U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 1995
Commission File Number: 33-6658-C
PIONEER RAILCORP
(Exact name of registrant as specified in its charter)
Iowa 37-1191206
(State or other jurisdiction of Incorporation (IRS Employer
or organization) ID number)
1318 S. Johanson Road
Peoria, Illinois 61607
(address of principal executive offices) (Zip code)
(309) 697-1400
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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: ___
4,256,084
(Number of shares of $.001 par value common stock
Outstanding as of September 30, 1995)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
UNAUDITED
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1995 1994 1995 1994
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OPERATING REVENUE $2,090,160 $1,623,057 $6,205,690 $4,741,434
OPERATING EXPENSES
Maintenance of Ways 230,616 164,845 645,904 446,969
Maintenance of Equipment 227,961 186,291 766,029 506,848
Transportation Expenses 426,600 362,867 1,291,603 1,033,967
Administrative Expenses 587,161 408,385 1,556,113 1,202,919
Depreciation and Amortization 228,967 151,813 656,050 433,613
TOTAL OPERATING EXPENSES 1,701,305 1,274,201 4,915,699 3,624,316
OPERATING INCOME 388,855 348,856 1,289,991 1,117,118
OTHER INCOME & EXPENSE
Other (Income) Expense (31,530) 23,652 (177,093) (28,089)
Interest Expense, Equipment 136,206 66,719 332,143 187,099
Interest Expense, Other 65,520 53,712 228,917 159,505
Net (Gain) Loss on Fixed Assets 0 (3,797) (36,924) (3,947)
TOTAL OTHER INCOME & EXPENSE 170,196 140,286 347,043 314,568
NET INCOME BEFORE INCOME TAXES 218,659 208,570 942,948 802,550
PROVISION FOR INCOME TAXES 83,550 77,400 378,150 303,403
INCOME BEFORE MINORITY INTEREST IN
PREFERRED STOCK DIVIDENDS OF
CONSOLIDATED SUBSIDIARIES $135,109 $131,170 $564,798 $499,147
MINORITY INTEREST IN PREFERRED STOCK
DIVIDENDS OF CONSOLIDATED
SUBSIDIARIES $31,308 $31,308 $ 93,923 $ 93,923
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $103,802 $99,862 $470,875 $405,224
PRIMARY AND FULLY DILUTED EPS $0.02 $0.02 $0.09 $0.11
PRO FORMA EPS (NOTE 5) 0.02 0.02 0.09 0.09
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND EQUIVALENTS OUTSTANDING 8,396,883 4,083,084 8,396,883 3,750,458
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PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
UNAUDITED
SEPTEMBER 30 DECEMBER 31
1995 1994
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CURRENT ASSETS
Cash $365,731 $179,415
Accounts Receivable, less allowance
for doubtful accounts (1995 $20,590; 1994 $14,000) 1,203,724 934,574
Material & Supply Inventory 306,901 211,887
Prepaid Expenses 133,363 121,464
Deferred Taxes 16,850 16,850
TOTAL CURRENT ASSETS 2,026,568 1,464,190
PROPERTY AND EQUIPMENT
Land 183,100 183,100
Railroad Facilities 4,257,629 4,175,011
Locomotives & Transportation Equipment 1,592,156 1,481,464
Leasehold Improvements 14,614 75,008
Buildings 660,620 650,585
Machinery and Equipment 692,647 612,059
Office Equipment and Computers 293,573 253,808
Railcars 5,177,028 3,905,575
Capital Projects in Progress 325,636 117,249
Less accumulated depreciation (1,755,970) (1,225,488)
TOTAL PROPERTY AND EQUIPMENT 11,441,033 10,228,373
Intangible Assets, less accumulated amortization 643,461 604,280
1995 $89,363; 1994 $57,945
Other Assets 34,757 0
TOTAL ASSETS $14,145,820 $12,296,843
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PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
UNAUDITED
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CURRENT LIABILITIES
Accounts Payable $817,946 $925,380
Notes Payable 511,716 154,160
Income Taxes Payable 70,380 83,129
Current Portion of Long Term-Debt 1,005,798 895,482
Accrued Liabilities 358,954 261,891
TOTAL CURRENT LIABILITIES 2,764,794 2,320,042
Long-Term Debt 7,085,771 6,470,710
Deferred Income Taxes 652,850 490,850
TOTAL LIABILITIES & DEBT 10,503,415 9,281,602
MINORITY INTEREST IN SUBSIDIARIES 1,199,000 1,209,000
STOCKHOLDERS' EQUITY
Common Stock 2,157 2,098
Additional Paid-In Capital 1,281,944 1,129,725
Retained Earnings 1,159,303 674,418
TOTAL STOCKHOLDERS' EQUITY 2,443,405 1,806,241
TOTAL LIABILITIES AND EQUITY $14,145,820 $12,296,843
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PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDING SEPTEMBER 30, 1995 AND 1994
UNAUDITED
9 MONTHS ENDED 9 MONTHS ENDED
9/30/95 9/30/94
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $470,877 $405,224
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Minority Interest in Preferred Stock Dividends of
Consolidated Subsidiaries 93,923 93,923
Depreciation & Amortization 656,050 433,613
Deferred Income Taxes 162,000 146,000
Change in Assets and Liabilities
Accounts Receivable (269,150) 96,838
Material & Supplies Inventory (95,014) (17,432)
Prepaid Expenses (11,899) (22,065)
Other Assets (105,336) (1,869)
Accounts Payable (107,434) 28,070
Income Taxes Payable (12,749) 15,337
Accrued Liabilities 108,937 50,710
NET CASH PROVIDED BY OPERATING ACTIVITIES 890,205 1,228,349
CASH FLOWS FROM INVESTING ACTIVITES
Capital Expenditures - Net of Dispositions (1,837,317) (1,737,671)
NET CASH USED IN INVESTING ACTIVITIES (1,837,317) (1,737,671)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Short-Term Borrowings 937,360 568,152
Proceeds from Long-Term Borrowings 1,788,233 1,522,204
Payments on Short-Term Borrowings (591,675) (766,000)
Payments on Long-Term Borrowings (1,062,856) (458,346)
Repurchase of Preferred Stock (10,000) 0
Issuance of Common Stock to Acquire Assets 152,280 0
Payments to Minority Interest (79,915) (79,915)
NET CASH PROVIDED BY FINANCING ACTIVITIES: 1,133,428 786,095
NET INCREASE (DECREASE) IN CASH 186,316 276,773
CASH, BEGINNING OF PERIOD 179,415 45,518
CASH, END OF PERIOD $365,731 $322,291
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES
NOTE 1. STATEMENTS
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-QSB. Accordingly,
certain disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction with the
latest financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-KSB and subsequent Form 10-QSB filings.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation
The consolidated financial statements include Pioneer Railcorp (Pioneer) and its
wholly-owned and controlled subsidiaries which are as follows: West Jersey
Railroad Co. (WJ), Wabash & Western Railway Co. (WGRY), Fort Smith Railroad Co.
(FSR), Alabama Railroad Co. (ALAB), Mississippi Central Railroad Co. (MSCI),
Alabama & Florida Railway Co. (AF), Decatur Junction Railway (DT), Vandalia
Railroad Company (VRRC), Minnesota Central Railroad Co.(MCTA), Pioneer Railroad
Equipment Co., Ltd. (PREL), Pioneer Railroad Services, Inc. (PRSI), and Pioneer
Air, Inc. (PAR). All significant intercompany balances and transactions have
been eliminated in consolidation.
Inventories
Inventories consisting of various mechanical parts, track materials and
locomotive supplies are stated at the lower of cost (determined by the average
cost method) or market.
Earnings Per Share
Primary and fully diluted earnings per common share are computed by dividing net
income, less accrued preferred dividends earned, by the weighted average number
of common and common equivalent shares outstanding at the end of the respective
periods under the Treasury Stock Method. Net income used in the calculation was
increased by pro forma reductions in interest expense resulting from the assumed
exercise of warrants and options and the resulting assumed reduction of
outstanding indebtedness that would result from the proceeds realized from the
assumed exercise of the warrants and options.
NOTE 3. ESTIMATED IMPACT OF THE ADOPTION OF RECENT
ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed, in
March of 1995. The effective date for the adoption of this standard by the
Company is January 1, 1996. The Company does not believe the adoption of SFAS
121 will have a material effect on its financial position or results of
operations. In addition, the Company is not aware of any other recent accounting
standard issued, but not yet required to be adopted by the Company, that would
have a material effect on its financial position or results of operations.
NOTE 4. OPERATING LEASES AND OTHER COMMITMENTS
The Company, through its wholly owned subsidiary, Fort Smith Railroad Co.,
entered into a twenty-year lease, with three twenty-year renewal options, with
the Missouri Pacific Railroad Co. on July 7, 1991 for 49 miles of rail
facilities in Arkansas. The agreement contains numerous requirements including
maintaining existing traffic patterns, repair and replacement of the right of
way in the condition it was leased (substantially FRA Class I) and payment of
any applicable real estate taxes. The Company is entitled to a fixed rate per
car load switched from the Missouri Pacific Railroad Co. as well as ninety
percent of new leases and easements and fifty percent of existing leases and
easements on the property. As long as these requirements are met, the Company
may continue to operate on the rail facilities without additional payments to
the Missouri Pacific Railroad Co. In January 1995 the Fort Smith Railroad Co.
and the Missouri Pacific Railroad Co. jointly filed an abandonment application
with the Interstate Commerce Commission (ICC) to abandon the Paris Branch (31
miles of leased railroad ). On July 6, 1995 the Petition was granted, effective
August 19, 1995. This action will reduce the miles of track leased and operated
by the Fort Smith Railroad to 18 miles.
The Company, through its wholly-owned subsidiary, Alabama & Florida Railway Co.
(AF), leases a two mile segment of track connecting to the subsidiary's
facilities in Andalusia, Alabama, from the Andalusia & Conecuh Railroad Company,
Inc. for $375 per month, plus $15 per car over 300 cars annually. The Company
will also bear the cost of all maintenance on the leased track. The subsidiary
also leases the real estate comprising the right of way from Georgiana to
Geneva, Alabama, from CSX Transportation, Inc. for $1,667 per month.
During December 1994, the Company, through its wholly-owned subsidiary, Decatur
Junction Railway Co. (DT), entered into new lease agreements with Cisco Co-Op
Grain Company (CISCO) and with Central Illinois Shippers, Inc. (CISI). The Cisco
segment is approximately thirteen (13) miles, while the CISI segment is
approximately seventeen (17) miles; both are located in Illinois, and connect
via trackage rights on the Illinois Central Railroad. Rail operations on both
segments began in December 1993. Both leases require DT to perform normalized
maintenance on the line and pay $10 per car on all cars over 1,000 per year on
each segment. Both leases expire in December, 2004.
Vandalia Railroad Company, a wholly-owned subsidiary of the Company, has a lease
with the City of Vandalia for 3.45 miles of railway. This lease is renewable for
10 year periods beginning in September 2003, and the annual lease of $1 is
prepaid through September 2003. Following the first twenty years of the lease,
lease payments will be equal to $10 per loaded railcar handled in interchange.
In November 1994, the Company assumed a land lease for the property on which its
corporate office building is located in conjunction with the purchase of the
building. The Company is responsible for costs of maintenance, utilities, fire
protection, taxes and insurance. This twenty-five year lease is renewable for
five successive periods of five years. The lease requires annual rents equal to
ten percent of the appraised value of the land, payable in monthly installments,
with appraisal value reviews every five years following the origination date.
NOTE 4. STOCK OPTION PLAN
On April 12, 1994, the Company adopted, with the subsequent approval of its
shareholders, a stock option plan permitting the issuance of 760,000 shares of
common stock. Options granted under the plan are incentive based. When Pioneer
Railcorp common shares reach a closing price of $4.00 per share, or higher, for
any consecutive 10-day period, as reported in the Wall Street Journal, the
options will have vested on that date, and shall be exercisable at the market
price of the common shares at the date the options were granted, in whole or in
part, at any time for five years after vesting. The conditions for their vesting
were met on July 5, 1996 and the effect on earnings per share has been reflected
in the accompany financial statements.
NOTE 5. STOCK SPLIT AND STOCK WARRANTS ISSUED AS DIVIDENDS
On May 16, 1995 the Board of Directors authorized a 2 for 1 stock split to
shareholders of record June 30, 1995, payable July 1, 1995. In addition, on June
24, 1995 the shareholders ratified an amendment to the Articles of Incorporation
authorizing the issuance of stock warrants as a dividend to shareholders
immediately after the stock split. Each shareholder received one warrant for
each share of stock owned. Each warrant permits shareholders to purchase an
additional share of stock at a predetermined price of $2 per share. The warrants
expire on July 1, 2015, and the effect of the warrants on earnings per share has
been reflected in the accompaning financial statements. In addition, pro forma
earnings per common share are provided as if the stock split and the exercise of
the warrants had occurred as of January 1, 1994.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company operated the following eight railroads during the third quarter of
1995: West Jersey Railroad Co. (WJ), Fort Smith Railroad Co. (FSR), Alabama
Railroad Co. (ALAB), Mississippi Central Railroad Co. (MSCI), Alabama & Florida
Railway Co. (AF), Decatur Junction Railway Co. (DT), Vandalia Railroad Company
(VRRC), and Minnesota Central Railroad Co. (MCTA). The Company also operated two
railroad-related subsidiaries, Pioneer Railroad Equipment Co., Ltd. (PREL), and
Pioneer Railroad Services, Inc. (PRSI).
Pioneer Railcorp's net income for the third quarter 1995 was $103,802 a slight
increase from net income of $99,862 for the same period last year. Earnings per
share for the third quarter of 1995 were $.02 compared to $.02 for the same
period last year. Operating revenues for the quarter were $2,090,160, a 30%
increase from $1,623,057 in the same period last year. Pioneer Railcorp's net
income for the first nine months of 1995 was $470,875 an increase of 17% from
net income of $405,224 for the same period last year. Earnings per share for the
first nine months of 1995 were $.09, compared to $.11 for the same period last
year. Operating revenues for the first nine months of 1995 were $6,205,690 a 32%
increase from $4,741,434 in the same period last year.
The increase in revenues resulted from increased earnings from additional
railcars purchased by PREL as well as moderate increases in rail transportation
revenues. At the end of the third quarter 1995, PREL owned approximately 600
railcars compared to approximately 300 at the close of the same period last
year. These railcars generated $459,864 in revenue during the third quarter 1995
compared to $306,945 for the same period last year, and $1,219,718 in revenues
for the first nine months of 1995 compared to $802,165 for the same period last
year.
The Company's recently acquired railroad subsidiaries also contributed to the
increase in revenues. The VRRC had $181,292 in operating revenues and
contributed $106,157 in income from continuing operations during the first 9
months of 1995. The MCTA had $1,069,205 in operating revenues and contributed
$202,626 in income from continuing operations during the first 9 months of 1995.
Non-operating income increased in the first nine months of 1995 as a result of
the Company's leasing of excess locomotives to unrelated entities (approximately
$40,000) and a contract to dismantle and scrap several railcars (approximately
$36,000). The Company continues to explore additional revenues in this area, in
particular the leasing of excess locomotives.
Interest expense increased significantly in the third quarter 1995 and the first
9 months of 1995 compared to the same period last year. This increase was the
result of increased debt from railcar financing and the debt assumed by the
start up of the Minnesota Central Railroad Co. in December of 1994. Increases in
maintenance of way expense and transportation expense are primarily a direct
result of the MCTA's operating costs. The MCTA recorded approximately $175,872
in maintenance of way expense and $419,514 in transportation expense for the
first 9 months 1995. Administration expense increases are a reflection of both
the MCTA's administration costs (approximately $80,000 in the first 9 months
1995) and the Company, Pioneer Railcorp, positioning itself for future growth.
Maintenance of equipment expense also increased significantly in the third
quarter 1995 and the first 9 months of 1995 compared to the same period last
year. Most of the increase is directly related to the railcars purchased by the
Company over the last twelve months. Approximately $340,200 of expense directly
related to the Company's railcar fleet was recorded in the first 9 months 1995,
compared to approximately $177,800 for the same period last year. The Company
views its railcars as strong income earning assets, whose earnings far exceed
the costs of financing and maintaining the railcars. The Company plans to
continue evaluating railcar needs in the future and will likely continue to
acquire railcars as the Company's growth dictates. In addition to increased
earnings, railcars owned by the Company have reduced car hire expense and also
secured additional loadings on Pioneer subsidiary lines. In addition, the MCTA
recorded approximately $113,000 in equipment expense in the first 9 months 1995.
Pioneer continues to refine its Operations Center concept, preforming
centralized agency duties for all its railroad subsidiaries from Peoria,
Illinois. The Company continues to market its railroad services to its present
and potential customers. Pioneer continues to maximize the earnings potential of
its auxiliary income by granting to various entities, such as utilities,
pipeline and communications companies and industrial and non-industrial tenants,
the right to occupy right-of-way. Pioneer has begun to lease out excess
locomotives to unrelated parties. Pioneer continues to analyze and evaluate
other railroads for possible acquisition and is engaged in ongoing negotiations
regarding several properties in the United States.
Pioneer Railcorp continues to operate in a positive cash flow position which is
more than adequate to meet current liabilities and long term debt. The Company
expects cash flow to remain positive and does not expect any material deficiency
to exist in either the short-term or the long-term. The Company has $675,000 in
credit facilities for working capital needs. The Company anticipates favorable
outcomes involving current legal proceedings. In this regard, only one case, a
motorist fatality involving a FSR train, could possibly effect the Company's
liquidity. Management believes that the FSR was not at fault in this incident
and that it has adequate insurance coverage for any liability that could be
assessed to the railroad. Therefore, the Company's exposure is estimated to be
the self-insurance retention of $25,000, plus legal expenses. The Company
expensed and accrued $25,000 for this incident in its 1994 financial statements.
The Company's railcar fleet has improved liquidity through excess cashflows
generated by earnings and savings from the railcar fleet after debt service and
maintenance costs. Withstanding any significant decline in the demand for
railcars, the Company should continue to benefit from railcar cashflows. Future
railcar acquisitions will likely be funded with long-term debt. Long-term
equipment financing has been made readily available to the Company, and the
Company believes it will be able to continue to obtain favorable long-term
financing in the foreseeable future.
The Company's accounts receivable balances increased in the first nine months of
1995, primarily as a reflection of MCTA's operations in 1995. The Company did
not begin operating the MCTA until December 13, 1994. The Company also
moderately increased receivables from its railcar earnings as a result of recent
railcar acquisitions. In addition, approximately $110,00 of receivables and
payables were added in the third quarter 1995 relating to crossing projects
contracted by the Company and reimbursable from the state of Alabama. The
Company used cash from operating activities in the first 9 months of 1995 to
significantly reduce accounts payable for all of it's operating subsidiaries,
with the exception of MCTA, which had an overall increase in payables reflecting
its 1995 operations. Inventory was increased in the third quarter 1995 resulting
from the purchase of $75,000 in locomotive parts and supplies. The Company
financed this inventory purchase by a private placement of 6,000 shares of
common stock of the Registrant valued at $17,250 and entering into a nine month
note for the remaining balance with the seller. The Company's increase in other
assets for the first 9 months 1995 was the result of capitalized costs involving
the permanent transfer of Company railcars to the MCTA for long-term use by
MCTA's customers.
In the third quarter 1995 Pioneer Railcorp and its subsidiaries made $437,127 in
capital expenditures, of which almost all were for the purchase of railcars. The
Company has made capital expenditures of $2,004,798 for the first 9 months 1995.
These expenditures include approximately $1,500,000 for railcar purchases,
$150,000 for capitalized track expenditures, and the remaining expenditures for
equipment and other assets. Long-term fixed-rate financing of 5 years or more
was the primary funding for all capital expenditures, with a small amount of the
remaining expenditures funded with cash and short term obligations.
On or about August 8, 1995, the Company entered into an agreement to purchase a
Cessna 421B aircraft for $20,000 cash and 54,000 shares of the Company's Class A
common stock. This right to purchase was assigned to Pioneer Air, Inc., a
wholly-owned subsidiary of the Registrant. on September 1, 1995, the aircraft
was acquired by Pioneer Air, Inc. and 54,000 shares were issued through a
private placement to the seller of the aircraft.
As a whole during the third quarter 1995 and the first 9 months of 1995, Pioneer
Railcorp's railroad subsidiaries revenue loadings remained stable with a few
exceptions as noted below:
The Minnesota Central Railroad Co., which began operations as a wholly-owned
subsidiary of the Company on December 13, 1994, was plagued by track problems
from the spring thaw. Certain areas of the track required significant repair and
rail traffic has been severely limited at times in 1995. The Company is still
exploring the possibility of a significant rehabilitation of the line. The
capital for the rehabilitation project would most likely be obtained through
additional debt. The Company believes it can negotiate favorable terms that will
not negatively affect cashflow, and when completed, the rehabilitation should
reduce operating costs significantly as well as increase the customer base for
revenue loads. The Company has put an additional 100 grain hoppers in service on
the MCTA and hopes to increase that number through additional hopper purchases
by PREL in 1995.
In early February 1995 the Decatur Junction Railway Co. began performing
contract switching for the Illinois Central Railroad. This contract is adding
approximately $12,000 in gross revenues per month. This contract was executed as
a direct result of labor disputes at certain Decatur, Illinois industries, and
the refusal of Illinois Central train crews to cross the picket lines at local
industries. It is uncertain as to how long this service will be required.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Several lawsuits were pending by and against the Company and/or its subsidiaries
during the third quarter of 1995.
The Company, and/or its Decatur Junction Railway Co. subsidiary were involved in
litigation in both state and federal court against Indiana Hi-Rail Corporation
(the former operator of DT's lines). The cases involve alleged breaches of
contract by Indiana Hi-Rail Corporation ("IHRC"), and counter-claims by IHRC
against Pioneer and DT. Two of these actions have been stayed, due to the
bankruptcy of IHRC and another is still in the early stages of discovery.
Because of the financial condition of IHRC, the Company believes it is unlikely
any party will recover anything on these claims, and management does not believe
that any of these actions is likely to have a material adverse effect on the
Registrant's consolidated financial position or results of operations.
The Fort Smith Railroad Co. was a defendant in two lawsuits filed by a former
employee, both of which went to trial during the third quarter 1995. That trial
resulted in dismissal of one action and a jury verdict in favor of the Company
in the other action. Neither of those results were appealed.
The Fort Smith Railroad is also involved as a Defendant in litigation arising
out of an accident which occurred on or about December 8, 1993 in which a
motorist was fatally injured when he collided with an FSR train at a crossing
near Lavaca, Arkansas. Management believes that the FSR was not at fault in this
incident and that it has adequate insurance coverage for any liability that
could be assessed to the railroad. Therefore, the Company's exposure is
estimated to be the self-insurance retention of $25,000, plus legal expenses.
The Company expensed and accrued $25,000 for this incident in its 1994 financial
statements.
A lawsuit involving the West Jersey Railroad's operating lease with the County
of Salem, New Jersey, which was settled during the third quarter of 1995, did
not have a material effect on the Registrant's consolidated financial position
or results of operations.
There are also a number of outstanding issues between Minnesota Central Railroad
Co. and MNVA, remaining from the asset sale to MCTA last December, one or more
of which may result in litigation. Management does not believe that any of
theses issues will result in a material adverse effect on the Registrant's
consolidated financial position or results of operations.
The Company's subsidiary railroads have a number of claims against delinquent
licensees and customers which are likely to result in litigation. None of the
amounts involved, however, would have a material impact on the Company's
consolidated financial position or results of operations if they proved to be
uncollectible.
In the course of its business, the Company experiences crossing accidents,
employee injuries, delinquent or disputed accounts, and other incidents, which
give rise to claims that may result in litigation. Management vigorously pursues
settlement and release of such claims, but at any one time, some such incidents,
which could result in lawsuits by and/or against the Company and its subsidiary
railroads, remain unresolved. Management believes it has valid claims for, or
good defenses to, these actions. Management considers such claims to be a
routine part of the Company's business, and as of the date of this Form 10-QSB,
management believes that no such incidents which are not described herein has
the potential to result in a liability that would materially effect the
Company's consolidated financial position or results of operation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders for vote in the third
quarter 1995.
Item 5. OTHER INFORMATION
In January 1995 the Fort Smith Railroad Co. and the Missouri Pacific Railroad
Co. jointly filed an abandonment application with the Interstate Commerce
Commission (ICC) to abandon the Paris Branch (31 miles of leased railroad ). On
July 6, 1995 the Petition was granted, effective August 19, 1995. This action
will reduce the miles of track leased and operated by the Fort Smith Railroad to
18 miles. FSR has not had a revenue move on the Paris Branch in approximately a
year, and the revenues generated from the branch have been offset by reductions
in operating expenses and the use of a trans-loading facility in Fort Smith for
the only customer remaining on the Branch.
The West Jersey Railroad Co.'s operating lease with the County of Salem, New
Jersey for the trackage from Salem to Swedesboro, New Jersey ended April 30,
1995. West Jersey's offer to renew the lease was not accepted by the County, and
another operator took possession of the line on or about May 1, 1995. West
Jersey Railroad disputed the legality of this action; however, WJ's
contributions to the Registrant's consolidated earnings were insignificant, and
the loss of this line has not had a material effect on the consolidated
operations of the Registrant. In the third quarter 1995 a settlement was reached
with the County of Salem, New Jersey and this litigation was dismissed. This
Settlement did not have a material effect on the Registrant's consolidated
financial position or results of operations.
On July 11, 1995, the Pioneer Railcorp signed an agreement with the Trustee of
the Southwestern Michigan Railroad Company, Inc., d/b/a Kalamazoo, Lakeshore &
Chicago Railroad (KLSC), to purchase all of the tangible assets of KLSC for
$300,000 cash and $200,000 worth of Pioneer common stock. Those assets include
approximately 15 miles of track and right-of-way, extending from Hartford to Paw
Paw, in Van Buren County, Michigan, a depot building and parking lot in Paw Paw
and various attendant licenses and rights involving the real estate. This
agreement was approved by the United States Bankruptcy Court for the Western
District of Michigan in an order that became final on or about September 21,
1995. Pioneer Railcorp then assigned its right to purchase to the West Jersey
Railroad Co., a wholly owned subsidiary of Pioneer, which has been operating the
former KLSC tracks under a Interstate Commerce Commission Directed Service Order
since June 24, 1995. West Jersey Railroad Co. amended its articles of
incorporation to change its name to "West Michigan Railroad Co.", effective
October 2, 1995. The sale was approved by the Interstate Commerce Commission by
order served October 18, 1995, and the West Michigan Railroad Co. took title to
the property on October 24, 1995.
On July 1, 1995, the Company's stock split and warrant issuance became payable
to shareholders. This increased the number of shares issued and outstanding from
2,098,042 to 4,196,084. At the same time shareholders became entitled to
purchase an additional 4,196,084 shares through the Company's warrants. On
September 29, 1995, the Company's SEC Form S-3 Registration Statement for the
shares to be sold upon exercise of the Company's warrants became effective. As
of November 11, 1995 a total of 10,384 warrants have been exercised, and the
Company has realized $20,768 on the issuance of warrant shares.
On or about August 8, 1995, the Company entered into an agreement to purchase a
Cessna 421B aircraft for $20,000 cash and 54,000 shares of the Company's Class A
common stock. This right to purchase was assigned to Pioneer Air, Inc., a
wholly-owned subsidiary of the Registrant. On September 1, 1995, the aircraft
was acquired by Pioneer Air, Inc. and 54,000 shares were issued through a
private placement to the seller of the aircraft. At this point, the company
intends to use the aircraft for Company purposes, and does not plan to offer air
transportation service to the public.
On July 5, 1995, the Company's Employee Stock Option Plan became vested as a
result of the stock having reached $4.00 or higher for 10 consecutive days (see
Note 4). As of the date of this report, however, the Company has not yet issued
any options, nor has any registration statement for the options been filed. The
Company intends to file such statement and issue such options before the end of
the year.
On or about September 29, 1995, the Company also issued 6,000 shares of Class A
common stock through a private placement, in partial payment for certain
locomotive parts.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized.
PIONEER RAILCORP
(Registrant)
11/13/95 _____________________________
DATE GUY L. BRENKMAN
PRESIDENT & CEO
11/13/95 ______________________________
DATE J. MICHAEL CARR
ASSISTANT TREASURER &
CHIEF FINANCIAL OFFICER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's 3rd Quarter 1995 Form 10-QSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 365,731
<SECURITIES> 0
<RECEIVABLES> 1,224,314
<ALLOWANCES> 20,590
<INVENTORY> 306,901
<CURRENT-ASSETS> 2,026,568
<PP&E> 13,197,003
<DEPRECIATION> 1,755,970
<TOTAL-ASSETS> 14,145,820
<CURRENT-LIABILITIES> 2,764,794
<BONDS> 0
<COMMON> 2,157
0
0
<OTHER-SE> 2,441,247
<TOTAL-LIABILITY-AND-EQUITY> 14,145,820
<SALES> 0
<TOTAL-REVENUES> 6,205,690
<CGS> 0
<TOTAL-COSTS> 4,915,699
<OTHER-EXPENSES> (214,017)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 560,760
<INCOME-PRETAX> 942,948
<INCOME-TAX> 378,150
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470,875
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
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