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, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-10720
ILLINOIS CENTRAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3545405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611-5504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 755-7500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
As of June 30, 1996, 61,417,690 common shares were outstanding.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
FORM 10-Q
Quarter and Six Months Ended June 30, 1996
CONTENTS
Part I - Financial Information: Page
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index E-1
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of
($ in millions, except share date)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30
1996 1995 1996 1995
Revenues $ 153.4 $ 156.5 $ 316.0 $ 324.5
Operating expenses:
Labor and fringe
benefits 45.4 47.5 92.6 94.3
Leases and car hire 10.9 9.8 21.0 23.2
Diesel fuel 8.8 8.3 17.6 17.1
Materials and supplies 7.7 8.4 16.0 18.6
Depreciation and
amortization 8.9 8.6 18.0 16.1
Casualty, insurance and
losses 0.9 1.4 5.1 7.6
Other taxes 3.5 5.4 8.6 10.5
Other 10.9 11.2 20.4 18.7
Operating expenses 97.0 100.6 199.3 206.1
Operating income 56.4 55.9 116.7 118.4
Other income (expense),
net 0.8 - 1.1 (0.2)
Interest expense, net (6.9) (8.5) (14.6) (15.9)
Income before income taxes
and extraordinary item,
net 50.3 47.4 103.2 102.3
Provision for income
taxes 18.9 17.8 38.7 38.4
Income before extra-
ordinary item, 31.4 29.6 64.5 63.9
Extraordinary item, net - (11.4) - (11.4)
Net income $ 31.4 $ 18.2 $ 64.5 $ 52.5
Income per share:
Income before extra-
ordinary item net $ 0.51 $ 0.47 $ 1.04 $ 1.01
Extraordinary item,
net - (0.18) - (0.18)
Income per share $ 0.51 $ 0.29 $ 1.04 $ 0.83
Weighted average number
of shares of common
stock and common stock
equivalents
outstanding 61,816,404 63,051,510 61,781,826 63,434,144
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 June 30 1996 December 31, 1996
Current assets:
Cash and temporary cash
investments $ 18.3 $ 5.0
Receivables, net of
allowance for doubtful
accounts of $1.5 in 1996
and $2.0 in 1995 62.5 51.5
Materials and supplies,
at average cost 18.6 14.9
Assets held for disposition 3.9 7.7
Deferred income taxes - current 23.2 19.1
Other current assets 8.5 2.6
Total current assets 135.0 100.8
Investments 11.0 13.6
Properties:
Transportation:
Road and structures, including
land 1,315.3 1,052.1
Equipment 254.2 225.6
Other, principally land 41.5 41.0
Total properties 1,611.0 1,318.7
Accumulated depreciation (44.6) (44.0)
Net properties 1,566.4 1,274.7
Other assets 15.2 15.1
Total assets $ 1,727.6 $ 1,404.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt $ 8.7 $ 12.4
Accounts payable 53.5 56.6
Dividends payable 12.3 11.9
Income taxes payable 1.6 5.0
Casualty and freight claims 25.1 24.9
Employee compensation and
vacations 19.4 16.9
Taxes other than income taxes 14.8 16.3
Accrued redundancy reserves 4.4 4.3
Other accrued expenses 38.9 28.6
Total current liabilities 178.7 176.9
Long-term debt 573.2 383.6
Deferred income taxes 339.1 246.2
Other liabilities and reserves 126.6 127.4
Contingencies and commitments
Stockholders' equity:
Common stock, par value $.001,
authorized 100,000,000
shares, 64,291,084 shares
issued and 61,417,690 shares
outstanding 0.1 0.1
Additional paid-in capital 166.7 166.3
Retained income 408.1 368.2
Treasury stock (2,873,394 shares) (64.9) (64.5)
Total stockholders' equity 510.0 470.1
Total liabilities and
stockholders' equity $ 1,727.6 $ 1,404.2
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
1996 1995
Cash flows from operating
activities :
Net income $ 64.5 $ 52.5
Reconciliation of net income
to net cash provided by (used for)
operating activities :
Extraordinary item, net - 11.4
Depreciation and amortization 18.0 16.1
Deferred income taxes 14.9 8.1
equity in undistributed earnings of
affiliates, net of dividends received (0.1) (0.3)
Net gains on sales of real estate (1.4) (0.2)
Cash changes in working capital (15.3) (7.9)
Changes in other assets (0.1) (2.2)
Changes in other liabilities and reserves (11.4) (2.5)
Net cash provided by (used for)
operating activities 69.1 75.0
Cash flows from investing activities :
Additions to properties (54.7) (53.0)
Acquisition of CCPH (146.6 -
Proceeds from real estate sales 2.4 1.5
Proceeds from equipment sales 2.0 1.5
Proceeds from sales of investments 2.7 0.5
Other (2.5) (1.0)
Net cash provided by (used for) investing
activities (196.7) (50.5)
Cash flows from financing activities :
Proceeds from issuance of debt 80.5 200.0
Principal payments on debt (46.0) (242.7)
Net proceeds (payments) in commercial paper 131.0 55.0
Dividends paid (24.2) (21.2)
Stock repurchases (0.4) (28.4)
Purchase of subsidiary's common stock - (0.1)
Net cash provided by (used for) financing
activities 140.9 (37.4)
Changes in cash and temporary cash
investments 13.3 (12.9)
Cash and temporary cash investments at
beginning of period 5.0 24.2
Cash and temporary cash investments at end
of period $ 18.3 $ 11.3
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount capitalized) $ 15.6 $ 20.6
Income taxes $ 27.6 $ 27.6
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. Basis of Presentation
Except as described below, the accompanying unaudited consolidated
financial statements have been prepared in accordance with
accounting policies described in the 1995 Annual Report on Form 10-K
and should be read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. Interim
results are not necessarily indicative of results for the full year.
Certain 1995 amounts have been reclassified to conform with the
presentation used in the 1996 financial statements.
Income Per Share
Income per common share of the Company is based on the weighted
average number of shares of common stock and common stock
equivalents outstanding during the period.
2. Common Stock and Dividends
On May 9, 1996, the Board of Directors approved a quarterly dividend
of $.20 per share which was paid July 9, 1996. The Board intends
to continue its policy of quarterly dividends. Future dividends may
be dependent on the Railroad's and CCPH's ability to pay dividends
to the Company. The Railroad is no longer subject to specific
dividend restrictions. Covenants of the Railroad's Revolver and
CCPH's Revolver require specified levels of tangible net worth. At
June 30, 1996, the Railroad exceeded its tangible net worth covenant
by $30.6 million. This provision of CCPH's Revolver is effective
September 30, 1996.
3. Stock Repurchase Program
In 1995 the Company was in the midst of a $60 million stock
repurchase program. A total of 2,475,000 shares of common stock
were acquired in 1995 with $28.0 million being spent in the six
months ended June 30, 1995. In late 1995, the Board determined that
the capital needs to fund the acquisition of CCP Holdings, Inc. (see
Note 4), the expansion of the intermodal facility in Chicago and the
construction of a bulk terminal facility in Louisiana preclude stock
repurchases in 1996.
4. CCP Holdings, Inc. Acquisition
On June 12, 1996, the Railroad used proceeds it received from the
issuance of Commercial Paper (average interest rate 5.52% and
average maturity 30 days) to pay a $50.0 million dividend to IC and
to loan $59.9 million (5.625% per annum) to IC. IC used the $109.9
million and its bank credit lines to acquire CCP Holdings, Inc.
("CCPH"). The transaction closed June 13, 1996, following the
effective date of the approval order issued by the Surface
Transportation Board ("STB"). The purchase price was $144.5
million in cash (including $1.6 million in sellers' expenses), the
assumption of approximately $2.5 million in debt, and approximately
$17.3 million of capitalized lease obligations. Additionally, the
actual purchase price is subject to various potential adjustments
for up to one year after the closing date.
CCPH has two principal operating subsidiaries - the Chicago Central
and Pacific Railroad ("CCPR") and the Cedar River Railroad ("CRR")
- which together comprise a Class II railroad system operating 850
miles of road. CCPR operates from Chicago west to Omaha, Nebraska,
with connecting lines to Cedar Rapids and Sioux City, Iowa. CRR
runs from Waterloo, Iowa north to Albert Lea, Minnesota.
The acquisition has been accounted for under the purchase method of
accounting. Accordingly, the Company has allocated the purchase
cost to CCPH's assets and liabilities as of June 13, 1996, and the
accompanying unaudited consolidated financial statements reflect
the operations of CCPH for the period June 13, 1996, to June 30,
1996. The allocation of the purchase cost has been based upon
preliminary estimates and revisions to the carrying values of
CCPH's assets and liabilities will be made as detailed studies of
CCPH's operations, assets and obligations are completed. In
general, the purchase price allocations will be subject to
adjustment for one year following the acquisition.
The following pro-forma results of the Company are presented to
reflect the Company's results of operations for the year ended
December 31, 1995, and for the six-month period ended June 30,
1996, as if CCPH had been acquired on January 1, 1995, and January
1, 1996, respectively ($ in millions except per share data):
Unaudited Unaudited
Year Ended Six Month Period
December 31, 1995 Ended June 30, 1996
Revenues $719.8 $355.8
Operating income 251.5 131.0
Income before extraordinary
item 135.5 71.1
Net income 124.1 71.1
- Before extraordinary item $ 2.15 $ 1.15
- Net $ 1.97 $ 1.15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion below takes into account the financial condition
and results of operations of the Company for the periods presented in the
consolidated financial statements. The results of CCP Holdings, Inc.
("CCPH") since acquisition on June 13, 1996 (see Note 4) are included in
the three month and six month periods ended June 30, 1996. For the
seventeen day period CCPH's revenues, operating expense and net income
were $4.0 million, $1.7 million and $.9 million, respectively.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30,
1995
Revenues for 1996 decreased from the prior year quarter by $3.1
million or 2.0% to $153.4 million. At the Railroad there was a 4.2%
decrease in the number of carloadings coupled with a 1.7% decrease in the
average freight revenue per carload. The most significant factor
affecting both declines was the lack of export grain in 1996 compared with
the high levels of 1995. In 1996, the Railroad experienced decreased
carloadings in coal (9.4%), paper and forest products (3.6%) and grain and
grain mill products (20.0%), partially offset by increased intermodal
loads (13.4%). At CCPH, for the last seventeen days of the quarter,
carloadings increased approximately .7% with grain up 2.9%, coal up 7.2%
and all others down a combined 8.0%.
Operating expenses overall declined in the second quarter of 1996
$3.6 million or 3.6%. On a component basis: labor and fringe costs
declined reflecting decreased volume and less overtime primarily caused
by congestion in 1995 offset by the wage increases negotiated with eight
of the eleven unions; leases and car hire reflect normal operations,
whereas last year reflects the favorable effects of adjustments for
capitalized leases; the decline in materials and supplies reflects the
winding down of the 1995 AAR mandated wheel replacement program; other
taxes declined reflecting actual expenses versus the previously recorded
estimates; and casualty, insurance and losses reflect insurance claim
settlements of approximately $2.5 million each period.
Operating income for 1996 increased by $.5 or .9% to $56.4
million for the reasons cited above.
Net interest expense of $6.9 million for 1996 decreased 18.8%
compared to $8.5 million in 1995. The 1996 expense includes $.3 million
from increased commercial paper borrowings to support the $109.9 million
transferred from the Railroad in June 1996. Overall in 1996, average
borrowings have been greater than 1995 and interest rates have been lower.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues for 1996 decreased from the prior year by $8.5 million
to $316.0 million. At the Railroad the decrease was a result of a 6.3%
decrease in the number of carloadings coupled with a .6% decrease in the
average revenue per carload. In 1996, the Railroad experienced decreased
carloadings in coal (18.3%), chemicals (4.0%) grain and grain products
(15.9%) paper and forest products (2.8%) partially offset by increased
intermodal loads (10.7%). At CCPH, for the last seventeen days of the
quarter, carloadings increased approximately .7% with grain up 2.9%, coal
up 7.2% and all others down a combined 8.0%.
Operating expenses overall declined in 1996 $6.8 million or 3.3%.
On a component basis: labor and fringe costs declined reflecting decreased
volume and less overtime offset by the wage increases negotiated with
eight of the eleven unions; the decline in materials and supplies reflects
the winding down of the 1995 wheel replacement program; casualty,
insurance and losses declined on the strength of savings which are a
direct result of improved safety and lower settlement costs; other taxes
declined reflecting actual expenses versus the previously recorded
estimates; and the increase in Other over 1995 is the direct result of
losses of joint facility income when another carrier stopped using our
tracks in southern Illinois and an increase in various equipment related
costs.
Operating income for 1996 decreased by $1.7 million or 1.5% to
$116.7 million for the reasons cited above.
Net interest expenses of $14.6 million for 1996 decreased 8.2%
compared to $15.9 million in 1995. The 1996 expense includes $.3 million
from the Railroad's increased commercial paper borrowings to support the
$109.9 million transferred to the Company in June 1996. Overall in 1996,
average borrowings have been greater than 1995 and interest rates have
been lower.
Liquidity and Capital Resources
Operating Data:
Six Months Ended June 30,
1996 1995
($ in millions)
Cash flows provided by (used for):
Operating activities $ 69.1 $ 75.0
Investing activities (196.7) (50.5)
Financing activities 140.9 (37.4)
Net change in cash and
temporary cash investments $ 13.3 $(12.9)
Operating activities in 1996 provided $69.1 million in cash,
primarily from net income before depreciation and deferred taxes.
Additions to property were as follows:
Six Months Ended June 30,
1996 1995
$ in millions)
Communications and signals $ 5.7 $ 3.6
Equipment-rolling stock 18.7 23.2
Track and bridges 24.0 21.7
Other 6.3 4.5
Total $ 54.7 $ 53.0
Property retirements and removals generated proceeds of $4.4 million
and $3.0 million in 1996 and 1995, respectively.
The Company anticipates that capital expenditures for 1996,
excluding the acquisition cost of CCP Holdings, Inc., will be
approximately $148 million of which $86 million of base expenditures will
concentrate on track maintenance (i.e., renewal of track structure
including bridges) and freight car upgrades. Approximately $20 million
will be incurred to expand the Company's intermodal facility in Chicago
to serve Canadian National Railway. Additionally, expenditures of $32
million of the $50 million needed to construct a bulk transfer facility
along the Mississippi River in Louisiana are anticipated in 1996. These
expenditures are expected to be met from current operations or other
available sources.
The Railroad 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 Railroad's lending group
(see below). At June 30, 1996, the commercial paper has been rated A2,
P2 and F2 and $188.0 million was outstanding. The average interest rate
on commercial paper for the six month period ended June 30, 1996 was 5.64%
with a range of 5.41% to 6.06%. The Railroad views this program as a
significant long-term funding source and intends to issue replacement
notes as each existing issue matures. Therefore, commercial paper
borrowings are classified as long-term. The Railroad's public debt is
rated Baa2 by Moody's and BBB by S&P.
In 1994, the Railroad entered into a revolving agreement to sell
undivided percentage interests in certain of its accounts receivable, with
recourse, to a financial institution. The agreement, which expires in
June 1998, allows for sales of accounts receivable up to a maximum of $50
million at any one time. The Railroad services the accounts receivable
sold under the agreement and retains the same exposure to credit loss as
existed prior to the sale. At June 30, 1996, $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 and $1.8 million for the
six month periods ended June 30, 1996 and 1995, respectively.
In April 1996, the Railroad concluded negotiations with its bank
lending group whereby the Railroad's $250 million Revolver was amended and
restated, for the fourth time since becoming unsecured in September 1993.
The amendment reduced various facility fees and borrowing spreads,
lowered the tangible net worth requirement beginning in the second quarter
and extended the expiration date to 2001. Fees and borrowing spreads are
predicated on the Railroad's long-term credit ratings. Currently, the
annual facility fee is 15 basis points and borrowings under this agreement
are at Eurodollar offered rate plus 22.5 basis points. The Revolver will
be used primarily for backup for the Railroad's commercial paper program
but can be used for general corporate purposes. The available amount is
reduced by the outstanding amount of commercial paper borrowings and any
letters of credit issued on behalf of the Railroad under the facility.
No amounts have been drawn under the Revolver. At June 30, 1996, the $250
million was limited to $62.0 million because $188.0 million in commercial
paper was outstanding.
In June 1996, CCPH entered into 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 June 14, 2001. The revolver
can be used for general corporate purposes. Fees and borrowing spreads
are predicated on the ratio of CCPH's funded debt to CCPH's earnings
before income taxes, interest, depreciation and amortization ("EBITDA").
Through December 31, 1996, the commitment fee is 35 basis points and
borrowings are at the Eurodollar offered rate plus 100 basis points. The
credit agreement contains various financial covenants including minimum
consolidated tangible net worth, minimum interest coverage and maximum
leverage ratio. CCPH does not anticipate any difficulty in maintaining
compliance with such covenants.
At June 30, 1996, $40.5 million of CCPH's Revolver was outstanding.
CCPH used $5 million to repay amounts outstanding under a predecessor
revolver which was then cancelled. CCPH used $35 million to fund a
dividend to the Company in connection with acquisition of CCPH by the
Company.
The Company has a $50 million 364-day floating-rate revolving loan
agreement which expires in August 1996. In June 1996, the Company
borrowed $40 million under this agreement to acquire CCPH (see Note 4).
The amount was repaid in June and at June 30, 1996, no amounts were drawn
under this agreement. The Company's financing/leasing subsidiaries have
approximately $10.8 million in long-term borrowing agreements which were
used to acquire equipment during 1993 and 1991.
On July 30, 1996, the Railroad issued $50 million of 7.12% medium
term notes due 2001 and $30 million of 6.85% medium term notes due 1999
(together the "MTN's). The MTN's were issued under a $200 million shelf
registration declared effective July 23, 1996.
The Railroad has entered into various diesel fuel collar agreements
designed to mitigate significant changes in fuel prices. As a result,
approximately 17% of the Railroad's short-term diesel fuel requirements
for the period July 1996 through June 1997 are protected against
significant price changes.
The Railroad continues to negotiate with its three remaining
operating unions on a local level, while no agreements are pending
agreements may be reached that require significant lump sum payments. It
is too early to determine if separate agreements will be reached but
management believes available funding sources will be sufficient to meet
any required payments.
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.
Various borrowings of the Company's subsidiaries are governed by
agreements which contain financial and operating covenants. All entities
were in compliance with these covenant requirements at June 30, 1996, and
management does not anticipate any difficulty in maintaining such
compliance.
Certain covenants of the Railroad's debt agreements require specific
levels of tangible net worth but not a specific dividend restriction. The
Railroad paid dividends to the Company of $107.7 million in 1995, $42.5
million in 1994 and $27.4 million in 1993. At June 30, 1996, the Railroad
exceeded its tangible net worth covenant by $30.6 million. Through July
1996, the Railroad has declared and paid total dividends of $94.4 million
to the Company, which includes the March 1996 transfer by the Railroad
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's Revolver requires a specific level of tangible net worth but
not a specific dividend restriction. This provision of CCPH's Revolver
is effective September 30, 1996.
Long-Term Equity Enhancement Program
The Company paid its seventeenth consecutive quarterly cash dividend
on April 9, 1996. The Board believes quarterly dividends are an integral
part of its announced Long-Term Equity Enhancement Program designed to
increase stockholder value through dividend payments and stock
repurchases. Actual dividends are declared by the Board of Directors
based on profitability, capital expenditure requirements, debt service and
other factors. At June 30, 1996, the Railroad exceeded its tangible net
worth covenant by $30.6 million.
During 1995, the Company acquired a total of 2,475,000 shares in
open market transactions for $60 million. While share repurchases were
intended to be an annual component of the Long-Term Equity Enhancement
Program, the Board concluded that alternative funding needs, most notably
the acquisition of CCP Holdings, Inc., the expansion of the intermodal
facility in Chicago, and the construction of a bulk transfer facility in
Louisiana warranted the suspension of share repurchases in 1996. The
Board intends to review the level of stock repurchase annually.
Environmental Liabilities
The Company's operations are subject to comprehensive environmental
regulation by federal, state and local authorities. Compliance with such
regulation requires the Company to modify its operations and expend
substantial manpower and financial resources.
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("Superfund"), and similar state and federal
laws, the Company is potentially liable for the cost of clean-up of
various contaminated sites. The Company has been notified that it is a
Potentially Responsible Party at sites ranging from those with hundreds
of potentially responsible parties to sites at which the Company is
primarily responsible. The Company generally participates in the clean-up
at sites where other substantial parties share responsibility through
cost-sharing arrangements, but under Superfund and other similar laws the
Company can be held jointly and severally liable for all environmental
costs associated with such sites.
The Company is aware of approximately 30 contaminated sites and
various fueling facilities at which it is probably liable for some portion
of the clean-up. The Company paid approximately $6.3 million in 1995
toward the investigation and remediation of those sites, and anticipates
future expenditures of between $1 million and $2 million annually.
Furthermore, recent amendments to the Clean Air Act require the
Environmental Protection Agency to promulgate regulations restricting the
level of pollutants in locomotive emissions which could impose significant
retrofitting requirements, operational inefficiencies or capital
expenditures in the future.
For all known sites of environmental contamination where Company
loss or liability is probable, the Company has recorded an estimated
liability at the time when a reasonable estimate of remediation cost and
Company liability can first be determined. Adjustments to initial
estimates are recorded as necessary based upon additional information
developed in subsequent periods. Estimates of the Company's potential
financial exposure for environmental claims or incidents are necessarily
imprecise because of the difficulty of determining in advance the nature
and extent of contamination, the varying costs of alternative methods of
remediation, the regulatory clean-up standards which will be applied, and
the appropriate allocation of liability among multiple responsible
parties. At June 30, 1996, the Company estimated the probable range of
its estimated liability to be $14.0 million to $48.5 million, and in
accordance with the provisions of SFAS No. 5 had a reserve of $14.0
million for environmental contingencies. This amount is not reduced for
potential insurance recoveries or third-party contribution where the
Company is primarily liable.
The risk of incurring environmental liability in connection with
both past and current activities is inherent in railroad operations.
Decades-old railroad housekeeping practices were not always consistent
with contemporary standards, historically the Company leased substantial
amounts of property to industrial tenants, and the Company continues to
haul hazardous materials which are subject to occasional accidental
release. Because the ultimate cost of known contaminated sites cannot be
definitively established and because additional contaminated sites yet
unknown may be discovered or future operations may result in accidental
releases, no assurance can be given that the Company will not incur
material environmental liabilities in the future. However, based on its
assessments of the facts and circumstances now known, management believes
that it has recorded adequate reserves for known liabilities and does not
expect future environmental charges or expenditures to have a material
adverse effect on the Railroad's financial position, results of
operations, cash flow or liquidity.
CCP Holdings, Inc. Acquisition
On June 13, 1996, the Railroad used proceeds it received from the
issuance of Commercial Paper (average interest rate 5.52% and average
maturity 30 days) to pay a $50.0 million dividend to the Company and to
loan $59.9 million (5.625% per annum) to the Company. The Company used
the $109.9 million and its bank credit lines to acquire CCP Holdings, Inc.
("CCPH"). The transaction closed June 13, 1996, following the effective
date of the approval order issued by the Surface Transportation Board
("STB"). The purchase price was $144.5 million in cash (including $1.6
million in sellers' expenses), the assumption of approximately $2.5
million in debt, and approximately $17.3 million of capitalized lease
obligations. Additionally, the actual purchase price is subject to
various potential adjustments for up to one year after the closing date.
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.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a fair
value based method of accounting for stock-based compensation plans. The
Company has elected to measure compensation cost using the intrinsic value
based method as permitted under SFAS 123.
In June 1996, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 125-Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125"). SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. The standard is effective for
events occurring after December 31, 1996 and is to be applied
prospectively. Earlier or retroactive application is not permitted. The
Company is reviewing the standard to ascertain its impact on its
receivable sales program. No determination has been made to date.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index on page E-1
(b) Reports on Form 8-K:
Pro-forma financial statements related to the acquisition of CCP
Holdings, Inc. were filed May 15, 1996.
Consummation of acquisition of CCP Holdings, Inc. filed
June 27, 1996.
Revision to Form 8-K filed May 15, 1996 was filed July 15, 1996.
ILLINOIS CENTRAL CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf
by the undersigned hereto duly authorized.
ILLINOIS CENTRAL CORPORATION
/s/ DALE W. PHILLIPS
Dale W. Phillips
Vice President &
Chief Financial
Officer
/s/ JOHN V. MULVANEY
John V. Mulvaney
Controller
Date: August 13, 1996
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
4 Amendment No. 1, dated as of April 29, 1996
to the Third Amended and Revolving Credit
Agreement, between Illinois Central Railroad
Company and The First National Bank of Boston
initially dated as of April 2, 1993, amended
and restated as of October 27, 1993,
further amended and restated as of November 1,
1994, and further amended and restated as of
April 28, 1995. (Incorporated by reference from
Exhibit 4 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, for
Illinois Central Railroad Company
filed on August 13, 1996. (SEC File No. 1-7092))
11 Computation of Income per Common Share E-1
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).
(A) Included herein as filed but not reproduced
EXHIBIT 11
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
1996 1995 1996 1995
Income before extraordinary
item $ 31.4 $ 29.6 $ 64.5 $ 63.9
Extraordinary item,
net - (11.4) - (11.4)
Net income $ 31.4 $ 18.2 $ 64.5 $ 52.5
Calculation of average number
of shares outstanding:
Primary:
Weighted average number
of common 61,421,032 62,843,637 61,423,218 63,231,657
outstanding
Effect of shares
issuable under stock
options 395,372 207,873 358,608 202,487
61,816,404 63,051,510 61,781,826 63,434,144
Fully diluted:
Weighted average
number of common
shares 61,421,032 62,843,637 61,423,218 63,231,657
outstanding
Effect of shares
issuable under stock
options(1) 374,269 206,843 374,269 206,843
61,795,301 63,050,480 61,797,487 63,438,500
Income per common share:
Primary:
Before extraordinary
item $ 0.51 $ 0.47 $ 1.04 $ 1.01
Extraordinary item,
net - (0.18) - (0.18)
Net income $ 0.51 $ 0.29 $ 1.04 $ 0.83
Fully diluted:
Before extraordinary
item $ 0.51 $ 0.47 $ 1.04 $ 1.01
Extraordinary item,
net - (0.18) - (0.18)
Net income $ 0.51 $ 0.29 $ 1.04 $ 0.83
(1) Such items are included in primary calculation. Additional shares
represent difference between average price of common stock for the
period and the end of period price.
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 18300
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<RECEIVABLES> 62500
<ALLOWANCES> 1500
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