-----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, BvJMOo7RJuTB+7wg13cksuNa3/XfWBkZNqgwT9g+cAgawuzw9LLP5Yh9Py/begXM hhF1kEiB9pF6kxZPBjUqqg== 0000859119-96-000032.txt : 19960814 0000859119-96-000032.hdr.sgml : 19960814 ACCESSION NUMBER: 0000859119-96-000032 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960813 ITEM INFORMATION: Acquisition or disposition of assets 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10720 FILM NUMBER: 96611163 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 8-K 1 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 -----END PRIVACY-ENHANCED MESSAGE-----