Other income 228 140
Income before income taxes and
extraordinary item 8,831 1,590
PROVISION FOR INCOME TAXES:
Currently payable 1,620 90
Deferred taxes 1,897 548
Net Income $5,314 $952
======= =======
The accompanying notes are an integral part of these statements.
CCP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In 000'S)
(Unaudited)
MARCH 31, DECEMBER 31,
A S S E T S 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 6,786 $ 15,799
Accounts receivable 16,004 15,883
Materials and supplies 2,968 2,893
Prepaid expenses 481 497
Deferred income tax asset 1,529 1,529
Total current assets 27,768 36,601
PROPERTY AND EQUIPMENT:
Road property 111,895 111,800
Equipment 38,344 38,443
150,239 150,243
Less: Accumulated depreciation (35,933) (34,577)
Net Property and Equipment 114,306 115,666
OTHER ASSETS 457 718
$142,531 $152,985
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
Accounts payable $ 17,979 $ 19,249
Income taxes payable 1,955 949
Deferred income 372 371
Current maturities of long-term debt 5,423 5,758
Current maturities of capital leases 973 937
Total current liabilities 26,702 27,264
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 2,109 18,867
Capital leases, less current maturities 16,531 16,791
Deferred income tax liability 25,853 23,955
Other long-term obligations 3,210 3,210
Deferred rehabilitation grants 8,681 8,767
Total long-term liabilities 56,384 71,590
Total liabilities 83,086 98,854
STOCKHOLDERS' EQUITY:
Common stock, no par value; 80,000 shares
authorized, 7,600 shares issued and
outstanding 8 8
Retained earnings:
Balance, beginning of year 54,123 43,900
Net income for the year 5,314 11,933
Dividend paid - (1,710)
Balance, end of year 59,437 54,123
Total stockholders' equity 59,445 54,131
$142,531 $152,985
The accompanying notes are an integral part of these statements.
CCP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 and 1995
(In 000's)
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
Income before extraordinary item $ 5,314 $ 952
Adjustments to reconcile income before
extraordinary item to net cash
provided by operating activities-
Depreciation and amortization 1,597 1,373
Net gain on sale of property and
equipment (52) (39)
Deferred income taxes 1,897 548
Change in assets and liabilities-
Accounts receivable (120) 217
Materials and supplies (75) (38)
Other current assets - 1,143
Prepaid expenses 16 (63)
Accounts payable (363) (322)
Income taxes payable 1,005 291
Accrued accounts payable (646) 1,771
Deferred income 1 10
Accued interest payable (261) (4)
Other balance sheet changes 94 2
Difference in book and cash capital 103 (118)
Net cash provided by operating activities 8,510 5,723
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from asset dispositions 241 153
Capital expenditures (447) (571)
Capital lease and note payments (224) (146)
Net cash used in investing activities (430) (564)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid - (1,710)
Debt retirement (17,093) (1,394)
Net cash used in financing activities (17,093) (3,104)
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (9,013) 2,055
CASH AND CASH EQUIVALENTS, beginning of year 15,799 3,783
CASH AND CASH EQUIVALENTS, end of year $ 6,786 $5,838
======= =======
SUPPLEMENTAL DISCLOSURES:
1996 1995
Schedule of noncash investing
and financing activities-
Capital lease financing $ - $ -
====== =======
Cash paid during the year for-
Interest $1,029 $1,078
Income taxes 615 141
====== =======
The accompanying notes are an integral part of these statements.
CCP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 and 1995
1. BASIS OF PRESENTATION:
CCP Holdings, Inc. (the Company) was founded in October 1993
to affect a restructuring of the Company's investment in railroads
and real property. This restructuring was accounted for as a
combination of enterprises under common control. Thus, there
was no effect on the carrying value of any of the operating
entities' assets and liabilities. The financial statements are
presented as if the restructuring occurred on January 1, 1993.
Interim Financial Statements
In the opinion of management, these interim financial statements reflect
all adjustments, consisting of normal recurring accruals, necessary to
present fairly the financial position, results of operations and cash flows
for the periods presented. Interim results are not necessarily indicative
of results for the full year. Certain 1995 amounts have been restated to
conform with the presentation used in the 1996 financial statements.
2. REFINANCING:
Included on other assets as of March 31, 1996 and December 31, 1995,
are refinancing costs of $698,000, net of accumulated amortization of
$623,000 and $380,000, respectively. These costs are being amortized
on a straight-line basis over the life of the loan. Amortization
expense for 1996 included $224,000 as two additional principal payments
in January and March totaling $15,000,000 were made.
3. REVOLVING LINE OF CREDIT:
In January 1993, one Railroad obtained a 3-year unsecured
$10,000,000 revolving line of credit with a bank group,
replacing the agreement previously in place. An amendment was
made in September 1995 extending the revolving line of credit
agreement to September 1998. Interest is at the bank's prime
rate plus 0.25% (8.75% at March 31, 1996) or LIBOR + 1.5%
(6.94% at December 31, 1996), as selected by the Company. The
interest rate is determined by the Railroad's ratio of Funded
Debt to Total Capitalization as defined in the agreement.
Based on the ratio, the interest rate will be between prime
and prime plus 0.5% or between libor plus 1.25% and libor plus
1.75%. A commitment fee of 0.25% per annum on the first $5
million in unused revolver and 0.125% on the unused portion
above $5 million is assessed quarterly. At March 31, 1996 and
December 31, 1995 no funds were borrowed under the facility and
the Railroad was in compliance with all covenants and ratios.
4. CONTINGENCY:
One Railroad is party to certain deferred compensation
agreements, the after-tax cost of which is to be funded by the
majority shareholder of the Company. Pursuant to terms of these
agreements, a total of 13% of the equity value of the Company
would be paid to certain railroad officers upon the sale of over
50% of the Company's stock.
5. SALE OF BUSINESS:
On January 17, 1996 the Company and its stockholders entered into
a definitive agreement to sell all the stock of the Company to
Illinois Central Corporation. The transaction requires Surface
Transportation Board ("STB") approval. On April 30, 1996, the STB
announced they had voted in favor of the acquisition. Formal written
approval, was issued May 13, 1996, and is effective June 13, 1996,
after which the transaction can be closed. The Company expects the closing
to occur in late June or early July.
If the transaction receives final regulatory approval and closes, the
deferred compensation payments discussed in Note 4 would be
required. The expense and related tax benefit would be recorded
in the Company's statement of income in the period in which the
transaction occurs. The required capital contribution from the
majority shareholder also would be recorded and would approximately
equal the net of tax amount of the deferred compensation payments,
thus the net impact on stockholders' equity would be immaterial.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
CCP Holdings, Inc.:
We have audited the accompanying consolidated balance sheets
of CCP HOLDINGS, INC. (a Delaware corporation) and its
subsidiaries, as of December 31, 1995 and 1994, and the
related consolidated statements of income and cash flows for
each of the years in the three year period ended December 31,
1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of CCP Holdings, Inc. as of December 31, 1995 and
1994, and the results of their operations and their cash flows
for the three years ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
January 19, 1996
CCP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In 000'S)
1995 1994 1993
REVENUES $76,039 $60,483 $66,372
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization 47,449 45,338 47,599
Depreciation and amortization 5,529 5,347 5,214
Total operating expenses 52,978 50,685 52,813
Income from operations 23,061 9,798 13,559
OTHER INCOME (EXPENSE):
Interest expense (4,077) (4,487) (4,633)
Other income 870 450 2,959
Income before income taxes and
extraordinary item 19,854 5,761 11,885
PROVISION FOR INCOME TAXES:
Currently payable 3,958 487 827
Deferred taxes 3,963 2,012 3,830
Income before extraordinary item 11,933 3,262 7,228
EXTRAORDINARY ITEM - - 8,940
NET INCOME FOR THE YEAR $11,933 $ 3,262 $16,168
======= ======= =======
The accompanying notes are an integral part of these statements.
CCP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1995 and 1994
(In 000'S)
A S S E T S 1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 15,799 $ 3,783
Accounts receivable 15,883 10,819
Materials and supplies 2,893 2,956
Prepaid expenses 497 517
Deferred income tax asset 1,529 1,075
Other investments - 1,433
Total current assets 36,601 20,583
PROPERTY AND EQUIPMENT:
Road property 111,800 108,357
Equipment 38,443 37,888
150,243 146,245
Less: Accumulated depreciation (34,577) (29,323)
Net Property and Equipment 115,666 116,922
OTHER ASSETS 718 838
$152,985 $138,343
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
CURRENT LIABILITIES:
Acccounts payable $ 10,855 $ 5,215
Income taxes payable 949 769
Employee compensation and vacations 2,750 2,254
Taxes other than income taxes 1,519 1,453
Other accrued expenses 4,496 4,383
Current maturities of long-term debt 5,758 5,806
Current maturities of capital leases 937 650
Total current liabilities 27,264 20,530
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 18,867 24,455
Capital leases, less current maturities 16,791 17,729
Deferred income tax liability 23,955 19,542
Other long-term obligations 3,210 3,210
Deferred rehabilitation grants 8,767 8,969
Total long-term liabilities 71,590 73,905
Total liabilities 98,854 94,435
STOCKHOLDERS' EQUITY
Common stock, no par value; 80,000 shares
authorized, 7,600 shares issued and
outstanding 8 8
Retained earnings:
Balance, beginning of year 43,900 40,638
Net income for the year 11,933 3,262
Dividend paid (1,710) -
Balance, end of year 54,123 43,900
Total stockholders' equity 54,131 43,908
$152,985 $138,343
The accompanying notes are an integral part of these statements.
CCP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995, 1994 and 1993
(In 000's)
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
Income before extraordinary item $11,933 $ 3,262 $ 7,228
Adjustments to reconcile income before
extraordinary item to net cash
provided by operating activities-
Depreciation and amortization 5,529 5,347 5,214
Amortization of deferred partial debt
forgiveness - - (74)
Net gain on sale of property and
equipment (285) (198) (66)
Recognition of deferred interest income - - (183)
Deferred income taxes 3,963 2,012 3,830
Change in assets and liabilities-
Accounts receivable (5,065) 613 589
Materials and supplies 63 295 (542)
Prepaid expenses 20 319 88
Accounts payable 5,640 (536) (2,539)
Income taxes payable 178 760 (2,118)
Employee compensation and vacation 496 151 (416)
Taxes other than income taxes 66 - 161
Other accrued expenses 113 (794) (342)
Other long-term obligations - (199) 94
Net cash provided by operating
activities 22,651 11,032 10,924
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment 390 7,520 468
Expenditures on construction in progress
and property and equipment (4,570) (13,714) (4,871)
Other assets - (151) (10)
Maintenance allowance on capital lease - - 200
Net Investments in Equity Securities 1,433 (1,433) -
Net cash used in investing activities (2,747) (7,778) (4,213)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt and capital leases (6,463) (6,330) (35,530)
Increase in long-term debt 176 1,701 35,604
Refinancing costs (23) - (654)
Deferred rehabilitation grants 132 626 480
Redemption of preferred stock - - (12,000)
Dividends paid (1,710) - -
Net cash used in financing activities (7,888) (4,003) (12,100)
INCREASE(DECREASE) IN CASH & CASH EQUIVALENTS 12,016 (749) (5,389)
CASH AND CASH EQUIVALENTS, beginning of year 3,783 4,532 9,921
CASH AND CASH EQUIVALENTS, end of year $15,799 $ 3,783 $ 4,532
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
1995 1994 1993
Schedule of noncash investing
and financing activities-
Capital lease financing $ - $ - $ 2,699
====== ======= =======
Cash paid during the year for-
Interest $4,167 $ 4,487 $ 4,671
Income taxes 3,434 187 3,598
====== ======= =======
The accompanying notes are an integral part of these statements.
CCP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 and 1994
1. DESCRIPTION OF BUSINESS:
CCP Holdings, Inc. (the Company) was founded in October, 1993
to affect a restructuring of the Company's investment in
railroads and real property. This restructuring was accounted
for as a combination of enterprises under common control.
Thus, there was no effect on the carrying value of any of the
operating entities' assets and liabilities. The financial
statements are presented as if the restructuring occurred on
January 1, 1993.
At December 31, 1995, the Company has four wholly-owned
subsidiaries, two of which are railroads and two of which are
real estate management companies. The railroads operate in
the states of Illinois, Iowa, Minnesota and Nebraska.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition
Freight revenue for the Railroads is recognized in proportion
to the completion of a line-haul on the Railroad's line.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid debt instruments
purchased with a maturity of three months or less, including
commercial paper, repurchase agreements and treasury bills.
Materials and Supplies
Materials and supplies are stated at the lower of weighted
average cost or net realizable value.
Other Investments
Other investments at December 31, 1994 consist of equity securities
and are stated at the lower of aggregate cost or market based on
quoted market prices. These equity securities were sold in 1995.
Property and Equipment
Property and equipment on the books of the subsidiaries are
stated at cost. Depreciation is computed using the
straight-line method. Road property and equipment include the
following categories of assets, with the indicated useful lives:
Description Asset Life
Road property 15-46 years
Bridges 25-46 years
Rolling stock 5-15 years
Equipment 5-12 years
===========
The straight-line, composite method of depreciation is used
for certain road property. When an asset is retired, its
cost, less any proceeds from sale, is charged to accumulated
depreciation. For extraordinary retirements, however, the cost
and related depreciation are removed from the accounts and a
gain or loss is recognized.
Income Taxes
The Company files a consolidated income tax return. A tax
allocation agreement arrangement exists whereby each
affiliated company's income tax is an amount equal to that
which would have resulted had each filed its own income tax return.
Income taxes are accounted for under the provisions of
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the liability
method for computing deferred income taxes.
Deferred income taxes result as the Company recognizes certain
income and expense items in different years for financial and
tax reporting purposes. Deferred income tax assets and
liabilities are classified in accordance with the
classification of the assets and liabilities to which they
relate. Temporary differences that give rise to deferred
income taxes are (a) tax depreciation in excess of
depreciation for financial reporting purposes and (b) reserves
for potential liabilities related to litigation, nonvested
vacation and self-insured medical claims, among others, which
will not be deductible for tax purposes until future periods.
Interest Rate Risk Management
One of the Railroads uses derivative financial instruments,
specifically interest rate swaps and interest rate caps to
manage the interest rate risk on its Term Notes Payable (See
Note 5). In January, 1993, the Railroad entered into a 3-year
swap, which expires in January, 1996, whereby the floating
rate on a notional amount of $17,500,000 was exchanged for a
fixed libor rate of 5.03%. In March, 1995, the notional
amount on this swap was reduced to $12,500,000. In March,
1995, the Railroad entered into a 2-year interest rate cap
agreement commencing January, 1996, with the cap libor rate at
9.15% on a notional amount of $10,000,000, replacing a
previous 2-year cap which expired January, 1995. The fees
paid by the Railroad for interest rate caps are capitalized
and amortized to interest expense over the period covered by
the agreement.
Industry Concentration
Although the Railroads' accounts receivable include a number
of railroads and customers within various industries, a large
portion of the Railroads' rail traffic is attributable to
customers operating in the coal and grain industries. The
Railroads regularly grant trade credit to customers. In
addition, the Railroads grant trade credit to railroads
through the routine interchange of traffic.
Use of Estimates
The process of preparing financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.
3. DEBT AND EQUITY RESTRUCTURINGS AND REFINANCING:
In 1993, one Railroad repaid the balance on its note payable
to its senior lender. As a result, the gain of $8,940,000 has
been recorded as an extraordinary item on the statement of
income. The extraordinary gain is the result of recognizing
the remaining amount of deferred partial debt forgiveness.
In 1993, one Railroad redeemed the 1,000 shares of Series B
convertible value building preferred stock then outstanding
for $12,000,000.
Included in other assets as of December 31, 1995 and 1994, are
refinancing costs of $698,000 and $675,000, respectively, net
of accumulated amortization of $380,000 and $259,000, respectively.
These costs are being amortized on a straight-line basis over the
life of the loan. Amortization expense totaled $121,000, $135,000
and $124,000 in 1995, 1994 and 1993, respectively.
4. REVOLVING LINE OF CREDIT:
In January, 1993, one Railroad obtained a 3-year unsecured
$10,000,000 revolving line of credit with a bank group,
replacing the agreement previously in place. An amendment was
made in September, 1995 extending the revolving line of credit
agreement to September, 1998. Interest is at the bank's prime
rate plus 0.25% (9.00% at December 31, 1995) or LIBOR + 1.5%
(7.37% at December 31, 1995), as selected by the Company. The
interest rate is determined by the Railroad's ratio of Funded
Debt to Total Capitalization as defined in the agreement.
Based on the ratio, the interest rate will be between prime
and prime plus 0.5% or between libor plus 1.25% and libor plus
1.75%. A commitment fee of 0.25% per annum on the first $5
million in unused revolver and 0.125% on the unused portion
above $5 million is assessed quarterly. At December 31, 1995
and 1994 the Railroad was in compliance with all covenants and
ratios required to borrow funds under the facility.
5. LONG-TERM DEBT:
Long-term debt at December 31, 1995 and 1994 consists of debt
on the books of the Railroads and one real estate management
company as follows (in 000's):
1995 1994
Term Notes Payable, interest currently at
LIBOR + 1.75% or Prime + 0.5%, quarterly
installments of interest and $1,250 in
principal through maturity on January 31,
2000 (see below) $21,250 $26,250
Interest-free loans from government for
rehabilitation projects, payable in various
installments through August, 1997, secured
by the related road property (see below) 652 820
Installment note payable, with imputed
interest at 10%, payable in installments
through May, 1996 28 118
Promissory Note, interest at 8%, quarterly
installments of interest and principal
through maturity on August 3, 1997, secured
by a first mortgage on the related track
structure 465 722
Interest-free loans from governmental
agencies and a shippers' association for
rehabilitation projects completed in
1994, payable either in annual install-
ments or in various installments based
on annual revenue carloads originated
and terminated on the line through
July 1, 2006, secured by the related
road property (see below) 1,884 1,956
Promissory Note, interest at 7.25%, quarterly
installment of interest and principal through
maturity on June 1, 2001, secured by a first
mortgage on the related office building. 346 395
T O T A L $24,625 $30,261
Less- Current maturities 5,758 5,806
Long-term portion $18,867 $24,455
======= =======
Long-term debt maturities as follows(in 000's):
Year Amount
1996 $ 5,758
1997 5,444
1998 5,449
1999 5,395
2000 1,590
2001 and thereafter 989
$24,625
=======
The Term Notes Payable represents notes payable to a bank group.
While unsecured, the Term Notes require the Railroad to comply
with various ratios and covenants, including, among other things,
limitations on new debt, dividends and asset sales. At December
31, 1995 and 1994 the Railroad was in compliance with all
covenants and ratios required to borrow funds under the
facility. Additional terms and conditions require the Railroad
to limit the exposure to interest rate risk by hedging at least
50% of the outstanding balance of the Term Notes (see Note 2).
The loans from the government and a shippers' association will
become immediately due and payable in the event of abandonment
of any of the rehabilitated lines, discontinued use of the
track structure for rail freight services or the filing for
bankruptcy or insolvency.
6. CAPITAL LEASES:
One Railroad has entered into a capital lease for 650 covered
hoppers, with interest at 11.5%, payable in monthly
installments beginning at $285 per car in 1991, increasing in
1993 to $300 per car and in 1995 to $330 per car through 2005.
Beginning in December 1999, and continuing through December
2005, the Company has the option to purchase the cars at
$8,000 each per terms contained in the capital lease agreement.
The Railroad has also entered into a capital lease for 100
covered hoppers, with interest at 11.5%, payable in monthly
installments beginning at $285 per car in 1993, increasing in
1995 to $300 per car and in 1997 to $330 per car through
December 2006. At the expiration of the lease on December
2006, the Company has the option to purchase the cars at
$4,100 to $7,300 each per terms contained in the capital lease
agreement. Future minimum lease payments on capital leases at
December 31, 1995 are as follows: (in 000's)
1996 $ 2,934
1997 2,970
1998 2,970
1999 3,337
2000 2,772
2001 and thereafter 15,201
Total minimum lease payments 30,184
Less amount representing interest 12,456
Present value of future minimum
lease payments 17,728
Less current maturities 937
Long-term capital lease
obligation $16,791
=======
The covered hoppers have been included in property and equipment
on the accompanying balance sheet at the net present value at
the inception of the leases which totaled $18,928,000, net of
$4,425,000 of amortization at December 31, 1995.
7. OPERATING LEASES:
One Railroad leases various rolling stock, other equipment and
office space under operating leases with initial noncancelable
lease terms in excess of one year. Total rental expense for all
operating leases amounted to $3,830,000, $3,506,000 and
$3,747,000 in 1995, 1994 and 1993, respectively.
Future minimum lease payments on operating leases at December
31, 1995, are as follows (in 000's):
1996 $ 3,681
1997 1,415
1998 1,273
1999 821
2000 760
2001 and thereafter 4,440
Total minimum lease payments $12,390
=======
8. INCOME TAXES:
The provision for income taxes from continuing operations
consisted of the following (in 000's):
1995 1994 1993
Federal
Current $ 3,292 $ 426 $ 783
Deferred 3,369 1,710 3,256
6,661 2,136 4,039
State
Current 666 61 44
Deferred 594 302 574
1,260 363 618
$ 7,921 $ 2,499 $ 4,657
======= ======= =======
The following summarizes the estimated tax effect of significant
cumulative temporary differences that are included in the net
deferred income tax liability (in thousands):
1995 1994
Property and equipment $ 26,411 $ 23,829
Federal alternative minimum tax
credit carryforwards (1,395) (3,119)
State alternative minimum tax
credit carryfowards (759) (132)
State net operating loss
carryforwards (298) (1,036)
Reserves and accruals (1,713) (1,303)
Other items, net 184 228
Net deferred tax liability $ 22,430 $ 18,467
======== ========
As of December 31, 1995, the Company has net operating loss
carryforwards for state income tax purposes totaling
approximately $4,936,000. Additionally, the Company has
alternative minimum tax credit carryforwards of approximately
$1,395,000 for federal income tax purposes and $759,000 for
state income tax purposes.
The Company has not provided any valuation allowances against
deferred income tax assets as management believes that the
deferred tax assets will be realized based on estimates of
future taxable income, future reversals of existing taxable
temporary differences, or available tax planning strategies.
The reconciliation of the federal statutory income tax rate to
the effective income tax rate follows:
1995 1994 1993
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes,
net of federal benefit 4.8 4.8 4.8
Other, net 1.1 4.6 0.4
Effective tax rate 39.9% 43.4% 39.2%
===== ===== =====
9. GRANTS AND REIMBURSEMENTS FROM GOVERNMENTAL AGENCIES:
The Railroads receive grants and reimbursements from governmental
agencies to rehabilitate portions of their track structure.
These grants and reimbursements do not represent a future
liability of the Railroads unless the Railroads abandon the
rehabilitated track structure within a period of ten years after
the rehabilitation. As the Railroads do not intend to abandon
this track, the amounts of these grants have been deferred and
are being amortized as a noncash offset to depreciation expense
over the useful life of the related road property.
In 1995, one Railroad signed a three-year $3,887,082 contract
with the Iowa Department of Transportation to replace 27.5 miles
of jointed rail with continuously welded rail. The work will
take place on certain portions of the line between Tara, Iowa,
and LeMars, Iowa, in annual segments of 5.5, 11.0 and 11.0 miles
in 1995, 1996 and 1997, respectively. The 1995 work was
completed as scheduled. The project is partially funded by a
state/federal grant of 20% of the project cost, a state 0%
interest loan of 28.4% of the project cost, a shipper association
0% interest loan of 8.4% of the project costs with the remaining
43.2% of the project cost paid directly by the Railroad. The
contract does contain contingency amounts related to the cost of
the rail. Any cost overrun, other than the rail contingency
written into the contract, is the Railroad's responsibility.
10. CONTINGENCIES:
One Railroad is a defendant in certain lawsuits resulting from
railroad operations. Management believes that adequate
provision has been made in the financial statements for any
expected liabilities which may result from the disposition of
such lawsuits. While it is possible that some of the foregoing
matters may be settled at a cost greater than that provided
for, it is the opinion of management that the ultimate
liability, if any, will not be material to the Company's
financial position or results of operations.
During 1993, one Railroad negotiated a new 10-year
transportation contract and favorably resolved a contingency.
Accordingly, in 1993, the accrual of $3,500,000 for this
contingency was eliminated and reversed into revenue.
One Railroad is party to certain deferred compensation
agreements, the after-tax cost of which is to be funded by the
majority stockholder of the Company. Pursuant to terms of these
agreements, a total of 13% of the equity value of the Company
would be paid to certain railroad officers upon the sale of over
50% of the Company's stock.
11. EMPLOYEE BENEFITS:
Employees retiring from one Railroad upon or after attaining
age 60 who had an employment relationship with the previous
owner and operator of the line at the date the Railroad
commenced operations and who have rendered at least 30 years
of continuous service are entitled to postretirement medical
benefits to age 65. These benefits are subject to
deductibles, co-insurance provisions and other limitations.
The Railroad may amend or change the plan periodically subject
to its union labor agreements.
The liability recorded for accumulated postretirement benefit
costs is approximately $3,210,000. The plan is currently unfunded;
the Railroad anticipates funding future claims with the Railroad's
operating cash flows.
Assumptions used in accounting for the postretirement benefit
plans as of December 31, 1995, 1994 and 1993, are as follows:
1995 1994 1993
Discount rate 5.69% 7.5% 6.25%
Annual turnover rate 3.36% 0.99% 0.99%
Average annual claim cost
per retiree $5,840 $5,546 $5,207
====== ====== ======
In 1995, 1994 and 1993, health care costs are assumed to
increase by 10% per year. This rate of increase is assumed to
decrease by 1% every third year until reaching 4%, when the rate
of increase is assumed to remain constant.
The expense for postretirement medical benefits for 1995, 1994
and 1993 was $133,000, $17,000 and $442,000, respectively. The
Railroad is using the corridor approach and therefore has
recognized only a portion of the actuarial gain as of December
31, 1995 in determining the net periodic pension cost. Cash
payments for benefits relating to these years totaled $133,000,
$216,000 and $339,000, respectively. The periodic expense for
postretirement medical benefits included the following
components:
1995 1994 1993
Service cost for benefits earned
during the year $151,000 $184,000 $285,000
Interest cost on accumulated
post retirement benefit cost 222,000 213,000 211,000
Change in assumptions (191,000) (630,000) (54,000)
Unrecognized Actuarial (Loss)Gain (49,000) 250,000 -
Total expense $133,000 $ 17,000 $442,000
======== ======== ========
Based on the December 31, 1995 calculation, a 1% per year
additional increase in health care costs above these assumptions
would increase the recorded liability for accumulated
postretirement benefit costs by approximately $288,000.
12. SUBSEQUENT EVENT:
On January 17, 1996 the Company and its stockholders entered into
a definitive agreement to sell all the stock of the Company to
Illinois Central Corporation. The transaction will require U.S.
Department of Transportation approval. The sale of stock will
not close until regulatory approval has been obtained. The
regulatory review process is expected to take between three and
nine months.
If the transaction receives regulatory approval and closes, the
deferred compensation payments discussed in Note 10 would be
required. The expense and related tax benefit would be recorded
in the Company's statement of income in the period in which the
transaction occurs. The required capital contribution from the
majority shareholder also would be recorded and would
approximately equal the net of tax amount of the deferred
compensation payments, thus the net impact on stockholders'
equity would be immaterial.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
INDEX TO PRO FORMA FINANCIAL INFORMATION
Pro Forma Financial Information P-1
Pro Forma Condensed Consolidated Statement of Income for
the Three Months Ended March 31, 1996 P-2
Notes to Pro Forma Condensed Consolidated Statements of
Income for the Three Months Ended March 31, 1996 P-3
Pro Forma Condensed Consolidated Balance Sheet at
March 31, 1996 P-4
Notes to Pro Forma Condensed Consolidated Balance Sheet
at March 31, 1996 P-5
Pro Forma Condensed Consolidated Statement of Income for
the year Ended December 31, 1995 P-6
Notes to Pro Forma Condensed Consolidated Statement of
Income for the year Ended December 31, 1995 P-7
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated
statements of income of Illinois Central Corporation and
Subsidiaries ("IC") for the twelve months ended December 31, 1995
and the three months ended March 31, 1996 (the "Pro Forma Income
Statements") and the pro forma condensed consolidated balance sheet
of IC as of March 31, 1996 (the "Pro Forma Balance Sheet") (together
the "Pro Forma Statements") were prepared to illustrate the
estimated effects of the acquisition of CCP Holdings, Inc. ("CCPH")
by IC (the "Acquisition"). The Pro Forma Statements reflect the use
of the purchase method of accounting. The Pro Forma Income
Statements assume that the Acquisition occurred as of January 1,
1995 and January 1, 1996, respectively. The Pro Forma Balance Sheet
assumes that the Acquisition occurred on March 31, 1996. The total
purchase cost, including fees and expenses, has been allocated to
the assets and liabilities of CCPH based on their book values as no
studies, evaluations or other investigations have occurred or will
be conducted until closing.
The unaudited Pro Forma Statements have been presented
for informational purposes only, are not indicative of what IC's
actual results of operations or financial conditions would have been
had the Acquisition occurred as of January 1,1995 or January 1,
1996, respectively or at March 31, 1996 and do not purport to
indicate IC's consolidated results of operations for any future date
or period or financial position at any future date.
The unaudited pro forma adjustments are based upon
available information and upon certain assumptions. The unaudited
Pro Forma Statements and the accompanying notes should be read in
conjunction with the selected historical consolidated financial
statements of IC and CCPH, including the notes thereto. IC's
financial statements are contained in its Form 10-Q for the three
months ended March 31, 1996 (File No. 1-10720) filed with the
Commission on May 10, 1996 and its Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 1-10720) filed with
the Commission on March 11, 1996. CCPH's financial statements are
filed beginning on F-1.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Three Months Ended March 31, 1996
($ in millions)
(Unaudited)
Adjustments/
IC CCPH Eliminations Pro Forma
Revenues $ 162.3 $ 21.6 $ $ 183.9
Operating expenses 102.0 12.2 .8 (1)
(1.7) (2) 113.3
Operating income 60.3 9.4 .9 70.6
Interest expense, net (7.7) (.8) .3 (3)
(1.9) (4) (10.1)
Other income, net .3 .2 .5
Income before income taxes 52.9 8.8 (.7) 61.0
Provision for income taxes 19.8 3.5 (.3) (5) 23.0
Net income $ 33.1 $ 5.3 $ (.4) $ 38.0
Income per share $ .54 $ .61
Weighted average number of shares
of common stock and common stock
equivalents outstandind 61,742,614 61,742,614
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Income.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
The following is a summary of the adjustments/eliminations reflected in
the unaudited Pro Forma Condensed Consolidated Statement of Income for
the three months ended March 31, 1996.
1) Amortization of Goodwill calculated on the difference between
the price of $125 million and the book value of stockholders'
equity ($54.1 million) on January 1, 1996 as adjusted for the
amortization of acquisition liability for severances and
amortized over 25 years. Actual Goodwill will be determined
following the closing of the acquisition and the complete
valuation of the assets and liabilities existing upon closing.
The amortization period of 25 years is based on preliminary
evaluation of asset lives and could change.
2) Reduction to operating expenses reflecting revised operating
policies and procedures, reduced employment levels and lower
materials expense as a result of management's operating plan,
offset by increased other tax expense. Amount does not include
$4.5 million in one-time severances.
3) Elimination of CCPH's interest expense on the portion of the
beginning debt balance assumed paid off with cash available
on January 1, 1996, of approximately $15.8 million.
4) Increased interest expense caused by the additional
borrowings required to finance the acquisition.
Approximately $100 million will be financed at IC's
subsidiary, Illinois Central Railroad Company. Approximately
$25 million will be financed by IC using its bank lines.
5) Reflects the tax effects of Pro Forma adjustments.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1996
($ in millions)
(Unaudited)
Adjustments/
IC CCPH Eliminations Pro Forma
Cash and cash equivalents $ 11.1 $ 6.8 $ (5.0) (2) $ 12.9
Other current assets 102.9 21.0 (.2) (4) 123.7
Investments 13.3 - 13.3
Properties, net 1,292.6 114.3 1,406.9
Goodwill 77.1 (1)
4.5 81.6
Other assets 15.3 .4 15.7
Total assets $ 1,435.2 $ 142.5 $ 76.4 $1,654.1
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities $ 189.1 $ 26.7 $ 4.5 (3) $
(1.3) (2)
(.2) (4) 218.8
Long-term debt 387.4 21.9 136.5 (1)
(3.7) (2) 542.1
Deferred taxes 252.7 25.8 278.5
Other liabilities 114.9 8.7 123.6
Stockholders' equity 491.1 59.4 (59.4) (1) 491.1
Total liabilities and
stockholders' equity $ 1,435.2 $ 142.5 $ 76.4 $1,654.1
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated
Balance Sheet.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
The following is a summary of the adjustments/eliminations
reflected in the unaudited Pro Forma Condensed Consolidated Balance Sheet.
1) Reflects the acquisition of 100% of the stock of CCP.
2) Assumes CCP's cash is used to reduce acquired bank debt.
3) Reflects anticipated severance costs of $4.5 million.
4) Eliminates intercompany car hire balances at March 31, 1996.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1995
($ in millions)
(Unaudited)
Adjustments/
IC CCPH Eliminations Pro Forma
Revenues $ 643.8 $ 76.0 $ $ 719.8
Operating expenses 413.3 53.0 3.4 (1)
(6.9) (2) 462.8
Operating income 230.5 23.0 3.5 257.0
Interest expense, net (29.5) (4.1) .3 (3)
(7.4) (4) (40.7)
Other income, net (.2) .9 .7
Income before income taxes 200.8 19.8 (3.6) 217.0
Provision for income taxes 71.0 7.9 (1.3) (5) 77.6
Income before extraordinary
item, net $ 129.8 $ 11.9 $ (2.3) $ 139.4
Income per share before
extraordinary item $ 2.06 $ 2.22
Weighted average number of shares
of Common Stock and Common Stock
equivalents outstanding 62,885,121 62,885,121
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated
Statement of Income.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1995
The following is a summary of the adjustments/eliminations reflected in
the unaudited Pro Forma Condensed Consolidated Statement of Income for
the year ended December 31, 1995.
1) Amortization of Goodwill calculated on the difference between
the price of $125 million and the book value of stockholders'
equity ($43.9 million) on January 1, 1995 as adjusted for
the amortization of acquisition liability for severances
and amortized over 25 years. Actual Goodwill will be
determined following the closing of the acquisition and the
complete valuation of the assets and liabilities existing
upon closing. The amortization period of 25 years is based
on preliminary evaluation of asset lives and could change.
2) Reduction to operating expenses reflecting revised operating
policies and procedures, reduced employment levels and lower
materials expense as a result of management's operating plan,
offset increased other tax expense. Amount does not include
$4.5 million in one-time severances.
3) Elimination of CCPH's interest expense on the portion of the
beginning debt balance assumed paid off with cash available
on January 1, 1995, of approximately $3.8 million.
4) Increased interest expense caused by the additional
borrowings required to finance the acquisition.
Approximately $100 million will be financed at IC's
subsidiary, Illinois Central Railroad Company. Approximately
$25 million will be financed by IC using its bank lines.
5) Reflects the tax effects of Pro Forma adjustments.
ILLINOIS CENTRAL CORPORATION & SUBSIDIARIES
EXHIBIT INDEX
Exhibit Index Description Sequential Page No.
23.1 Consent of Independent Accountants (A)
(A) Included herein but not reproduced
EXHIBIT 23.1
Consent of Independent Accountants
As independent public accountants, we hereby consent to the use of our
report dated January 19, 1996 on the consolidated financial statements
of CCP Holdings, Inc. and its subsidiaries (the "Company") as of
December 31, 1995 and 1994 for each of the years in the three year
period ended December 31, 1995 in this Current Report on Form 8-K. It
should be noted that we have not audited any financial statements of
the Company subsequent to December 31, 1995 or performed any audit
procedures to the date of our report.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 15, 1996
