SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 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 SmallCap Market , Chicago Stock Exchange
Securities registered pursuant to 12(g) of the Act:
Common stock, Class A ($.001 par value)
Common Stock, Class B (no par value)
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(Title of Class)
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.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Issuer's revenues for the fiscal year ended December 31, 1997 were $12,779,249
The aggregate market value of voting stock held by non-affiliates of the
Registrant on March 20, 1998 was $4,519,604
4,609,513
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(Shares of Common Stock outstanding on March 20, 1998)
This Form 10-KSB contains certain "forward-looking" statements as such term is
defined in The Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitation, competitive factors, general economic conditions,
customer relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, one-time events and other factors described herein and in other
filings made by the Company with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended. The Company does not intend to
update these forward looking statements.
The remainder of this page is intentionally left blank
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PART I
Item 1. Business
General
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Pioneer Railcorp, an Iowa corporation, is a railroad holding company. As used in
this Form 10-KSB, unless the context requires otherwise, the term "Company" or
"PRC" refers to the parent, Pioneer Railcorp and its subsidiaries: 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
Railroad Equipment Co., Ltd. (PREL), Pioneer Air, Inc. (PAR), Pioneer Resources,
Inc. (PRI), and Pioneer Railroad Services, Inc. (PRS).
The Company operates in two business activities - railroad transportation and
railroad equipment leasing. PRC's rail system provides shipping links for
customers along its routes and interchanges with six major railroads, Burlington
Northern Santa Fe Railroad (BNSF), Conrail, Inc. (CR), CSX Transportation (CSX),
Illinois Central Railroad (IC), Norfolk Southern Railway (NS) and Union Pacific
Railroad (UP). Additionally, the Company has interchanges with five smaller
railroads, the Kansas City Southern Railway (KCS), the Arkansas & Missouri
Railroad (AM), the Twin Cities & Western Railway (TCWR), the Toledo, Peoria &
Western Railway Corporation (TPW), and Indiana Northeastern Railroad Company
(IN). PRC's rail system is devoted to carrying freight. PRC also seeks to
encourage development on or near, and utilization of, its real estate right of
way by potential shippers as a source of additional revenue. The Company also
generates revenue by granting to various entities, such as utilities, pipeline
and communications companies and non-industrial tenants, the right to occupy its
railroad right of way and other real estate property. The Company also leases
rail equipment to, and repairs rail equipment owned by, others.
Railroad Operations
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On July 7, 1991, the Fort Smith Railroad Co. (FSR), a wholly-owned subsidiary of
Pioneer Railcorp, entered into a twenty-year lease (with three twenty-year
renewals) with the Missouri Pacific Railroad Company (now Union Pacific
Railroad) and operates 18 miles of track from Fort Smith to Barling, Arkansas.
The FSR's primary interchange is with the Union Pacific Railroad Company (UP).
FSR also interchanges with the Arkansas & Missouri Railroad Co. (AM) and the
Kansas City Southern Railway (KCS). The traffic base on the FSR is very
diversified with both inbound and outbound shipments. The principal commodities
are iron/steel, scrap, baby food, fiberglass, particle board, charcoal, grains,
frozen poultry, meal, chemicals, alcoholic beverages, industrial sand, lumber,
paper, pulpboard, fiberboard, peanuts, fertilizer and military movements.
On October 25, 1991, the Alabama Railroad Co., a wholly-owned subsidiary of
Pioneer Railcorp, purchased 60 miles of railroad facilities and real estate from
CSX Transportation (CSX) and commenced operations soon thereafter. The line runs
from Flomaton to Corduroy, Alabama, and interchanges with CSX in Flomaton. The
railroad's principal commodities are outbound lumber products, primarily
pulpwood, particle board, and finished lumber.
On April 1, 1992, Pioneer Railcorp purchased the common stock of the Natchez
Trace Railroad from Kyle Railways, Inc. The railroad runs from Oxford,
Mississippi to Grand Junction, Tennessee, a total of 56.5 miles, 51 of which are
located in Mississippi. The railroad interchanges with the NS at Grand Junction,
Tennessee and the BNSF at Holly Springs, Mississippi. The Company changed the
name of this wholly-owned subsidiary to Mississippi Central Railroad Co. (MSCI)
in January 1993. The traffic base on the MSCI is primarily outbound finished
wood products and inbound products, such as resins, chemicals and pulpwood, for
the production of finished wood products. Other products shipped on the MSCI
include scrap steel and cottonseed.
On November 23, 1992, the Alabama & Florida Railway Co. (AF), a wholly-owned
subsidiary of Pioneer Railcorp, purchased the tangible assets of the A&F Inc.,
d/b/a the Alabama & Florida Railroad Company. This line runs from Georgiana to
Geneva, Alabama, a distance of 76 miles and interchanges with CSX at Georgiana.
The AF's principal commodities are inbound resins, plastic pellets, fertilizer
and outbound peanuts, scrap plastic and pulpwood.
<PAGE>
On September 23, 1993, the Decatur Junction Railway Co. (DT), a wholly-owned
subsidiary of Pioneer Railcorp, signed a lease agreement with Cisco Co-op Grain
Company (Cisco) and on September 24, 1993 with Central Illinois Shippers,
Incorporated (CISI), for the lease of two segments of track in east central
Illinois. The Cisco segment runs from Green's Switch (Decatur) to Cisco,
Illinois, approximately thirteen (13) miles. The CISI segment runs from Elwin to
Assumption, Illinois, a distance of approximately seventeen (17) miles. The two
lines connect via trackage rights on the Illinois Central Railroad (IC) through
Decatur, Illinois, a distance of approximately eight (8) miles. Railroad
operations began on the Cisco segment December 3, 1993, and began on the CISI
segment December 7, 1993.
On October 7, 1994, Pioneer Railcorp acquired all the outstanding common stock
of the Vandalia Railroad Company. The line located in Vandalia, Illinois,
interchanges with Conrail and is approximately 3.45 miles long. The Railroad's
principal commodities are steel pipe, plastic pellets, fertilizer, and feed
ingredients.
On December 12, 1994, Pioneer Railcorp's wholly-owned subsidiary Minnesota
Central Railroad Co. acquired certain assets of MNVA Railroad, Inc. The assets
purchased included approximately 94 miles of operating railroad in south central
Minnesota. The railroad interchanges with the BNSF at Hanley Falls, Minnesota
and the TCWR at Norwood, Minnesota. The railroad's principal commodities are
grain, clay, fertilizer, canned goods, dairy products, and particleboard.
On July 11, 1995, 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. Those
assets include approximately 15 miles of track and right of way, extending from
Hartford to Paw Paw, in Van Buren County, Michigan. Pioneer Railcorp then
assigned its right to purchase to the West Jersey Railroad Co., a wholly owned
subsidiary of Pioneer, which had been operating the former KLSC tracks under an
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 February 21, 1996, Pioneer Railcorp through its wholly-owned subsidiary
Columbia & Northern Railway Co. (CNOW) signed a lease with the Marion County
(Mississippi) Railroad Authority ("Authority") to operate approximately 29 miles
of trackage between Columbia and Silver Creek, Mississippi.
On March 12, 1996, Pioneer Railcorp purchased 93% of the common stock of KNRECO,
Inc., an Iowa corporation d/b/a Keokuk Junction Railway (hereinafter "KJRY")
from the shareholders, and purchased all of the remaining common shares of KJRY
in April of 1996. KJRY operates a common carrier railroad line within the City
of Keokuk, Iowa, from Keokuk to LaHarpe, Illinois, and a branch line from
Hamilton to Warsaw, Illinois, a total of approximately 38 miles. In addition,
KJRY owns all of the common stock of Keokuk Union Depot Company, an Iowa
corporation, that owns the former Keokuk Union Depot building, along with
surrounding track and real estate. KNRECO, Inc. changed its corporate name to
Keokuk Junction Railway Co. effective April 10, 1996. The KJRY interchanges with
the BNSF at Keokuk, Iowa and the TPW at LaHarpe, Illinois. The railroad's
principal commodities are corn, corn germ, corn syrup, meal, gluten feed,
calcined coal, ferrosilicon, scrap iron, and railroad wheels.
On March 25, 1996, Pioneer Railcorp through its wholly-owned subsidiary Rochelle
Railroad Co. (RRCO) signed a one year lease with the city of Rochelle, Illinois,
to operate approximately 2 miles of track serving the Rochelle Industrial Park.
The line interchanges with the BNSF and the UP. Train operations began April 15,
1996. The lease requires RRCO to make monthly payments to the city on a per car
basis and to maintain the trackage. The railroad's principal commodity is frozen
foods. The City of Rochelle, Illinois, terminated the Rochelle Railroad Co.'s
lease agreement effective January 19, 1998, however, Rochelle Railroad Co.
continues to operate on the trackage pending the outcome of certain legal
proceedings. 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.
On November 13, 1996, Pioneer Railcorp purchased 100% of the common stock of the
Shawnee Terminal Railway Co. The line located in Cairo, Illinois, interchanges
with the Illinois Central Railroad and is approximately 2.5 miles long. The
Railroad's principal commodities are glycol and railroad freight cars for
cleaning.
<PAGE>
On December 19, 1996, Pioneer Railcorp through its wholly-owned subsidiary
Wabash & Western Railway Co. signed a two year lease with the Michigan Southern
Railroad Company, Inc. and Morris Leasing, Inc. to operate 53 miles of track and
certain railroad related assets. The lease calls for a fixed monthly payment for
the equipment assets leased and a per car charge for railroad usage. The lease
contains an exclusive option to purchase the stock of the Michigan Southern
Railroad Company, Inc. and the railroad assets of Morris Leasing, Inc. within
the lease term. The railroad is comprised of three separate, non-contiguous
lines, one located in southern Michigan and two located in northern Indiana. All
lines have separate interchanges with Conrail. The Michigan line also
interchanges with the Indiana Northeastern Railroad Company. The railroad's
principal commodities are scrap paper, scrap iron, fertilizer, plastics,
plywood, sugar and corn syrup.
Other Operations
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Other operations engaged in by the Company are performed by its wholly owned
subsidiaries, Pioneer Railroad Equipment Co., Ltd. (PREL) which was formed on
April 1, 1990, and Pioneer Railroad Services, Inc. (PRS) which began operations
on October 1, 1993. PREL leases equipment to the Company's subsidiary railroads
and also purchases, sells and leases equipment to and from unrelated parties.
PREL also earns income from non-company railroads on its fleet of approximately
900 railcars (as of December 31, 1997) when they carry freight on non-company
railroads. PREL also engages in retail sales of promotional items. PRS provides
accounting, management, marketing, operational and agency services to the
Company's subsidiary railroads. Pioneer Resources, Inc. was formed on December
30, 1993 to manage real estate and auxiliary resources for Company subsidiaries.
Pioneer Air, Inc. was formed on August 5, 1994 and currently owns a Cessna 421B
aircraft which is used by Pioneer Railcorp subsidiaries exclusively for Company
business travel.
Marketing
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The Company's marketing department was established to foster continuing business
with existing customers and to develop and attract new customers and additional
loadings on all PRC railroads. At the end of 1997, the Company had three
full-time marketing employees. The Company's attention to marketing has earned
recognition in industry publications, with Class I railroads, and with smaller
rail carriers. The Company's marketing department along with the Company's
operations center have become important value-added services offered to present
and potential customers.
Distribution
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Virtually all interchange traffic is with unionized Class I carriers, and a
prolonged work stoppage on those carriers would have a material adverse impact
upon the Company; however, there has never been such a prolonged work stoppage
of the American railroad industry, and the Company considers the chances of such
an event to be remote. The freight railroad industry as a whole has experienced
significant problems as a result of the Union Pacific and Southern Pacific
merger. The Company estimates that almost 2,000 additional freight car loadings
could have been generated in 1997 if not for poor transit times and unreliable
service caused by the merger. However, the Company believes that in the long
term it will benefit from the merger and does not expect the short-term problems
to have a material impact on its operating results.
Suppliers
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The Company does not believe that the loss of any supplier would have a material
adverse effect on its business, as there are alternative suppliers available.
Competition
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With respect to the industry in which PRC operates, the Company, like any other
railroad company, faces intense competition from the trucking industry, barge
lines and other railroads for the movement of commodities. The Company feels
(pricing and time sensitivity constant) that it has a competitive advantage due
to its integrated efforts in providing value-added rail services through its
marketing department and operations center, with continued emphasis on safe and
efficient train operations.
Competition for additional railroads as they become available on the market,
either as direct "spin-offs" from Class I Railroads or through the secondary
market, is intense. The Company believes that it has a competitive advantage for
the acquisition of future Class III Railroads due to the following factors: (1.)
the Company's acquisition and operation of multiple railroads, (2.) the
Company's experienced management team, (3.) the Company's proficiency with
industry-trend technologies desired by Class I Railroads, such as Electronic
Data Interchange (EDI), (4.) the quality of the Company's employees, and (5.)
Pioneer Railcorp's $2.5 million acquisition line of credit.
<PAGE>
Regulations
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The Company's subsidiaries are subject to regulation by the Surface
Transportation Board (STB) of the U.S. Department of Transportation (USDOT), the
Federal Railroad Administration (FRA), and certain state and local
jurisdictions. Such regulation affects rates, safety rules, maintenance of
track, other facilities, and right of way, and may affect the Company's revenues
and expenses. To date there has been no material effect on the Company's
operations because of regulatory action, nor does the Company expect any such
effect in the foreseeable future.
Employees
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On December 31, 1997, the Company had 103 employees which consisted of 72
operating personnel, 27 support staff and 4 executive officers.
During 1994, the employees of the FSR voted for union representation.
Negotiations with the American Train Dispatchers Department of the Brotherhood
of Locomotive Engineers (BLE) reached an impasse and no contract was reached.
The BLE has withdrawn as representative of the FSR employees and currently no
labor organization is representing the FSR employees.
Item 2. Property
In October 1994, the Company purchased a 16,000 square foot building located in
Peoria, Illinois as a permanent corporate headquarters facility. In conjunction
with the purchase of its corporate office building, the Company assumed a land
lease for the property on which the building is located. This twenty-five year
lease is renewable for five successive periods of five years with 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. The Company is responsible for costs of maintenance,
utilities, fire protection, taxes and insurance. The Building is pledged in a
financing agreement.
A description of the Company's railroad properties as of December 31, 1997 by
subsidiary follows:
a.) Fort Smith Railroad Co. (FSR): The FSR leases 18 miles of railroad from
the Union Pacific Railroad Company. A twenty year lease was signed and
operations begun on July 7, 1991. The line runs from Fort Smith to
Barling, Arkansas. The lease agreement contains numerous requirements
including maintaining existing traffic patterns, repair and replacement
of the right of way to the condition in which it was leased, and payment
of any applicable real estate taxes. The Company is entitled to a fixed
rate per carload switched from the UP 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 lease requirements are met, the
Company may continue to operate on the rail facilities without rent. The
Company has three twenty year renewal options. The FSR's track is in
good condition.
b.) Alabama Railroad Co. (ALAB): The ALAB is 60 miles of operating railroad
running from Flomaton to Corduroy, Alabama. The assets and subsidiary
stock are pledged in various financing agreements. The Company considers
the track to be in good condition.
c.) Mississippi Central Railroad Co. (MSCI): The MSCI is 56.5 miles of
operating railroad running from Oxford, Mississippi to Grand Junction,
Tennessee. Approximately 51 miles of the track are located in
Mississippi. The assets and subsidiary stock are pledged in various
financing agreements. The Company considers the track to be in good
condition.
d.) Alabama & Florida Railway Co., Inc. (AF): The AF is 76 miles of
operating railroad running from Georgiana to Geneva, Alabama. The
Company has an option from CSX Transportation to negotiate a purchase
price for the underlying real estate and currently leases the property
for a monthly payment of $2,305. The Company has exclusive rights to the
revenues derived from the land leases and easements. In connection with
the operation of this line, the AF also leases from the Andalusia &
Conecuh Railroad Company a two mile segment of track connecting to the
AF's line in Andalusia, Alabama for a nominal fee. The Company also
absorbs the cost of all maintenance of that facility. The assets and
subsidiary stock are pledged in a financing agreement. The Company
considers the line to be in good condition.
<PAGE>
e.) Decatur Junction Railway Co. (DT): The DT leases from Cisco Co-op Grain
Company (CISCO) a segment of track, approximately thirteen (13) miles in
length, that runs from Green's Switch (Decatur, Illinois) to Cisco,
Illinois. The DT also leases a segment of track from Central Illinois
Shippers, Incorporated (CISI), approximately seventeen (17) miles in
length, that runs from Elwin to Assumption, Illinois. The two lines are
connected via trackage rights on the Illinois Central Railroad
(approximately eight miles) through Decatur, Illinois. Both leases
expire in December 2006 and require the Company to perform normal track
maintenance and pay a nominal per car charge on traffic in excess of
1,000 car loads per year. The DT's track is considered to be in good
condition, as in recent years the owners of the line received in excess
of $1,000,000 in rehabilitation grants from the Federal Railroad
Administration (FRA).
f.) Vandalia Railroad Company (VRRC): The VRRC is approximately 3.45 miles
of operating railroad located in Vandalia, Illinois. The VRRC has a
lease with the City of Vandalia for the 3.45 miles of railway. This
lease is renewable for ten year periods beginning in September 2003, and
the lease of $1 is prepaid through September 2003. After September 2003,
the lease payments will be equal to $10 per loaded rail car handled in
interchange. The Company considers the track to be in good condition.
g.) Minnesota Central Railroad Co. (MCTA): The MCTA is approximately 94
miles of operating railroad running from Hanley Falls to Norwood,
Minnesota. The assets and subsidiary stock are pledged in various
financing agreements. Certain sections of the line are in poor condition
and the Company made a significant effort to improve the line in 1995
and 1996, and did in fact significantly improve a continuous 20 mile
section of the railroad. The remaining sections of line are in poor
condition. During 1997, the Company was awarded a $396,000 grant from
the Minnesota Department of Transportation which is funded with federal
disaster funds from the Federal Railroad Administration pursuant to the
Federal Fiscal Year 1997 Supplemental Appropriations Act. The grant is
designed to aid the Company with the labor and material costs of
rehabilitating and repairing track and bridge structures belonging to
the Minnesota Central Railroad Co. which were damaged by severe weather
conditions during the 1996-1997 winter. The Company plans to continue
efforts to rehabilitate the line and is currently negotiating with the
State of Minnesota Department of Transportation (MNDOT) for
approximately $6 million of interest-free financing to rehabilitate the
entire line. The Company believes the outcome of these negotiations will
be known by the end of the second quarter of 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.
h.) West Michigan Railroad Co. (WMI): The WMI is approximately 15 miles of
operating railroad running from Hartford to Paw Paw, Michigan. The track
is considered to be in good condition.
i.) Keokuk Junction Railway Co. (KJRY): The KJRY operates a common carrier
railroad line within the City of Keokuk, Iowa, from Keokuk to LaHarpe,
Illinois, and a branch line from Hamilton to Warsaw, Illinois, a total
of approximately 38 miles. The assets and subsidiary stock are pledged
in various financing agreements. The track is considered to be in good
condition.
j.) Rochelle Railroad Co. (RRCO): The RRCO leases and operates approximately
2 miles of railroad serving the Rochelle Industrial Park located in the
City of Rochelle, Illinois. The track is considered to be in good
condition. The City of Rochelle, Illinois, terminated the Rochelle
Railroad Co.'s lease agreement effective January 19, 1998 and is seeking
to replace the Rochelle Railroad Co. as operator of the line with one of
the on-line customers. Despite the lease termination, the Rochelle
Railroad Co. continues to operate on the trackage pending the outcome of
certain legal proceedings. The Rochelle Railroad Co. is seeking legal
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.
k.) Shawnee Terminal Railway Company (STR): The STR operates 2.5 miles of
operating railroad in Cairo, Illinois. The track is considered to be in
good condition.
<PAGE>
l.) Wabash & Western Railway Co. d/b/a/ Michigan Southern Railroad (MSO): On
December 19, 1996, Pioneer Railcorp, through its wholly-owned subsidiary
Wabash & Western Railway Co., signed a two year lease with the Michigan
Southern Railroad Company, Inc., Morris Leasing Co., Ltd. and Gordon D.
Morris to operate 53 miles of track and certain railroad related assets.
The lease requires a fixed monthly payment for the equipment assets and
a per car charge for railroad usage. The lease, which expires December
19, 1998, contains an exclusive option to purchase the stock of the
Michigan Southern Railroad Company, Inc. and the railroad assets of
Morris Leasing Co., Ltd. and Gordon D. Morris. The railroad is comprised
of three separate, non-contiguous lines totaling approximately 50 miles.
One line is 39 miles long extending from White Pigeon to Coldwater,
Michigan. Two lines are located in northern Indiana: one at Elkhart,
which is approximately 10 miles in length, and the other at
Kendallville, which is approximately 1 mile in length. All lines are
considered to be in good condition.
Company management believes that all of its properties and assets are adequately
covered by insurance.
Item 3. 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.
The cases involving MNVA Railroad, Inc. and Dakota, Missouri Valley & Western
Railroad, Inc., concerning the asset sale from MNVA to MCTA in December 1994
were settled early in 1997. Also, the cases involving Ralston L. Taylor, the
former General Manager of Keokuk Junction Railway were settled in 1997. These
settlements did not have a material effect on the Company's consolidated
financial position or 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-KSB, 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.
There were no matters submitted to security holders for vote in the fourth
quarter 1997.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
The Company's common stock trades on the Nasdaq SmallCap Market tier of the
Nasdaq Stock Market under the symbol "PRRR" and the Chicago Stock Exchange under
the trading symbol "PRR". The quarterly high and low sales price of the
Company's common stock for the periods below are as follows:
96-1Q 96-2Q 96-3Q 96-4Q 97-1Q 97-2Q 97-3Q 97-4Q
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High $4.13 $4.00 $3.13 $3.13 $2.63 $2.13 $1.88 $1.88
Low $3.38 $2.75 $2.00 $1.88 $1.75 $1.13 $1.38 $1.32
As of December 31, 1997, the Company had 1,798 common stockholders of record,
including brokers who hold stock for others. No common stock cash dividends have
been declared or paid.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONNECTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, RELATED NOTES AND OTHER FINANCIAL INFORMATION
INCLUDED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-KSB.
Results of Operations
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Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
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The Company's 1997 operating results include full year operations of the 1996
acquisitions of the Keokuk Junction Railway and the Shawnee Terminal Railway and
also leases commencing in 1996 of the Michigan Southern Railroad and the
Rochelle Railroad. These subsidiaries are referred to collectively as "new
operating subsidiaries".
The Company's net income in 1997 increased by 259% to $366,245 up from $102,145
in 1996. Operating revenue increased by $1.8 million, or 16% to $12.8 million
from $11 million in 1996. Operating expense increased in 1997 by $1.2 million,
or 13%, to $10.8 million from $9.6 million in the prior year. Operating income
increased in 1997 by $570,000, or 41% to $1.97 million from $1.4 million in the
prior year.
Several operating subsidiaries performances were responsible for the increase in
operating income in 1997. The new operating subsidiaries increased operating
income in 1997 by approximately $1 million. The Mississippi Central Railroad had
a decrease in operating income of $121,000 in 1997 as a result of a reduction in
revenues from lost local pulpwood loadings which is attributed to increased
competition for the local pulpwood supply to destinations not served by rail.
Mississippi Central Railroad operating income was also affected by a reduction
in cotton seed loadings in 1997 due to a decrease in local acreage of cotton
seed planting resulting from the "Freedom to Farm Act" passed by Congress. In
addition, Fort Smith Railroad operating income decreased $109,000 in 1997
primarily resulting from a decrease in demurrage revenue due to a reduction in
paper car loadings.
Pioneer Railroad Equipment Co., Ltd. had a decrease in operating income in 1997
of approximately $233,000 as a direct result of a decrease in non-affiliated
lease income in 1997 compared to 1996. The decrease is primarily attributable to
the expiration in May 1996 of a short term lease of 150 covered hopper cars.
PREL continues to seek opportunities for income generation from non-affiliates
and it is likely that additional lease revenues will be realized in future
periods depending on demand for railcars and locomotives.
The remaining operating subsidiaries had overall operating income in 1997 that
was comparable to 1996. Operating Revenue:
Operating revenue increased in 1997 by $1.8 million, or 16%, to $12.8 million
from $11 million in the prior year. The new operating subsidiaries increased
operating revenue by approximately $2.1 million in 1997. The Company had a
$216,000 decrease in revenue in 1997 from the lease of its railcars and excess
locomotives to non-affiliated entities. The decrease is primarily attributable
to the expiration in May 1996 of a short term lease of 150 covered hopper cars.
The Company continues to seek opportunities for the generation of equipment
lease income from non-affiliates and it is likely that additional lease revenue
will be realized in future periods depending on demand for railcars and
locomotives. The Mississippi Central Railroad had a decrease in revenue of
$183,000 in 1997 as a direct result of a reduction in local pulpwood and
cottonseed loadings previously described. The Minnesota Central Railroad had a
decrease in revenue of $109,000 in 1997 primarily resulting from decreased first
quarter 1997 loadings due to severe winter weather in the region.
The remaining operating subsidiaries had overall revenue in 1997 which was
comparable to 1996.
<PAGE>
Operating Expense:
Operating expense increased in 1997 by $1.2 million, or 13%, to $10.8 million
from $9.6 million in the prior year. Substantially all of the increased
operating expense is attributable to the new operating subsidiaries which
increased operating expense approximately $1.1 million in 1997.
Maintenance of way and structures expense (MOW) increased $409,000, or 44% to
$1,341,000 from $932,000 in the prior year. The new operating subsidiaries were
responsible for 67% or approximately $274,000 of the increased MOW expense in
1997. The Minnesota Central was responsible for $81,000 or 20% of the increase
in MOW expense in 1997 primarily because the MCTA MOW expense was reduced in
1996 from the capitalization of $150,000 of labor related to the MCTA track
rehabilitation project in 1996. Other operating subsidiaries had insignificant
changes in MOW expense in 1997 compared to 1996.
Maintenance of equipment expense (MOE) increased $193,000, or 14% to $1,535,000
from $1,342,000 in the prior year. The new operating subsidiaries were
responsible for 64% or approximately $122,000 of the increased MOE expense in
1997. Most of the remaining increase in MOE expense is attributable to increase
costs associated with managing and maintaining the Company's railcar fleet.
Other operating subsidiaries had insignificant changes in MOE expense in 1997
compared to 1996.
Transportation expense (TRAN) increased $300,000, or 11% to $3.1 million from
$2.8 million in the prior year. The new operating subsidiaries increased TRAN
expense by approximately $493,000. The Minnesota Central had a decrease in TRAN
expense of $140,000 in 1997 primarily attributable to decreased fuel and payroll
expense, resulting from both the reduction in operations in the first quarter
1997 because of severe winter weather, and also reductions resulting from
improved operating procedures that sought to maximize efficient train handling
while considering track conditions and shipping demands. In addition, reduction
in corporate management reduced TRAN expense approximately $95,000 in 1997.
Other operating subsidiaries had insignificant changes in TRAN expense in 1997
compared to 1996.
Administration expense (ADMIN) increased $216,000 in 1997 to $3,283,000, or 7%
from $3,067,000 in 1996. The new operating subsidiaries were responsible for 72%
or approximately $155,000 of the increased ADMIN expense in 1997. Expenses
related to professional services, public relations, and other corporate support
expenditures increased ADMIN expense by approximately $100,000 in 1997. Other
operating subsidiaries had insignificant changes in ADMIN expense in 1997
compared to 1996.
Depreciation and amortization expense increased $104,000, or 7%, to $1,497,000
compared to $1,393,000 in the prior year. Approximately $58,000 or 56% of the
increase is related to the new operating subsidiaries, approximately $27,000 or
26% of the increase is related to the growth of the Company's railcar fleet.
Other Income and Expense Income Statement Line Item Discussion:
Other income and expense, excluding interest expense and gain on sale of assets,
decreased $41,000 to $205,000 compared to $246,000 in the prior year. In 1997,
approximately $225,000 of lease income was generated from the granting of
easements and leases for the use of railroad right of way property, compared to
$125,000 of lease income in 1996, an increase of $100,000. This increase was the
direct result of increased efforts and strong emphasis on identifying and
collecting revenues from third parties occupying Company property. In addition
to lease income, other income and expense includes revenues generated from scrap
sales, and other miscellaneous non-operating revenues and expenses. In 1996, the
Fort Smith Railroad received $93,000 of revenue representing its interest in
track removed and scrapped from its Paris Branch line. No other item in 1997 or
1996 included in this category is individually material.
Interest expense increased $49,000 in 1997 to $1,384,000 compared to $1,335,000
in 1996. Most of this increased interest expense is related to the financing of
the Keokuk Junction Railway acquisition and the debt assumed in the transaction.
Net gain on fixed asset dispositions increased $47,000 in 1997 to $105,000
compared to $58,000 in 1996. In 1997, approximately $11,000 of the net gain on
fixed asset dispositions was attributable to the sale of 5 acres of land at the
Alabama Railroad. Also in 1997, a gain of $62,000 was realized from the sale of
three locomotives, a gain of $19,000 was realized from the sale of a crane, and
a gain of $13,000 was realized from the disposition of three railcars. In 1996,
approximately $30,000 of the net gain on fixed asset dispositions was
attributable to the sale of 5.3 miles of Alabama Railroad right of way. In
addition, a gain of $20,000 was realized from the sale of a locomotive and
$10,000 was realized from the sale of two trolley cars. The remainder of the net
gain in 1996 resulted from the disposition of other miscellaneous pieces of
equipment, none of which was disposed of at a significant gain or loss. Impact
of New Accounting Pronouncements:
<PAGE>
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
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.
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 assure 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 $1,175,000 of which
$1,027,000 was available for use at the end of 1997. 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 up to $1 million
in cash.
On November 26, 1997, the Company entered into a financing agreement with First
of America Bank - Illinois, N.A. borrowing $3 million at a fixed interest rate
of 9.5%, subject to adjustment after five years to equal the Five-Year Treasury
+ 250 basis points. The loan proceeds were used to pay off the Company's
acquisition line of credit and other long-term debt assumed through the Keokuk
Junction Railway Co. acquisition. The loan is primarily collateralized by all
assets of the Keokuk Junction Railway.
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 was 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, and
subsequently repaid in full on November 26, 1997 through the new debt financing
agreement with First of America Bank - Illinois, N.A., as described in the
previous paragraph, and is available for use through March 8, 1999.
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.
<PAGE>
The Company plans to take advantage of the favorable interest rate environment
by refinancing some of its present equipment debt in the first half of 1998.
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. In 1997,
a total of 9,670 warrants were exercised and the Company realized $19,340 as a
result of their exercise. As of December 31, 1997, 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. In 1997, a total of 26,500 options were
exercised under this plan and the Company realized $39,750 from their exercise.
As of December 31, 1997, 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 December 31, 1997, 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 December 31, 1997, a total of 282,000 options are
outstanding under this plan.
The Company plans to continue efforts to rehabilitate the Minnesota Central
Railroad and has is currently negotiating with the State of Minnesota Department
of Transportation (MNDOT) for approximately $6 million of interest free
financing to rehabilitate the entire line. The Company believes the outcome of
these negotiations will be know 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.
The Michigan Southern Railroad 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.
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
through at least 1998.
<PAGE>
Balance Sheet and Cash Flow Items:
The Company generated net cash from operating activities of $1.8 million in 1997
and $1.8 million in 1996. Net cash from operating activities for 1997 was
generated from $366,000 of net income, $1,497,000 of depreciation and
amortization, $243,000 of deferred income taxes, and $275,000 of income tax
refunds received, reduced by a decrease in accounts payable of $455,000 and by
$126,000 net cash used by changes in various other operating assets and
liabilities.
In 1997, the Company purchased approximately $1.4 million of fixed assets and
capital improvements which included the purchase of approximately 89 railcars at
a total cost of $740,000. The Company capitalized approximately $149,000 in
leasehold improvements relating to side tracks constructed on the Decatur
Junction Railway and the Rochelle Railroad. Capital expenditures for track
totaled $111,000 in 1997 of which $37,000 was for the Minnesota Central Railroad
and $65,000 for a yard extension at the Keokuk Junction Railway. In addition,
$149,000 of transportation equipment was capitalized in 1997 which included
$30,000 for the purchase of a locomotive, $68,000 of capital expenditure to
rebuild locomotives and $51,000 of capital expenditures for the Company's
corporate aircraft. A parcel of land in Fort Smith, Arkansas was purchased for
$42,000 for use as a reload facility. In addition, a parcel of land in the
township of Babbie, Alabama was purchased for $18,000 and is leased to a large
wood yard that has long-term contracts in place for rail delivery of its
product. Other capital expenditures in 1997 include $92,000 for vehicles and
equipment and $179,000 of other miscellaneous capital expenditures. The
purchases of railcars for $740,000, vehicles for $54,000, and the locomotive for
$30,000, were financed with long-term fixed rate financing. The remaining
$576,000 of capital expenditures were initially funded through working capital
of which $406,000 was subsequently replenished through the refinancing of 75
covered hopper railcars in December 1997.
During 1997, the Company was awarded a $396,000 grant from the Minnesota
Department of Transportation which is funded with federal disaster funds from
the Federal Railroad Administration pursuant to the Federal Fiscal Year 1997
Supplemental Appropriations Act. The grant is designed to aid the Company with
the labor and material costs of rehabilitating and repairing track and bridge
structures of the Minnesota Central Railroad Co. which were damaged by severe
weather conditions during the 1996-1997 winter. As of December 31, 1997, the
Company had expended approximately $234,000 and had receivables of $112,000 and
payables of $112,000 pursuant to the grant.
Pioneer Railcorp sold all of the outstanding stock of the Columbia & Northern
Railway to a non-affiliated entity on July 26, 1997 for $15,000. The transaction
did not have a material effect on the Company's financial position or results of
operation.
On February 20, 1998, Pioneer Railcorp through its wholly-owned subsidiary
Pioneer Industrial Railway Co., was assigned a lease by the Peoria Pekin & Union
Railway Company (PPU) to operate approximately 9 miles of railroad located in
Peoria County, Illinois. The PRY interchanges with the PPU at Peoria, Illinois.
The railroad's principal commodities are steel, lumber, and salt.
As of December 31, 1997, the Company had a commitment to purchase 37 railcars at
a total cost of $301,000. The Company closed the transaction on February 17,
1998 and funded the entire amount with fixed rate long-term financing.
Item 7. Financial Statements Continued on Page 20.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
<PAGE>
CONTENTS
- ----------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
- ----------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
- ----------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Pioneer Railcorp
Peoria, Illinois
We have audited the accompanying consolidated balance sheets of Pioneer Railcorp
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pioneer Railcorp and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/S/ McGLADREY & PULLEN, LLP
Peoria, Illinois
February 13, 1998
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
ASSETS
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash ........................................................................ $ 407,428 $ 501,212
Accounts receivable, less allowance for doubtful
accounts 1997 $82,375; 1996 $45,291 ...................................... 2,367,509 2,071,289
Inventories ................................................................. 351,331 420,952
Prepaid expenses ............................................................ 192,952 261,427
Income tax refund claims .................................................... 74,602 349,881
Deferred taxes .............................................................. 66,400 25,901
------------------------
Total current assets ................................................... 3,460,222 3,630,662
Investments, cash value of life insurance ...................................... 95,547 74,962
Property and Equipment, net .................................................... 19,974,702 20,131,566
Intangible Assets, less accumulated amortization
1997 $197,724; 1996 $140,109 ................................................ 1,117,205 1,171,114
------------------------
$24,647,676 $25,008,304
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable ............................................................... $ 250,034 $ 769,535
Current maturities of long-term debt ........................................ 1,836,132 1,813,246
Accounts payable ............................................................ 2,518,190 2,973,258
Accrued expenses ............................................................ 432,145 491,610
Income taxes payable ........................................................ 61,749 18,978
------------------------
Total current liabilities .............................................. 5,098,250 6,066,627
------------------------
Long-Term Debt, net of current maturities ...................................... 12,465,498 12,564,133
------------------------
Deferred Taxes ................................................................. 2,250,700 1,967,651
------------------------
Minority Interest in Subsidiaries .............................................. 1,186,000 1,188,000
------------------------
Commitments and Contingencies (Note 12)
Stockholders' Equity
Common stock, Class A (voting), par value $.001 per share, authorized
20,000,000 shares, issued and outstanding
1997 4,609,513 shares; 1996 4,573,343 shares ............................. 4,607 4,571
Additional paid-in capital .................................................. 2,040,203 1,981,149
Retained earnings ........................................................... 1,602,418 1,236,173
------------------------
3,647,228 3,221,893
------------------------
$24,647,676 $25,008,304
========================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997 and 1996
1997 1996
- --------------------------------------------------------------------------------
Railway operating revenue .......................... $12,779,249 $10,979,218
-------------------------
Operating expenses
Maintenance of way and structures ............... 1,340,940 931,574
Maintenance of equipment ........................ 1,534,999 1,342,059
Transportation .................................. 3,155,099 2,851,485
General and administrative ...................... 3,282,602 3,067,191
Depreciation .................................... 1,439,010 1,343,377
Amortization .................................... 57,878 49,966
-------------------------
10,810,528 9,585,652
-------------------------
Operating income ............................. 1,968,721 1,393,566
-------------------------
Other income (expenses)
Interest income ................................. 5,522 7,709
Interest expense ................................ (1,384,325) (1,335,304)
Lease income .................................... 224,569 125,295
Gain on sale of property and equipment .......... 105,113 57,820
Provision for unamortized interest discounts
due to debt refinancing ...................... (101,245) --
Other, net ...................................... 76,297 112,584
-------------------------
(1,074,069) (1,031,896)
-------------------------
Income before provision for income taxes
and minority interest in preferred stock
dividends of consolidated subsidiaries ..... 894,652 361,670
Provision for income taxes ......................... 405,687 135,960
-------------------------
Income before minority interest in preferred
stock dividends of consolidated subsidiaries 488,965 225,710
Minority interest in preferred stock dividends of
consolidated subsidiaries ....................... 122,720 123,565
-------------------------
Net income ................................... $ 366,245 $ 102,145
=========================
Basic earnings per common share .................... $ .08 $ .02
=========================
Diluted earnings per common share .................. $ .08 $ .02
=========================
Weighted average number of common shares used in
computing earnings per common share ............. 4,593,750 4,530,379
=========================
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
<TABLE>
Common Stock
---------------------
Class A (voting) Additional
--------------------- Paid-In Retained
Shares Amount Capital Earnings
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 .... 4,487,881 $ 4,487 $1,832,353 $1,134,028
Common stock issued to acquire
property, equipment, and
inventory ................. 2,342 2 8,238 --
Common stock issued upon
exercise of stock warrants
and options ............... 83,120 82 140,558 --
Net income ................... -- -- -- 102,145
-----------------------------------------------
Balance at December 31, 1996 .... 4,573,343 4,571 1,981,149 1,236,173
Common stock issued upon
exercise of stock warrants
and options ............... 36,170 36 59,054 --
Net income ................... -- -- -- 366,245
-----------------------------------------------
Balance at December 31, 1997 .... 4,609,513 $ 4,607 $2,040,203 $1,602,418
===============================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ................................................................ $ 366,245 $ 102,145
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest in preferred stock dividends of
consolidated subsidiaries ............................................ 122,720 123,565
Depreciation ........................................................... 1,439,010 1,343,377
Amortization ........................................................... 57,878 49,966
(Increase) in cash value life insurance ................................ (20,585) (5,085)
(Gain) on sale of property and equipment ............................... (105,113) (57,820)
Deferred taxes ......................................................... 242,550 185,625
Provision for unamortized interest discounts due to debt refinancing ... 101,245 --
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ............................................... (296,220) (103,068)
Income tax refund claims .......................................... 275,279 (202,292)
Inventories ....................................................... 69,621 1,991
Prepaid expenses .................................................. 68,475 (104,113)
Increase (decrease) in liabilities:
Accounts payable .................................................. (455,068) 538,375
Accrued expenses .................................................. (59,465) (39,900)
Income taxes payable .............................................. 42,771 1,611
-------------------------
Net cash provided by operating activities ......................... 1,849,343 1,834,377
-------------------------
Cash Flows From Investing Activities
Proceeds from sale of property and equipment .............................. 194,959 108,650
Purchase of property and equipment ........................................ (1,371,992) (2,179,547)
Intangible assets ......................................................... (3,969) (26,659)
Acquisition of subsidiaries, net of cash acquired ......................... -- (2,795,644)
-------------------------
Net cash (used in) investing activities ........................... (1,181,002) (4,893,200)
-------------------------
Cash Flows From Financing Activities
Proceeds from short-term borrowings ....................................... 3,915,971 1,443,750
Proceeds from long-term borrowings ........................................ 4,608,427 5,715,100
Principal payments on short-term borrowings ............................... (4,435,472) (754,547)
Principal payments on long-term borrowings ................................ (4,785,421) (3,130,573)
Proceeds from common stock issued upon exercise of
stock warrants and options ............................................. 59,090 140,640
Preferred stock dividend payments to minority interest .................... (122,720) (123,565)
Repurchase of minority interest ........................................... (2,000) (7,000)
-------------------------
Net cash provided by (used in) financing activities ............... (762,125) 3,283,805
-------------------------
Net increase (decrease) in cash ................................... $ (93,784) $ 224,982
Cash, beginning of year ...................................................... 501,212 276,230
-------------------------
Cash, end of year ............................................................ $ 407,428 $ 501,212
=========================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest ............................................................... $1,415,858 $1,324,640
=========================
Income taxes (net of refunds 1997 $232,251; 1996 $112,471) ............. $ (154,913) $ 151,448
=========================
Supplemental Schedule of Noncash Investing and Financing Activities
Railroad acquisitions:
Fair value of assets acquired, net of cash of $338,714 ................. $ -- $5,686,890
Cash paid for stock and assets ......................................... -- (2,795,644)
-------------------------
Liabilities and debt assumed and stock issued .......................... $ -- 2,891,246
=========================
Reconciliation:
Liabilities assumed .................................................... $ -- $2,444,442
Debt assumed ........................................................... -- 445,564
Issuance of 342 shares of common stock ................................. -- 1,240
-------------------------
$ -- $2,891,246
=========================
Additional property, equipment and inventory acquired
upon issuance of 2,000 shares of common stock .......................... $ -- $ 7,000
=========================
Accounts receivable applied to acquire equipment .......................... $ -- $ 4,741
=========================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Pioneer Railcorp is the parent company of twelve short-line
common carrier railroad operations, an equipment leasing company, a subsidiary
which owns an airplane, and two service companies. Pioneer Railcorp and its
subsidiaries (the "Company") operate in the following states: Alabama, Arkansas,
Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, and Tennessee.
The Company's subsidiaries include the following:
West Michigan Railroad Co. Pioneer Air, Inc.
Minnesota Central Railroad Co. Pioneer Railroad Services, Inc.
Vandalia Railroad Company Keokuk Junction Railway Co. and its
Decatur Junction Railway Co. subsidiary, Keokuk Union Depot Company
Alabama & Florida Railway Co., Inc. Wabash & Western Railway Co., d/b/a
Mississippi Central Railroad Co. Michigan Southern Railroad
Alabama Railroad Co. Rochelle Railroad Co.
Fort Smith Railroad Co. Shawnee Terminal Railway Company
Pioneer Railroad Equipment Co., Ltd. Pioneer Resources, Inc.
Pioneer Railroad Equipment Co., Ltd. holds title to a majority of the Company's
operating equipment, and Pioneer Air, Inc. owns an airplane utilized by the
Company for business purposes. Pioneer Railroad Services, Inc. provides
management, administrative and agency services to the Company's subsidiary
railroads. Pioneer Resources, Inc. holds title to certain real estate adjacent
to one of the Company's railroads. All other subsidiaries are active short-line
common carrier railroad operations.
Significant accounting policies:
Principles of consolidation: The consolidated financial statements include the
accounts of Pioneer Railcorp and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Presentation of cash flows: For the purposes of reporting cash flows, the
Company considers all highly liquid debt instruments purchased with maturity of
three months or less to be cash equivalents. There are no cash equivalents as of
December 31, 1997 and 1996.
Use of estimates in the preparation of financial statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue recognition: Freight revenue, generally derived on a per car basis from
on-line customers and connecting carriers with whom the Company interchanges, is
considered earned at the time a shipment is either delivered to or received from
the connecting carrier at the point of interchange.
Inventories: Inventories consisting of various mechanical parts, track
materials, locomotive supplies and diesel fuel, are stated at the lower of cost
(determined by the average cost method) or market. Inventories are used on a
daily basis for normal operations and maintenance.
Property and equipment: Property and equipment is stated at cost. Depreciation
is computed principally on a straight-line basis over the following estimated
useful lives:
Years
--------
Roadbed .................................................... 20
Transportation equipment ................................... 10-15
Railcars ................................................... 10-15
Buildings .................................................. 20-40
Machinery and equipment .................................... 5-10
Office equipment ........................................... 5-10
Leasehold improvements are depreciated over the lesser of the lease term or life
of the improvements.
Maintenance and repair expenditures, which keep the rail facilities in operating
condition, are charged to operations as incurred. Expenditures considered to be
renewals and betterments are capitalized if such expenditures improve the track
conditions and benefit future operations with more efficient use of the rail
facilities.
<PAGE>
The Company reviews applicable assets on a quarterly basis to determine
potential impairment by comparing carrying value of underlying assets with the
anticipated future cash flows and does not believe that impairment exists as of
December 31, 1997 and 1996.
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 by subsidiary to determine potential
impairment by comparing the carrying value of the intangible with the
undiscounted anticipated future cash flows of the related property before income
taxes and management fees generated by Pioneer Railroad Services, Inc. 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. The Company does not
believe that impairment exists as of December 31, 1997 and 1996.
Earnings per common share: The Financial Accounting Standards Board (FASB) has
issued Statement No. 128, "Earnings per Share," which supersedes Accounting
Principles Board (APB) Opinion No. 15. State- ment No. 128 requires the
presentation of earnings per share by all entities that have common stock or
potential common stock, such as options, warrants, and convertible securities,
outstanding that trade in a public market. Those entities that have only common
stock outstanding are required to present basic earnings per-share amounts.
Basic per-share amounts are computed by dividing net income (the numerator) by
the weighted-average number of common shares outstanding (the denominator). All
other entities are required to present basic and diluted per-share amounts.
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 common share.
The Company initially applied Statement No. 128 for the year ended December 31,
1997, and, as required by the Statement, has restated all per share information
for the prior year to conform to the Statement.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Government grant: During 1997, the Company was awarded a $395,688 grant from the
Minnesota Department of Transportation which is funded with federal disaster
funds from the Federal Railroad Administration pursuant to the Federal Fiscal
Year 1997 Supplemental Appropriations Act. The grant is designed to aid the
Company with the labor and material costs of rehabilitating and repairing track
and bridge structures belonging to the Minnesota Central Railroad Co. which were
damaged by severe weather conditions in late 1996 and early 1997. As of December
31, 1997, the Company had expended approximately $234,000 and had recorded
receivables of $112,000 and accounts payable to vendors of $112,000 pursuant to
the grant.
The grant funds are applied as a reduction of the related capital additions for
rehabilitating and repair of the applicable track and bridge structures in
determining the carrying value of the assets. The grant is recognized as income
by way of reduced depreciation charges over the estimated useful lives of the
underlying property and equipment.
Self-insurance: The Company self-insures a portion of the risks associated with
medical expenses incurred by its employees and their dependents. Under the terms
of the self-insurance agreement, the Company is responsible for the first
$20,000 of qualifying medical expenses per person on an annual basis and limited
to an aggregate excess amount computed under the terms of the insurance contract
using specified participant rates. An insurance contract with a life insurance
company covers individual claims in excess of $20,000 on an annual basis and
total claims exceeding the aggregate excess, subject to a maximum lifetime
reimbursement of $2,000,000 per person.
<PAGE>
Note 2. Property and Equipment
Property and equipment consist of the following:
December 31,
-----------------------------
1997 1996
-----------------------------
Land ....................................... $ 1,412,388 $ 1,352,965
Roadbed .................................... 7,567,135 7,455,782
Transportation equipment ................... 2,202,965 2,235,551
Railcars ................................... 9,963,828 9,659,443
Buildings .................................. 1,090,207 1,078,122
Machinery and equipment .................... 933,034 873,279
Office equipment ........................... 395,122 379,171
Leasehold improvements ..................... 211,371 67,511
Capital projects ........................... 800,667 324,352
-----------------------------
24,576,717 23,426,176
Less accumulated depreciation .............. 4,602,015 3,294,610
-----------------------------
$19,974,702 $20,131,566
=============================
Note 3. Pledged Assets, Notes Payable, and Long-Term Debt
The Company has a $75,000 line of credit with Citizens Bank and Trust Company,
Chillicothe, Missouri, that expires April 1998, bears interest at 10.5%, and is
collateralized by transportation equipment. The Company had outstanding balances
under this line of credit of none and $75,000 as of December 31, 1997 and 1996,
respectively.
The Company has a $500,000 line of credit with First of America Bank - Illinois,
N.A., Peoria, Illinois, that expires June 1998, bears interest at prime, as
published in The Wall Street Journal, plus 1%, and is collateralized by accounts
receivable and general intangibles of certain subsidiaries. The Company has no
outstanding balance under this line of credit as of December 31, 1997.
The Company has a $600,000 line of credit with First of America Bank - Illinois,
N.A., Peoria, Illinois, that expires July 1998, bears interest at prime, as
published in The Wall Street Journal, plus 1%, and is collateralized by accounts
receivable and general intangibles of certain subsidiaries. The Company had
outstanding balances under this line of credit of $148,050 and $347,276 as of
December 31, 1997 and 1996, respectively.
The Company has various unsecured notes payable totaling $101,984 and $142,861
as of December 31, 1997 and 1996, respectively, for the financing of insurance
premiums. These notes are due in monthly installments from $2,198 to $26,141,
including interest ranging from 8.5% to 11.11%, with final install- ments due
from April to May 1998.
The Company had a $400,000 line of credit with Keokuk Savings Bank and Trust
Company, Keokuk, Iowa, which was paid and refinanced with First of America Bank
- - Illinois, N.A., in July 1997, bore interest at prime, as published in The Wall
Street Journal, plus 1.5%, and was collateralized by accounts receivable,
inventory, and general intangibles. The Company had an outstanding balance under
this line of credit of $204,398 as of December 31, 1996.
<PAGE>
Long-term debt at December 31, 1997 and 1996, consists of the following:
<TABLE>
1997 1996
------------------------
<S> <C> <C>
Mortgage payable, First of America Bank - Illinois, N.A., due in monthly
installments of $3,775, including interest at 8.5%, through October 1, 1999.
At that date and every five years thereafter, the interest rate may be
adjusted based on the Bank's base rate, final installment due June 2008,
collateralized by Pioneer Railcorp's corporate headquarters building .......... $ 406,299 $ 416,112
Mortgage payable, First of America Bank - Illinois, N.A., due in
monthly installments of $19,314, including interest at 9.25%, through
December 2001. At that date, the interest rate adjusts to a U.S. Treasury
index (5-year constant maturity) plus 3.5%, final installment due December
2006, collateralized by real estate, rail facilities, and other assets of
Alabama & Florida Railway Co., Inc. ........................................... 1,398,669 1,500,000
Mortgage payable, Camden National Bank, due in monthly installments of $4,304,
including interest at 12%, final installment due July 2001, collateralized
by Alabama Railroad Co. real estate and rail facilities ....................... 161,785 192,019
Notes payable, Norwest Equipment Finance, Inc., due in monthly installments of
$2,184 to $8,743, including interest ranging from 8.85% to 10.75%, final
installments due from May 2002 to November 2004, collateralized by railcars
and equipment ................................................................. 1,638,397 1,597,880
Note payable, Keycorp, due in monthly installments of $22,744, including
interest at 8.86%, final installment due December 2003, collateralized by
railcars ...................................................................... 1,266,399 1,419,675
Notes payable, Nations Bank, due in monthly installments from $8,524 to $23,305,
including interest ranging from 8.75% to 9.35%, final installments due
from December 2002 to December 2003, collateralized by railcars ............... 1,929,281 1,315,557
Notes payable, FBS Leasing, due in monthly installments from $510 to $12,998,
including interest ranging from 8.37% to 9.6%, final installments due from
August 2001 to October 2004, collateralized by railcars........................ 1,087,819 1,218,244
Notes payable, US Bancorp, due in monthly installments from $637 to $11,995,
including interest ranging from 9% to 10.9%, final installments
due from September 2001 to December 2002, collateralized by railcars .......... 1,023,926 1,687,445
Notes payable, Concord Commercial Group, due in monthly installments from
$1,105 to $4,516, final installments due from June 1998 to March 1999,
including interest at 9%, collateralized by railcars .......................... 108,950 234,132
Notes payable, Minnesota Valley Bank, due in monthly installments of $4,700,
including interest at prime plus 2-2.75%, final installment due
December 2001, collateralized by equipment acquired from MNVA Railroad, Inc. . 168,603 204,667
Note payable, U.S. Small Business Administration, due in monthly installments
of $7,577, including interest at 4%, final installment due October 2000,
collateralized by track acquired from MNVA Railroad, Inc. ..................... 235,197 314,956
Note payable, Rail Authority, interest only payments required through
October 1998, then due in monthly installments of $3,975, including interest
at 7.5%, final installment due January 2011, collateralized
by rail line acquired from MNVA Railroad, Inc. ............................... 380,000 380,000
Note payable, LDI Corporation, due in monthly installments of
$16,731, including interest at 10.25%, final installment due
December 2003, collateralized by locomotives ................................. 896,982 1,000,000
Various notes payable, due in monthly installments from $404 to $2,630,
including interest ranging from 6.75% to 10.25%, final installments due
from April 1998 to December 2001, collateralized by vehicles and railcars ..... 109,591 147,078
Note payable, First of America Bank - Illinois, N.A., due in monthly
installments of $39,041, including interest at 9.5%, through September 2002.
At that date, the interest rate will be adjusted to 250 basis points over
the weekly average yield on U.S. Treasury Securities, final installment due
September 2007, collateralized by Keokuk Junction Railway Co. stock and assets . 3,000,000 --
Notes payable, Center Capital Corporation, due in monthly installments from
$1,453 to $2,489, including interest from 9.05% to 9.75%, final installments
due from January 2002 to September 2004, collateralized by 70 ton box cars .... 188,732 --
Note payable, Pulman Bank & Trust Company, due in monthly installments of
$4,933, including interest at 9.45%, final installment due December 2004,
collateralized by covered hoppers ............................................. 301,000 --
<PAGE>
1997 1996
------------------------
<S> <C> <C>
Mortgage payable, State of Illinois Department of Transportation,
due in annual installments of $40,581, including interest at 2%,
final installment due December 2004, collateralized by railroad
and railroad ties (net of unamortized discount of $79,521) ................... -- 217,751
Note payable, Citizens Bank and Trust Company, due in monthly
installments of $4,410, including interest at 9.5%, final install-
ment due June 1997, collateralized by locomotives ............................ -- 29,984
Note payable, U.S. Small Business Administration, due in monthly
installments of $3,062, including interest at 4%, final installment due
January 2004, collateralized by second mortgage on all subsidiary-owned real
estate and a personal guarantee of the subsidiary's former president which
the Company has indemnified (net of unamortized discount of $35,529) ......... -- 187,655
Note payable, Citizens Bank and Trust Company, due in monthly
installments of $42,483, including interest adjustable quarterly to New York
prime plus 2.5%, final installment due March 2003, collateralized by common
stock in Alabama Railroad Co., Mississippi Central Railroad Co., and any
property later acquired with these loan proceeds ............................. -- 2,314,224
------------------------
14,301,630 14,377,379
Less current portion ............................................................ 1,836,132 1,813,246
------------------------
$12,465,498 $12,564,133
========================
</TABLE>
Aggregate maturities required on long-term debt as of December 31, 1997, are due
in future years as follows:
Years ending December 31: Amount
- -----------------------------------------------------------------
1998 .............................. $ 1,836,132
1999 .............................. 1,919,483
2000 .............................. 2,054,848
2001 .............................. 2,444,922
2002 .............................. 1,787,504
Thereafter ........................ 4,258,741
-----------
$14,301,630
===========
Note 4. Income Tax Matters
The Company and all but three of its subsidiaries file a consolidated federal
income tax return. Those three subsidiaries file separate federal income tax
returns.
The provision (credit) for income taxes charged to operations for the years
ended December 31, 1997 and 1996, was as follows:
1997 1996
----------------------
Current:
Federal ...................................... $115,432 $ (57,678)
State ........................................ 47,705 8,013
Deferred ........................................ 242,550 185,625
----------------------
$405,687 $135,960
======================
<PAGE>
The income tax provision differs from the amount of income tax determined by
applying the federal income tax rate to pretax income from operations for the
years ended December 31, 1997 and 1996, due to the following:
1997 1996
-------------
Computed "expected" tax expense .............................. 35.0% 35.0%
Increase (decrease) in income taxes
resulting from:
State income taxes, net of federal tax benefit ............ 6.0 8.8
Other ..................................................... 4.3 (6.2)
------------
45.3% 37.6%
============
Deferred tax assets and liabilities consist of the following components as of
December 31, 1997 and 1996:
1997 1996
------------------------------
Deferred tax assets:
AMT credit carryforwards .............. $ 434,500 $ 401,000
NOL carryforwards ..................... 1,037,100 832,000
Deferred compensation ................. 29,800 25,000
Other ................................. 66,400 25,901
------------------------------
1,567,800 1,283,901
Deferred tax liabilities:
Property and equipment ................ (3,752,100) (3,181,000)
Other ................................. -- (44,651)
------------------------------
$(2,184,300) $(1,941,750)
==============================
The components giving rise to the deferred tax assets and liabilities described
above have been included in the consolidated balance sheets as of December 31,
1997 and 1996 as follows:
1997 1996
----------------------------
Current deferred tax assets .................. $ 66,400 $ 25,901
Net noncurrent deferred tax liabilities ...... (2,250,700) (1,967,651)
----------------------------
Net deferred tax liability ................... $(2,184,300) $(1,941,750)
============================
<PAGE>
The Company and its subsidiaries have Alternative Minimum Tax (AMT) credit
carryforwards of approxi- mately $435,000 and $401,000 at December 31, 1997 and
1996, respectively. This excess of AMT over regular tax can be carried forward
indefinitely to reduce future federal income tax liabilities. Certain
subsidiaries of the Company also have net operating loss carryforwards totaling
approximately $2,811,000 at December 31, 1997, which can be used to offset
future taxable income of those subsidiaries. Net operating loss carryforwards
expire as follows:
Years ending December 31: Amount
- ---------------------------------------------------------------
2008 $ 8,000
2009 16,000
2010 352,000
2011 1,656,000
2012 779,000
----------
$2,811,000
==========
Note 5. Retirement Plan
The Company has a defined contribution plan covering substantially all
employees, except employees who are members of a union which has bargained
separately for retirement benefits. Employees are eligible to participate in the
plan upon employment and may elect to contribute, on a tax deferred basis, up to
15% of their salary, or $9,500, whichever is least. Company contributions are
discretionary, and during 1997 and 1996, the Company elected to match 50% of the
first 8% of each employee's contributions. Expenses under the plan were $43,769
and $34,778 for the years ended December 31, 1997 and 1996, respectively.
Note 6. Deferred Compensation Agreements
The Company has deferred compensation agreements with two Keokuk Junction
Railway Co. employees. The agreements provide monthly benefits for 15 years
beginning with the month immediately following the employees' normal retirement
date, as defined in the agreements. If an employee terminates employment with
the Company for any reason other than death prior to the employees' normal
retirement date, benefits are rendered on a pro rata basis. The present value of
the estimated liability under the agreements is being accrued ratably over the
remaining years to the date when the employees are first eligible for benefits
using a discount rate of 7%. Deferred compensation expense totaled $12,638 and
$10,541 for the years ended December 31, 1997 and 1996, respectively.
Note 7. Stock Options and Warrants
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 prescribes a fair-value based measurement of
accounting for stock-based compensation plans with employees, including the
Company's stock option plans which are described below. The fair-value based
measurement prescribed by SFAS 123 results in the recognition of compensation
for all awards of stock to employees. The Company's present accounting is in
accordance with APB Opinion No. 25 and related interpretations which generally
requires that the amount of compensation cost that must be recognized, if any,
is the quoted market price of the stock at the measurement date, less the amount
the grantee is required to pay to acquire the stock. SFAS 123 provides that its
recognition and measurement provisions may be adopted on or after the beginning
of the fiscal year in which it was issued, but does not require an entity to
adopt those provisions. The Company has elected not to adopt the recognition and
measurement provisions of SFAS 123.
<PAGE>
On April 12, 1994, the Board of Directors approved a stock option plan under
which the Company granted options to key management, other employees, and
outside directors for the purchase of 760,000 shares of its common stock. The
plan was approved by the Company's stockholders on June 11, 1994. The options
became exercisable when the Company's stock reached a $4 trading price for a ten
day period in July 1995, as specified in the stock option plan. The exercise
price is equal to the trading price on the date of the grants and ranges from
$1.50 to $3.92 per share. Since the target price was reached by December 31,
1995, in accordance with the provisions of the plan, additional options for
76,000 shares were granted. The exercise price for these options is equal to or
greater than the trading price on the date of the grants and ranges from $4.00
to $4.40 per share. The options expire at various dates from April 12, 1999 to
July 5, 2000.
On May 28, 1996, the Board of Directors approved a stock option plan under which
the Company granted options to key management, other employees, and outside
directors for the purchase of 407,000 shares of its common stock. The plan was
approved by the Company's stockholders on June 26, 1996. The options become
fully vested and exercisable as of July 1, 2001, except that the vesting and
exercise date are accelerated to the tenth consecutive business day that the
Company's stock trades at a price of at least $7.25. Vested options may be
exercised in whole or in part within 10 years from the date of grant. The
exercise price for these options is $2.75, the trading price on the date of the
grants.
Other pertinent information related to the plans is as follows:
1997 1996
-------------------- -------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------------------
Outstanding at beginning of year .. 1,099,800 $2.35 836,000 $2.15
Granted ........................... -- -- 407,000 2.75
Forfeited ......................... (100,029) 2.56 (100,000) 2.75
Exercised ......................... (26,500) 1.50 (43,200) 1.50
------------------------------------------
Outstanding at end of year ........ 973,271 $2.36 1,099,800 $2.35
==========================================
Exercisable at end of year ........ 691,271 792,800
========= =========
Weighted-average fair value per
option of options granted during
the year ........................ $ -- $ 1.97
========= =========
A further summary about stock options outstanding as of December 31, 1997, is as
follows:
Options Outstanding Options Exercisable
---------------------------------- ---------------------------
Weighted-
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------
$1.50 - $1.65 461,512 2.2 years $ 1.55 461,512 $ 1.55
$2.38 - $3.56 435,850 6.4 years 2.94 153,850 3.30
$3.92 - $4.40 75,909 2.5 years 4.01 75,909 4.01
---------- ---------
973,271 691,271
========== =========
<PAGE>
Grants under the above plans are accounted for following APB Opinion No. 25 and
related interpretations as permitted under generally accepted accounting
principles. Accordingly, no compensation cost has been recognized. Had
compensation cost for the stock-based compensation plans been determined based
on the grant date fair values of awards (the method described in FASB Statement
No. 123) reported net income, and earnings per common share would have been
reduced to the proforma amounts shown below:
1997 1996
-------------------
Net income:
As reported ........................ $366,245 $102,145
Proforma ........................... $294,245 $ 27,145
Earnings per common share:
As reported ........................ $ .08 $ .02
Proforma ........................... $ .06 $ .01
In determining the proforma amounts above, the fair value of each option was
estimated at the grant date using the Black-Scholes option-pricing model with
the following assumptions:
1997 1996
-------------------
Dividend rate ......................... $ -- $ --
Expected life (years) ................. 7.5 7.5
Risk-free interest rate ............... 6.55% 6.55%
Price volatility ...................... 66% 66%
On June 24, 1995, the stockholders authorized the issuance of stock warrants as
a dividend to stockholders of record, resulting in the issuance of 4,198,084
warrants. Each warrant permits stockholders a right to purchase an additional
share of stock at a predetermined price of $2 per share. Stock acquired by
exercise of each warrant must be held for a one year period of time. The
warrants expire July 1, 2015. There are 4,131,240 and 4,140,910 warrants
outstanding as of December 31, 1997 and 1996, respectively.
Note 8. Lease Commitments and Total Rental Expense
The Company has entered into six lease agreements covering certain of its
railroad properties. For rail- road properties it leases, the Company ordinarily
assumes, upon the commencement date, all operating and financial
responsibilities, including maintenance, payment of property taxes, and
regulatory compliance. Lease payments on five railroad properties are based on a
per car basis, ranging from $10 to $25 on all cars over a range of 300 to 4,000
cars per year on each segment. The leases expire between December 1998 and July
2011 and four of these railroads have five to twenty year renewal options. One
lease has an option to purchase the stock and leased personal property of the
railroad upon expiration of its lease in December 1998.
The Company has a land lease for the corporate office building. This lease
expires in 2008 and is renewable for five successive periods of five years with
annual rents equal to ten percent of the appraised value of the land, payable in
monthly installments, and with appraisal value reviews every five years
following the origination date. The Company is responsible for costs of
maintenance, utilities, taxes, and insurance.
The total approximate minimum rental commitment as of December 31, 1997,
required under noncancelable leases, and excluding executory costs and per car
rentals, is due in future years as follows:
Years Ending December 31: Amount
- ----------------------------------------------------
1998 $187,400
1999 46,300
2000 46,300
2001 46,300
2002 42,000
Thereafter 315,900
--------
$684,200
========
The total rental expense under the leases was $440,986 and $273,433 for the
years ended December 31, 1997 and 1996, respectively.
Note 9. Major Customer
Revenue earned from a major customer amounted to approximately $1,760,000 and
$1,465,000 during the years ended December 31, 1997 and 1996, respectively.
Accounts receivable as of December 31, 1997 and 1996, include approximately
$427,000 and $344,000, respectively, from this customer.
<PAGE>
Note 10. Purchase of Railroad Facilities
During March and April 1996, the Company acquired all the outstanding common
stock of KNRECO, Inc., d/b/a Keokuk Junction Railway, in exchange for $3,124,358
cash, the assumption of liabilities and debt of $2,890,006, and the issuance of
342 shares of common stock, at $3 5/8 per share, for a total acquisition cost of
$6,015,604. The excess of the acquisition cost over the fair value of the net
assets acquired was allocated to goodwill and is being amortized over 40 years
by the straight-line method.
The above acquisition was accounted for by the purchase method of accounting
and, accordingly, operating results of Keokuk Junction Railway Co. is included
in the consolidated statements of income from the date of acquisition.
Unaudited pro forma consolidated results of operations for the year ended
December 31, 1996, as though Keokuk Junction Railway Co. had been acquired as of
January 1, 1996, follows:
1996
-----------
Railway operating revenue .............................. $11,873,809
Net income ............................................. 57,811
Earnings per common share .............................. 0.01
The above amounts reflect adjustments for amortization of goodwill, additional
depreciation on revalued purchased assets, and interest on borrowed funds.
In December 1996, the Company acquired all of the outstanding common stock of
Shawnee Terminal Railway Company in exchange for $10,000. To include the results
of operations of Shawnee Terminal Railway Company from January 1, 1996 through
the acquisition date would not have a significant effect on the consolidated
results of operations for the year ended December 31, 1996.
Note 11. Minority Interest 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.
Following is a summary of the minority interest in subsidiaries as of December
31, 1997 and 1996:
<TABLE>
1997 1996
-----------------------
<S> <C> <C>
Preferred stock at Alabama Railroad Co.
Par value - $1,000 per share
Authorized - 700 shares
Issued and outstanding - 424 and 425 shares (cumulative 12% dividend;
callable at Company's option at 150% of face value)
at December 31, 1997 and 1996, respectively .............................. $ 424,000 $ 425,000
Preferred stock of Alabama & Florida Railway Co., Inc.
Par value - $1,000 per share
Authorized - 500 shares
Issued and outstanding - 421 and 422 shares (cumulative 9% dividend; callable
at Company's option after June 22, 1995, at 150% of face value) at
December 31, 1997 and 1996, respectively ................................. 421,000 422,000
Preferred stock of Mississippi Central Railroad Co.
Par value - $1,000 per share
Authorized - 1,000 shares
Issued and outstanding - 341 shares (cumulative 10% dividend; convertible at
a rate of $10 per common share, callable at Company's option after
March 1, 1996, at 110% of face value) .................................... 341,000 341,000
-----------------------
$1,186,000 $1,188,000
=======================
</TABLE>
Note 12. Commitments and Contingencies
Commitments: In December 1993, the Company entered into a five-year executive
employment contract with the Company's president. The five-year agreement
provides for a base salary with annual inflation adjustments based upon the
Consumer Price Index. Should the Company acquire or form additional railroads,
the base salary will increase $25,000 for the acquisition of railroads of 125
miles or less, and $50,000 for railroads over 125 miles. Should the president's
employment be terminated, the contract requires a lump sum payment equal to
three years of his then current salary. Should the president retire, he is
entitled to a lump sum payment of one year's salary.
<PAGE>
As of December 31, 1997, the Company was committed to purchase 37 railcars at a
cost of $301,000. Management expects to fund this transaction with available
long-term financing.
Contingencies: In the course of its business, the Company's subsidiaries
experience 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 of such claims, but at any
one time, some such incidents, which could result in lawsuits by and 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 statement, management believes that no incident has the potential to
result in a liability that would materially effect the Company's consolidated
financial position or results of operations.
As discussed in Note 1, the Company was awarded a grant from the Minnesota
Department of Trans- portation in 1997 for the repair and rehabilitation of
weather damaged railroad track and related structures the Company owns in
Minnesota. The Company's obligations under this grant expire two years after the
completion of the repairs. In the unlikely event the Company should discontinue
using the underlying Minnesota Railroad Co. track prior to the expiration of the
aforementioned two-year commitment period, the Company is contingently liable to
repay to the Federal Railroad Administration the value of materials installed
pursuant to the grant. Management estimates that materials installed pursuant to
the grant will approximate $123,000.
Note 13. Earnings Per Share
Following is information about the computation of the earnings per share (EPS)
data for the years ended December 31, 1997 and 1996:
For the Year Ended
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------
December 31, 1997
-----------------------------------
Basic EPS
Income available to common stockholders ... $ 366,245 4,593,750 $ .08
=======
Effect of Dilutive Securities
Employee stock options .................... -- 57,576
----------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions ............... $ 366,245 4,651,326 $ .08
=================================
December 31, 1996
-----------------------------------
Basic EPS
Income available to common stockholders . $ 102,145 4,530,379 $ .02
=======
Effect of Dilutive Securities
Warrants ............................... -- 1,346,659
Employee stock options ................. -- 281,938
----------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions ............ $ 102,145 6,158,976 $ .02
===================================
The Company has authorized the issuance of stock warrants and granted options to
employees to purchase shares of common stock as discussed in Note 7. In
determining the effect of dilutive securities, certain stock warrants and
options were not included in the computation of diluted earnings per share
because the exercise price of those warrants and options exceeded the average
market price of the common shares during the applicable year.
<PAGE>
Note 14. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
The carrying value of cash, cash value of life insurance, notes payable, and
variable rate long-term debt approximates fair value.
The remaining carrying value of fixed rate long-term debt collectively
approximates fair value based upon the similarity of interest rates negotiated
on debt instruments in 1997 and 1996 as compared to existing interest rates.
In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above dis- closures. These include, among other items, the trained work force,
customer goodwill, and similar items.
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting Financial
Disclosure
None.
PART III
Item 9. Directors and Executive Officers of the Registrant
Set forth below are the names and ages of all the directors and executive
officers of the Registrant and the positions and offices held by such persons as
of December 31, 1997.
Name (Age) Position
- ----------------------- -------------------------------
Guy L. Brenkman (52) Director (Chairman) & President
Orvel L. Cox (55) Director
Timothy F. Shea (48) Director
John S. Fulton (64) Director
J. Michael Carr (34) Director & Treasurer
Daniel A. LaKemper (40) Secretary
Kevin L. Williams (25) Assistant Secretary
All of the above Directors and Officers were elected at the Annual Meeting of
the Stockholders (and the board meeting which followed) on June 18, 1997 to
serve until the next annual meeting. There is no family relationship between any
officer or director.
Information about Directors and Executive Officers
- --------------------------------------------------
Mr. Brenkman, Chairman of the Board of Directors and President of Pioneer
Railcorp and its subsidiaries was the incorporator of the Company and has been a
member of the Board of Directors and President of the Company since its
formation. Mr. Brenkman's past business experience includes real estate sales
and management, securities sales, and seven years of operational railroad
industry experience before managing the day to day railroad operations of
Pioneer in 1988. Mr. Brenkman, acting as agent of the Issuer conducted the
public offering of Pioneer Railcorp, which raised its initial capital, and
secondary capital for expansions.
Mr. Cox, Director, also serves as same for each of the Company's subsidiaries
and Superintendent of Transportation for same. Mr. Cox has 38 years of active
railroading experience with 31 of those years working for Class I railroads. Mr.
Cox has been a director and officer of Pioneer Railcorp since its inception and
has been involved in all phases of the development and growth of the Company.
Timothy F. Shea, Director, owns RE/MAX Property Management and has been a real
estate property manager with RE/MAX since 1984. Mr. Shea has a BS-Business
Management from Bradley University, Peoria, Illinois.
Mr. Fulton, Director, was elected to the Board in 1993. Mr. Fulton has 17 years
experience in the real estate business concentrating in retail sales, real
estate development and appraising. Mr. Fulton's previous positions include
Industrial Appraising (6 years) with Cole, Layer Trumble of Dayton, Ohio, and 5
years with Pepsi-Cola. Mr. Fulton holds a BS degree in Public Administration
from Bradley University in Peoria, Illinois.
Mr. Carr, Treasurer, also serves as Treasurer for each of the Company's
subsidiaries and Chief Financial Officer for same. Mr. Carr has been employed by
the Company since March 1993. Before joining the Company, Mr. Carr worked in
public accounting and banking for seven years, most recently as Controller for
United Federal Bank. Mr. Carr is a CPA and holds a BS-Accounting from Illinois
State University, Normal, Illinois.
Mr. LaKemper, Secretary, also serves as same for each of the Company's
subsidiaries. Mr. LaKemper is the Company's General Counsel and serves as same
for each of the Company's subsidiaries. Mr. LaKemper has been employed by the
Company since May 1992. Before joining the Company, Mr. LaKemper practiced law
since 1982 working in private practice and, most recently, as General Counsel
for a manufacturing concern. Mr. LaKemper holds a Juris Doctorate from Creighton
University School of Law in Omaha, Nebraska and a BS-History from Bradley
University in Peoria, Illinois.
Mr. Williams, Assistant Secretary, also serves as same for the Company's
subsidiaries. In addition, Mr. Williams serves as the Company's stock transfer
agent. Mr. Williams has been employed by the Company since June 1993 and has a
degree in paralegal services from Midstate College in Peoria, Illinois.
<PAGE>
Item 10. Executive Compensation
Summary Compensation Table
- --------------------------
Annual
Compensation Long Term Compensation
--------------- ----------------------------------------
Restricted
Name & Stock Other
Position Year Salary Award Options/SARs Compensation
- ---------- ---------------------------------------------------------
Guy L. Brenkman, CEO 1997 $419,695 ---- ---- $ 4,750 (a)
1996 $350,098 ---- 80,000 $ 4,750 (a)
1995 $310,546 ---- 37,000 $ 4,500 (a)
(a) - Registrant's contribution to the Company's defined contribution plan.
Option/SAR Grants in Last Fiscal Year
- ----------------------------------------------
None
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
- ---------------------------------------------------
<TABLE>
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SARs
Options/SARs at FY-End At FY-End
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Guy Brenkman-CEO 0 0 60,606/165,515 $0/$0
</TABLE>
In December 1993, the Company entered into a five-year executive employment
contract with the Company's president. The five-year agreement provides for a
base salary with annual inflation adjustments based upon the Consumer Price
Index. Should the Company acquire or form additional railroads, the base salary
will increase $25,000 for the acquisition of railroads of 125 miles or less, and
$50,000 for railroads over 125 miles. At January 1, 1998, the president's base
salary was $400,803. Should the president's employment be terminated, the
contract requires a lump sum payment equal to three years of his then current
salary. Should the president retire, he is entitled to a lump sum payment of one
year's salary.
Although Mr. Brenkman is authorized by his contract to receive an increase in
compensation immediately upon the start of a new railroad, he has generally
declined these increases, until in his opinion, the railroad appears to be self
supporting and can absorb the cost of such raise. In several instances, Mr.
Brenkman has not taken a raise at all. A detailed list of these raises since
1993 is listed as follows:
Date Raise
Subsidiary Date Acquired Effective
------------- ----------------
Vandalia Railroad Company 10/07/94 10/07/94
Minnesota Central Railroad Co. 12/12/94 02/01/95
West Michigan Railroad Co. 07/11/95 No Raise Taken
Columbia & Northern Railway 02/21/96 No Raise Taken
Keokuk Junction Railway Co. 03/12/96 04/16/96
Rochelle Railroad Co 03/25/96 04/16/96
Shawnee Terminal Railway Co. 11/12/96 01/01/98
Michigan Southern Railroad 12/18/96 01/01/97
Pioneer Industrial Railway Co. 02/20/98 No Raise Taken
Directors of the Registrant each were compensated $1,000 in 1997.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of March 20, 1998, the beneficial
ownership of all directors and officers of the Company as a group. These figures
include shares of Common Stock that the executive officers have the right to
acquire within 60 days of March 20, 1998 pursuant to the exercise of stock
options and warrants.
Title of Class: Common Stock ($.001 par value)
Beneficial Percent
Name Of Beneficial Owner Ownership Of Class
----------------------------------------------------------
Guy L. Brenkman (2) 3,517,039 36.21%
Orvel L. Cox (3) 235,165 2.42%
Daniel A. LaKemper (4) 144,604 1.49%
John S. Fulton (5) 43,600 .45%
J. Michael Carr (6) 67,716 .70%
Kevin Williams (7) 11,100 .11%
Tim Shea 5,000 .05%
--------- --------
Directors and Executive
Officers as a Group: 4,018,001 41.43%(1)
FOOTNOTES:
(1) Based on 9,714,024 shares of Common Stock and Equivalents outstanding as of
March 20, 1998.
(2) Of the total number of shares shown as owned by Mr. Brenkman, 60,606 shares
represent the number of shares Mr. Brenkman has the right to acquire within
60 days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 1,740,800 shares represent the number of shares Mr.
Brenkman has the right to acquire within 60 days through the exercise of
Warrants. Mr. Brenkman owns all shares in joint tenancy with his wife. In
addition 13,233 shares are held by Mr. Brenkman under the Pioneer Railcorp
Retirement Savings Plan and 2,340 shares are held by Mr. Brenkman's wife,
in which he disclaims beneficial ownership.
(3) Of the total number of shares shown as owned by Mr. Cox, 66,666 shares
represent the number of shares Mr. Cox has the right to acquire within 60
days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 101,770 shares represent the number of shares Mr. Cox has
the right to acquire within 60 days through the exercise of Warrants. In
addition 1,859 shares are held by Mr. Cox under the Pioneer Railcorp
Retirement Savings Plan. Mr. Cox's shares are owned in joint tenancy with
his wife. Mr. Cox and his wife own one Preferred Share in the Mississippi
Central Railroad Co.
(4) Of the total number of shares shown as owned by Mr. LaKemper, 66,666 shares
represent the number of shares Mr. LaKemper has the right to acquire within
60 days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 40,000 shares represent the number of shares Mr. LaKemper
has the right to acquire within 60 days through the exercise of Warrants.
In addition 938 shares are held by Mr. LaKemper under the Pioneer Railcorp
Retirement Savings Plan. Mr. LaKemper's shares are owned in joint tenancy
with his wife.
(5) Of the total number of shares shown as owned by Mr. Fulton, 22,000 shares
represent the number of shares Mr. Fulton has the right to acquire within
60 days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 10,200 shares represent the number of shares Mr. Fulton
has the right to acquire within 60 days upon the exercise of Warrants.
(6) Of the total number of shares shown as owned by Mr. Carr, 66,666 shares
represent the number of shares Mr. Carr has the right to acquire within 60
days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 1,000 shares represent the number of shares Mr. Carr has
the right to acquire within 60 days through the exercise of Warrants.
(7) Of the total number of shares shown as owned by Mr. Williams, 11,000 shares
represent the number of shares Mr. Williams has the right to acquire within
60 days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 100 shares represent the number of shares Mr. Williams has
the right to acquire within 60 days through the exercise of Warrants.
There are no shareholders known by the Registrant to be beneficial owners of
more than 5% of its outstanding common stock other than Mr. Brenkman.
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and any persons holding more than ten percent of
the Company's common stock to report their initial ownership of the Company's
common stock and any subsequent changes in that ownership to the Securities and
Exchange Commission and to provide copies of such reports to the Company. Based
upon the Company's review of the copies of such reports received by the Company
and written representations of its directors and executive officers, the Company
believes that during the year ended December 31, 1997, all Section 16(a) filing
requirements were satisfied with the following exceptions: Timothy Shea,
Director, failed to file 1997 Form 5 by the deadline date. Mr. Shea has filed
the Form 5 as of the date of this report.
Item 13. Exhibits and Reports on Form 8-K
Exhibit # 3(I) - Articles of Incorporation of the Company (incorporated by
reference to Exhibit 1 of the Company's registration statement of Form S-3 filed
July 7, 1995, amended August 30, 1995, September 20, 1995 and September 25,
1995).
Exhibit # 3(ii) - Bylaws of the Company (incorporated by reference to Exhibit #2
of the Company's registration statement on Form S-8 filed January 31, 1996).
Exhibit # 10.1 - Credit Agreement, dated March 8, 1996, between the Company and
Citizens Bank and Trust Company, Chillicothe , Mo. (incorporated by reference to
Exhibit #10.1 of the Company's on Form 10-KSB filed March 27, 1996).
Exhibit # 10.2 - Exhibits to Credit Agreement, dated March 8, 1996, between the
Company and Citizens Bank and Trust Company, Chillicothe , Mo. (incorporated by
reference to Exhibit #10.2 of the Company's on Form 10-KSB filed March 27,
1996.)
Exhibit # 10.3 - Purchase agreement, dated March 12, 1996 between the Company
and John Warfield, regarding the Company's purchase of controlling interest in
KNRECO, Inc., d/b/a Keokuk Junction Railway (incorporated by reference to
Exhibit #10.3 of the Company's on Form 10-KSB filed March 27, 1996).
Exhibit # 10.4 - 1994 Stock Option Plan for Pioneer Railcorp (incorporated by
reference to Exhibit #3 of the Company's registration statement on Form S-8
filed January 31, 1996).
Exhibit # 10.5 - Form of incentive stock option under the 1994 Stock Option Plan
for Pioneer Railcorp (incorporated by reference to Exhibit #4 of the Company's
registration statement on Form S-8 filed January 31, 1996).
Exhibit # 10.6 - Form of option agreement for non-employee Directors under the
1994 Stock Option Plan for Pioneer Railcorp (incorporated by reference to
Exhibit #5 of the Company's registration statement on Form S-8 filed January 31,
1996).
Exhibit # 10.7 - Executive Contract (incorporated by reference to the Company's
Form 10-KSB for the year ended December 31, 1994, filed March 31, 1995, amended
August 31, 1995 and September 20, 1995).
Exhibit # 10.8 - 1996 Stock Option Plan for Pioneer Railcorp (incorporated by
reference to the Company's Form 10-KSB for the year ended December 31, 1996,
filed March 31, 1997).
Exhibit # 10.9 - Form of incentive stock option under the 1996 Stock Option Plan
for Pioneer Railcorp (incorporated by reference to the Company's Form 10-KSB for
the year ended December 31, 1996, filed March 31, 1997). Exhibit # 10.10 - Form
of option agreement for non-employee Directors under the 1996 Stock Option Plan
for Pioneer Railcorp (incorporated by reference to the Company's Form 10-KSB for
the year ended December 31, 1996, filed March 31, 1997).
Exhibit # 21 - Subsidiaries of the registrant.
Exhibit # 27 - Financial Data Schedule.
No reports were filed on Form 8-K during the fourth quarter 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
By: /s/ Guy L. Brenkman
------------------------------------
Guy L. Brenkman, President,
Chief Executive Officer and Director
Dated: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ J. Michael Carr
--------------------------------------
J. Michael Carr, Treasurer,
Chief Financial Officer and Director
Dated: March 20, 1998
By: /s/ Orvel Cox
--------------------------------------
Orvel Cox, Director
Dated: March 20, 1998
By: /s/ John Fulton
--------------------------------------
John Fulton, Director
Dated: March 20, 1998
ex. 21
Pioneer Railcorp Subsidiaries:
Alabama & Florida Railway Co., Inc.
Alabama Railroad Co.
Decatur Junction Railway Co.
Fort Smith Railroad Co.
Keokuk Junction Railway Co.
Minnesota Central Railroad Co.
Mississippi Central Railroad Co.
Pioneer Railroad Equipment Co., Ltd.
Pioneer Railroad Services, Inc. (PRS).
Pioneer Resources, Inc.
Pioneer Air, Inc.
Rochelle Railroad Co.
Shawnee Terminal Railway Company
Vandalia Railroad Company
Wabash & Western Railway Co. d/b/a Michigan Southern Railroad
West Michigan Railroad Co.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's December 31, 1997 Form 10-KSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 407,428
<SECURITIES> 0
<RECEIVABLES> 2,449,884
<ALLOWANCES> 82,375
<INVENTORY> 351,331
<CURRENT-ASSETS> 3,460,222
<PP&E> 24,576,717
<DEPRECIATION> 4,602,015
<TOTAL-ASSETS> 24,647,676
<CURRENT-LIABILITIES> 5,098,250
<BONDS> 0
0
0
<COMMON> 4,607
<OTHER-SE> 3,642,621
<TOTAL-LIABILITY-AND-EQUITY> 24,647,676
<SALES> 0
<TOTAL-REVENUES> 12,779,249
<CGS> 0
<TOTAL-COSTS> 10,810,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,384,325
<INCOME-PRETAX> 894,652
<INCOME-TAX> 405,687
<INCOME-CONTINUING> 488,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,245<F1>
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
<FN>
<F1>The difference between Income from Continuing operations of $488,965 and Net
Income of $366,245 relates to $122,720 of dividends paid to minority interests
in 1997.
</FN>
</TABLE>
