-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RUL3f0W/0Ouj1BWY+FhajeEKI39zNcxnjvYr6rmplqqgM3F5RHuBeIlHUhNPbj+h TAw2h2EzukKAYjvRVocigg== 0000859119-96-000031.txt : 19960814 0000859119-96-000031.hdr.sgml : 19960814 ACCESSION NUMBER: 0000859119-96-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS CENTRAL CORP CENTRAL INDEX KEY: 0000859119 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 133545405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10720 FILM NUMBER: 96611091 BUSINESS ADDRESS: STREET 1: 455 N CITYFRONT PLZ DR STREET 2: 20TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60611-5504 BUSINESS PHONE: 3127557500 MAIL ADDRESS: STREET 1: 455 NORTH CITYFRONT PLAZA DR STREET 2: 455 NORTH CITYFRONT PLAZA DR CITY: CHICAGO STATE: IL ZIP: 60611 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 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 EX-11 2 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. EX-27 3
5 6-MOS DEC-31-1995 JUN-30-1995 18300 0 62500 1500 18600 135000 1611000 44600 1727600 178700 573200 0 0 0 510000 1727600 316000 316000 199300 199300 (1100) 0 14600 103200 38700 64500 0 0 0 64500 1.04 1.04
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