<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1996 Commission File Number 0-5206
----------------- ------
EMONS TRANSPORTATION GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2441662
-------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
96 South George Street, York, Pennsylvania 17401 (717-771-1700)
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code) (Telephone No.)
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
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
The number of shares of each class of common stock of the registrant issued
and outstanding as of December 31, 1996 is as follows:
Voting Common Stock 5,748,415
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1
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,421,794 $ 1,265,373
Accounts receivable, net 2,387,697 2,404,730
Materials and supplies 181,707 204,656
Prepaid expenses 157,722 339,523
Deferred income taxes 79,000 79,000
---------------- ---------------
Total current assets 4,227,920 4,293,282
---------------- ---------------
Property, plant and equipment 28,376,203 26,742,868
Less accumulated depreciation (9,082,752) (8,490,416)
---------------- ---------------
Property, plant and equipment, net 19,293,451 18,252,452
---------------- ---------------
Deferred expenses and other assets 210,692 244,180
---------------- ---------------
TOTAL ASSETS $ 23,732,063 $ 22,789,914
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,038,383 $ 967,837
Accounts payable 1,458,768 1,806,969
Accrued payroll and related expenses 837,765 876,472
Income taxes payable 103,468 84,108
Other accrued expenses 1,235,934 1,203,876
---------------- ---------------
Total current liabilities 4,674,318 4,939,262
Long-term debt 10,728,197 10,118,172
Other liabilities 627,174 600,861
Deferred income taxes 1,683,000 1,513,000
---------------- ---------------
Total Liabilities 17,712,689 17,171,295
---------------- ---------------
Stockholders' Equity:
Cumulative convertible preferred stock 14,023 16,802
Common stock 59,927 57,037
Additional paid-in capital 23,395,381 23,281,993
Deficit (17,183,398) (17,562,914)
---------------- ---------------
6,285,933 5,792,918
Unearned compensation - restricted stock awards (266,559) (174,299)
---------------- ---------------
Total Stockholders' Equity 6,019,374 5,618,619
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,732,063 $ 22,789,914
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues $ 4,094,299 $ 3,715,348 $ 8,024,193 $ 7,401,750
Operating expenses:
Cost of operations 2,770,865 2,541,084 5,446,778 5,026,776
Selling and administrative 761,175 693,926 1,496,545 1,351,793
------------ ------------ ------------ ------------
Total operating expenses 3,532,040 3,235,010 6,943,323 6,378,569
------------ ------------ ------------ ------------
Income from operations 562,259 480,338 1,080,870 1,023,181
Other income (expense):
Interest income 21,875 17,397 43,319 35,619
Interest expense (249,165) (272,562) (500,673) (543,743)
Other, net - (2,622) - 56,148
------------ ------------ ------------ ------------
Total other income (expense) (227,290) (257,787) (457,354) (451,976)
------------ ------------ ------------ ------------
Income before income taxes 334,969 222,551 623,516 571,205
Provision for income taxes 131,000 121,500 244,000 252,500
------------ ------------ ------------ ------------
Net income 203,969 101,051 379,516 318,705
Preferred dividend requirements 58,696 59,811 117,504 120,141
------------ ------------ ------------ ------------
Income applicable to common shareholders $ 145,273 $ 41,240 $ 262,012 $ 198,564
============ ============ ============ ============
Average common shares and common
share equivalents (Note 2) 6,307,998 6,167,612 6,240,709 6,119,803
============ ============ ============ ============
Earnings per common share and
common share equivalent (Note 2) $ 0.02 $ 0.01 $ 0.04 $ 0.03
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 379,516 $ 318,705
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 592,336 574,821
Amortization 63,918 63,489
Gain on sale of assets - (56,148)
Increase in deferred income taxes 170,000 183,000
Changes in assets and liabilities:
Accounts receivable, materials and
supplies and prepaid expenses 221,783 (284,507)
Accounts payable and accrued expenses (335,490) 1,023,504
Other assets and liabilities, net 26,313 10,118
-------------- --------------
Net cash provided by operating activities 1,118,376 1,832,982
-------------- --------------
Cash flow from investing activities:
Proceeds from sale of assets - 117,912
Additions to property, plant and equipment (1,633,335) (2,140,983)
Increase in deferred expenses (13,316) -
-------------- --------------
Net cash used in investing activities (1,646,651) (2,023,071)
-------------- --------------
Cash flow from financing activities:
Proceeds from issuance of long-term debt 1,176,719 493,149
Reduction in long-term debt (496,148) (298,411)
Proceeds from issuance of common stock 4,125 -
-------------- --------------
Net cash provided by financing activities 684,696 194,738
-------------- --------------
Net increase in cash and cash equivalents 156,421 4,649
Cash and cash equivalents at beginning of period 1,265,373 1,232,859
-------------- --------------
Cash and cash equivalents at end of period $ 1,421,794 $ 1,237,508
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended December 31, 1996
(unaudited)
Note 1. The information furnished herein has been prepared in accordance with
generally accepted accounting principles. In the opinion of the
management of Emons Transportation Group, Inc. (the "Company" or "Emons
Transportation Group"), all adjustments (which include only normal
recurring adjustments) considered necessary to present a fair statement
of the results for the periods covered by this report have been made.
Results for the interim periods are not necessarily indicative of
annual results.
Note 2. Earnings per common share is computed by dividing net earnings by the
weighted average number of common shares and common share equivalents
for the period. Earnings per common share for the three and six month
periods ended December 31, 1996 and 1995 does not include conversion of
convertible preferred stock because the effect of such inclusion would
be anti-dilutive.
Note 3. In November 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock Based Compensation." SFAS 123 encourages, but
does not require, accounting for stock based compensation awards on the
basis of fair value at the date the awards are granted. Under the fair
value based method of accounting, the fair value of awards is included
in expense on the statement of operations. Companies that do not
recognize compensation based upon fair value can continue to account
for awards under APB Opinion No. 25, "Accounting for Stock Issued to
Employees". However, they are required to disclose what net income and
earnings per share would have been under the fair value method. SFAS
123 is effective for fiscal years beginning after December 15, 1996 and
does not require disclosure in quarterly reports. The Company has
elected not to adopt the fair value method of accounting for stock
based compensation awards.
Note 4. At the Annual Meeting of stockholders of the Company held on November
20, 1996, the stockholders adopted the Emons Transportation Group, Inc.
1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan provides for
the issuance of up to 500,000 shares of the Company's Common Stock to
key employees. Under the 1996 Plan, the Company may grant either
Incentive Options or Non-Incentive Options at an exercise price not
less than 100% of the fair market value of the Company's Common Stock
at the date of grant. The number of shares and other terms and
conditions are to be determined by the Management Compensation
Committee of the Board of Directors.
At the Annual Meeting of stockholders of the Company held on November
20, 1996, the stockholders voted to amend the Company's Certificate of
Incorporation to increase the authorized number of shares of Common
Stock of the Company from eleven million to fifteen million.
Note 5. Emons Transportation Group is not currently a party to any legal
proceedings. However, Emons Industries, Inc. ("Industries"), a
subsidiary of the Company, is currently a defendant in 558 product
liability actions. The Company is in the process of cleaning up a fuel
oil leak at its locomotive maintenance facility in York, Pennsylvania.
5
<PAGE>
Product Liability Actions
-------------------------
Prior to March 1971, under previous management, Industries (then known
as Amfre-Grant, Inc.) was engaged in the business of distributing (but
not manufacturing) various generic and prescription drugs. Industries
sold and discontinued these business activities in March 1971 and
commenced its railcar leasing and railroad operations in October 1971.
One of the drugs which had been distributed was diethylstilbestrol
("DES"), which was taken by women during pregnancy to prevent
miscarriage.
As of December 31, 1996, Industries was one of numerous defendents
(including many of the largest pharmaceutical manufacturers) in 558
lawsuits in which the plaintiffs allege that DES caused adenosis,
infertility, cancer or birth defects in the offspring or grandchildren
of women who ingested DES during pregnancy. In these actions, liability
is premised on the defendant's participation in the market for DES, and
liability is several and limited to the defendant's share of the
market. Of these lawsuits, 552 were commenced after the confirmation of
Industries' Reorganization Plan in December 1986 (the "Plan"), while
the remaining 6 lawsuits are claims which will be treated under the
Plan. In one action, Industries is allegedly identified as the sole
defendant. These actions are currently in various stages of litigation.
Industries has filed a motion in Bankruptcy Court seeking a judgment
declaring that the 552 post-confirmation lawsuits represent claims
which should be asserted against Industries' Chapter 11 estate and are
not post-reorganization liabilities. In November 1994, the Bankruptcy
Court, in the context of a motion for a preliminary injunction, held
that it was likely that Industries would prevail on the merits of this
claim. Counsel has advised the Company that the Bankruptcy Court should
grant Industries' application to classify all of these cases as
bankruptcy claims. In addition, on February 14, 1995, the Bankruptcy
Court advised Industries that it would sign an order which would stay
execution of any judgment rendered against Industries pending
determination of Industries' application. The order, which was
submitted to the Court in March 1995, has not yet been signed.
Industries has product liability insurance and defense coverage for
nearly all the claims which fall within the policy period 1948 to 1970
up to varying limits by individual and in the aggregate for each policy
year. To date, Industries has not exhausted insurance coverage in any
policy year. During the period October 1, 1996 through December 31,
1996, 16 lawsuits were settled or dismissed at no liability to
Industries.
Management intends to vigorously defend all of these actions. In the
event that the post-reorganization lawsuits described above are not
treated under the Plan, it is possible that Industries could ultimately
have liability in these actions in excess of its product liability
insurance coverage described above. However, based on Industries'
experience in prior DES litigation, including the proceedings before
the Bankruptcy Court, and its current knowledge of pending cases, the
Company believes that it is unlikely that Industries' ultimate
liability, if any, in excess of insurance coverage and existing
reserves in the pending cases will be in an amount sufficient to have a
material adverse effect upon the Company's consolidated financial
position or results of operations.
Environmental Liability
-----------------------
During fiscal 1994, the Company discovered a diesel fuel oil leak at
its locomotive maintenance facility in York, Pennsylvania resulting
from the fueling of its locomotives.
6
<PAGE>
The Company is currently performing additional testing and is working
with the Pennsylvania Department of Environmental Protection to clean
up the contaminated area. In January 1997, in the next phase of its
testing procedures, the Company discovered free product in some of its
monitoring wells. The Company estimates that the cost to clean up the
free product will range from $100,000 to $200,000, depending upon a
variety of factors which are not known at this time. Further clean up
cost requirements, if any, are unknown at this time and will be
dependent upon further test results. The Company has provided what it
believes are sufficient reserves at this time for the anticipated clean
up costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Liquidity and Capital Resources
The Company's primary sources of liquidity include its cash and
accounts receivable, which aggregated $3,809,000 and $3,670,000 at December 31,
1996 and June 30, 1996, respectively, and the remaining balance under a $750,000
Senior Secured Term Loan Agreement (the "Agreement") issued by a local bank to a
subsidiary. The Company borrowed an additional $225,000 under this Agreement in
August 1996 to finance the acquisition of locomotives for the York, PA
operations, leaving a $325,000 balance available which may be borrowed through
June 30, 1997. The Company intends to use the balance remaining under this
Agreement to finance other projects to generate additional business and for
other business opportunities which may arise.
The Company's cash and cash equivalents increased $156,000 for the six
month period ended December 31, 1996. The net increase includes $1,118,000 of
cash provided by operations, and $681,000 of additional net borrowings, offset
by $1,633,000 of capital investments.
The Company generated $1,118,000 of cash from operations for the six
month period ended December 31, 1996 as compared to $1,833,000 for the
corresponding period in the prior year. Excluding changes in assets and
liabilities, cash provided by operations increased from $1,084,000 for the six
months ended December 31, 1995 to $1,206,000 for the six months ended December
31, 1996. Cash was reduced by $88,000 for changes in assets and liabilities in
the six months ended December 31, 1996, primarily as a result of a net reduction
in accounts payable and accrued expenses.
The Company invested $1,633,000 in capital expenditures during the
first six months of fiscal 1997, including $1,337,000 of investments in railroad
track structures (net of $679,000 of government grants) in connection with the
Company's continuing extensive track rehabilitation program, and a $224,000
investment in four locomotives for the York, PA operations. As of December 31,
1996, the Company has approximately $1 million of government grants for track
rehabilitation projects and almost $500,000 of government funding under no and
low interest loan programs available for future track rehabilitation projects.
The Company's long-term debt obligations increased $681,000 during the
six month period ended December 31, 1996 including $496,000 of scheduled debt
repayments offset by $1,177,000 of additional borrowings. Additional borrowings
include $225,000 of borrowings under the $750,000 Senior Secured Term Loan to
finance the acquisition of four locomotives for the York, PA operations, and
$941,000 of borrowings under government funded no and low interest loan track
rehabilitation programs.
7
<PAGE>
Analysis of Operations for the three months ended December 31, 1996
compared to the three months ended December 31, 1995
Results of Operations
The Company generated net income of $204,000 for the three month
period ended December 31, 1996 as compared to net income of $101,000 for the
three month period ended December 31, 1995. Operating revenues and operating
expenses increased $379,000 and $297,000, respectively, over the prior year,
while interest expense decreased $23,000 from the prior year. The provision for
income taxes increased $9,000 over the prior year.
Revenues
Operating revenues increased $379,000, or 10.2%, from $3,715,000 for
the three months ended December 31, 1995 to $4,094,000 for the corresponding
period in the current year. This increase consists of $382,000 additional
freight and haulage revenues (excluding intermodal freight), $65,000 additional
intermodal freight and handling revenues, and $21,000 additional other operating
revenues. These increases were partially offset by an $89,000 reduction in
logistics revenues.
Freight and haulage revenues increased $382,000, or 15.6%, consisting
of an 8% increase in the number of carloads handled and a 7% increase in average
revenues per carload. The total number of carloads handled increased
approximately 700 carloads from 8,500 for the quarter ended December 31, 1995 to
9,200 for the quarter ended December 31, 1996. The net increase includes 200
carloads attributable to a new local oil move on the St. Lawrence & Atlantic
Railroad ("SLR") in New England to an on-line paper manufacturer, 175 additional
carloads of building products to an on-line customer on SLR as a result of the
expansion of its operations, 100 additional carloads from a paper manufacturer
in York, PA as a result of an increase in business over a weak prior year, 200
additional bridge carloads in York, PA, and a net increase in a variety of other
business. These increases were partially offset by a decrease of approximately
150 agricultural carloads in York, PA as a result of rate increases imposed by a
connecting railroad. The 7% increase in average revenues per carload is
attributable to rate increases on SLR and higher rates on the local oil move on
SLR which encompass truck to rail transload services that are paid by SLR to an
independent contractor.
Logistics revenues generated by the Company's operations in York, PA
decreased $89,000, or 22.5%, for the quarter ended December 31, 1996 as compared
to the prior year quarter, including a 10% decrease in the number of railcars
handled. The prior year quarter included significant transfer and inventory
storage revenues for an on-line paper customer as a result of pulp and paper
supply conditions, and canned goods and related truck brokering business
continued to decline in the current year as the movement of this product
continues to shift to alternative modes of transportation. Increases in
business at the logistics lumber reload facility and for a feed broker which has
expanded its operations partially offset the aforementioned decreases. Despite
the shortfall in logistics carloads, freight and haulage revenues generated by
the Company's logistics operations increased slightly over the prior year.
The Company's rail intermodal terminal, which commenced operations on
SLR in September 1994, generated an additional $65,000 of freight and intermodal
handling revenues during the quarter ended December 31, 1996 as compared to the
corresponding quarter in the prior year. Intermodal volume increased by
approximately 1,350 trailers and containers, or 63%, from 2,150 trailers and
containers during the three month period ended December 31, 1995 to 3,500
trailers and containers during the three months ended December 31, 1996.
8
<PAGE>
Other operating revenues increased $21,000 in the current quarter as
compared to the same period in the prior year as a result of an increase in
easement income, including up front fees for a crossing agreement in the amount
of $85,000, and additional railcar storage income, partially offset by a
decrease in demurrage revenues.
Expenses
Operating expenses increased $297,000, or 9.2%, from $3,235,000 for
the three month period ended December 31, 1995 to $3,532,000 for the three month
period ended December 31, 1996. The increase consists of $230,000 additional
cost of operations and $67,000 additional selling and administrative expenses.
Cost of operations increased $230,000, or 9%, from $2,541,000 for the
three month period ended December 31, 1995 to $2,771,000 for the corresponding
period in the current year. The increase includes $308,000 additional railroad
operating expenses and $32,000 additional intermodal operating expenses,
partially offset by a $110,000 decrease in logistics operating expenses.
The increase in railroad operating expenses of $308,000 is primarily
attributable to additional transportation expenses and, to a lesser extent,
additional locomotive maintenance expenses, partially offset by a reduction in
maintenance of way expenses. The increase in transportation expenses includes
additional train operating costs associated with the 8% increase in carloads
handled. The new local oil move on SLR accounted for in excess of $100,000 of
the increase including fees for truck to rail transload costs paid to an
independent contractor. Locomotive fuel costs also increased significantly as a
result of substantial price increases during the current year. The increase in
locomotive maintenance expenses is attributable to a higher level of locomotive
repairs required in the current year for both the Pennsylvania and New England
operations as compared to the prior year. The reduction in maintenance of way
expenses is the result of more favorable weather conditions in the current year
as compared to the prior year, which included early snowfall and cold weather in
the Mid-Atlantic and Northeast regions in December 1995, flooding conditions
which washed out a section of track on SLR in November 1995, and costs incurred
in the prior year to clear a fire lane on SLR as a result of summer drought
conditions.
The $110,000 decrease in logistics operating expenses includes a
reduction in labor costs, freight and brokered freight expenses, property rent,
and a variety of other expenses as a result of the reduction in logistics
business in the current year.
Rail intermodal operating expenses increased $32,000 due to additional
fees paid to the terminal's independent operator as a result of the 63% volume
increase over the prior year.
Selling and administrative expenses increased $67,000, or 9.7%, from
$694,000 for the quarter ended December 31, 1995 to $761,000 for the quarter
ended December 31, 1996. The net increase consists of additional professional
fees and other expenses incurred to pursue potential business opportunities and
normal wage and other cost increases.
Interest expense decreased $23,000 for the three month period ended
December 31, 1996 as compared to the prior year, despite a modest increase in
the amount of long-term debt outstanding, due to the mix of debt which includes
a greater amount of no and low interest government trackwork loans in the
current year as compared to the prior year.
The provision for income taxes increased $9,000 from $122,000 for the
quarter ended December 31, 1995 to $131,000 for the quarter ended December 31,
1996 as a result of the
9
<PAGE>
$112,000 increase in income before income taxes and the mix of state taxable
income and deferred tax requirements.
Analysis of Operations for the six months ended December 31, 1996
compared to the six months ended December 31, 1995
Results of Operations
The Company generated net income of $380,000 for the six month period
ended December 31, 1996 as compared to net income of $319,000 for the six month
period ended December 31, 1995. Operating revenues and operating expenses
increased $622,000 and $565,000, respectively, over the prior year, while
interest expense decreased $43,000 from the prior year. Other income in the
amount of $56,000 in the prior year includes a $60,000 gain on the sale of non-
essential real estate. The provision for income taxes decreased $9,000 over the
prior year.
Revenues
Operating revenues increased $622,000, or 8.4%, from $7,402,000 for
the six months ended December 31, 1995 to $8,024,000 for the corresponding
period in the current year. This increase consists of $574,000 additional
freight and haulage revenues (excluding intermodal freight) and $115,000
additional intermodal freight and handling revenues. These increases were
partially offset by a $60,000 reduction in logistics revenues and a $7,000
decrease in other operating revenues.
Freight and haulage revenues increased $574,000, or 11.4%, consisting
of a 10% increase in the number of carloads handled and a 1.5% increase in
average revenues per carload. The total number of carloads handled increased
approximately 1,700 carloads from 17,200 for the six months ended December 31,
1995 to 18,900 for the six months ended December 31, 1996. The net increase
includes 260 carloads attributable to a new local oil move on SLR in New England
to an on-line paper manufacturer, 220 additional carloads of building products
to an on-line customer on SLR as a result of the expansion of its operations,
900 additional bridge carloads in York, PA, and a net increase in a variety of
other business. These increases were partially offset by a decrease of 200
paper related carloads on SLR as a result of lost business due to customers
using alternative woodpulp supply sources and routings, and 220 carloads to an
on-line warehouse and distribution services customer in York, PA. The 1.5%
increase in average revenues per carload is attributable to rate increases on
SLR and higher rates on the local oil move on SLR which encompass truck to rail
transload services that are paid by SLR to an independent contractor, partially
offset by the increased percentage of bridge cars in York, PA which are at lower
rates.
Logistics revenues generated by the Company's operations in York, PA
decreased $60,000, or 8.6%, for the six months ended December 31, 1996 as
compared to the prior year primarily as a result of an $81,000 decrease in truck
brokerage revenues associated with canned goods business, which generally
contributes low profit margins, and a decrease in paper storage revenues. The
number of railcars handled increased 3.3%, including an increase in business at
the logistics lumber reload facility and an increase in business for a feed
broker which has expanded its operations. These increases were offset by a
decrease in transfer and inventory storage revenues for an on-line paper
customer as a result of pulp and paper supply conditions, and a continued
reduction in canned goods and related truck brokering business as the movement
of this product continues to shift to alternative modes of transportation.
Freight and haulage revenues generated by the Company's logistics operations
increased $47,000 over the prior year.
10
<PAGE>
The Company's rail intermodal terminal, which commenced operations on
SLR in September 1994, generated an additional $115,000 of freight and
intermodal handling revenues during the first six months of fiscal 1997 as
compared to the first six months of the prior year. Intermodal volume increased
approximately 2,450 trailers and containers, or 55%, from 4,400 trailers and
containers during the six month period ended December 31, 1995 to 6,850 trailers
and containers during the six months ended December 31, 1996.
Other operating revenues decreased $7,000 in the current year as
compared to the same period in the prior year. Easement income, including up
front fees for a crossing agreement in the amount of $85,000, railcar storage
income and third party track work revenues increased in the current year over
the prior year, but were more than offset by a decrease in demurrage revenues of
approximately $200,000.
Expenses
Operating expenses increased $565,000, or 8.9%, from $6,378,000 for
the six month period ended December 31, 1995 to $6,943,000 for the six month
period ended December 31, 1996. The increase consists of $420,000 additional
cost of operations and $145,000 additional selling and administrative expenses.
Cost of operations increased $420,000, or 8.4%, from $5,027,000 for
the six month period ended December 31, 1995 to $5,447,000 for the corresponding
period in the current year. The increase includes $466,000 additional railroad
operating expenses and $65,000 additional intermodal operating expenses,
partially offset by a $111,000 decrease in logistics operating expenses.
The increase in railroad operating expenses of $466,000 is primarily
attributable to additional transportation expenses and, to a lesser extent,
additional locomotive maintenance expenses, partially offset by a reduction in
maintenance of way expenses. The increase in transportation expenses includes
additional train operating costs associated with the 10% increase in carloads
handled. The new local oil move on SLR accounted for approximately $150,000 of
the increase including fees for truck to rail transload costs paid to an
independent contractor. Locomotive fuel costs also increased significantly as a
result of substantial price increases during the current year. The increase in
locomotive maintenance expenses is attributable to a higher level of locomotive
repairs required in the current year for both the Pennsylvania and New England
operations as compared to the prior year. The reduction in maintenance of way
expenses is the result of more favorable weather conditions in the current year
as compared to the prior year, which included early snowfall and cold weather in
the Mid-Atlantic and Northeast regions in December 1995, flooding conditions
which washed out a section of track on SLR in November 1995, and costs incurred
in the prior year to clear a fire lane on SLR as a result of drought conditions.
The $111,000 decrease in logistics operating expenses is attributable
to a $91,000 decrease in freight and brokered freight expenses attributable to
the decrease in canned goods business in the current year.
Rail intermodal operating expenses increased $65,000 due to additional
fees paid to the terminal's independent operator as a result of the 55% volume
increase over the prior year.
Selling and administrative expenses increased $145,000, or 10.7%, from
$1,352,000 for the six months ended December 31, 1995 to $1,497,000 for the six
months ended December 31, 1996. The net increase consists of additional
professional fees and other expenses incurred to pursue potential business
opportunities and normal wage and other cost increases.
11
<PAGE>
Interest expense decreased $43,000 for the six month period ended
December 31, 1996 as compared to the prior year, despite an increase in the
amount of long-term debt outstanding, due to the mix of debt which includes a
greater amount of no and low interest government trackwork loans in the current
year as compared to the prior year.
The provision for income taxes decreased $9,000 from $253,000 for the
first six months of fiscal 1996 to $244,000 for the first six months of fiscal
1997 despite a $52,000 increase in pre-tax income as a result of the mix of
state taxable income and deferred tax requirements.
PART II.
Item 1. Legal Proceedings
As previously reported in Item 3 of the Emons Transportation Group,
Inc. Annual Report on Form 10-K for the fiscal year ended June 30, 1996, in
which reference is hereby made, Emons Transportation Group, Inc. is not
currently a party to any legal proceedings. However, Emons Industries, Inc. is
currently a defendant in approximately 558 product liability actions.
Item 3. Default Upon Senior Securities
On June 19, 1996 and November 20, 1996, the Board of Directors voted
to omit the regular semi-annual dividend of $0.07 per share on its $0.14
Cumulative Convertible Preferred Stock which would have been payable on July 1,
1996 and January 2, 1997, respectively. Dividends in arrears as of the date of
this report aggregated $1,523,219.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of stockholders of Emons Transportation Group,
Inc. held on November 20, 1996, the stockholders:
(a) elected Messrs. Robert Grossman, Robert J. Smallacombe, Alfred P. Smith,
and Dean H. Wise, and Ms. Kimberly A. Madigan as directors of the
Company to serve in such capacity until their successors are elected and
qualified,
(b) adopted the Emons Transportation Group, Inc. 1996 Stock Option Plan,
(c) amended the Company's Certificate of Incorporation to increase the
authorized number of shares of Common Stock of the Company from eleven
million to fifteen million, and
(d) ratified the appointment of Arthur Andersen LLP as independent
accountants to audit the financial statements of the Company for the
year ended June 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) An index to exhibits appears following the signature page to this
report.
(b) No reports on Form 8-K were filed during the three month period
ended December 31, 1996.
12
<PAGE>
SIGNATURES
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 thereunto duly authorized.
EMONS TRANSPORTATION GROUP, INC.
Date: February 11, 1997 By: /s/Scott F. Ziegler
----------------- ----------------
Scott F. Ziegler
Vice President-Finance and Controller
(signing on behalf of the registrant
as both its duly authorized officer
and its principal accounting officer)
13
<PAGE>
EXHIBITS
The following exhibits are filed as a part of this report. For
convenience of reference, exhibits are listed according to numbers assigned in
the Exhibit Table of Item 601 of Regulation S-K under the Securities Exchange
Act of 1934.
<TABLE>
<CAPTION>
Page in
Exhibit Sequentially
Number Exhibit Numbered Copy
<S> <C> <C>
3 (a) Certificate of Incorporation for Emons Holdings, Inc. dated December
19, 1986 (incorporated by reference from Emons Holdings, Inc. Report on
Form 10-K for the year ended June 30, 1987, Exhibit Number 3 (a)) ---
3 (b) Certificate of Amendment of Certificate of Incorporation of Emons
Holdings, Inc. dated September 26, 1989 (incorporated by reference from
Emons Holdings, Inc. Report on Form 10-Q for the quarter ended September
30, 1989, Exhibit Number 3 (b)) ---
3 (c) Amended and Restated By-Laws for Emons Holdings, Inc. (incorporated by
reference from Emons Holdings, Inc. Report on Form 10-Q for the quarter
ended September 30, 1989, Exhibit Number 3 (c)) ---
3 (d) Certificate of Amendment of Certificate of Incorporation of Emons
Holdings, Inc. dated November 18, 1993 (incorporated by reference from
Emons Transportation Group, Inc. Report on Form 10-Q for the quarter
ended December 31, 1993, Exhibit Number 3 (d)) ---
11 (a) Earnings per share calculation 15
27 (a) Article 5 of Regulation S-X, Financial Data Schedules ---
</TABLE>
14
<PAGE>
Exhibit 11 (a)
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
Three Months Six Months
-------------------------- --------------------------
Fully Fully
Primary Diluted Primary Diluted
EPS EPS EPS EPS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Period Ended December 31, 1996
- ------------------------------
A. Average number of common shares outstanding 5,745,570 5,745,570 5,727,597 5,727,597
B. Average number of common share equivalents assuming
conversion of options (calculated using the treasury method) 562,428 594,413 513,112 579,813
---------- ---------- ---------- ----------
C. Subtotal 6,307,998 6,339,983 6,240,709 6,307,410
D. Average number of common share equivalents assuming
conversion of convertible preferred stock 1,509,325 1,509,325 1,510,766 1,510,766
---------- ---------- ---------- ----------
E. Total average common share and common share equivalents 7,817,323 7,849,308 7,751,475 7,818,176
F. Net income $ 203,969 $ 203,969 $ 379,516 $ 379,516
G. Preferred dividend requirements 58,696 58,696 117,504 117,504
---------- ---------- ---------- ----------
H. Earnings applicable to common stock 145,273 145,273 262,012 262,012
I. Earnings per share - no conversion of preferred stock (H/C) $ 0.02 $ 0.02 (1) $ 0.04 $ 0.04 (1)
J. Earnings per share - assuming conversion of preferred stock (F/E) 0.03 (1) 0.03 (1) 0.05 (1) 0.05 (1)
Period Ended December 31, 1995
- ------------------------------
A. Average number of common shares outstanding 5,685,907 5,685,907 5,679,224 5,679,224
B. Average number of common share equivalents assuming
conversion of options (calculated using the treasury method) 481,705 481,705 440,579 455,199
---------- ---------- ---------- ----------
C. Subtotal 6,167,612 6,167,612 6,119,803 6,134,423
D. Average number of common share equivalents assuming
conversion of convertible preferred stock 1,537,988 1,537,988 1,544,673 1,544,673
---------- ---------- ---------- ----------
E. Total average common share and common share equivalents 7,705,600 7,705,600 7,664,476 7,679,096
F. Net income $ 101,051 $ 101,051 $ 318,705 $ 318,705
G. Preferred dividend requirements 59,811 59,811 120,141 120,141
---------- ---------- ---------- ----------
H. Earnings applicable to common stock 41,240 41,240 198,564 198,564
I. Earnings per share - no conversion of preferred stock (H/C) $ 0.01 $ 0.01 (1) $ 0.03 $ 0.03 (1)
J. Earnings per share - assuming conversion of preferred stock (F/E) 0.01 (1) 0.01 (1) 0.04 (1) 0.04 (1)
</TABLE>
(1) Not material or anti-dilutive.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
EMONS TRANSPORTATION GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,421,794
<SECURITIES> 0
<RECEIVABLES> 2,487,082
<ALLOWANCES> 99,385
<INVENTORY> 181,707
<CURRENT-ASSETS> 4,227,920
<PP&E> 28,376,203
<DEPRECIATION> 9,082,752
<TOTAL-ASSETS> 23,732,063
<CURRENT-LIABILITIES> 4,674,318
<BONDS> 10,728,197
0
14,023
<COMMON> 59,927
<OTHER-SE> 5,945,424
<TOTAL-LIABILITY-AND-EQUITY> 23,732,063
<SALES> 0
<TOTAL-REVENUES> 8,024,193
<CGS> 0
<TOTAL-COSTS> 5,446,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 500,673
<INCOME-PRETAX> 623,516
<INCOME-TAX> 244,000
<INCOME-CONTINUING> 379,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379,516
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
