FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: January 15, 1999
PIONEER RAILCORP
(Exact name of registrant as specified in its charter)
IOWA 33-6658-C 37-116131
(State of Incorporation) (Commission File no.) (IRS Employer ID No.)
1318 S. JOHANSON ROAD, PEORIA, ILLINOIS 61607
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (309) 697-1400
Item 2. Acquisition of Assets.
On January 6, 1999, Wabash & Western Railway Co. ("Wabash"), a wholly-owned
subsidiary of the Registrant, acquired all of the outstanding stock of Michigan
Southern Railroad Co., Inc. ("MSRR") from Gordon D. Morris ("Morris").
MSRR owns approximately 24.4 miles of trackage, including segments between
White Pigeon and Sturgis, Michigan (a distance of approximately 14.4 miles)
including associated industrial trackage in Sturgis; between Elkhart and
Mishawaka, Indiana ( a distance of approximately 8.9 miles); and in
Kendallville, Indiana (a distance of approximately 1.1 miles). MSRR also
leases the trackage from near Sturgis, Michigan to Quincy, Michigan
(a distance of approximately 29 miles) from the Branch & St.Joseph Counties
Rail Users Association, Inc. ("RUA"). MSRR has an option to purchase the
trackage owned by the RUA for an amount estimated not to exceed $500,000. The
MSRR gave the RUA notice of its intent to exercise the purchase option on
January 7, 1999.
In addition to the trackage, MSRR also owns 5 locomotives, 8 railcars, an
office building and engine house at White Pigeon, Michigan, and several
vehicles, pieces of maintenance equipment and miscellaneous parts, materials,
supplies and structures.
All of the track segments have been operated by Wabash under a lease agreement
with MSRR since December 19, 1996. The total consideration for the MSRR
purchase was $2.4 million cash, which was financed through the Registrant's
line of credit with Citizens Bank & Trust of Chillicothe, MO. The interest
rate on the line is 10.25% and the principal and interest payments of
approximately $40,155 per month will be amortized over a term of 84 months.
Under the sale agreement, Wabash did not assume any debts of MSRR, other than
a note to Morris Leasing Co., Ltd. for $415,641, which was deducted from the
purchase price and paid at closing. No securities were issued in connection
with this transaction by either the Registrant, or any affiliate
of the Registrant, to Morris, or any affiliate of Morris.
As previously stated, Wabash has been operating the MSRR trackage and various
equipment under a lease agreement since December 19, 1996. Going forward,
as a result of the purchase, lease expense will be replaced by interest and
depreciation expense. If the purchase transaction had been completed at the
beginning of the nine month period January 1, 1998 through September 30, 1998,
consolidated income before taxes for the first nine months of 1998 would
have been decreased by approximately $190,000 as a result of the difference
between interest expense and depreciation expense that would have been
recorded by the purchase compared to the lease expense that was recorded.
Estimated interest expense for this period would have been approximately
$178,000, estimated depreciation expense for this period would have been
approximately $120,000, and the actual lease expense for the period was
approximately $108,000. In addition, if the purchase transaction had been
completed at the beginning of the nine month period January 1, 1998 through
September 30, 1998, cashflow would have been reduced by approximately
$253,000 as a result of the difference between the debt servicing on the
acquisition financing and the lease payments. The Registrant believes
increased revenuesgenerated from new opportunities resulting from continuing
marketing activities will offset a significant amount of the increased
expenses associated with the purchase transaction. In addition, the Registrant
is seeking to refinance the transaction at a lower interest rate and extended
term to increase cashflow.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIONEER RAILCORP
(Registrant)
1/15/99 /s/ Guy L. Brenkman
DATE GUY L. BRENKMAN
PRESIDENT & CEO
1/15/99 /s/ J. Michael Carr
DATE J. MICHAEL CARR
TREASURER & CHIEF
FINANCIAL OFFICER
