U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarter ended March 31, 1997
Commission File Number 33-6658-C
Pioneer Railcorp
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(Exact name of Registrant as specified in its charter)
Iowa 37-1191206
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(State or other jurisdiction of (IRS Employer ID #)
incorporation or organization)
1318 S. Johanson Rd Peoria, IL 61607
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(Address of principal executive offices) (Zip code)
Registrant's telephone number: 309-697-1400
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class Name of each exchange on which registered
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Common Stock, Class A NASDAQ, Chicago Stock Exchange
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.
4,588,263
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(Shares of Common Stock outstanding on March 31, 1997)
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended March 31, 1997 and 1996
UNAUDITED
First Quarter First Quarter
1997 1996
--------------------------
Operating revenue ................................ $ 2,801,517 $ 2,450,441
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Operating expenses
Maintenance of way ............................ 227,676 201,518
Maintenance of equipment ...................... 368,256 279,920
Transportation expense ........................ 697,372 455,289
Administrative expense ........................ 794,731 615,457
Depreciation & amortization .................. 367,586 314,576
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2,455,621 1,866,760
--------------------------
Operating income ................................. 345,896 583,681
--------------------------
Other income & expense
Other (income) expense ........................ (133,919) (59,433)
Interest expense, equipment ................... 202,159 200,167
Interest expense, other ....................... 146,175 87,267
Net (gain) loss on sale of fixed assets ....... (28,952) (29,505)
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185,463 198,496
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Income before income taxes ....................... 160,433 385,185
Provision for income taxes ....................... 58,900 142,400
--------------------------
Income before minority interest in preferred
stock dividends of consolidated subsidiaries .. $ 101,533 $ 242,785
Minority interest in preferred stock dividends of
consolidated subsidiaries .................... $ 31,308 $ 31,308
Net income ....................................... $ 70,225 $ 211,477
==========================
Earnings per common share ........................ $ 0.02 $ 0.04
==========================
Weighted average number of common shares
and common share equivalents used in
computing earnings per share ..................... 8,869,448 8,618,796
==========================
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
UNAUDITED
<TABLE>
March 31 December 31
1997 1996
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<S> <C> <C>
ASSETS
Current Assets
Cash ............................................... $ 673,671 $ 501,212
Accounts receivable, less allowance
for doubtful accounts (1997 $45,290; 1996 $26,892) 2,234,031 2,071,289
Inventories ........................................ 413,904 420,952
Prepaid expenses ................................... 191,505 261,427
Income tax refund claims ........................... 338,246 349,881
Deferred taxes ..................................... 25,901 25,901
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Total current assets .......................... 3,877,258 3,630,662
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Property and Equipment less accumulated
depreciation 1997 $3,645,853; 1996 $3,294,610 ....... 20,029,414 20,131,566
-------------------------
Intangible Assets, less accumulated amortization
1997 $151,276; 1996 $140,109 ........................ 1,159,459 1,171,114
-------------------------
Investments, cash value of life insurance ............. 79,820 74,962
-------------------------
Total assets .......................................... $25,145,951 $25,008,304
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ................................... $ 3,193,786 $ 2,973,258
Notes payable ...................................... 572,653 769,535
Income taxes payable ............................... 66,078 18,978
Current maturities of long-term debt ............... 1,817,421 1,813,246
Accrued liabilities ................................ 781,311 491,610
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Total current liabilities ..................... 6,431,249 6,066,627
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Long-term debt, net of current maturities ............. 12,226,335 12,564,133
Deferred income taxes ................................. 1,967,651 1,967,651
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Total liabilities & debt ...................... 20,625,236 20,598,411
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Minority interest in subsidiaries ..................... 1,188,000 1,188,000
Stockholders' Equity
Common stock ....................................... 4,585 4,571
Additional paid-in capital ......................... 2,007,724 1,981,149
Retained earnings .................................. 1,320,407 1,236,173
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Total stockholders' equity .................... 3,332,716 3,221,893
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Total liabilities and equity .......................... $25,145,951 $25,008,304
=========================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarters Ended March 31, 1997 and 1996
UNAUDITED
<TABLE>
First Quarter First Quarter
1997 1996
--------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income .................................................. $ 70,225 $ 211,476
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in preferred stock dividends of
consolidated subsidiaries ....................... 31,308 31,308
Depreciation ...................................... 356,418 303,444
Amortization ...................................... 11,167 11,132
Increase in cash value life insurance ............. (4,858) -0-
(Gain) on sale of property & equipment ............ (28,952) (29,505)
Deferred taxes .................................... -0- -0-
Change in assets and liabilities, net of effects from
acquisition of subsidiaries
(Increase) decrease accounts receivable ........... (162,742) (61,720)
(Increase) decrease inventories ................... 7,048 (6,188)
(Increase) decrease prepaid expenses .............. 69,922 57,385
(Increase) decrease intangible assets ............. 488 249
Increase (decrease) accounts payable .............. 220,528 213,389
(Increase) decrease income tax refund claims ...... 11,635 50,998
Increase (decrease) income tax payable ............ 47,100 106,518
Increase (decrease) accrued liabilities ........... 289,701 65,148
--------------------------
Net cash provided by operating activities ......... 918,988 953,634
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Cash Flows From Investing Activities
Proceeds from sale of property & equipment ........ 53,089 -0-
Purchase of property & equipment, net of property
and equipment from acquisition of subsidiaries (278,403) (714,690)
Acquisition of subsidiaries, net of cash acquired . -0- (2,786,882)
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Net cash (used in) investing activities ........... (225,314) (3,501,572)
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Cash Flows From Financing Activities
Proceeds from short-term borrowings, net of debt
assumed in acquisition of subsidiaries ......... 400,328 278,438
Proceeds from long-term borrowings, net of debt
assumed in acquisition of subsidiaries ......... 119,700 3,046,000
Payments on short-term borrowings ................. (597,210) (49,212)
Payments on long-term borrowings .................. (453,323) (358,084)
Repurchase of minority interest
Proceeds from warrants and options exercised ...... 26,590 41,040
Payments to minority interest ..................... (17,300) (17,300)
-------------------------
Net cash provided by financing activities: ........ (521,215) 2,940,882
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Net increase (decrease) in cash ............................. 172,459 392,944
Cash, beginning of period ................................... 501,212 276,230
-------------------------
Cash, end of period ......................................... $ 673,671 $ 669,174
=========================
</TABLE>
<PAGE>
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 (collectively, "the Company"). The
significant subsidiaries are as follows: West Michigan Railroad Co. (WJ), Wabash
& Western Railway Co. d/b/a Michigan Southern Railroad (MSO), Fort Smith
Railroad Co. (FSR), Alabama Railroad Co. (ALAB), Mississippi Central Railroad
Co. (MSCI), Alabama & Florida Railway Co., Inc. (AF), Decatur Junction Railway
Co. (DT), Vandalia Railroad Company (VRRC), Minnesota Central Railroad Co.
(MCTA), Keokuk Junction Railway Co. (KJRY), Rochelle Railroad Co. (RRCO),
Shawnee Terminal Railway Company (STR), Pioneer Railroad Equipment Co., Ltd.
(PREL), Pioneer Air, Inc. (PAR), and Pioneer Railroad Services, Inc. (PRS). 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.
Property and equipment:
Property and equipment are stated at cost. Depreciation is computed principally
on a straight-line basis over the following estimated useful lives:
Roadbed - 20 years
Transportation equipment - 10 to 15 years
Railcars - 10 to 15 years
Buildings - 20 to 40 years
Machinery and equipment - 5 to 10 years
Office equipment - 5 to 10 years
Maintenance and repair expenditures, which keep the rail facilities in proper
operating condition, are charged to operations as incurred. Expenditures
considered to be renewals and betterments are capitalized if such expenditures
improve track conditions and benefit future operations with more efficient use
of rail facilities.
Intangible assets:
Intangible assets consist principally of goodwill which is being amortized by
the straight-line method over a forty-year period. The Company reviews
intangible assets quarterly to determine potential impairment by comparing the
carrying value of the intangible with the undiscounted anticipated future cash
flows of the related property before interest charges. If future cash flows are
less than the carrying value, the Company will determine the fair market value
of the property and adjust the carrying value of the intangibles if the fair
market value is less than the carrying value.
Earnings per common and common share equivalent share:
Primary earnings per common share was computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding at the end of the respective periods under the Treasury Stock
Method.
NOTE 3. ESTIMATED IMPACT OF THE ADOPTION OF RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 requires the presentation of both basic earnings per share and diluted
earnings per share. Basic earnings per share will be computed by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share will be computed in the same manner used by the Company in
computing earnings per share. SFAS No. 128 will be effective for the Company's
1997 annual report. If SFAS No. 128 had been in effect during the first quarter
of 1997, basic earnings per share would have been $.02 per share and diluted
earnings per share would have been $.02 per share.
<PAGE>
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. STOCK OPTION PLANS
On April 12, 1994, Pioneer adopted, with the subsequent approval of its
shareholders, a stock option plan permitting the issuance of up to 836,000
shares of common stock. Options granted under the plan were incentive based. The
options became exercisable on July 5, 1995 at a price equal to the market value
of the common stock at the date of grant, and the effect on earnings per share
has been reflected in the accompanying financial statements. As of March 31,
1997, a total of 782,300 options are outstanding under this plan after
forfeitures and exercises.
On June 26, 1996, the Company shareholders approved a stock option plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are incentive based except for the options granted to the CEO whose
options are non-qualified. The options are fully vested and will be exercisable
as of July 1, 2001, and the effect on earnings per share has been reflected in
the accompanying financial statements. The exercise date can be accelerated if
Pioneer Railcorp common shares reach a closing price of $7.25 per share, or
higher, for any consecutive 10-day period, as reported in the Wall Street
Journal. The options will be exercisable at the market price of the common
shares at the date the options were granted, in whole or in part within 10 years
from the date of grant. As of March 31, 1997, a total of 287,000 options are
outstanding under this plan after forfeitures of 120,000 shares.
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. This increased the
outstanding common shares to 4,198,084 from 2,099,042. 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 common stock owned. Each warrant permits shareholders to purchase
an additional share of common 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 accompanying financial statements. As of
March 31, 1997, a total of 65,594 warrants had been exercised.
NOTE 6. MINORITY INTERESTS IN SUBSIDIARIES
Three of the Company's subsidiaries have preferred stock outstanding. This stock
is accounted for as minority interest in subsidiaries and dividends on the stock
are accounted for as a current expense.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company operated the following twelve railroads during the first quarter of
1997: West Michigan Railroad Co. (WJ), Wabash & Western Railway Co. d/b/a
Michigan Southern Railroad (MSO), Fort Smith Railroad Co. (FSR), Alabama
Railroad Co. (ALAB), Mississippi Central Railroad Co. (MSCI), Alabama & Florida
Railway Co., Inc. (AF), Decatur Junction Railway Co. (DT), Vandalia Railroad
Company (VRRC), Minnesota Central Railroad Co. (MCTA), Keokuk Junction Railway
Co. (KJRY), Rochelle Railroad Co. (RRCO), and Shawnee Terminal Railway Company
(STR). The Company also operated three railroad-related subsidiaries, Pioneer
Railroad Equipment Co., Ltd. (PREL), Pioneer Railroad Services, Inc. (PRSI), and
Pioneer Air, Inc (PAR).
Summary: First Quarter 1997 Compared to First Quarter 1996.
The Company's net income in the first quarter 1997 decreased by 67% to $70,225
down from $211,477 in the same period last year. Operating revenue in the first
quarter 1997 increased by $351,000 or 15% to $2.8 million from $2.45 million in
the same period last year. Operating expense increased in the first quarter 1997
by $589,000 or 32% to $2.5 million from $1.9 million in the same period last
year. Operating income decreased in the first quarter 1997 by $238,000 or 41% to
$346,000 from $584,000 in the same period last year.
<PAGE>
Several factors attributed to the decrease in first quarter 1997 net income:
The Minnesota Central Railroad had a decrease in operating income of $129,000,
recording an operating loss of $159,000 in the first quarter 1997 compared to a
$29,000 loss in the same period last year. MCTA's decrease was a direct result
of the severe winter weather in the region, which left the railroad inoperable
for almost all of the first quarter 1997. Pioneer Railroad Equipment operating
income was down $174,000, recording operating income of $254,000 in the first
quarter 1997 compared to $428,000 in the same period last year. PREL's decrease
related to lost revenue due to non-utilization of grain hopper cars assigned to
the MCTA, and the non-renewal of a short-term lease of 75 covered hoppers to a
non-affiliated party that was in effect from November 1995 through April 1996.
The Decatur Junction Railway operating income was down $40,000 in the first
quarter 1997, recording operating income of $26,000 in the first quarter 1997
compared to $66,000 in the same period last year. DT's decrease resulted from
decreased grain shipments due to market conditions. The Mississippi Central
Railroad operating income decreased approximately $81,000 in the first quarter
1997, recording operating income of $33,000 in the first quarter 1997 compared
to $114,000 in the same period last year. MSCI's decrease was the result of
reduced shipping by the two principal users of the line, one relating to a below
normal cotton harvest, and the other relating to a decrease in timber material
needed for plant production. The Fort Smith Railroad had a decrease in operating
income of approximately $80,000 in the first quarter 1997, recording operating
income of $261,000 in the first quarter 1997 compared to $341,000 in the same
period last year. FSR's decrease was the result of a decrease in demurrage
revenue in 1997 compared to 1996.
Pioneer Railroad Services had increased operating costs of approximately $45,000
in the first quarter 1997 compared to the same period last year, most of which
relates to hiring and retaining of several support personnel not previously
employed in the first quarter of 1996.
The Alabama & Florida Railway had increased operating income of $56,000 in the
first quarter 1997, recording operating income of $191,000 compared to $135,000
in the same period last year. AF's increase resulted from both volume and
pricing increases. The Company's Keokuk Junction Railway subsidiary, which began
operations on March 13, 1996, contributed operating income of $243,000 in the
first quarter 1997, compared to $40,000 in the same period in 1996. The Rochelle
Railroad which began operations in April 1996 had operating income of $37,000,
and the Michigan Southern Railroad which began operations in December 1996 had
operating income of $54,000.
Interest expense increased approximately $61,000 in the first quarter 1997 to
$348,000 compared to $287,000 in the same period last year, most of which was a
direct result of the financing of the Keokuk Junction Railway acquisition.
Operating Revenue:
The increase in operating revenue in the first quarter 1997 of $351,000 was
positively affected by a $568,000 increase of revenue generated from the Keokuk
Junction Railway which began operations under Pioneer Railcorp ownership on
March 13, 1996. Also, the Rochelle Railroad which began operations in April 1996
had $97,000 of operating revenue in the first quarter 1997, and the Michigan
Southern Railroad, which began operations in December 1996, had $216,000 of
operating revenue in the quarter. In addition, the Alabama & Florida Railway had
an increase of approximately $72,000 in operating revenue in the first quarter
of 1997 to $354,000 compared to $282,000 in the same period last year.
The increases in operating revenue from these subsidiaries was offset by a
$178,000 operating revenue decrease by the Minnesota Central Railroad, which had
operating revenue of $12,000 in the first quarter 1997 compared to $190,000 in
the same period last year, as a result of severe weather conditions. Operating
revenue from Pioneer Railroad Equipment Co. was down approximately $145,000 to
$559,000 in the first quarter 1997 compared to $704,000 in the same period last
year. The PREL revenue decrease was a result of the non-utilization of its grain
hopper cars assigned to the MCTA, and the non-renewal of the railcar lease
previously mentioned.
Mississippi Central Railroad operating revenue was down approximately $103,000
to $150,000 in the first quarter 1997 compared to $253,000 in the same period
last year as a result of reduced shipping by the two principal users of the line
as mentioned above. Decatur Junction Railway operating revenue was down $42,000
to $61,000 in the first quarter 1997 compared to $103,000 in the same period
last year, as a result of reduced grain shipments due to market conditions in
the first quarter 1997.
The remaining operating subsidiaries had constant overall revenue in the first
quarter 1997 compared to the same period last year.
<PAGE>
Operating Expense:
The increase of operating expense of $589,000 in the first quarter 1997 resulted
from the following factors:
Increase in maintenance of way and maintenance of equipment expense in the first
quarter 1997 was primarily attributable to the Keokuk Junction Railway
operations which began in March 1997. The increase in transportation expense in
the first quarter 1997 was primarily attributable to new operating subsidiaries
as follows: KJRY $205,000, RRCO $23,000, and MSO $102,000. The Minnesota Central
had a decrease in transportation expense of $63,000 in the first quarter 1997 as
a result of the reduced operations resulting from the severe weather. The
increase in administrative expense in the first quarter 1997 was attributable to
both new operating subsidiaries and administrative expense related to payroll
costs associated with the hiring of additional support personnel. The increase
in administrative costs related to the new operating subsidiaries is as follows:
KJRY $58,000, RRCO $37,000, and MSO $24,000.
The remaining operating subsidiaries had constant overall operating expense in
the first quarter 1997 compared to the same period last year.
Other Income and Expense Income Statement Line Item Discussion:
Other income of $134,000 for the first quarter 1997 consists of real estate
lease income, scrap income and other miscellaneous items. The increase in 1997
is primarily related to improved and increased efforts in generating right of
way lease income.
Other interest expense increased in the first quarter 1997 by $59,000 to
$146,000 compared to $87,000 in the same period last year. Most of this increase
is a result of financing activities related to the Company's acquisition of the
Keokuk Junction Railway.
Net gain on fixed asset dispositions during the first quarter 1997 of $29,000
included $24,000 from the sale of a locomotive and $5,000 from the sale of a
railcar. Net gain on fixed asset dispositions during the first quarter 1996 of
$29,505 was generated from the sale of 5.36 miles of Alabama Railroad right of
way. The real estate was not located on an active part of the rail line.
Liquidity and Capital Resources:
The Company primarily uses cash generated from operations to fund working
capital needs and relies on long-term financing for railcars, new operating
subsidiaries, and other significant capital expenditures.
The Company has working capital lines of credit totaling $1,075,000 of which
approximately $553,000 was available at the end of the first quarter 1997. In
addition, the Company has seen the market value of its railcar and locomotive
fleet increase significantly over the last several years. This increase in value
has resulted from the short supply of railcars and locomotives compared to the
increased demand for their use. The Company believes it could refinance part of
its railcar or locomotive fleet with an asset-based lender and generate up to $1
million in cash.
In March of 1996, the Company negotiated a credit facility with its primary bank
to provide a $2.5 million annual revolving acquisition line of credit. This
facility is collateralized by the common stock of the Alabama Railroad Co. and
the Mississippi Central Railroad Co., as well as the Company's investment in
stock of any subsidiaries acquired under the line. The interest rate for the
line is currently 10.75%. The interest rate is adjustable quarterly to 2.5% over
New York Prime, limited to a one percent annual increase or decrease, not to
exceed 13.5% or be reduced below 10%. Any amounts drawn on the line must be
repaid monthly over a seven year period. The line has been fully drawn upon in
connection with the Company's March 12, 1996 acquisition of a controlling
interest of KNRECO, Inc. d/b/a Keokuk Junction Railway, common stock.
On July 1, 1995, the Company's stock split and warrant issuance became payable
to shareholders. The 2 for 1 stock split increased the number of shares issued
and outstanding from 2,099,042 to 4,198,084. At the same time shareholders
became entitled to purchase an additional 4,198,084 common shares through stock
warrants issued by the Company as dividends. One warrant was issued for each
share of common stock held after the split, entitling the holder to purchase 1
share of common stock for $2 per share. The shares purchased through the
exercise of the warrants must be held for 1 year from the date of purchase. A
total of 8,420 warrants were exercised in the first quarter 1997, and the
Company realized $16,840 on the exercise of the warrants. The Company expects
increased capital to be generated by the continued exercise of warrants but is
uncertain as to the amount. A total of 4,132,490 warrants are outstanding as of
March 31, 1997.
<PAGE>
The Company granted 836,000 options to certain employees under its 1994
incentive stock option plan. The options are exercisable at prices equal to the
market value of the Company's stock at the date of grant. The exercise price
ranges are from $1.50 to $4.40 per share. The Company expects increased capital
to be generated by the exercise of options but is uncertain as to the amount. A
total of 6,500 options were exercised in the first quarter 1997 and the Company
realized $9,750 as a result of their exercise. As of March 31, 1997, a total of
782,300 options are outstanding under this plan after forfeitures and exercises.
Long-term equipment financing has historically been readily available to the
Company for its railcar acquisition needs. The Company believes it will be able
to continue obtaining long-term equipment financing should the need arise. The
Company's plans for new debt in the foreseeable future is contingent upon new
railroad acquisitions and increased needs and/or opportunities for railcars. The
Company does not expect to make significant additions to its railcar fleet in
1997. The Company is considering and analyzing the refinancing of some of its
present debt, particularly its $2.5 million annual revolving acquisition line of
credit. As of the date of this report, the Company believes it has financing in
place to repay the acquisition line of credit, pending final negotiation of
documents and other miscellaneous items. The terms of the financing, if
obtained, would include a fixed rate of interest and monthly payments over a 66
month period.
The Company anticipates favorable outcomes involving current legal proceedings.
The Company does not anticipate any material judgements against it or any of its
subsidiaries will arise out of the current proceedings.
The Company believes its cash flow from operations and its available working
capital credit lines will be adequate to meet liquidity needs for at least the
next twelve months.
Balance Sheet and Cash Flow Items:
The Company generated net cash from operating activities of $919,000 in the
first quarter 1997 compared to $954,000 in the same period last year. Net cash
from operating activities for the first quarter 1997 resulted primarily from
$70,000 of net income, $367,000 of depreciation and amortization, an increase in
trade payables of $220,000 and an increase in accrued liabilities of $290,000.
In the first quarter 1997 the Company purchased approximately $278,000 of fixed
assets and capital improvements. The capital additions included the purchase of
approximately 17 railcars at a total cost of $122,000, financed with long-term
fixed rate financing. In addition, the Company capitalized approximately $78,000
of track and structure betterments, and the remaining capital expenditures of
approximately $78,000 were for machinery, equipment and other assets. All the
expenditures other than the railcars purchased were financed with working
capital cash flow.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Several lawsuits were pending by and against Pioneer Railcorp and/or its
subsidiaries (collectively, the "Company") during the first quarter 1997.
Two cases were pending involving a number of outstanding issues between
Minnesota Central Railroad Co. (MCTA) , MNVA Railroad, Inc. (MNVA), and Dakota,
Missouri Valley & Western Railroad, Inc., concerning the asset sale from MNVA to
MCTA in December 1994. Both of those cases were settled and dismissed in April
1997. The settlement did not have a material effect on the Company's
consolidated position or results of operation.
A Federal Employer's Liability Act ("FELA") lawsuit is pending against the
Alabama & Florida Railway Co. in Alabama. That action was brought by a former
employee of a track contractor (or its sub-contractor), and is being defended by
the contractor pursuant to an indemnification agreement. The Company does not
believe it has any liability in the matter, and does not believe the case will
result in a material adverse effect on the Registrant's consolidated financial
position or results of operation.
There are two cases currently pending between Ralston L. Taylor, the former
General Manager of Keokuk Junction Railway ("KJRY"), and the Company. One of
those cases, which is in the District Court of Lee County (Iowa) involves
certain allegations by Mr. Taylor relating to the termination of his employment
relationship with KJRY. Management believes that Mr. Taylor's position is
without merit, and that the case is not likely to result in a material adverse
effect on the Registrant's consolidated financial position or results of
operation. The other case was brought by KJRY in the Hancock County (Illinois)
Circuit Court, and involves unpaid car storage charges due KJRY.
<PAGE>
A case is currently pending in the Circuit Court of Sebastian County, Arkansas,
involving a crossing accident which occurred in Fort Smith in December 1993.
Management is vigorously defending that case, and does not believe FSR has any
liability. As such, the case is not likely to result in a material adverse
effect on the Registrant's consolidated financial position or results of
operation.
Pioneer's subsidiary railroads have a number of claims against delinquent
licensees, customers and others, some of which are in litigation, and others of
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 business, the Company experiences crossing accidents, employee
injuries, delinquent and/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 against the Company, 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.
In addition, KJRY has been notified that an employee who allegedly sustained an
injury on December 26, 1996, may file an FELA action. Management has inadequate
information at this time to evaluate the extent or validity of that employee's
potential claim.
As of the date of this Form 10-QSB, management is not aware of any other
incident which is likely 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
No matters were submitted to a vote of security holders in the first quarter
1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<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.
PIONEER RAILCORP
(Registrant)
/s/ Guy L. Brenkman
5/12/97 --------------------------------------------------
DATE GUY L. BRENKMAN
PRESIDENT & CEO
/s/ J. Michael Carr
5/12/97 --------------------------------------------------
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 1st quarter 1997 Form 10-QSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 673,671
<SECURITIES> 0
<RECEIVABLES> 2,279,321
<ALLOWANCES> 45,290
<INVENTORY> 413,904
<CURRENT-ASSETS> 3,877,258
<PP&E> 23,675,267
<DEPRECIATION> 3,645,853
<TOTAL-ASSETS> 25,145,951
<CURRENT-LIABILITIES> 6,431,249
<BONDS> 0
0
0
<COMMON> 4,585
<OTHER-SE> 3,328,131
<TOTAL-LIABILITY-AND-EQUITY> 25,145,951
<SALES> 0
<TOTAL-REVENUES> 2,801,517
<CGS> 0
<TOTAL-COSTS> 2,455,621
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 348,334
<INCOME-PRETAX> 160,433
<INCOME-TAX> 58,900
<INCOME-CONTINUING> 101,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,225<F2>
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>Other expenses are netted with other income in the period. The result was
income of $133,919. The edgarlink program does no allow a income number to be
entered in this field. The other expense portion of this number is immaterial.
<F2>The difference between Income Continuing and Net Income relates to Minority
Interests in Preferred Stock Dividends of consolidated subsidiaries
</FN>
</TABLE>
