<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 September 30, 1998 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 September 30, 1998 is as follows :
Voting Common Stock 6,082,068
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EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,750,871 $ 2,677,004
ACCOUNTS RECEIVABLE, NET 2,255,420 2,210,900
MATERIALS AND SUPPLIES 210,136 191,845
PREPAID EXPENSES 387,641 375,004
DEFERRED INCOME TAXES 476,000 476,000
------------ ------------
TOTAL CURRENT ASSETS 5,080,068 5,930,753
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 32,334,255 31,548,588
LESS ACCUMULATED DEPRECIATION (11,219,290) (10,888,838)
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 21,114,965 20,659,750
------------ ------------
DEFERRED EXPENSES AND OTHER ASSETS 749,929 737,774
DEFERRED INCOME TAXES 1,123,000 1,345,000
------------ ------------
TOTAL ASSETS $ 28,067,962 $ 28,673,277
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 744,230 $ 1,335,408
ACCOUNTS PAYABLE 943,400 964,453
ACCRUED PAYROLL AND RELATED EXPENSES 1,628,673 1,665,185
OTHER ACCRUED EXPENSES 1,315,242 1,309,266
------------ ------------
TOTAL CURRENT LIABILITIES 4,631,545 5,274,312
LONG-TERM DEBT 10,561,624 11,006,767
OTHER LIABILITIES 770,739 758,238
------------ ------------
TOTAL LIABILITIES 15,963,908 17,039,317
------------ ------------
STOCKHOLDERS' EQUITY:
CUMULATIVE CONVERTIBLE PREFERRED STOCK 14,873 15,282
COMMON STOCK 60,821 60,398
ADDITIONAL PAID-IN CAPITAL 23,769,170 23,733,554
DEFICIT (11,417,496) (11,871,499)
------------ ------------
12,427,368 11,937,735
UNEARNED COMPENSATION - RESTRICTED STOCK AWARDS (323,314) (303,775)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,104,054 11,633,960
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,067,962 $ 28,673,277
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
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EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
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<S> <C> <C>
OPERATING REVENUES $ 5,079,160 $ 4,102,957
OPERATING EXPENSES:
COST OF OPERATIONS 3,369,638 2,774,138
SELLING AND ADMINISTRATIVE 868,455 764,159
----------- -----------
TOTAL OPERATING EXPENSES 4,238,093 3,538,297
----------- -----------
INCOME FROM OPERATIONS 841,067 564,660
OTHER INCOME (EXPENSE):
INTEREST INCOME 28,654 25,411
INTEREST EXPENSE (223,349) (348,094)
OTHER, NET 71,631 -
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (123,064) (322,683)
----------- -----------
INCOME BEFORE INCOME TAXES 718,003 241,977
PROVISION FOR INCOME TAXES 264,000 21,000
----------- -----------
NET INCOME 454,003 220,977
PREFERRED DIVIDEND REQUIREMENTS 53,002 55,121
----------- -----------
INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 401,001 $ 165,856
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES (NOTE 2):
BASIC 6,051,977 5,823,092
=========== ===========
DILUTED 7,862,420 6,336,244
=========== ===========
EARNINGS PER COMMON SHARE (NOTE 2):
BASIC $ 0.07 $ 0.03
=========== ===========
DILUTED $ 0.06 $ 0.03
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 454,003 $ 220,977
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 330,452 300,477
AMORTIZATION 36,217 24,875
GAIN ON FORGIVENESS OF DEBT (42,345) -
CHANGE IN DEFERRED INCOME TAXES 222,000 -
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE, MATERIALS AND
SUPPLIES AND PREPAID EXPENSES (75,448) 337,889
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (51,589) 10,231
OTHER ASSETS AND LIABILITIES, NET 104,662 74,080
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 977,952 968,529
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (785,667) (444,160)
INCREASE IN DEFERRED EXPENSES (124,442) (217,664)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (910,109) (661,824)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF LONG-TERM DEBT - 7,831,141
REDUCTION IN LONG-TERM DEBT (993,976) (7,838,538)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (993,976) (7,397)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (926,133) 299,308
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,677,004 1,515,188
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,750,871 $ 1,814,496
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
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EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1. QUARTERLY FINANCIAL STATEMENTS
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 SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("FAS 128") "Earnings per
Share." FAS 128 is effective for financial statements for reporting periods
ending after December 15, 1997, and requires restatement of earnings per share
data for all prior periods presented. The Company adopted FAS 128 in the second
quarter of fiscal 1998, which ended on December 31, 1997. Accordingly, earnings
per share for the three month period ended September 30, 1997 has been restated
to adopt the provisions of FAS 128.
Basic earnings per common share is computed by dividing income
applicable to common shareholders by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per common share is
computed by dividing income applicable to common shareholders by the weighted
average number of common shares and dilutive potential common shares outstanding
during the period. Diluted earnings per common share for the three month period
ended September 30, 1997, does not include the conversion of preferred stock
because the effect of such inclusion would be anti-dilutive.
Earnings per share amounts are computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
---------------------------------------------------------------------------------------
1998 1997
---------------------------------------- ----------------------------------------
Income Shares EPS Income Shares EPS
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 454,003 $ 220,977
Less: Preferred dividend
requirements (53,002) (55,121)
----------- -----------
Basic EPS
Income applicable to
common shareholders $ 401,001 6,051,977 $ 0.07 $ 165,856 5,823,092 $ 0.03
========= =========
Effect of Dilutive Securities
Stock options and warrants - 447,538 - 513,152
Convertible preferred stock 53,002 1,362,905 - -
----------- --------- ----------- ---------
Diluted EPS
Income applicable to common
shareholders plus assumed
conversions $ 454,003 7,862,420 $ 0.06 $ 165,856 6,336,244 $ 0.03
=========== ========= ========= =========== ========= ===========
</TABLE>
5
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The effect of this accounting change did not have a material impact on
previously reported earnings per share.
NOTE 3. POTENTIAL ACQUISITION OF RAILROAD OPERATIONS
In July 1998, the Company entered into an Agreement in Principle to
acquire, through a newly created wholly-owned subsidiary, St. Lawrence &
Atlantic Railroad (Quebec) Inc., a 94 mile rail line in Quebec, Canada from the
Canadian National Railway Company ("CN") for Can$7 million. The rail line
connects with CN's Halifax to Montreal main line at St. Rosalie, Quebec, and the
Company's St. Lawrence & Atlantic Railroad subsidiary at the Quebec/Vermont
international border.
NOTE 4. CONTINGENCIES
Certain subsidiaries of the Company are currently subject to a number
of claims and legal actions that arise in the ordinary course of business,
including claims under the Federal Employers' Liability Act, a fault based
system under which injuries to and deaths of railroad employees are settled by
negotiations or litigation based upon comparative negligence. The Company
believes that it has adequate insurance coverage and has provided adequate
reserves for any liabilities which may result from the ultimate outcome of these
claims.
PRODUCT LIABILITY ACTIONS
Prior to March 1971, under previous management, Emons Industries, Inc.
("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 September 30, 1998, Industries was one of numerous defendants
(including many of the largest pharmaceutical manufacturers) in 679 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, 674 were commenced after the
confirmation of Industries' Reorganization Plan in December 1986 (the "Plan"),
while the remaining five lawsuits are claims which will be treated under the
Plan. These actions are currently in various stages of litigation.
On April 16, 1998, the Bankruptcy Court granted Industries' motion for
summary judgment declaring that the post-confirmation lawsuits represent claims
which should be asserted against Industries' Chapter 11 estate and are not
post-reorganization liabilities. A formal judgment was entered by the court on
May 6, 1998. In September 1998, one counsel representing multiple DES claimants
appealed the Bankruptcy Court's judgment to the United States District Court.
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 July 1, 1998 to September 30, 1998, four new actions were commenced in
which Industries was named as a defendant and five lawsuits were settled or
dismissed at no liability to Industries. Included in the cases outstanding as of
September 30, 1998, 365 were commenced in the prior year in a single filing in a
state court in Ohio shortly before the effective date of a revision to Ohio's
product liability statute which, among other things, limits damages recoverable
from pain and suffering. On June 29, 1998, the Ohio Supreme Court ruled that
Ohio law would not permit DES cases in which the plaintiff could not identify
the
6
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manufacturer of DES allegedly ingested by mothers of DES plaintiffs. As a
result, 289 Ohio DES cases against the Company are subject to dismissal. Counsel
for these plaintiffs filed motions for reargument and to stay implementation of
the decision.
Management intends to vigorously defend all of these actions. In the
event that the bankruptcy decision is reversed by the appellate court, it is
possible that Industries could ultimately have liability in these actions in
excess of its product liability insurance coverage described above. However,
based upon 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's Maryland and Pennsylvania Railroad
("MPA") discovered a diesel fuel oil spill at its locomotive maintenance
facility in York, Pennsylvania, resulting from the fueling of its locomotives.
MPA is currently performing additional testing and is working with the
Pennsylvania Department of Environmental Protection ("PADEP") to investigate
and, to the extent necessary, remediate the contaminated area. In January 1997,
as a result of these testing activities, MPA discovered free product in some of
its monitoring wells. The Company estimates that the cost to remediate the free
product could potentially range from $100,000 to $200,000, although the final
costs have not yet been determined. The Company has provided sufficient reserves
for the anticipated remediation costs. PADEP could also potentially require
further investigation and, to the extent necessary, remediation of ground water
and/or soils at this facility at some point in the future. However, the Company
cannot determine at this time whether PADEP will require further investigation
and remediation, or what the ultimate costs of addressing this matter may be or
what effect, if any, they could have upon the Company's consolidated financial
position or results of operations.
RAILROAD INDUSTRY CONSOLIDATION
The Company routinely interchanges traffic with certain Class I
railroads that are currently undergoing consolidations. Consolidated Rail
Corporation, which interchanges traffic with the Company's Pennsylvania rail
operations, is being divided and acquired by the Norfolk Southern Railroad and
CSX Corporation. The Canadian National Railway, which interchanges traffic with
the Company's St. Lawrence & Atlantic Railroad, announced that it will acquire
the Illinois Central Railroad, pending approval from the Surface Transportation
Board. While the Company does not anticipate any significant negative impact as
a result of these consolidations, and believes that they may create additional
long-term opportunities for its railroad operations, there can be no assurance
that these consolidations will not have an unfavorable impact on the Company's
railroad operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Form 10-Q contains certain "forward-looking" statements regarding
future events and the future performance of Emons Transportation Group, Inc.
that involve risks and uncertainties that could cause actual results to differ
materially. Those risks and uncertainties include, but are not limited to,
economic conditions, customer demand, increased competition in the relevant
market, government regulation, and other factors described herein and in other
filings with the Securities and Exchange Commission that could cause the
Company's results to differ from its current expectations.
7
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity include its cash and
accounts receivable, which aggregated $4,006,000 and $4,888,000 at September 30,
1998 and June 30, 1998, respectively, the balance available under the Company's
$2 million working capital facility, and the amount temporarily repaid on the
seven year term loan, which is available for future borrowings. The Company
intends to utilize the $2 million working capital facility to help fund the
Company's internal growth activities and acquisition program. As of September
30, 1998, the Company had borrowings outstanding of $235,000 under the working
capital facility, and had additional availability of $1,275,000 computed in
accordance with the facility's eligibility criteria. As of September 30, 1998,
the Company temporarily repaid $650,000 of its $7,775,000 seven year term loan.
In July 1998, the Company entered into an Agreement in Principle to
acquire, through a newly created wholly-owned subsidiary, St. Lawrence &
Atlantic Railroad (Quebec) Inc., a 94 mile rail line (the "Sherbrooke Sub") in
Quebec, Canada from the Canadian National Railway Company ("CN") for Can$7
million. The rail line connects with CN's Halifax to Montreal main line at St.
Rosalie, Quebec, and SLR at the Quebec/Vermont international border. The Company
made a Can$100,000 deposit towards the purchase price upon execution of the
Agreement in Principle.
The Company's cash and cash equivalents decreased $926,000 for the
three month period ended September 30, 1998. The net decrease includes $978,000
of net cash provided by operations, offset by $786,000 of capital investments,
$124,000 of additional deferred expenses, and a $994,000 reduction in long-term
debt.
The Company generated $978,000 of cash from operations for the three
month period ended September 30, 1998, as compared to $968,000 for the
corresponding period in the prior year. Excluding changes in assets and
liabilities, cash provided by operations increased $454,000 from $546,000 for
the three months ended September 30, 1997 to $1,000,000 for the three months
ended September 30, 1998, as a result of improved operating performance in the
current year.
The Company invested $786,000 in capital expenditures during the first
three months of fiscal 1999, including a $458,000 investment in ten locomotives
and track equipment in anticipation of the acquisition of the Sherbrooke Sub
from CN, $254,000 of investments in railroad track structures (net of $107,000
of government grants), and $74,000 of other capital investments. As of September
30, 1998, the Company had approximately $500,000 of government grants and
approximately $300,000 of government funding under no interest loan programs
available for future track rehabilitation projects, customer sidings and other
track improvement projects. In addition, the Company was awarded a $763,000, 50%
matching grant from the State of Pennsylvania for the construction of a bulk
intermodal facility for the Company's logistics operations in York,
Pennsylvania. The $124,000 increase in deferred expenses consists primarily of
the deposit towards the purchase price of the Sherbrooke Sub and deferred costs
incurred in connection with the acquisition of the Sherbrooke Sub.
The Company's net long-term debt obligations decreased $994,000 during
the three month period ended September 30, 1998, including a $650,000 temporary
repayment of the term loan, which is available for future borrowings, and
scheduled debt repayments.
8
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ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
Results for the three month period ended September 30, 1998 are
impacted by several events which took place during the second quarter of fiscal
1998. First, the Company completed two rail acquisitions and entered into
agreements to lease and operate a third rail line (the "Acquired Operations").
Second, the Company renegotiated the Operating and Marketing Agreement between
the Company's St. Lawrence & Atlantic Railroad ("SLR") and the Canadian National
Railway Company ("CN"), SLR's primary connecting carrier, which became effective
October 1, 1997. The renegotiated agreement amends the revenue structure for
business transacted with CN, resulting in a reduction of SLR's operating
revenues from CN. In return, CN provided SLR with additional car hire expense
relief, agreed to forego interest on the $1.5 million promissory note due from
SLR, and agreed to forgive repayment of the $1.5 million promissory note over a
seven year period. The renegotiated agreement impacts operating revenues,
operating expenses, interest expense and non-operating income in the current
year.
The Company generated net income of $454,000 for the three month period
ended September 30, 1998, as compared to net income of $221,000 for the three
month period ended September 30, 1997. Income from operations increased
$276,000, or 49%, from $565,000 for the quarter ended September 30, 1997, to
$841,000 for the corresponding quarter in the current year. Operating revenues
increased $976,000, while operating expenses increased $700,000 over the prior
year. Interest expense decreased $125,000, and interest and other non-operating
income increased $75,000, while the provision for income taxes increased
$243,000 from the prior year.
REVENUES
Operating revenues increased $976,000, or 23.8%, from $4,103,000 for
the three months ended September 30, 1997 to $5,079,000 for the three month
period ended September 30, 1998. Acquired Operations generated $567,000 of
operating revenues for the quarter ended September 30, 1998, including $212,000
of freight and haulage revenues, $181,000 of switching service fees for the
leased rail operations, and $174,000 of railcar storage and demurrage revenues.
Excluding Acquired Operations, operating revenues increased $409,000, consisting
of a $609,000 increase in freight and haulage revenues, partially offset by a
$113,000 decrease in logistics revenues, a $60,000 decrease in intermodal
freight and handling revenues, and a $27,000 decrease in other operating
revenues.
Freight and haulage revenues increased $821,000, or 27.2%, consisting
of a 26.5% increase in the number of carloads handled and a slight increase in
average revenues per carload. Total traffic handled increased approximately
2,450 carloads from 9,250 for the quarter ended September 30, 1997 to 11,700 for
the quarter ended September 30, 1998. Excluding Acquired Operations, freight and
haulage revenues increased $609,000, or 20.2%, and traffic handled increased
approximately 1,750 carloads, or 19%. This increase includes approximately 750
additional carloads on the Pennsylvania rail operations and approximately 1,000
additional carloads on SLR operations in New England.
The 750 carload net increase in business for the Pennsylvania rail
operations, excluding Acquired Operations, includes over 100 additional carloads
to three new customers, 165 additional carloads to an on line warehouse
distributor due to an increase in paper business, 140 additional carloads to a
building products distributor due to the addition of new product lines
transported by rail and an increase in other business, approximately 465
additional low rated bridge carloads, and a variety of less significant
increases. These increases were partially offset by approximately 220 less
carloads to the Company's logistics operations, including local moves, and 120
fewer carloads for a refractory plant due to a reduction in export business.
9
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The 1,000 carload increase in traffic for SLR is primarily attributable
to new business added over the past year. Approximately 165 additional carloads
were generated by a new on line liquid propane gas distributor that commenced
operations in April 1998 which is expected to generate significant additional
business, approximately 670 carloads were generated by two new overhead moves,
one of which generated 455 carloads as a result of a special construction
project in New England, and approximately 165 additional carloads were generated
by a new local oil move to an on line paper customer that commenced operations
in the fourth quarter of the prior year, which is similar to the oil move that
was established for another paper customer in fiscal 1997. In addition to this
new business, SLR handled a one time move of 225 carloads of pipe for the
installation of a gas pipe line in the states of Maine and New Hampshire in the
current quarter. These increases were partially offset by 200 less salt carloads
to an on line customer due to the timing of scheduled deliveries.
Logistics revenues generated by the Company's operations in York,
Pennsylvania, decreased $113,000, or 47%, for the three month period ended
September 30, 1998 as compared to the corresponding period in the prior year.
The number of railcars handled decreased 185 carloads, or 41%. The decrease in
volume is attributable to the elimination of bulk transfer business for an on
line feed broker, which was resumed by the customer, a decrease in paper
transload and storage business as a result of the Company's decision in the
second quarter of fiscal 1998 to exit paper warehousing operations and to direct
this business to an independent warehouse operator located on line, and a
variety of less significant decreases.
Intermodal freight and handling revenues generated by the Company's
rail intermodal terminal in Auburn, Maine decreased $60,000 for the three months
ended September 30, 1998, as compared to the corresponding period in the prior
year. Intermodal volume decreased approximately 700 trailers and containers, or
19%, from 3,600 trailers and containers for the first quarter of the prior year
to 2,900 trailers and containers for the first quarter of the current year. The
decrease in intermodal volume is attributable to competition from a nearby
intermodal terminal that opened in December 1996, the conversion of certain
intermodal business to rail boxcars, and generally lower levels of intermodal
shipments.
Excluding Acquired Operations, other operating revenues decreased
$27,000 from the prior year, including a reduction in fees from CN in connection
with the renegotiation of the Operating and Marketing Agreement between SLR and
CN, partially offset by an increase in demurrage revenues.
Non-operating income of $72,000 for the quarter ended September 30,
1998 consists of principal and interest forgiven on the $1.5 million promissory
note due CN in connection with the renegotiation of the Operating and Marketing
Agreement between SLR and CN.
EXPENSES
Operating expenses increased $700,000, or 19.8%, from $3,538,000 for
the three month period ended September 30, 1997 to $4,238,000 for the three
month period ended September 30, 1998. The increase consists of $596,000
additional cost of operations and $104,000 additional selling and administrative
expenses.
Cost of operations increased $596,000, or 21.5%, from $2,774,000 for
the three month period ended September 30, 1997 to $3,370,000 for the
corresponding period in the current year. Cost of operations for the current
quarter includes $422,000 of railroad operating expenses for Acquired
Operations. Excluding Acquired Operations, cost of operations increased
$174,000, including $326,000 of additional railroad operating expenses, and
additional provisions under profit sharing and incentive compensation plans,
partially offset by a $166,000 decrease in logistics operating expenses and a
slight decrease in intermodal operating expenses.
10
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Railroad operating expenses increased $748,000 for the quarter ended
September 30, 1998 as compared to the corresponding quarter in the prior year.
Excluding Acquired Operations, railroad operating expenses increased $326,000,
consisting of $139,000 additional expenses for the Pennsylvania rail operations
and $187,000 additional SLR expenses. The net increase in railroad operating
costs for the Pennsylvania rail operations, excluding Acquired Operations,
includes an increase in car hire expense which is partially offset by an
increase in demurrage revenues, additional costs incurred in connection with
minor derailments and accidents, and a provision for severance costs incurred in
connection with the termination of an operations manager. The net increase in
railroad operating costs for SLR, excluding Acquired Operations, is comprised of
additional maintenance of way expenses, which are primarily attributable to a
track surfacing project, additional transportation expenses, which are primarily
attributable to a 20% increase in the number of carloads handled, including
approximately $90,000 additional expenses incurred for the lease of railcars and
transload fees in connection with the new local oil move, and additional
locomotive maintenance costs, which are primarily attributable to the additional
volume of business. These increases were partially offset by a reduction in car
hire expense for SLR in conjunction with the renegotiation of the CN Operating
and Marketing Agreement.
Logistics operating expenses decreased $166,000 from the prior year
including a reduction in labor and benefits as a result of the 41% reduction in
the number of railcars handled, and reductions in property rent and brokered
freight expenses as a result of the Company's decision to exit paper warehousing
operations.
Rail intermodal operating expenses decreased slightly from the prior
year as a result of the 19% decrease in the number of trailers and containers
handled from the prior year.
Selling and administrative expenses increased $104,000, or 13.6%, from
$764,000 for the quarter ended September 30, 1997 to $868,000 for the quarter
ended September 30, 1998. Additional selling and administrative expenses include
general increases in a number of expense categories, including additional
provisions under profit sharing and incentive compensation plans as a result of
the significant improvement in results of operations over the prior year,
partially offset by a reduction in labor and benefits as a result of a provision
for severance in the prior year.
Interest expense decreased $125,000 for the three month period ended
September 30, 1998 as compared to the prior year. The prior year amount includes
a $108,000 charge incurred in connection with the refinancing of the Company's
bank debt in August 1997. In addition, temporary repayments of the Company's
term loan and more favorable interest rates under the August 1997 bank
refinancing contributed to the reduction in interest expense. These reductions
were partially offset by additional interest expense incurred in connection with
borrowings to finance the Acquired Operations in the second quarter of fiscal
1998.
The provision for income taxes increased $243,000, from $21,000 for the
quarter ended September 30, 1997 to $264,000 for the quarter ended September 30,
1998. This increase is due to the amortization of the deferred tax assets that
were recognized in the prior year as a result of a reduction in the valuation
allowance, and the significant increase in income before income taxes.
11
<PAGE>
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, 1998, in
which reference is hereby made, Emons Industries, Inc. is currently a defendant
in approximately 679 product liability actions, and one of the Company's
railroads is in the process of remediating a fuel oil spill at its locomotive
maintenance facility in York, Pennsylvania.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
On November 20, 1997 and June 18, 1998, 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 January 2, 1998 and
July 1, 1998, respectively. Dividends in arrears as of September 30, 1998
aggregated $1,665,751.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
three month period ended September 30, 1998.
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 September 30, 1998.
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: November 13, 1998 By: /s/Scott F. Ziegler
----------------- -------------------
Scott F. Ziegler
Senior Vice President and
Chief Financial Officer
(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 for
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 for
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)) ---
27 (a) Financial Data Schedules ---
</TABLE>
14
<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 THREE
MONTHS ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000032666
<NAME> EMONS TRANSPORTATION GROUP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,750,871
<SECURITIES> 0
<RECEIVABLES> 2,428,077
<ALLOWANCES> 172,657
<INVENTORY> 210,136
<CURRENT-ASSETS> 5,080,068
<PP&E> 32,334,255
<DEPRECIATION> 11,219,290
<TOTAL-ASSETS> 28,067,962
<CURRENT-LIABILITIES> 4,631,545
<BONDS> 10,561,624
0
14,873
<COMMON> 60,821
<OTHER-SE> 12,028,360
<TOTAL-LIABILITY-AND-EQUITY> 28,067,962
<SALES> 0
<TOTAL-REVENUES> 5,079,160
<CGS> 0
<TOTAL-COSTS> 3,369,638
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223,349
<INCOME-PRETAX> 718,003
<INCOME-TAX> 264,000
<INCOME-CONTINUING> 454,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454,003
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
