TOTAL AGGREGATE
NUMBER OF PAGES:_13_
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: March 31, 1995
Commission File Number: 0-12985
DELAWARE OTSEGO CORPORATION
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NEW YORK 16-0913491
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Railroad Avenue, Cooperstown, New York 13326
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(Address of principal executive offices)
(607) 547-2555
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address, and former fiscal year, if changed
from last report.)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $ .125 Par Value 1,536,880
- ------------------------------ -----------------------------
(Title of Class) Outstanding at March 31, 1995
<PAGE>
INDEX
DELAWARE OTSEGO CORPORATION AND SUBSIDIARIES
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Page
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
March 31, 1995 and December 31, 1994
Condensed Consolidated Statements of 5
Operations - Three months ended
March 31, 1995 and March 31, 1994
Condensed Consolidated Statement of 6
Cash Flows - Three months ended March 31,
1995 and March 31, 1994
Notes to Condensed Consolidated 7
Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION 10
SIGNATURES 13
2
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<TABLE>
PART I - FINANCIAL INFORMATION
Delaware Otsego Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
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<CAPTION>
ASSETS
March 31, 1995 December 31, 1994
(Unaudited)
--------------- -----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $1,333 $1,308
Accounts receivable 5,418 6,085
Reimbursable construction costs 467 1,106
Materials and supplies 653 587
Deferred income taxes 317 317
Prepaid expenses 786 179
Other current assets 239 288
--------------- -----------------
Total Current Assets 9,213 9,870
Property, Plant and Equipment 85,835 84,185
Less: Accumulated depreciation
and amortization (26,967) (25,961)
--------------- -----------------
Total Property, Plant and
Equipment-Net 58,868 58,224
Other Assets 750 783
--------------- -----------------
Total Assets $68,831 $68,877
=============== =================
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Delaware Otsego Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1995 December 31, 1994
(Unaudited)
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<S> <C> <C>
Current Liabilities
Notes payable to bank $3,000 $3,400
Accounts payable 9,919 10,018
Accrued and other current
liabilities 2,771 2,481
Current maturities of long term debt 1,150 1,120
--------------- -----------------
Total current liabilities 16,840 17,019
Long-Term Liabilities
Long-term debt 9,870 10,066
Deferred income tax 8,847 8,582
Deferred revenue and other liabilities 117 119
Subordinated Notes
Convertible Subordinated Notes 3,580 3,580
--------------- -----------------
Total Long-Term Liabilities 22,414 22,347
Stockholders' Equity
Common stock and paid-in-capital 3,470 3,470
Contributed capital 17,370 16,687
Retained earnings 8,737 9,354
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Total Stockholders' Equity 29,577 29,511
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Total Liabilities and
Stockholders' Equity $68,831 $68,877
=============== =================
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
<TABLE>
Delaware Otsego Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands Except Per Share Data)
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<CAPTION>
THREE MONTHS ENDED
----------------------------------------
March 31, 1995 March 31, 1994
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<S> <C> <C>
Operating Revenues
Railway operating revenues $7,213 $4,544
Other operating revenues 642 436
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Total Operating Revenues 7,855 4,980
Operating Expenses
Maintenance, transportation,
and car hire 6,311 4,221
Depreciation and amortization 1,014 982
General, administrative, & other 1,129 1,108
--------------- -----------------
Total Operating Expenses 8,454 6,311
Loss from Operations (599) (1,331)
Other Income & (Expense)
Interest expense, net (320) (272)
Gain on sale of property,
equipment, and other 40 (3)
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Other Income (Expense), Net (280) (275)
Loss Before Income Taxes (879) (1,606)
Provision for income tax benefit 270 509
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Net Loss $(609) $(1,097)
=============== =================
Loss Per Share $(0.40) $(0.71)
=============== =================
Weighted Average Shares Outstanding 1,536 1,536
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
Delaware Otsego Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ending March 31, 1995 and 1994
(Unaudited)
(Dollars in Thousands)
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<CAPTION>
THREE MONTHS ENDED
-----------------------------------
March 31, 1995 March 31, 1994
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(609) $(1,097)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,014 982
Provision for losses on accounts receivable (10) 6
Provision for deferred income taxes (306) (509)
Gain on sale of fixed assets (43) (5)
Amortization of deferred income (2) (2)
Changes in operating assets and liabilities:
Decrease in accounts receivable 678 1
Decrease in materials and supplies, prepaids
and other current assets 14 1,648
Increase (decrease) in accounts
payable and accrued expenses 411 (221)
Increase in other assets (14) (76)
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,133 727
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,651) (2,298)
Acquisition of intangible assets (23) 0
Proceeds from sale of assets 39 12
Contributed capital 1,037 2,064
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (598) (222)
FINANCING ACTIVITIES
Decrease in notes payable (400) (229)
Proceeds from long-term borrowings 110 0
Principal payments on long-term debt (276) (174)
Proceeds from other borrowings 63 406
Dividends Paid (7) (6)
--------------- ---------------
NET CASH USED BY FINANCING ACTIVITIES (510) (3)
INCREASE IN CASH AND CASH EQUIVALENTS 25 502
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,308 810
--------------- ---------------
CASH AND CASH EQUIVALENTS AT MARCH 31 $1,333 $1,312
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
DELAWARE OTSEGO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included.
2. The results of operations for the three months ended March 31,
1995, are not necessarily indicative of the results to be
expected for the year ended December 31, 1995, due to certain
freight revenues subject to seasonal variations. For further
information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1994.
3. Earnings per common share have been adjusted retroactively to
reflect a 5% stock dividend declared January 12, 1995.
4. Certain amounts in the 1994 financials have been reclassified
to conform to the 1995 presentation.
7
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (THOUSANDS)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at March 31, 1995, totaled
$1,333. Cash generated from operations, sales of property, additional
debt and contributed capital are the Company's principal sources of
liquidity and are used primarily for capital expenditures, debt service,
and working capital requirements.
At March 31, 1995, the Company's working capital deficit was $7,627,
compared to $7,149 at December 31, 1994, resulting in a working capital
ratio of 54.7% compared to 58.0% at December 31, 1994. Total long-term
liabilities at March 31, 1995 were $22,414. Long-term debt (exclusive
of current maturities) including convertible subordinated notes, as a
percentage of equity at March 31, 1995, was 45.5% compared to 46.2% at
December 31, 1994, and total capitalization (long-term debt, convertible
subordinated notes and equity) was $43,027 compared to $43,157 at
December 31, 1994.
At March 31, 1995, the Company had drawn down $3 million on a $5 million
line of credit with Manufacturers and Traders Trust Company which is
secured by eligible accounts receivable. At March 31, 1995, the Company
had an additional $500 to draw from available eligible accounts
receivable pledged under the line of credit. The interest rate is 1%
over Prime. Prime at March 31, 1995 was 9%.
On March 31, 1995, the Company completed financing arrangements with a
lender, whereby the Company may borrow up to $400 from an equipment line
of credit. At March 31, 1995, the Company had drawn down $110 on the
line. The interest rate is the lender's base rate plus three quarters
percent (3/4%). The line of credit expires on April 30, 1996.
In the three month period ended March 31, 1995, additions to property,
plant and equipment were $1,651 of which $1,037 or 62.8% was funded by
grants from the New York and New Jersey Departments of Transportation.
The balance was provided from operations.
During the quarter, the Company entered into a purchase agreement for
three (3) new General Motors, 4,000 horsepower, 6-axle, SD-70
locomotives at a total cost of approximately $4.2 million. Delivery is
anticipated to occur in the second quarter of 1995. The purchase will
be financed by a loan of up to $5 million from the Federal Financing
Bank and will be guaranteed by the Federal Railroad Administration.
The Company has entered into tentative agreements, together with other
investors, including two non-officer directors of the Company, to acquire
the Toledo, Peoria & Western Railway ("TP&W"). Pursuant to the
agreements, which are subject to several contingencies, including
financing, Board of Directors and lender approvals, the Company will
acquire 40% of the TP&W for cash and stock valued at $2.25 million,
including the issuance of 100,000 shares of its common stock to one of
the other non-director investors. Subject to satisfaction of several
contingencies, the transaction is expected to occur in the fourth
quarter of 1995.
On April 26, 1995, the Company entered into a definitive contract for
the sale of an 8.8 mile long railroad line located in Union County, New
Jersey to the State of New Jersey for $6.4 million. The transaction is
expected to close in the second quarter of 1995 resulting in gain of
8
<PAGE>
approximately $5.3 million. The Company intends to treat the
transaction as an involuntary conversion for income tax purposes,
resulting in favorable tax treatment. A portion of the proceeds will be
used to partially pay down debt and make certain capital expenditures.
It is anticipated that funding for the Company's capital program for the
balance of 1995 will be met by grants from participating state
governments, cash generated by operations, available funds from the
lines of credit, and proceeds from the sales of non-operating assets,
including the sale to the New Jersey Department of Transportation. The
Company believes it has adequate working capital to fund existing and
anticipated operations.
RESULTS OF OPERATIONS
Railway operating revenues, consisting of intermodal, carload and other
railway operating revenues, improved $2,669 or 58.7% for the three month
period ended March 31, 1995, compared to the corresponding 1994 period,
due principally to improved intermodal revenues of $2,517 from CSX
Intermodal, Inc. and Hanjin Shipping Lines.
Carload revenues for the three month period ended March 31, 1995 were
$160 or 10.6% higher than the corresponding 1994 period, due mainly to
higher revenue from new business, offset by declines in certain existing
business resulting from a slowing U.S. economy.
Other operating revenues for the three month period ended March 31, 1995
were $206 more than the corresponding 1994 period, mostly due to greater
rent, construction and other incidental revenues.
Maintenance, transportation and car hire expenses for the three month
period ended March 31, 1995 were $2,090 greater than the corresponding
1994 period. Trackage rights and haulage expenses increased $1,261 due
to the improved intermodal and carload business. The improved business
also resulted in increased expense of $829 for train crews, locomotive
maintenance, fuel, terminal costs, and car hire.
As a result of the foregoing, the operating loss for the three month
period ended March 31, 1995 declined $732 or 55.0% compared to the
corresponding period in 1994. The operating ratio for the three month
period ended March 31, 1995 improved to 107.6% from 126.7% for the
comparable 1994 period.
Interest expense net, comprised of interest expense, (net of capitalized
interest) and interest income, for the three month period ended March
31, 1995 increased $48 compared to the corresponding 1994 period. Total
interest expense for the period ended March 31, 1995 was $361 compared
to $292 for the 1994 period, due principally to higher interest rates.
The Company's effective income tax rate on income before income taxes
was 30.7% and 31.7% for the period ended March 31, 1995 and 1994
respectively.
On January 12, 1995, the Company declared a 5% stock dividend payable to
stockholders of record February 17, 1995. The dividend was paid on
March 30, 1995, resulting in the issuance of 72,518 shares of common
stock. All data in the accompanying financial statements and related
notes have been restated to give effect to the dividend.
9
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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None.
Item 2. Changes in Rights of Security Holders
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None.
Item 3. Defaults on Senior Securities
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None.
Item 4. Submission of Matters to a Vote of Security Holders
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None.
Item 5. Other Information
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None.
Item 6. Exhibits and Reports on Form 8-K
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a)Exhibits:
Filed herewith (-) or
Incorporated by Reference
to
-------------------------
3.1 Restated Certificate of Exhibit 3.1 to Regis-
Incorporation of the trant's Annual Report on
Delaware Otsego Corporation Form 10-K dated December
dated June 1, 1991 31, 1991
3.2 By-Laws of DOC dated April 5, Exhibit 3.8 to Regis-
1988 trant's Annual Report on
Form 10-K dated December
31, 1988
10.1 Employment Agreement between Exhibit 10.1 to Regis-
DOC and Walter Rich dated trant's Quarterly Report
June 4, 1994 on Form 10-Q dated June
30, 1994
10
<PAGE>
10.2 Direct Loan Agreement between Exhibit 10(g) to Registra-
New Jersey Economic Develop- tion Statement on Form
ment Authority and NYS&W S-1, No. 2-94319
dated August 6, 1982
10.3 Agreement between Conrail Exhibit 10(p) to Registra-
and NYS&W dated March 30, tion Statement on Form
1982 relating to trackage S-1, No. 2-94319
rights over line of Conrail
from Binghamton, New York to
Warwick, New York via
Campbell Hall and Maybrook,
New York
10.4 Financing Agreement between Exhibit 19.11 to Form 10-Q
NYS&W and FRA dated dated November 13, 1986
September 30, 1985
10.5 Agreement Amending Financing Exhibit 19.12 to Form 10-Q
Agreement between FRA and dated November 13, 1986
NYS&W dated July 30, 1986
10.6 Amendment to Direct Loan Exhibit 19.18 to Form 10-Q
Agreement between New Jersey dated November 13, 1986
Economic Development
Authority and NYS&W dated
July 15, 1986
10.7 Amendment to Direct Loan Exhibit 19.19 to Form 10-Q
Agreement between New Jersey dated November 13, 1986
Economic Development
Authority and NYS&W dated
September 2, 1986
10.8 Amended and Restated Credit Exhibit 10.8 to Form 10-Q
Agreement between Manufac- dated November 11, 1994
turers and Traders Trust
Company and DOC dated
May 27, 1994
10.9 Agreement between NYS&W and Exhibit 10.9 to Regis-
Brotherhood of Locomotive En- trant's Annual Report on
gineers dated March 30, 1994 Form 10-K dated March 27,
1995
10.11 Modification to Direct Loan Exhibit 10(hh) to Regis-
Agreement and Direct Loan tration Statement on Form
Promissory Note dated as of S-1, No. 2-94319
August 6, 1982 between the
New Jersey Economic Develop-
ment Authority and NYS&W
dated July 17, 1984
11
<PAGE>
10.15 Transportation Agreement Exhibit 10.15 to Regis-
between NYS&W and CSX/ trant's Form 8-K dated
Sea-Land Intermodal, Inc. May 20, 1992
dated December 30, 1989
10.22 Delaware Otsego Corporation Exhibit B to Definitive
1987 Stock Option Plan Proxy Statement Dated
October 7, 1987
10.23 Delaware Otsego Corporation Exhibit B to Definitive
1993 Stock Option Plan Proxy Statement Dated
May 5, 1993
10.25 Employment Agreement between Exhibit 10.29 to Regis-
DOC and C. David Soule dated trant's Quarterly Report
June 4, 1994 on Form 10-Q dated June
30, 1994
10.26 Employment Agreement between Exhibit 10.30 to Regis-
DOC and William B. Blatter trant's Quarterly Report
dated June 4, 1994 on Form 10-Q dated June
30, 1994
10.27 Form of Delaware Otsego Exhibit 1 to Registrant's
Corporation 6.5% Convertible Form 8-K dated October 19,
Subordinated Note Due on 1993
September 1, 2003
10.28 Guarantee Commitment between Exhibit 10.28 to Regis-
the Federal Railroad trant's Annual Report on
Administration and DOC Form 10-K dated March 27,
dated September 29, 1994 1995
21 Subsidiaries of Registrant Exhibit 21 to Registrant's
Annual Report on Form 10-K
dated March 27, 1995
b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
DELAWARE OTSEGO CORPORATION
(Registrant)
Date: May 11, 1995
WALTER G. RICH
-----------------------
Walter G. Rich
President and
Chief Executive Officer
WILLIAM B. BLATTER
-----------------------
William B. Blatter
Senior Vice President &
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-START> Jan-01-1995
<PERIOD-END> Mar-31-1995
<PERIOD-TYPE> 3-MOS
<CASH> 1333
<SECURITIES> 0
<RECEIVABLES> 5418
<ALLOWANCES> 0
<INVENTORY> 653
<CURRENT-ASSETS> 9213
<PP&E> 85835
<DEPRECIATION> 26967
<TOTAL-ASSETS> 68831
<CURRENT-LIABILITIES> 16840
<BONDS> 13450
0
0
<COMMON> 192
<OTHER-SE> 29385
<TOTAL-LIABILITY-AND-EQUITY> 68831
<SALES> 7855
<TOTAL-REVENUES> 7855
<CGS> 0
<TOTAL-COSTS> 8454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 361
<INCOME-PRETAX> (879)
<INCOME-TAX> (270)
<INCOME-CONTINUING> (609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (609)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> 0
</TABLE>
