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) June 13, 1996
Illinois Central Corporation
Exact name of Registrant as specified in its charter
Delaware 1-10720 13-3545405
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) 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
Item 2. Acquisition and Disposition of Assets
On January 17, 1996, IC announced a definitive agreement for the
acquisition of CCPH 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, the assumption of approximately
$2.5 million in debt, and approximately $17.3 million of capitalized
lease obligations.
The registrant purchased the stock of CCPH (see Exhibit 2 of Form
8-K as of May 15, 1996 (SEC File No. 1-10720))from CCPH's three
stockholders and has accounted 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 registrant used its existing bank credit lines and funds
received from its operating subsidiary, the Illinois Central
Railroad Company (the "Railroad"), to fund the acquisition. The
Railroad used proceeds from the issuance of its commercial paper to
provide the monies needed to make a dividend of $50.0 million and a
loan of $59.9 million to IC.
Item 7. Financial Statements and Exhibits
(a) Historical financial statements of CCPH for the period
January 1, 1996, to June 13, 1996 and years ended
December 31, 1995 and 1994
See Index at page 4.
(b) Historical financial statements of CCPH for each of the
three years in the period ended December 31, 1995. See
Form 8-K dated as of May 15, 1996 (SEC File No. 1-10720).
(c) Pro Forma financial information
See Index at page 4 and description on P-1.
(d) 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 CORPORATION
John V. Mulvaney
Controller
Date: August 13, 1996
CCP HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Balance Sheets at June 13, 1996 and
December 31, 1995 F-2
Consolidated Statements of Income for the period
January 1, 1996 to June 13, 1996 and for the years
ended December 31, 1995 and 1994 F-3
Consolidated Statements of Cash Flows for the period
January 1, 1996 to June 13, 1996 and for the years
ended December 31, 1995 and 1994 F-4
Notes to Consolidated Financial Statements F-5
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 Six Months Ended June 30, 1996 P-2
Notes to Pro Forma Condensed Consolidated Statements of
Income for the Six Months Ended June 30, 1996 P-3
Pro Forma Condensed Consolidated Statement of Income for
the year Ended December 31, 1995 P-4
Notes to Pro Forma Condensed Consolidated Statement of
Income for the year Ended December 31, 1995 P-5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Illinois Central Corporation:
We have audited the accompanying consolidated balance sheets of CCP
HOLDINGS, INC. (a Delaware corporation) and its subsidiaries (the
Company), as of June 13, 1996 and December 31, 1995, and the related
consolidated statements of income and cash flows for the period January
1, 1996, to June 13, 1996, and for the years ended December 31, 1995
and 1994. 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. and its subsidiaries as of June 13, 1996 and December
31, 1995, and the results of their operations and their cash flows for
the period January 1, 1996, to June 13, 1996, and for the years ended
December 31, 1995 and 1994, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 3, 1996
CCP Holdings, Inc.
Consolidated Balance Sheets
($ in 000's)
(Unaudited)
June 30, December 31
ASSETS 1996 1995
Current Assets:
Cash and cash equivalents $ 4,853 $ 15,799
Accounts receivable 14,106 15,884
Income taxes receivable 1,319 -
Materials and supplies 3,351 2,893
Prepaid expenses 528 497
Deferred income tax asset 4,602 1,529
Total current assets 28,759 36,602
Property and equipment:
Road property 113,640 111,801
Equipment 38,279 38,442
151,919 150,243
Less: Accumulated depreciation (36,901) (34,577)
Net property and equipment 115,018 115,666
Other assets 183 718
Total assets $ 143,960 $ 152,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 15,586 $ 10,855
Income taxes payable 70 947
Employee compensation and vacations 3,181 2,750
Taxes other than income taxes 1,852 1,519
Other accrued expenses 3,063 4,496
Current maturities of long-term debt 409 5,758
Current maturities of capital leases 998 937
Total current liabilities 25,159 27,262
Long-Term Liabilities:
Long-term debt, less current
maturities 2,109 18,867
Capital leases, less current
maturities 16,351 16,791
Deferred income tax liability 25,396 23,959
Other long-term obligations 3,411 3,210
Deferred rehabilitation grants 8,613 8,766
Total long-term liabilities 55,880 71,593
Total liabilities 81,039 98,855
Stockholders' equity:
Common stock, no par value; 80,000 shares
authorized, 7,600 shares issued and
outstanding 8 8
Additional paid-in capital 11,149 -
Retained earnings:
Balance, beginning of year 54,123 43,900
Net income for the year (2,359) 11,933
Dividend paid - (1,710)
Balance, end of year 51,764 54,123
Total stockholders' equity 62,921 54,131
$ 143,960 $ 152,986
The accompanying notes are an integral part of these statements
F-2
CCP Holdings, Inc.
Consolidated Statements of Income
For The Period January 1, 1996 to June 13, 1996
And For The Years Ended December 31, 1995 and 199
($ in 000's)
January 1, 1996,
To June 13, 1996 1995 1994
Revenues $ 39,830 $ 76,039 $ 60,483
Operating expenses:
Operating expenses excluding
depreciation and amortization 40,694 47,449 45,338
Depreciation and amortization 2,715 5,529 5,347
Total operating expenses 43,409 52,978 50,685
(Loss) Income from operations (3,579) 23,061 9,798
Other income (expense):
Interest expense (1,253) (4,077) (4,487)
Other income 748 870 450
(Loss) Income before income taxes (4,084) 19,854 5,761
Provision for income taxes:
Currently payable - 3,958 487
Deferred taxes (1,725) 3,963 2,012
Net (loss) income $ (2,359) $ 11,933 $ 3,262
The accompanying notes are an integral part of these statements
F-7
CCP Holdings, Inc.
Consolidated Statements of Cash Flows
For The Period January 1, 1996 to June 13,
And For The Year Ended December 31, 1995 and 1994
($ in 000's)
January 1, 1996
To June 13, 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary
item $ (2,359) $ 11,933 $ 3,262
Adjustments to reconcile
income before extraordinary
item to net cash provided by
operating activities:
Depreciation and amortization 2,715 5,529 5,347
Net gain on sale of property
and equipment (69) (285) (198)
Deferred income taxes (1,725) 3,963 2,012
Change in assets and liabilities:
Accounts receivable 459 (5,065) 613
Materials and supplies (458) 63 295
Prepaid expenses (31) 20 319
Other assets 138 - -
Accounts payable 4,731 5,640 (536)
Income taxes payable (877) 178 760
Employee compensation and vacation 431 496 151
Taxes other than income taxes 333 66 -
Other accrued expenses (1,433) 113 (794)
Other long-term obligations 201 - (199)
Net cash provided by operating
activities 2,056 22,651 11,032
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment 187 390 7,520
Expenditures on construction in progress
and property and equipment (2,066) (4,570) (13,714)
Other assets 214 - (151)
Net investments in equity securities - 1,433 (1,433)
Net cash provided by investing
activities (1,665) (2,747) (7,778)
CASH FLOWS FROM OPERATING ACTIVITIES:
Payments of long-term debt and capital
leases (22,486) (6,463) (6,330)
Increase in long-term debt - 176 1,701
Refinancing costs - (23) -
Deferred rehabilitation grants - 132 626
Dividends paid - (1,710) -
Additional paid-in capital 11,149 - -
Net cash provided by operating
activities (11,337) (7,888) (4,003)
Increase (decrease) in cash & cash
equivalents (10,946) 12,016 (749)
Cash & cash equivalents, beginning
of year 15,799 3,783 4,532
Cash & cash equivalents, end
of year $ 4,853 $ 15,799 $ 3,783
SUPPLEMENTAL DISCLOSURES:
Schedule of noncash investing and financing activities:
Capital lease financing $ - $ - $ -
Cash paid during the year for:
Interest $ 1,565 $ 4,167 $ 4,487
Income taxes 1,990 3,434 187
The accompanying notes are an integral part of these statements
F-9
CCP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 13, 1996 AND DECEMBER 31, 1995
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.
At June 13, 1996, 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.
On June 13, 1996, all of the outstanding common stock of the Company
was purchased by Illinois Central Corporation, in a change of control
of the Company, for approximately $144.5 million in cash. The actual
purchase price is subject to various potential adjustments for up to
one year after the closing date. The accompanying consolidated
financial statements were prepared as of the close of business on June
13, 1996, before reflecting any adjustments under the purchase method
of accounting as a result of the sale of the Company.
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 a 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.
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 a road asset is retired, its cost, less any
proceeds from sale, is charged to accumulated depreciation. For
extraordinary retirements and retirements of other property and
equipment, 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
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 primarily reflect (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
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 were capitalized and amortized to interest expense.
Customer 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 REFINANCING COSTS:
Included in other assets as of June 13, 1996 and December 31, 1995, are
refinancing costs of $698,000, net of accumulated amortization of
$698,000 and $380,000, respectively. These costs were amortized on a
straight-line basis over the life of the loan. Amortization expense
totaled $318,000, $121,000, and $135,000 for the period January 1,
1996, to June 13, 1996, and for 1995 and 1994, 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. Pursuant to
the sale of the Company, this revolving line of credit was terminated
on June 14, 1996.
5. LONG-TERM DEBT:
Long-term debt at June 13, 1996, and December 31, 1995, consists of
debt on the books of the Railroads and one real estate management
company as follows (in 000's):
June 13, December 31,
1996 1995
Term Notes Payable $ - $ 21,250
Interest-free loans from government
for rehabilitation projects, payable in
various installments through August,
1997, secured by the related road
property (see below) 652 652
Installment note payable - 28
Promissory Note, secured by a first
mortgage on the related track structure - 465
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) 1,866 1,884
Promissory Note, secured by a first
mortgage on the related office building - 346
Total $2,518 $ 24,625
Less- Current maturities 409 5,758
Long-term portion $2,109 $ 18,867
Long-term debt matures as follows: (in 000's)
Year Amount
1996 remainder of year $ 409
1997 350
1998 268
1999 268
2000 268
2001 268
2002 and thereafter 687
$ 2,518
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 of $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.
This Railroad has also entered into a capital lease for 100 covered
hoppers, with interest at 11.5%, payable in monthly installments of
$300 per car and increasing 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 June 13, 1996 are as
follows (in 000's):
1996 remainder of year 1,709
1997 2,970
1998 2,970
1999 3,337
2000 2,772
2001 4,056
2002 and thereafter 11,145
Total minimum lease payments 28,959
Less amount representing interest 11,610
Present value of future minimum
lease payments 17,349
Less current maturities 998
Long-term capital lease
obligation $16,351
The covered hoppers have been included in property and equipment on the
accompanying consolidated balance sheets at the net present value at
the inception of the leases which totaled $18,928,000, net of
$4,898,000 of amortization at June 13, 1996.
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 $1,068,000, $3,830,000 and $3,506,000 for the period
January 1, 1996, to June 13, 1996, and for 1995 and 1994, respectively.
Future minimum lease payments on operating leases at June 13, 1996, are
as follows (in 000's):
1996, remainder of year $ 1,993
1997 1,415
1998 1,273
1999 821
2000 760
2001 760
2002 and thereafter 3,680
Total minimum lease payments $10,702
8. INCOME TAXES:
The provision for income taxes from continuing operations consisted of
the following (in 000's):
January 1, 1996,
to June 13, 1996 1995 1994
Federal
Current $ - $ 3,292 $ 426
Deferred (1,466) 3,369 1,710
(1,466) 6,661 2,136
State
Current - 666 61
Deferred (259) 594 302
(259) 1,260 363
$ (1,725) $ 7,921 $ 2,499
The following summarizes the estimated tax effect of significant
cumulative temporary differences that are included in the net deferred
income tax liability (in 000 s):
June 13, December 31,
1996 1995
Property and equipment $25,162 $23,828
Federal alternative minimum tax
credit carryforwards (1,200) (1,395)
State alternative minimum tax
credit carryfowards (738) (759)
Federal net operating loss
carryforwards, expiring in 2011 (2,696) -
State net operating loss
carryforwards, expiring $476 in
2004 and $206 in 2011 (682) (698)
Reserves and accruals (2,517) (2,617)
Other items, net 3,465 3,671
Net deferred tax liability $20,794 $ 22,430
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:
January 1, 1996
to June 13, 1996 1995 1994
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes,
net of federal benefit 6.0 6.0 6.0
Other, net 2.2 (.1) 3.4
Effective tax rate 42.2% 39.9% 43.4%
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
rehabilitation 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 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.
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 medical benefits plan is currently unfunded; the Railroad
anticipates funding future claims with the Railroad's operating cash
flows.
The accumulated postretirement benefit oligations of the medical
benefits plan were as follows as of June 13, 1996, and December 31,
1995 (in 000 s):
June 13, December 31,
1996 1995
Accumulated postretirement
benefit obligation:
Retirees $ 376 $ 458
Fully eligible active plan
participants 349 611
Other active plan participants 1,709 1,940
Total APBO 2,434 3,009
Unrecognized net gain 776 201
Accrued liability for
postretirement benefits $3,210 $3,210
Assumptions used in accounting for the postretirement medical benefits
plan as of June 13, 1996, and December 31, 1995 and 1994, are as
follows:
June 13, December 31, December 31,
1996 1995 1994
Discount rate 6.96% 5.69% 7.50%
Annual turnover rate 3.18% 3.36% 0.99%
Average annual claim cost
per retiree $5,967 $5,840 $5,546
For the period January 1, 1996, to June 13, 1996, and for 1995 and
1994, 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.
Net gains or losses are recognized as net postretirement benefits costs
using a modified corridor approach. Amounts of net gains or losses in
excess of 10% of the accumulated postretirement benefit obligation as
of the beginning of the period (the corridor amount ) are deferred and
amortized over the estimated average remaining service period of active
plan participants. Amounts of net gains or losses less than or equal
to the corridor amount are recognized immediately.
The components of the net postretirement benefits cost for the period
January 1, 1996, to June 13, 1996, and for 1995 and 1994 were as
follows (in 000 s):
January 1, 1996,
to June 13, 1996 1995 1994
Service costs $66 $ 151 $ 184
Interest costs 77 222 213
Recognition of net gain (93) (240) (380)
Net postretirement benefits
costs $ 50 $ 133 $ 17
Based on the June 13, 1996, 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 $240,000.
For the period January 1, 1996, to June 13, 1996, the Company recorded
approximately $19,800,000 of employee compensation expense (excluding
related payroll taxes of approximately $390,000) to reflect the costs
of certain amounts awarded to selected railroad employees pursuant to
the sale of the Company to the Illinois Central Corporation on June 13,
1996.
Of this amount, under deferred compensation agreements, approximately
$18,600,000 was awarded to certain railroad officers. The after-tax
cost of these deferred compensation awards was funded by an approximate
$11,100,000 capital contribution by the majority shareholder of the
Company. As the amount of the capital contribution approximated the
after-tax amount of the deferred compensation awards, the net impact on
stockholders equity was not material.
The remaining amount of approximately $1,200,000 was paid to selected
Company employees on June 13, 1996, pursuant to cash awards granted on
June 10, 1996, by the Company s Board of Directors.
PRO FORMA FINANCIAL INFORMATION
General
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 six months
ended June 30, 1996 (the "Pro Forma Income Statements") were prepared
to illustrate the estimated effects of the acquisition of CCP Holdings,
Inc. ("CCPH") by IC (the "Acquisition")(See Below). The Pro Forma
Income Statements reflect the use of the purchase method of accounting
and assume that the Acquisition occurred as of January 1, 1995 and
January 1, 1996, respectively. The total purchase cost, including fees
and expenses, has been allocated to the assets and liabilities of CCPH
based on their appraised values.
The unaudited Pro Forma Income Statements have been presented
for informational purposes only, are not indicative of what IC's actual
results of operations would have been had the Acquisition occurred as
of January 1,1995 or January 1, 1996, respectively and do not purport
to indicate IC's consolidated results of operations for any future date
or period. In accordance with recent interpretations of Article 11 of
Regulation S-X, no adjustments have been made to reflect revised
operating policies and procedures, reduced employment levels and lower
materials expense as a result of IC's intended operating plan for CCPH.
Management believes that this plan would have lowered operating
expenses approximately $3.4 million for the three months ended March
31, 1996 and approximately $6.9 million for the year ended December 31,
1995. Additionally, anticipated revenue synergies have not been
quantified and are not included.
As the acquisition occurred in the six month period ended June
30, 1996 and CCPH's assets and liabilities are included in the
consolidated results for IC at June 30, 1996, a pro forma balance sheet
at June 30, 1996 is not presented.
The unaudited pro forma adjustments are based upon available
information and upon certain assumptions. The unaudited Pro Forma
Income Statements and the accompanying notes should be read in
conjunction with the selected historical consolidated financial
statements of IC and CCPH, including the notes thereto. IC's financial
statements are contained in its Form 10-Q for the six months ended June
30, 1996 (File No. 1-10720) filed with the Commission on August 13,
1996 and its Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-10720) filed with the Commission on March 11, 1996.
The historical audited consolidated financial statements of CCPH as of
December 31, 1995 and for each of the three years ended December 31,
1995 are contained in the IC's Form 8-K dated as of May 15, 1996 (SEC
File No. 1-10720). The historical audited consolidated financial
statements of CCPH as of June 13, 1996, and for the period January 1,
1996, to June 13, 1996 are contained herein. See index on page 4.
For a description of the acquisition see Item 2.
ILLINOIS CENTRALCORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Six Months Ended June 30, 1996
($ in millions)
(Unaudited)
ADJUSTMENTS/
IC CCPH ELIMINATIONS Pro Forma
Revenues $ 316.0 $ 39.8 $ $ 355.8
Operating
expenses 199.3 43.4 0.7 (1)
(18.6)(2) 224.8
Operating income 116.7 (3.6) 17.9 131.0
Interest expense,
net (14.6) (1.3) 0.6 (3)
(4.1)(4) (19.4)
Other income, net 1.1 0.8 1.9
Income before
income taxes 103.2 (4.1) 14.4 113.5
Provision for
income taxes 38.7 (1.7) 5.4 (5) 42.4
Net income $ 64.5 $ (2.4) $ 9.0 $ 71.1
Income per
share $ 1.04 $ 1.15
Weighted average number of shares of common stock and common stock
equivalents outstanding
61,781,826 61,781,826
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
SIX MONTHS ENDED JUNE 30 1996
The following is a summary of the adjustments/eliminations reflected in
the unaudited Pro Forma Condensed Consolidated Statement of Income for
the six months ended June 30, 1996.
1) Additional depreciation resulting from increased property
valuations based on an independent appraisal.
2) Reversal of compensation paid to certain employees of CCPH in
connection with the change of control. Amount is non-
recurring.
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.
4) Increased interest expense caused by the additional borrowings
required to finance the acquisition. Approximately $106
million was received from IC's subsidiary, Illinois Central
Railroad Company who issued commercial paper at 5.53% per
annum with an original maturity of 30 days. Approximately
$40 million was financed by IC using its bank lines with per
annum rate of 5.87%.
5) Reflects the tax effects of Pro Forma adjustments.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1995
($ in millions)
(Unaudited)
ADJUSTMENTS/
IC Corp CCPH ELIMINATIONS Pro Forma
Revenues $ 643.8 $ 76.0 $ $ 719.8
Operating
expenses 413.3 53.0 2.0 (1) 468.3
Operating
income 230.5 23.0 (2.0) 251.5
Interest
expense, net (29.5) (4.1) 0.3 (2)
(8.2)(3) (41.5)
Other income, net (0.2) 0.9 0.7
Income before
income taxes 200.8 19.8 (9.9) 210.7
Provision for
income taxes 71.0 7.9 (3.7)(4) 75.2
Income before
extraordinary item,
net $ 129.8 $ 11.9 $ (6.2) $ 135.5
Income per share
before extraordinary
item $ 2.06 $ 2.15
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.
P-7
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) Additional depreciation resulting from increased property
valuations based on an independent appraisal.
2) Elimination of CCPH's interest expense on the portion of the
beginning debt balance assumed paid off with cash available on
January 1, 1995.
3) Increased interest expense caused by the additional borrowings
required to finance the acquisition. Approximately $106
million was received from IC's subsidiary, Illinois Central
Railroad Company who issued commercial paper at 5.53% per
annum with an original maturity of 30 days. Approximately $40
million was financed by IC using its bank lines with per annum
rate of 5.87%.
4) Reflects the tax effects of Pro Forma adjustments.
ILLINOIS CENTRAL CORPORATION & SUBSIDIARIES
EXHIBIT INDEX
Sequential Page
Exhibit Index Description No.
23.1 Consent of Arthur Andersen LLP (A)
23.2 Consent of Arthur Andersen LLP (A)
(A) Included herein but not reproduced
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
ILLINOIS CENTRAL CORPORATION
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 and for each of the years in the three
year period ended December 31, 1995 in this Current Report on Form 8-K.
/s/Arthur Andersen LLP
Chicago, Illinois
August 13, 1996
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
ILLINOIS CENTRAL CORPORATION
As independent public accountants, we hereby consent to the
use of our report dated July 3, 1996 on the consolidated financial
statements of CCP Holdings, Inc. and its subsidiaries (the "Company")
as of June 13, 1996 and December 31, 1995 and for the period January 1,
1996, to June 13, 1996 and for the years ended December 31, 1995 and
1994, in this Current Report on Form 8-K.
/s/ Arthur Andersen LLP
Chicago, Illinois
August 13, 1996
