U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarter ended March 31, 1999
Commission File Number 33-6658-C
Pioneer Railcorp
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(Exact name of Registrant as specified in its charter)
Iowa 37-1191206
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(State or other jurisdiction of (IRS Employer ID #)
incorporation or organization)
1318 S. Johanson Rd Peoria, IL 61607
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(Address of principal executive offices) (Zip code)
Registrant's telephone number: 309-697-1400
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class Name of each exchange on which registered
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Common Stock, Class A NASDAQ, Chicago Stock Exchange
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO.
4,610,697
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(Shares of Common Stock outstanding on March 31, 1999)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended March 31, 1999 and 1998
UNAUDITED
First Quarter
1999 1998
--------------------------
Operating revenue ................................ $ 3,441,978 $ 3,236,847
--------------------------
Operating expenses
Maintenance of way ............................ 336,185 297,029
Maintenance of equipment ...................... 370,850 402,301
Transportation expense ........................ 882,831 736,594
Administrative expense ........................ 818,331 819,887
Depreciation & amortization .................. 432,160 392,263
--------------------------
2,840,357 2,648,074
--------------------------
Operating income ................................. 601,621 588,773
--------------------------
Other income & expense
Other (income) expense ........................ (145,554) (69,141)
Interest expense, equipment ................... 164,906 199,833
Interest expense, other ....................... 184,122 147,239
Net (gain) loss on sale of fixed assets ....... (1,880) (8,733)
--------------------------
201,594 269,198
--------------------------
Income before income taxes ....................... 400,027 319,575
Provision for income taxes ....................... 152,800 113,900
--------------------------
Income before minority interest in preferred
stock dividends of consolidated subsidiaries .. $ 247,227 $ 205,675
Minority interest in preferred stock dividends of
consolidated subsidiaries .................... $ 31,308 $ 31,308
Net income ....................................... $ 215,919 $ 174,367
==========================
Basic earnings per common share .................. $ 0.05 $ 0.04
==========================
Diluted earnings per common share ................ $ 0.05 $ 0.04
==========================
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
UNAUDITED
<TABLE>
March 31 December 31
1999 1998
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<S> <C> <C>
ASSETS
Current Assets
Cash ............................................... $ 502,601 $ 469,476
Accounts receivable, less allowance
for doubtful accounts 1999 $156,331; 1998 $156,282 3,136,301 2,660,012
Inventories ........................................ 310,441 331,841
Prepaid expenses ................................... 112,701 174,085
Income tax refund claims ........................... 36,182 56,933
Deferred taxes ..................................... 70,800 70,800
-------------------------
Total current assets .......................... 4,169,026 3,763,147
-------------------------
Property and Equipment less accumulated
depreciation 1999 $6,388,629; 1998 $5,997,160 ....... 21,719,276 19,563,368
-------------------------
Intangible Assets, less accumulated amortization
1999 $263,446; 1998 $250,365 ........................ 1,051,570 1,065,140
-------------------------
Investments, cash value of life insurance ............. 115,088 112,348
-------------------------
Total assets .......................................... $27,054,960 $24,504,003
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ................................... $ 3,135,230 $ 2,732,627
Notes payable ...................................... 246,274 307,886
Income taxes payable ............................... 132,975 14,206
Current maturities of long-term debt ............... 2,263,218 1,988,041
Accrued liabilities ................................ 494,460 537,018
-------------------------
Total current liabilities ..................... 6,272,157 5,579,778
-------------------------
Long-term debt, net of current maturities ............. 12,843,390 11,211,737
Deferred income taxes ................................. 2,545,900 2,545,900
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Total liabilities & debt ...................... 21,661,447 19,337,415
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Minority interest in subsidiaries ..................... 1,183,000 1,186,000
Stockholders' Equity
Common stock ....................................... 4,610 4,610
Additional paid-in capital ......................... 2,041,003 2,041,000
Retained earnings .................................. 2,164,900 1,934,978
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Total stockholders' equity .................... 4,210,513 3,980,588
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Total liabilities and equity .......................... $27,054,960 $24,504,003
=========================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarters Ended March 31, 1999 and 1998
UNAUDITED
<TABLE>
First Quarter
1999 1998
--------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ................................................. $ 215,919 $ 174,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in preferred stock dividends of
consolidated subsidiaries .............................. 31,308 31,308
Depreciation ............................................. 408,649 379,182
Amortization ............................................. 23,511 13,081
Increase in cash value life insurance .................... (2,740) (4,948)
(Gain) on sale of property & equipment ................... (1,880) (8,733)
Deferred taxes ........................................... -0- -0-
Change in assets and liabilities, net of effects from
acquisition of subsidiaries
(Increase) decrease accounts receivable .................. (476,289) 36,906
(Increase) decrease inventories .......................... 21,400 (1,757)
(Increase) decrease prepaid expenses ..................... 61,384 22,876
(Increase) decrease intangible assets .................... 635 (418)
Increase (decrease) accounts payable ..................... 402,603 615,545
(Increase) decrease income tax refund claims ............. 20,751 124
Increase (decrease) income tax payable ................... 118,739 57,100
Increase (decrease) accrued liabilities .................. (42,558) 28,750
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Net cash provided by operating activities ....... 781,432 1,343,382
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Cash Flows From Investing Activities
Proceeds from sale of property & equipment .............. 5,000 26,772
Purchase of property & equipment, net of property
and equipment from acquisition of subsidiaries ........ (2,578,225) (553,990)
Acquisition of subsidiaries, net of cash acquired -0- -0-
-------------------------
Net cash (used in) investing activities ......... (2,573,225) (527,218)
-------------------------
Cash Flows From Financing Activities
Proceeds from short-term borrowings, net of debt
assumed in acquisition of subsidiaries ................. 507,000 1,235,563
Proceeds from long-term borrowings, net of debt
assumed in acquisition of subsidiaries ................. 2,400,000 324,100
Payments on short-term borrowings ........................ (568,612) (1,234,356)
Payments on long-term borrowings ......................... (493,170) (465,137)
Repurchase of minority interest .......................... (3,000)
Proceeds from warrants and options exercised ............. -0- -0-
Payments to minority interest ............................ (17,300) (17,300)
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Net cash provided by financing activities: ...... 1,824,918 (157,130)
-------------------------
Net increase (decrease) in cash ............................ 33,125 659,034
Cash, beginning of period .................................. 469,476 407,428
-------------------------
Cash, end of period ........................................ $ 502,601 $ 1,066,462
=========================
</TABLE>
<PAGE>
SEGMENT INFORMATION
Description of products and services from reportable segments:
Pioneer has two reportable segments, investing in operating railroad entities
and an investment in a railroad equipment entity. All other operations are
classified as corporate for purposes of this disclosure.
Measurement of segment profit or loss and segment assets:
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Pioneer Railcorp evaluates segment
profit based on operating income before intersegment revenues, provision for
income taxes, items of other income and expense, and minority interest in
preferred stock dividends of consolidated subsidiaries.
Intersegment transactions:
Intersegment transactions are recorded at cost.
Factors management used to identify the reportable segments:
Pioneer Railcorp's reportable segments consist of a wholly-owned short line
railroad subsidiaries that offer similar services and a railroad equipment
subsidiary that leases railcars, locomotives, and other railroad equipment to
affiliated and unaffiliated entities. The corporate operations consist of
support services provided to the operating segments.
First Quarter
1999 1998
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Revenues from external customers
Railroads ..................................... 2,792,529 2,531,127
Leasing company ............................... 649,449 705,720
Corporate ..................................... 0 0
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Total revenues from external customers ..... 3,441,978 3,236,847
=========================
Intersegment revenues
Railroads ..................................... 0 0
Leasing company ............................... 104,100 106,000
Corporate ..................................... 1,277,646 1,151,838
-------------------------
Total intersegment revenues ................ 1,381,746 1,257,838
=========================
Segment profit
Railroads ..................................... 1,046,893 928,471
Leasing company ............................... 355,849 389,301
Corporate ..................................... 580,625 528,839
-------------------------
Total segment profit ....................... 1,983,367 1,846,611
Reconciling items
Intersegment revenues ........................ (1,381,746) (1,257,838)
Income taxes ................................. (152,800) (113,900)
Minority interest ............................ (31,308) (31,308)
Other income(expense), net ................... (201,594) (269,198)
-------------------------
Total consolidated net income ............. 215,919 174,367
=========================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES
NOTE 1. STATEMENTS
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-QSB. Accordingly,
certain disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction with the
latest financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-KSB and subsequent Form 10-QSB filings.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of consolidation:
The consolidated financial statements include Pioneer Railcorp (Pioneer) and its
wholly-owned and controlled subsidiaries (collectively, "the Company"). The
significant subsidiaries are as follows: West Michigan Railroad Co. (WMI),
Wabash & Western Railway Co. d/b/a Michigan Southern Railroad (MSO), Fort Smith
Railroad Co. (FSR), Alabama Railroad Co. (ALAB), Mississippi Central Railroad
Co. (MSCI), Alabama & Florida Railway Co., Inc. (AF), Decatur Junction Railway
Co. (DT), Vandalia Railroad Company (VRRC), Minnesota Central Railroad Co.
(MCTA), Keokuk Junction Railway Co. (KJRY), Rochelle Railroad Co. (RRCO),
Shawnee Terminal Railway Company (STR), Pioneer Industrial Railway Co. (PRY),
Pioneer Resources, Inc. (PRI), Pioneer Railroad Equipment Co., Ltd. (PREL),
Pioneer Air, Inc. (PAR), and Pioneer Railroad Services, Inc. (PRS). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Inventories:
Inventories consisting of various mechanical parts, track materials and
locomotive supplies are stated at the lower of cost (determined by the average
cost method) or market.
Property and equipment:
Property and equipment are stated at cost. Depreciation is computed principally
on a straight-line basis over the following estimated useful lives:
Roadbed - 20 years
Transportation equipment - 10 to 15 years
Railcars - 10 to 15 years
Buildings - 20 to 40 years
Machinery and equipment - 5 to 10 years
Office equipment - 5 to 10 years
Maintenance and repair expenditures, which keep the rail facilities in proper
operating condition, are charged to operations as incurred. Expenditures
considered to be renewals and betterments are capitalized if such expenditures
improve track conditions and benefit future operations with more efficient use
of rail facilities.
Intangible assets:
Intangible assets consist principally of goodwill which is being amortized by
the straight-line method over a forty-year period. The Company reviews
intangible assets quarterly to determine potential impairment by comparing the
carrying value of the intangible with the undiscounted anticipated future cash
flows of the related property before interest charges. If future cash flows are
less than the carrying value, the Company will determine the fair market value
of the property and adjust the carrying value of the intangibles if the fair
market value is less than the carrying value.
Earnings per share:
Basic per-share amounts are computed by dividing net income (the numerator) by
the weighted average number of common shares outstanding (the denominator).
Diluted per-share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce the loss or
increase the net income per share.
<PAGE>
NOTE 3. ESTIMATED IMPACT OF THE ADOPTION OF RECENT ACCOUNTING STANDARDS
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 the Company's 1998 annual report and interim financial
statements following the 1998 annual report. The Company does not believe the
adoption of this standard will have a material impact on its consolidated
financial statements.
The Company is not aware of any other recent accounting standard issued, but not
yet required to be adopted by the Company, that would have a material effect on
its financial position or results of operations.
NOTE 4. STOCK OPTION PLANS
On April 12, 1994, Pioneer adopted, with the subsequent approval of its
shareholders, a stock option plan permitting the issuance of up to 836,000
shares of common stock. Options granted under the plan were incentive based. The
options became exercisable on July 5, 1995 at a price equal to the market value
of the common stock at the date of grant, and the effect on earnings per share
has been reflected in the accompanying financial statements. As of March 31,
1999, a total of 194,759 options are outstanding under this plan after
forfeitures and exercises.
On June 26, 1996, the Company's shareholders approved a stock option plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are incentive based except for the options granted to the CEO whose
options are non-qualified. The options are fully vested and will be exercisable
as of July 1, 2001, and the effect on earnings per share has been reflected in
the accompanying financial statements. The exercise date can be accelerated if
Pioneer Railcorp common shares reach a closing price of $7.25 per share, or
higher, for any consecutive 10-day period, as reported in The Wall Street
Journal. The options will be exercisable at the market price of the common
shares at the date the options were granted, in whole or in part, within 10
years from the date of grant. As of March 31, 1999, a total of 237,000 options
are outstanding under this plan after forfeitures of 170,000 shares.
NOTE 5. STOCK SPLIT AND STOCK WARRANTS ISSUED AS DIVIDENDS
On May 16, 1995 the Board of Directors authorized a 2 for 1 stock split to
shareholders of record June 30, 1995, payable July 1, 1995. This increased the
outstanding common shares to 4,198,084 from 2,099,042. In addition, on June 24,
1995 the shareholders ratified an amendment to the Articles of Incorporation
authorizing the issuance of stock warrants as a dividend to shareholders
immediately after the stock split. Each shareholder received one warrant for
each share of common stock owned. Each warrant permits shareholders to purchase
an additional share of common stock at a predetermined price of $2 per share.
The warrants expire on July 1, 2015, and the effect of the warrants on earnings
per share has been reflected in the accompanying financial statements. As of
March 31, 1999, a total of 67,244 warrants had been exercised since their
issuance on June 24, 1995.
NOTE 6. MINORITY INTERESTS IN SUBSIDIARIES
Three of the Company's subsidiaries have preferred stock outstanding. This stock
is accounted for as minority interest in subsidiaries, and dividends on the
stock are accounted for as a current expense.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This management's discussion and analysis of financial condition and results of
operations references the Company's two operating segments. The Company's
railroad operations segment consists of wholly-owned short line railroad
subsidiaries that offer similar services and the Company's equipment leasing
segment leases railcars, locomotives, and other railroad equipment to affiliated
and unaffiliated entities. All other operations are classified as corporate for
purpose of these discussions. All information provided for each operating
segment is presented after elimination of all intersegment transactions,
therefore reflecting its share of consolidated results.
Pioneer Railcorp, an Iowa corporation, is a railroad holding company. As used in
this Form 10-QSB, 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
Industrial Railway Co. (PRY), Pioneer Resources, Inc. (PRI), Pioneer Railroad
Equipment Co., Ltd. (PREL), Pioneer Air, Inc. (PAR), and Pioneer Railroad
Services, Inc. (PRS).
Summary: First Quarter 1999 Compared to First Quarter 1998.
The Company's net income in the first quarter 1999 increased by 24% to $216,000
up from $174,000 in the same period last year. Revenue increased by $205,000 or
6% to $3,442,000 from $3,237,000 in the same period last year. Operating expense
increased by $192,000 or 7%, to $2,840,000 from $2,648,000 in the same period
last year. Operating income increased by $13,000, or 2% to $602,000 from
$589,000 in the same period last year.
Operating income was increased in the first quarter 1999 by the Company's
railroad operations which increased operating income by approximately $88,000 in
the period. The equipment leasing operations decreased operating income by
approximately $40,000 in the period, primarily from a reduction in the
utilization of its railcar fleet by non-affiliated railroads. In addition,
corporate support services decreased operating income by approximately $35,000
in the period.
Revenue:
Revenue increased in the first quarter 1999 by approximately $205,000, or 6%, to
$3,442,000 from $3,237,000 in the same period last year. The railroad operations
increased revenue by approximately $261,000 in the period. Several operating
railroad subsidiaries had increases in revenues primarily resulting from
increased loadings. Some of the more significant increases in revenues include
$180,000 from the Minnesota Central Railroad resulting from a one-time shipping
contract for the movement of approximately 166 cars of pipe for a utility
company. The Alabama & Florida Railway increased revenue by approximately
$105,000 in the period, the Alabama Railroad increased revenue $60,000 in the
period, and the Keokuk Junction increased revenue approximately $73,000 in the
period. These increases in revenue were offset by a $156,000 loss of revenue
resulting form the termination of the Rochelle Railroad lease. The equipment
leasing operations had a $57,000 decrease in revenue in the period resulting
from the decreased utilization of its railcars by non-affiliated railroads.
Operating Expense:
Operating expense increased in the first quarter 1999 by $182,000 or 7%, to
$2,830,000 from $2,648,000 in the prior year. The railroad operations increased
operating expense by approximately $167,000 in the first quarter 1999, of which
approximately $120,000 is attributable to the Minnesota Central Railroad as a
result of the costs associated with handling the one time shipment of 166 pipe
cars. The equipment leasing operations decreased operating expense approximately
$25,000, primarily from a reduction in maintenance costs associated with the
railcar fleet. Corporate support services increased operating expense
approximately $40,000, primarily related to professional services, and public
relation expenditures.
<PAGE>
Maintenance of way and structures expense (MOW) increased $39,000 or 13% to
$336,000 from $297,000 in the same period last year. The primary increase in MOW
related to increased signal maintenance expense in the railroad operations.
Maintenance of equipment expense (MOE) decreased $31,000, or 8% to $371,000 from
$402,000 in the same period last year. Approximately $38,000 of the decrease
related to the equipment leasing operations as a result of decreased costs
associated with maintaining the Company's railcar fleet. The railroad operations
had a decrease in MOE expense of approximately $7,000.
Transportation expense (TRAN) increased $146,000, or 19% to $883,000 from
$737,000 in the same period last year. Most of the increased TRAN expense was
generated by the railroad operations, primarily from the Minnesota Central as a
result of the special pipe shipment.
General & administration expense (ADMIN) decreased $2,000 in the first quarter
1999 to $818,000 from $820,000, in the prior year. The railroad operations were
responsible for approximately a $41,000 decrease in ADMIN expense in the period.
Corporate expenses related to professional services, public relations, and other
corporate support expenditures increased ADMIN expense by approximately $23,000
in the period, and the equipment leasing operations increased administration
expense approximately $16,000 as a result of expenses related to repositioning
the Company's railcar fleet.
Depreciation and amortization expense increased $40,000, or 10%, to $432,000
compared to $392,000 in the same period last year. Approximately $20,000 of the
increase is related to depreciation expense of assets associated with the
purchase of the Michigan Southern Railroad stock on January 1, 1999.
Other Income and Expense Income Statement Line Item Discussion:
In the first quarter 1999 other income and expense increased $76,000 to $145,000
compared to $69,000 in the same period last year. The increase relates primarily
to additional lease income for the use of railroad property. The Company
continues to place a 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, primarily generated by the
company's railroad operations.
Interest expense related to equipment financing decreased $35,000 in the first
quarter 1999 to $165,000 compared to $200,000 in the same period last year. A
majority of this decrease is the result of refinancing activities associated
with the equipment leasing operations. Other interest expense increased $37,000
in the first quarter 1999 to $184,000 from $147,000 in the prior year. A
majority of this increase relates to the financing of the purchase of the
Michigan Southern Railroad stock on January 1, 1999 for the amount of
$2,400,000.
Net gain on fixed asset dispositions decreased approximately $7,000 in the first
quarter 1999 to $2,000 compared to $9,000 in the same period last year. The gain
in 1999 relates to the sale of a corporate fleet vehicle.
Impact of New Accounting Pronouncements:
The Company is not aware of any recent accounting standard issued, but not yet
required to be adopted by the Company, that would have a material effect on its
financial position or results of operations.
Year 2000 Compliance:
The Year 2000 compliance issue exists because many computer systems and
applications currently use two-digit fields to designate a year. As the century
date change occurs, date-sensitive systems may either fail or not operate
properly unless the underlying programs are modified or replaced.
The Company has initiated a program to ensure that all computer applications
will be Year 2000 compliant on a timely basis. The program includes engaging an
outside consultant to review all of the Company's computer hardware and
software, as well as to confirm with significant outside vendors that their
products are Year 2000 compliant. Based on this review the Company believes its
internal systems are Year 2000 compliant.
<PAGE>
The Company relies primarily on one third party software company whose software
is critical to daily operations. The Company believes this third party vendor
will be Year 2000 compliant in a timely manner. If the third party vendor is not
Year 2000 compliant in a timely manner, it will have a materially adverse affect
on the Company. To date the Company is not aware of any unaffiliated entity with
a Year 2000 issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has no means
of ensuring that unaffiliated entities will be Year 2000 compliant. The
inability of unaffiliated entities to complete their Year 2000 resolution
process in a timely fashion could materially impact the Company.
The Company has expended approximately $49,000 to date on its resolution of the
Year 2000 compliance issue and estimates that less than $10,000 will be expended
to complete Year 2000 compliance.
As noted, the Company will be dependent on successful resolution of Year 2000
issues by unaffiliated entities. Failure by one or more of these unaffiliated
entities to successfully resolve the Year 2000 issue could result in the
mishandling of revenue loads and delayed collection of revenues. In addition,
disruptions in the economy generally resulting from the Year 2000 issues could
also materially adversely affect the Company. The amount of lost revenue as the
results of these events cannot reasonably be determined at this time, but could
be material in nature.
The Company currently has no contingency plans in place to address unknown
shortcomings in its internal systems or those of unaffiliated entities. The
Company plans to continually evaluate its Year 2000 situation periodically
throughout the year.
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 $1,200,000 of which $974,000
was available for use at the end of the first quarter 1999. In addition, the
Company believes the market value of its railcar fleet is significantly higher
then the amount of debt associated with the railcar fleet. Therefore, the
Company believes it could refinance or sell part of its railcar fleet and
generate up to $1 million in cash.
In March 1996, the Company negotiated a credit facility with Citizens Bank &
Trust 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. On January 1, 1999, the Company
borrowed $2.4 million on the line in connection with its purchase of the stock
of the Michigan Southern Railroad.
The Company has signed a commitment letter with National City Bank of
Michigan/Illinois for several credit facilities, including a $4 million
revolving line of credit for railroad acquisitions at a variable interest rate
of prime plus 1%. This credit line will be secured by all non real estate assets
of the Mississippi Central Railroad Co., the Alabama Railroad Co. and any
company acquired by line proceeds. This credit facility will replace the
Citizens Bank & Trust credit line, and in addition, National City Bank of
Michigan/Illinois will provide separate term debt for the $2.4 million currently
outstanding on the Citizens Bank line related to the Michigan Southern Railroad
stock purchase at a fixed interest rate of 8.5% amortized over 10 years . In
addition, National City Bank has agreed to reduce the interest rate on the
Keokuk Junction Railway Co. note from 9.5% to 8.5% and reduce the interest rate
on the Alabama & Florida Railway Co. note from 9.25% to 8.5%. All fixed interest
rates related to National City Bank financing's will be repriced in five years
to the bank's cost of funds plus 2.25%. The total outstanding principal balance
on the Keokuk Junction Railway and the Alabama & Florida Railway notes is
approximately $4 million. These financing activities involving National City
Bank will have a positive impact on cashflow and reduce interest rate expense.
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.
<PAGE>
On July 1, 1995, the Company's stock split and warrant issuance became payable
to shareholders. The 2 for 1 stock split increased the number of shares issued
and outstanding from 2,099,142 to 4,198,284. At the same time shareholders
became entitled to purchase an additional 4,198,284 shares through stock
warrants issued by the Company as dividends. One warrant was issued for each
share of common stock held after the split, entitling the holder to purchase 1
share of common stock for $2.00 per share. The shares purchased through the
exercise of the warrants must be held for 1 year from date of purchase. No
warrants were exercised in the first quarter 1999. As of March 31, 1999, a total
of 67,244 warrants originally issued had been exercised, and the Company
realized $134,488 on the issuance of the warrants. The Company expects
additional capital to be generated by the continued exercise of warrants but is
uncertain as to the amount.
The Company granted 836,000 options to certain employees under its 1994
incentive stock option plan. The options are exercisable at prices equal to the
market value of the Company's stock at the date of grant. The exercise price
ranges from $1.50 to $4.40 per share. No options were exercised in the first
quarter 1999. Since the plans inception a total of 69,700 options had been
exercised and the Company has realized $104,550 on the exercise of the options.
As of March 31, 1999, a total of 194,759 options are outstanding under this
plan.
On June 26, 1996, the Company's shareholders approved a stock option plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are incentive based except for the options granted to the CEO whose
options are non-qualified. The options will be fully vested and will be
exercisable as of July 1, 2001. The exercise date can be accelerated if Pioneer
Railcorp common shares reach a closing price of $7.25 per share, or higher, for
any consecutive 10-day period, as reported in the Wall Street Journal. The
options will be exercisable at $2.75, the market price of the common shares at
the date the options were granted, in whole or in part within 10 years from the
date of grant. As of March 31, 1999, a total of 237,000 options are outstanding
under this plan.
The Company is still negotiating with the State of Minnesota Department of
Transportation (MNDOT) for up to approximately $4.2 million of interest free
financing to rehabilitate the entire line. As of the date of this report, the
outcome of these negotiations is uncertain and the Company is continuing to
evaluate its options concerning the MCTA including repairing a portion of the
line using its own capital resources, primarily long-term debt. If the Company
undertakes its own rehabilitation program, it is estimated that the total
capital requirement would be less than $2 million.
The City of Rochelle, Illinois, terminated the Rochelle Railroad Co.'s lease
agreement effective January 19, 1998, however, Rochelle Railroad Co. continued
to operate on the trackage until November 13, 1998 pending the outcome of
certain legal proceedings. In 1998 the Rochelle Railroad Co. generated $440,000
in revenue and $216,000 of operating income. In 1997, the Rochelle Railroad Co.
generated $408,000 in revenue and $250,000 of operating income. The Company
believes that a majority of the lost operating income resulting from the
termination of the Rochelle Railroad will be recovered through increased
marketing efforts on the remaining operating railroads.
The Company anticipates that the outcomes involving current legal proceedings
will not materially affect the Company's consolidated financial position or
results of operation.
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 the next twelve months.
Balance Sheet and Cash Flow Items:
The Company generated net cash from operating activities of $781,000 in the
first quarter 1999 compared to $1,343,000 in the same period last year. Net cash
from operating activities for the first quarter 1999 was generated from $216,000
of net income, $440,000 of depreciation and amortization, an increase in
accounts payable of $403,000, $198,000 net cash provided by changes in various
other operating assets and liabilities, reduced by an increase in accounts
receivable of $476,000. The increase in accounts receivable and payable
primarily relates to the Company's emphasis on collecting its freight revenues
under "interline" contracts as opposed to "switching" contracts. Under interline
contracts, the Company's operating railroads primarily bill and collect the
complete freight rate which would include the amounts due other railroads who
are in the delivery route. Under switching contracts, the Company's operating
railroads bill and collect only the Company's portion of revenue. Therefore, the
receivables are higher under an interline settlement environment because the
Company is collecting money due other railroads and subsequently recording a
payable to the other railroads, thereby increasing payables.
<PAGE>
In the first quarter 1999, the Company recorded $2.4 million of fixed assets
relating to the purchase of the stock of the Michigan Southern Railroad, of
which $1,136,577 was allocated to track structures, $899,619 allocated to land
and right of way, $121,036 allocated to buildings, and the remaining $242,768
allocated to transportation equipment, vehicles, and railcars.
In the first quarter 1999, the Company purchased approximately $178,000 of fixed
assets and capital improvements. Capital expenditures for track totaled $79,000
in the quarter 1999 with the remaining $99,000 of fixed assets and capital
improvements relating to equipment and railcar betterments.
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 previously mentioned herein this report Form 10-KSB filing, effective January
1, 1999, MSO purchased all of the stock of the MSRR from Gordon D. Morris, for
$2.4 million funding the transaction with long-term fixed rate debt obtained
from the Company's $2.5 million revolving acquisition line of credit. The
Company had been operating the line under an operating lease since December of
1996.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In the course of business, the Company experiences crossing accidents, employee
injuries, delinquent and/or disputed accounts, and other incidents, which give
rise to claims that may result in litigation. Management vigorously pursues
settlement and release of such claims, but at any one time, some such incidents,
which could result in lawsuits by and against the Company, remain unresolved.
Management believes it has valid claims for, or good defenses to, these actions.
Management considers such claims to be a routine part of the Company's business.
As of the date of this Form 10-QSB, management is not aware of any incident
which is likely to result in a liability that would materially affect the
Company's consolidated financial position or results of operation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the first quarter
1999.
tem 5. OTHER INFORMATION
As previously mentioned herein this report Form 10-KSB filing, effective January
1, 1999, MSO purchased all of the stock of the MSRR from Gordon D. Morris, for
$2.4 million funding the transaction with long-term fixed rate debt obtained
from the Company's $2.5 million revolving acquisition line of credit. The
Company had been operating the line under an operating lease since December of
1996.
On April 30, 1999, the Company purchased 100% of the stock of Garden City
Western Railway, Inc.(GCW) from the Garden City Coop, Inc. and immediately began
operations. The GCW is located in southwest Kansas and totals 45 miles of
operating railroad. In 1998 the GCW handled over 2,000 cars and has handled over
3,000 cars in previous years. The primary commodities include grain, frozen
beef, fertilizer, farm implements, feed products and utility poles. The Company
projects that during the first full year of operations, the GCW will add
approximately $750,000 of revenue and $250,000 of operating income. The purchase
was financed with a 60 day note with an interest rate of Prime plus 1% from
National City Bank and will be moved to the revolving line of credit upon
completion and execution of the documents for the revolver.
On March 22, 1999, Pioneer Railcorp's Board of Directors declared a $.0225 per
common share dividend payable to shareholders of record as of April 30, 1999,
payable by June 30,1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit # 11 - Statement re computation of per share earnings.
Exhibit # 27 - Financial data schedule.
The following reports were filed on Form 8-K during the first quarter 1999:
(1) Form 8-K filed January 15, 1999 regarding the purchase of the Michigan
Southern Railroad stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized.
PIONEER RAILCORP
(Registrant)
5/10/99 /s/ Guy L, Brenkman
------- -------------------------------------
DATE GUY L. BRENKMAN
PRESIDENT & CEO
5/10/99 /s/ J. Michael Carr
------- -------------------------------------
DATE J. MICHAEL CARR
TREASURER & CHIEF FINANCIAL OFFICER
Following is information about the computation of the earnings per share (EPS)
data for the quarters ended March 31, 1999 and 1998:
For the Quarter Ended March 31, 1999
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------
Basic EPS
Income available to common stockholders $215,919 4,610,608 $0.05
=====
Effect of Diluted Securities
Employee stock options - - - -
---------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions $215,919 4,610,608 $0.05
==================================
For the Quarter Ended March 31, 1998
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------
Basic EPS
Income available to common stockholders $174,366 4,609,513 $0.04
=====
Effect of Diluted Securities
Employee stock options - - - -
---------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions $174,366 4,609,513 $0.04
==================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted fron the Registrant's
First Quarter Form 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 502,601
<SECURITIES> 0
<RECEIVABLES> 3,292,632
<ALLOWANCES> 156,331
<INVENTORY> 310,441
<CURRENT-ASSETS> 4,169,026
<PP&E> 28,107,905
<DEPRECIATION> 6,388,629
<TOTAL-ASSETS> 27,054,960
<CURRENT-LIABILITIES> 6,272,157
<BONDS> 0
0
0
<COMMON> 4,610
<OTHER-SE> 4,205,903
<TOTAL-LIABILITY-AND-EQUITY> 27,054,960
<SALES> 0
<TOTAL-REVENUES> 3,441,978
<CGS> 0
<TOTAL-COSTS> 2,840,357
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349,028
<INCOME-PRETAX> 400,027
<INCOME-TAX> 152,800
<INCOME-CONTINUING> 247,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215,919<F2>
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
<FN>
<F1>Other expenses are netted with other income in the period and the result was
income of $147,434.
<F2>The difference between income from continuing operations and net income relates
to minority interests in preferred stock dividends od consolidated subidiaries.
</FN>
</TABLE>
