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, 1998
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 [ ]
4,609,513
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(Shares of Common Stock outstanding on March 31, 1998)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended March 31, 1998 and 1997
UNAUDITED
First Quarter
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1998 1997
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Operating revenue ................................ $ 3,236,847 $ 2,801,517
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Operating expenses
Maintenance of way ............................ 297,029 227,676
Maintenance of equipment ...................... 402,301 368,256
Transportation expense ........................ 736,594 697,372
Administrative expense ........................ 819,887 794,731
Depreciation & amortization .................. 392,263 367,586
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2,648,074 2,455,621
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Operating income ................................. 588,773 345,896
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Other income & expense
Other (income) expense ........................ (69,141) (133,919)
Interest expense, equipment ................... 199,833 202,159
Interest expense, other ....................... 147,239 146,175
Net (gain) loss on sale of fixed assets ....... (8,733) (28,952)
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269,198 185,463
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Income before income taxes ....................... 319,575 160,433
Provision for income taxes ....................... 113,900 58,900
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Income before minority interest in preferred
stock dividends of consolidated subsidiaries .. $ 205,675 $ 101,533
Minority interest in preferred stock dividends of
consolidated subsidiaries .................... $ 31,308 $ 31,308
Net income ....................................... $ 174,367 $ 70,225
==========================
Basic earnings per common share .................. $ 0.04 $ 0.02
==========================
Diluted earnings per common share ................ $ 0.04 $ 0.02
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<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
UNAUDITED
<TABLE>
March 31 December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current Assets
Cash .............................................. $ 1,066,462 $ 407,428
Accounts receivable, less allowance
for doubtful accounts 1998 $122,882; 1997 $82,375 2,330,603 2,367,509
Inventories ....................................... 353,088 351,331
Prepaid expenses .................................. 170,076 192,952
Income tax refund claims .......................... 74,478 74,602
Deferred taxes .................................... 66,400 66,400
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Total current assets ......................... 4,061,107 3,460,222
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Property and Equipment less accumulated
depreciation 1998 $4,977,845; 1997 $4,602,015 ...... 20,129,854 19,974,702
--------------------------
Intangible Assets, less accumulated amortization
1998 $210,814; 1997 $140,109 ....................... 1,106,161 1,117,205
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Investments, cash value of life insurance ............ 100,495 95,547
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Total assets ......................................... $25,397,617 $24,647,676
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable .................................. $ 3,133,735 $ 2,518,190
Notes payable ..................................... 251,241 250,034
Income taxes payable .............................. 118,849 61,749
Current maturities of long-term debt .............. 1,898,442 1,836,132
Accrued liabilities ............................... 460,895 432,145
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Total current liabilities .................... 5,863,162 5,098,250
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Long-term debt, net of current maturities ............ 12,262,151 12,465,498
Deferred income taxes ................................ 2,250,700 2,250,700
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Total liabilities & debt ..................... 20,376,013 19,814,448
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Minority interest in subsidiaries .................... 1,186,000 1,186,000
Stockholders' Equity
Common stock ...................................... 4,607 4,607
Additional paid-in capital ........................ 2,040,203 2,040,203
Retained earnings ................................. 1,790,794 1,602,418
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Total stockholders' equity ................... 3,835,604 3,647,228
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Total liabilities and equity ......................... $25,397,617 $24,647,676
=========================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarters Ended March 31, 1998 and 1997
UNAUDITED
<TABLE>
First Quarter
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1998 1997
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<S> <C> <C>
Cash Flows From Operating Activities
Net income ................................................ $ 174,366 $ 70,225
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 ................................. 379,182 356,418
Amortization ................................. 13,081 11,167
Increase in cash value life insurance ........... (4,948) (4,858)
(Gain) on sale of property & equipment .......... (8,733) (28,952)
Deferred taxes ................................. -0- -0-
Change in assets and liabilities, net of effects from
acquisition of subsidiaries
(Increase) decrease accounts receivable ......... 36,906 (162,742)
(Increase) decrease inventories ................. (1,757) 7,048
(Increase) decrease prepaid expenses ............ 22,876 69,922
(Increase) decrease intangible assets ........... (418) 488
Increase (decrease) accounts payable ............ 615,545 220,528
(Increase) decrease income tax refund claims .... 124 11,635
Increase (decrease) income tax payable .......... 57,100 47,100
Increase (decrease) accrued liabilities ......... 28,750 289,701
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Net cash provided by operating activities ....... 1,343,382 918,988
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Cash Flows From Investing Activities
Proceeds from sale of property & equipment ...... 26,772 53,089
Purchase of property & equipment, net of property
and equipment from acquisition of subsidiaries .. (553,990) (278,403)
Acquisition of subsidiaries, net of cash acquired -0- -0-
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Net cash (used in) investing activities ......... (527,218) (225,314)
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Cash Flows From Financing Activities
Proceeds from short-term borrowings, net of debt
assumed in acquisition of subsidiaries .......... 1,235,563 400,328
Proceeds from long-term borrowings, net of debt
assumed in acquisition of subsidiaries .......... 324,100 119,700
Payments on short-term borrowings ............... (1,234,356) (597,210)
Payments on long-term borrowings ................ (465,137) (453,323)
Repurchase of minority interest
Proceeds from warrants and options exercised .... -0- 26,590
Payments to minority interest ................... (17,300) (17,300)
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Net cash provided by financing activities: ...... (157,130) (521,215)
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Net increase (decrease) in cash ........................... 659,034 172,459
Cash, beginning of period ................................. 407,428 501,212
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Cash, end of period ....................................... $ 1,066,462 $ 673,671
==========================
</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. (WMI),
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 Industrial Railway Co. (PRY),
Pioneer Resources, Inc. (PIR), 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 share:
Basic per-share amounts are computed by dividing net income (the numerator) by
the weighted average number of common shares outstanding (the denominator).
Diluted per-share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce the loss or
increase the net income per share.
<PAGE>
NOTE 3. ESTIMATED IMPACT OF THE ADOPTION OF RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (FAS 128), "Earnings Per Share." FAS 128 requires the
presentation of both basic earnings per share and diluted earnings per share.
Basic per-share amounts are computed by dividing net income (the numerator) by
the weighted average number of common shares outstanding (the denominator).
Diluted per-share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce the loss or
increase the net income per share. The Company initially applied FAS 128 for the
year ended December 31, 1997, and as required by this statement has restated all
per share information for the prior year to conform to the statement.
In July 1997, Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" (FAS 130), was issued by the Financial Accounting
Standards Board. The standard establishes reporting of comprehensive income for
general purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period and all other events
and circumstances from non-owner sources. The standard is effective for
financial statement periods beginning after December 15, 1997. The Company does
not believe the adoption of the standard will have a material impact on its
consolidated financial statements.
In July 1997, Statement of Financial Accounting Standard No. 131, "Disclosure
about Segments of an Enterprise and Related Information" (FAS 131), was issued
by the Financial Accounting Standards Board. The standard requires the Company
to disclose the factors used to identify reportable segments including the basis
of organization, differences in products and services, geographic areas, and
regulatory environments. FAS 131 additionally requires financial results to be
reported in the financial statements for each reportable segment. The standard
will be effective for the Company's 1998 annual report and interim financial
statements following the 1998 annual report. The Company does not believe the
adoption of the standard will have a material impact on its consolidated
financial statements.
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,
1998, a total of 762,300 options are outstanding under this plan after
forfeitures and exercises.
On June 26, 1996, the Company's 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, 1998, 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, 1998, a total of 66,844 warrants had been exercised since their
issuance on June 24, 1995.
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.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company operated the following thirteen railroads during the first quarter
of 1998: West Michigan Railroad Co. (WMI), 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), and Pioneer Industrial Railway Co.(PRY). The Company also operated four
railroad-related subsidiaries, Pioneer Resources, Inc. (PIR), Pioneer Railroad
Equipment Co., Ltd. (PREL), Pioneer Railroad Services, Inc. (PRSI), and Pioneer
Air, Inc. (PAR).
Summary: First Quarter 1998 Compared to First Quarter 1997.
The Company's net income in the first quarter 1998 increased by 149% to $174,366
from $70,225 in the same period last year. Operating revenue in the first
quarter 1998 increased by $400,000 or 15% to $3.2 from $2.8 million in the same
period last year. Operating expense increased in the first quarter 1998 by
$192,000 or 8% to $2.648 million from $2.456 million in the same period last
year. Operating income increased in the first quarter 1998 by $243,000 or 71% to
$589,000 from $346,000 in the same period last year.
Operating Revenue:
The increase in operating revenue in the first quarter 1998 of $435,000 was
positively affected by a 20% or $136,000 increase in revenue generated from the
Keokuk Junction Railway which had operating revenues of approximately $845,000
in the first quarter 1998 compared to $709,000 in the same period last year. The
KJRY increase in operating revenue resulted from increased rail loadings on the
line. In addition, the Rochelle Railroad had increased operating revenue of 61%,
or approximately $59,000, to approximately $156,000 in the first quarter 1998
compared to $97,000 in the same period last year, resulting from both increased
rail loadings and freight rates in the quarter. The Minnesota Central Railroad
operating revenue increased approximately $100,000, to $112,000 in the first
quarter 1998 compared to $12,000 in the same period last year. MCTA revenues
were adversely affected in the same period last year by severe weather
conditions. Operating revenue from Pioneer Railroad Equipment Co. increased 27%
or approximately $146,000, to $705,000 in the first quarter 1998 compared to
$559,000 in the same period last year. The PREL revenue increase resulted from
Company efforts to increase utilization of its rail car fleet.
Pioneer Industrial Railway, which began operations on February 20, 1998, had
operating revenue of $29,000 in the first quarter 1998.
The Alabama & Florida Railway had a decrease in operating revenue of
approximately $60,000, or 17%, reporting operating revenues of $294,000 in the
first quarter 1998 compared to $354,000 in the same period last year. The
decrease in revenues resulted from the railroad being out of service for
approximately 10 days in March as a result of severe flooding in southern
Alabama. Several sections of the line remain out of service as described in more
detail in Part II Item 5 of this report.
The remaining operating subsidiaries had constant overall revenue in the first
quarter 1998 compared to the same period last year.
Operating Expense:
The increase in operating expense of $192,000 in the first quarter 1998 resulted
from normal operating activities, none of which when considered individually is
significant. Some of the factors related to increased operating expense are as
follows:
Increase in maintenance of way expense in the first quarter 1998 was primarily
attributable to an increase in non-capitalized track maintenance on the Keokuk
Junction Railway, the Michigan Southern Railroad, and the Alabama & Florida
Railway . The increase in maintenance of equipment expense was primarily
attributable to increased expenses related to both the repair of Company owned
Railcars and the repair of Railcars not affiliated with the Company. The
increase in transportation expense in the first quarter 1998 was primarily
attributable to the Minnesota Central Railroad and the Michigan Southern
Railroad. The Pioneer Industrial Railway had transportation expense of
approximately $16,000 in the first quarter 1998. The increase in administrative
expense in the first quarter 1998 was attributable to payroll costs associated
with the hiring of additional support personnel.
The remaining operating subsidiaries had constant overall operating expense in
the first quarter 1998 compared to the same period last year.
<PAGE>
Other Income and Expense Line Item Discussion:
Other income of $69,000 for the first quarter 1998 consisted primarily of lease
income. Other income of $134,000 for the first quarter 1997 consisted of real
estate lease income, scrap income and other miscellaneous items. The decrease in
1998 reflects scrap sale income in 1997 not realized in 1998, and a portion of
Keokuk Junction Railway lease income in 1997 included revenues for years prior
to 1997 not billed or collected by the previous owners. The Company is
continuing in its efforts to generate right of way lease income.
Interest expense remained constant in the first quarter 1998 compared to the
same period last year, primarily because the amount of overall long-term debt of
the Company did not change significantly in the first quarter 1998 when compared
to the same period last year.
Net gain on fixed asset dispositions during the first quarter 1998 resulted from
the disposition of three Railcars. 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.
Year 2000 Compliance:
The Year 2000 compliance issue exists because many computer systems and
applications currently use two-digit fields to designate a year. As the century
date change occurs, date-sensitive systems may either fail or not operate
properly unless the underlying programs are modified or replaced.
The Company has initiated a program to ensure that all computer applications
will be Year 2000 compliant by the year-end 1998. The program includes engaging
an outside consultant to review all of the Company's computer hardware and
software, as well as to confirm with outside vendors that their products are
Year 2000 compliant. Although final cost estimates have not been determined, it
is not expected that these expenses will have a material impact on the Company's
financial condition, liquidity, or results of operations.
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 facilities totaling $1,100,000 of which $877,000
was available for use at the end of the first quarter 1998. In addition, the
Company has seen the market value of its railcar fleet increase significantly
over the last several years. This increase in value has resulted from the short
supply of railcars compared to the increased demand for their use. The Company
believes it could refinance or sell part of its railcar fleet and generate at
least $1 million in cash.
In March 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 11%. 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 is fully available for use as
of March 31, 1998.
Long-term equipment financing has historically been readily available to the
Company for its railcar acquisition program. 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 1998.
The Company plans to take advantage of the favorable interest rate environment
and has commitments from commercial lenders to refinance approximately $3.3
million of equipment debt in the second quarter 1998.
<PAGE>
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 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 $2.00 per share. The shares purchased through the
exercise of the warrants must be held for 1 year from date of purchase. No
warrants have been exercised in 1998. As of March 31, 1998, a total of 66,844
warrants originally issued had been exercised, and the Company realized $133,688
on the issuance of the warrants. The Company expects additional capital to be
generated by the continued exercise of warrants but is uncertain as to the
amount.
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 from $1.50 to $4.40 per share. No options have been exercised in 1998. As
of March 31, 1998, a total of 69,700 options had been exercised and the Company
has realized $104,550 on the exercise of the options. The Company expects
additional capital to be generated by the exercise of options in 1997 but is
uncertain as to the amount. As of March 31, 1998, a total of 691,271 options are
outstanding under this plan.
On June 26, 1996, the Company's 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 will be fully vested and will be
exercisable as of July 1, 2001. 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 $2.75, 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, 1998, a total of 282,000 options are outstanding
under this plan. The Company is currently negotiating with the Minnesota
Department of Transportation for approximately $6 million of interest-free
financing to rehabilitate the Minnesota Central Railroad. The Company believes
the outcome of these negotiations will be known by the end of the second quarter
1998. The Company believes that there is strong support for the project from
local economic development agencies and a majority of the railroad's customers.
The City of Rochelle, Illinois terminated the Rochelle Railroad Co.'s lease
agreement effective January 19, 1998. The City is seeking to replace the
Rochelle Railroad as operator of the line with one of the on-line customers. The
Rochelle Railroad is seeking damages, seeking relief from the Surface
Transportation Board, and is also seeking to condemn the property. The outcome
of these actions is uncertain. If the Rochelle Railroad ceases operating the
railroad, it would have a material adverse effect on the Company's results of
operation. In 1997 the Rochelle Railroad Co. generated $408,000 in revenue and
$250,000 of operating income. In the first quarter of 1998 the Rochelle Railroad
Co. generated $156,000 in revenue and $95,000 of operating income.
The Michigan Southern Railroad's lease expires in December 1998, and the Company
has an option to purchase the stock and leased personal property of the railroad
for $2.6 million. The Company has not yet determined if it will exercise its
purchase option. If the purchase option is exercised the transaction would be
funded with long-term debt. In 1997 the Michigan Southern Railroad generated $1
million in revenue and $326,000 of operating income. In the first quarter of
1998 the Michigan Southern Railroad generated $246,000 in revenue and $86,000 of
operating income.
Except for the uncertainties of the Rochelle Railroad Co. litigation, 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 more than sufficient to meet liquidity needs for at
least the next twelve months.
<PAGE>
Balance Sheet and Cash Flow Items:
The Company generated net cash from operating activities of $1,343,000 in the
first quarter 1998 compared to $919,000 in the same period last year. Net cash
from operating activities for the first quarter 1998 resulted primarily from
$174,366 of net income, $410,000 of depreciation and amortization and an
increase in accounts payable of $616,000. The increase in accounts payable
includes $147,000 payable for lost lading that resulted from a 1997 derailment;
the full amount of this payable is recorded in accounts receivable and will be
reimbursed by the Company's insurance carrier. The accounts payable increase
also includes approximately $150,000 of interline freight payable to
non-affiliated railroads. The Company has collected cash or has accounts
receivable balances that together offset the interline payable amount. In
addition, approximately $110,000 of the accounts payable increase relates to
money owed for repairs to the Company's railcars which were made by
non-affiliated railroads late in the first quarter 1998. This increase is a
direct result of increased utilization of the Company's railcar fleet.
In the first quarter 1998 the Company purchased approximately $533,990 of fixed
assets and capital improvements. The capital additions included the purchase of
27 railcars at a total cost of $324,000 which were financed with long-term
fixed-rate financing. In addition, the Company capitalized approximately
$100,000 of track and structure repair related to severe flooding in Alabama.
Also, $30,000 in railcar and locomotive betterments, $27,000 of leasehold
improvements to the Pioneer Industrial Railway track, $21,000 for the purchase
of industrial development land, and miscellaneous capital expenditures of
approximately $36,000 for machinery, equipment and other assets were capitalized
in the first quarter of 1998. All capital expenditures other than the purchase
of railcars were financed with working capital cash flow.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are a number of legal actions pending between the Rochelle Railroad Co.
("RRCO"), the City of Rochelle, Illinois, and other entities, arising out of the
City's termination of RRCO's lease agreement. The City is seeking to replace
RRCO as operator of the line with one of the on-line customers. RRCO is seeking
damages, seeking relief from the Surface Transportation Board, and is also
seeking to condemn the property. The outcome of these actions is uncertain. If
RRCO were to cease operating the railroad, it would have a material adverse
effect on the Company's results of operation.
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.
As of the date of this Form 10-QSB, management is not aware of any incident
which is likely to result in a liability that would materially affect 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
1998.
Item 5. OTHER INFORMATION
The Alabama & Florida Railway had five miles of track washed out as a result of
severe floods and heavy rains in March 1998. This damage has cut off rail
service between Andalusia and the end of the line in Geneva, Alabama. The
customers affected by the washout had not previously been heavy users of the
railroad, although several opportunities for significantly increased loads which
had just begun to be realized in the first quarter of 1998 have been lost until
such time the railroad is repaired. The total estimated cost to repair the flood
damage is approximately $2 million. Federal legislation has been passed and
signed by the President, which may result in allocation of grant funds
sufficient to repair the railroad. If such grant funds do not become available,
the Company will have to consider alternative plans to restore rail usage to the
affected customers. This event will not have a material adverse effect on the
Company's operating results.
On April 2, 1998, Pioneer Railcorp's Board of Directors declared a $.02 per
common share dividend payable to shareholders of record as of April 30, 1998,
payable no later than June 30, 1998.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports were filed on Form 8-K during the first quarter 1998.
Exhibit # 11 - Statement re computation of per share earnings.
Exhibit # 27 - Financial data schedule.
<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)
05/11/98 /s/ Guy L. Brenkman
-------- --------------------------------------------------
DATE GUY L. BRENKMAN
PRESIDENT & CEO
05/11/98 /s/ J. Michael Carr
-------- --------------------------------------------------
DATE J. MICHAEL CARR
TREASURER & CHIEF FINANCIAL OFFICER
Following is information about the computation of the earnings per share (EPS)
data for the periods ended March 31, 1998 and 1997:
<TABLE>
For the Period Ended March 31, 1998
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders ........... $ 174,366 4,609,513 $ 0.04
========
Effect of Diluted Securities (none in 1st Qtr 1998) -- --
---------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions ...................... $ 174,366 4,609,513 $ 0.04
====================== ========
For the Period Ended March 31, 1997
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------------------------
Basic EPS
Income available to common stockholders ............ $ 70,225 4,583,973 $ 0.02
========
Effect of Diluted Securities
Employee stock options ............................. 147,715
Common stock warrants .............................. 323,959
---------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions ....................... $ 70,225 5,055,647 $ 0.01
===================== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's 1st Quarter 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,066,462
<SECURITIES> 0
<RECEIVABLES> 2,453,485
<ALLOWANCES> 122,882
<INVENTORY> 353,088
<CURRENT-ASSETS> 4,061,107
<PP&E> 25,107,699
<DEPRECIATION> 4,977,845
<TOTAL-ASSETS> 25,397,617
<CURRENT-LIABILITIES> 5,863,162
<BONDS> 0
0
0
<COMMON> 4,607
<OTHER-SE> 3,830,997
<TOTAL-LIABILITY-AND-EQUITY> 25,397,617
<SALES> 0
<TOTAL-REVENUES> 3,236,847
<CGS> 0
<TOTAL-COSTS> 2,648,074
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 347,072
<INCOME-PRETAX> 319,575
<INCOME-TAX> 113,900
<INCOME-CONTINUING> 205,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,367<F2>
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>Other expenses are netted with other income in the period. the result was
income of $69,141. The edgarlink program does not allow anincome number to be
entered in this field. The other expense portion of this amount is immaterial.
<F2>The difference between Income Continuing and Net Income relates to Minority
Interests in Preferred Stock Dividends of consolidated subsidiaries.
</FN>
</TABLE>
