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 September 30, 2000
Commission File Number 33-6658-C
Pioneer Railcorp
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(Exact name of Registrant as specified in its charter)
Iowa 37-11912
------------------------------- -------------------
(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
------------------- -----------------------------------------
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.
4,534,277
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(Shares of Common Stock outstanding on September 30, 2000)
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Quarters Ended September 30, 2000 and 1999
UNAUDITED
<TABLE>
<S>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue ............................... $ 3,841,288 $ 3,586,959 $ 11,297,580 $ 10,522,892
------------------------------------------------------------
Operating expenses
Maintenance of way ........................... 358,868 383,836 1,152,489 1,103,073
Maintenance of equipment ..................... 370,982 367,870 1,055,442 1,126,201
Transportation expense ....................... 879,192 742,125 2,490,204 2,355,153
Administrative expense ....................... 952,879 901,638 2,786,036 2,673,975
Depreciation & amortization ................. 474,445 435,298 1,432,285 1,310,826
------------------------------------------------------------
3,036,366 2,830,767 8,916,456 8,569,228
------------------------------------------------------------
Operating income ................................ 804,922 756,192 2,381,124 1,953,664
------------------------------------------------------------
Other income & expense
Other (income) expense ....................... (54,941) (56,922) (267,281) (255,208)
Loss on sale of subsidiary ................... -0- -0- -0- 341,873
Interest expense, equipment .................. 200,669 165,959 602,052 493,269
Interest expense, other ...................... 189,952 193,541 567,684 564,826
Net (gain) loss on sale of fixed assets ...... (57,096) 1,107 (54,549) (1,108)
-----------------------------------------------------------
278,584 303,685 847,906 1,143,652
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Income before income taxes ...................... 526,338 452,507 1,533,218 810,012
Provision for income taxes ...................... 216,600 170,670 602,600 436,170
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Income before minority interest in preferred
stock dividends of consolidated subsidiaries . $ 309,738 $ 281,837 $ 930,618 $ 373,842
Minority interest in preferred stock dividends of
consolidated subsidiaries ................... 31,308 31,308 93,924 93,924
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Net income ...................................... $ 278,430 $ 250,529 $ 836,694 $ 279,918
===========================================================
Basic earnings per common share ................. $ 0.06 $ 0.05 $ 0.18 $ 0.06
===========================================================
Diluted earnings per common share ............... $ 0.06 $ 0.05 $ 0.18 $ 0.06
===========================================================
Cash dividends per common share ................. $ 0.0000 $ 0.00 $ 0.0250 $ 0.0225
===========================================================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 and December 31, 1999
UNAUDITED
<TABLE>
September 30 December 31
2000 1999
----------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash ..................................................... $ 915,483 $ 2,356,844
Accounts receivable, less allowance
for doubtful accounts 2000 $110,645; 1999 $186,998 ..... 3,512,422 3,940,029
Inventories .............................................. 272,278 272,278
Prepaid expenses ......................................... 160,166 91,377
Income tax refund claims ................................. 94,449 94,449
Deferred taxes ........................................... 91,800 91,800
------------ ------------
Total current assets ................................ 5,046,598 6,846,777
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Property and Equipment less accumulated
depreciation 2000 $8,422,422; 1999 $7,242,732 ............. 25,737,336 24,159,995
------------ ------------
Intangible Assets, less accumulated amortization
2000 $274,949; 1999 $239,846 .............................. 1,085,924 1,122,489
------------ ------------
Other Assets ................................................ 450,623 131,503
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Total assets ................................................ $ 32,320,481 $ 32,260,764
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ......................................... $ 2,394,995 $ 3,983,617
Notes payable ............................................ 0 810,000
Income taxes payable ..................................... 294,431 561,697
Current maturities of long-term debt ..................... 2,887,754 2,390,042
Accrued liabilities ...................................... 516,314 670,873
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Total current liabilities ........................... 6,093,494 8,416,229
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Long-term debt, net of current maturities ................... 14,872,361 13,121,553
------------ ------------
Deferred income taxes ....................................... 4,505,100 4,505,100
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Minority interest in subsidiaries ........................... 1,133,000 1,154,000
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Stockholders' Equity
Common stock ............................................. 4,611 4,611
In Treasury 2000 77,240 shares; 1999 19,000 shares ....... (77) (19)
------------ ------------
Outstanding 2000 4,534,277; 1999 4,592,217 ............... 4,534 4,592
Additional paid-in capital ............................... 2,042,042 2,042,042
Retained earnings ........................................ 3,669,950 3,017,248
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Total stockholders' equity ........................... 5,716,526 5,063,882
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Total liabilities and equity ................................ $ 32,320,481 $ 32,260,764
============ ============
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FIRST NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30,1999
UNAUDITED
<TABLE>
First Nine Months First Nine Months
2000 1999
----------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ...................................................... $ 836,694 $ 279,918
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in preferred stock dividends of
consolidated subsidiaries ............................. 93,924 93,924
Depreciation .......................................... 1,394,724 1,264,449
Amortization .......................................... 37,562 46,377
Increase in cash value life insurance ................. (14,534) (12,426)
Loss (gain) on sale of property & equipment ........... (54,549) (1,108)
Loss on sale of subsidiary ............................ -0- 341,872
Change in assets and liabilities, net of effects from
acquisition of subsidiaries
(Increase) decrease accounts receivable ............... 427,607 (506,626)
(Increase) decrease inventories ....................... -0- 32,730
(Increase) decrease prepaid expenses .................. (68,789) 92,680
(Increase) decrease intangible assets ................. (1,435) (3,758)
Increase (decrease) accounts payable .................. (1,588,622) (12,189)
(Increase) decrease income tax refund claims .......... -0- 23,661
Increase (decrease) income tax payable ................ (267,266) 333,331
Increase (decrease) accrued liabilities ............... (154,559) 113,641
----------- ------------
Net cash provided by operating activities ............. 640,757 2,086,476
----------- ------------
Cash Flows From Investing Activities
Proceeds from sale of property & equipment ............ 597,557 10,925
Purchase of property & equipment, net of property
and equipment from acquisition of subsidiaries ...... (3,514,646) (1,496,775)
Business acquisitions, net of cash acquired ........... (55,000) (3,875,000)
----------- ------------
Net cash (used in) investing activities ............... (2,972,089) (5,360,850)
----------- ------------
Cash Flows From Financing Activities
Proceeds from short-term borrowings ................... 4,101,719 1,852,004
Proceeds from long-term borrowings .................... 5,504,773 7,421,590
Issuance of notes receivable .......................... (265,500) -0-
Payments on short-term borrowings ..................... (4,911,719) (2,051,358)
Payments on long-term borrowings ...................... (3,256,253) (3,938,029)
Payments on notes receivable .......................... 15,914 -0-
Repurchase of minority interest ....................... (21,000) (32,000)
Purchase of common stock for treasury ................. (84,655) -0-
Proceeds from warrants and options exercised .......... -0- 1,040
Cash dividends paid ................................... (113,393) (103,742)
Payments to minority interest ......................... (79,915) (79,915)
----------- ------------
Net cash provided by financing activities ............. 889,971 3,069,590
---------- ------------
Net (decrease) in cash ........................................... (1,441,361) (204,784)
Cash, beginning of period ....................................... 2,356,844 469,476
----------- ------------
Cash, end of period .............................................. $ 915,483 $ 264,692
=========== ============
</TABLE>
<PAGE>
SEGMENT INFORMATION
Description of products and services from reportable segments:
Pioneer Railcorp has two reportable segments, railroad operations and equipment
leasing operations. All other operations are classified as corporate support
services 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 including intersegment revenues, but before
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.
Third Quarter Third Quarter
2000 1999
------------- -------------
Revenues from external customers
Railroad operations 2,976,953 2,938,992
Equipment leasing operations 856,613 647,967
Corporate support services 7,722 0
-----------------------------
Total revenues from external customers 3,841,288 3,586,959
=============================
Intersegment revenues
Railroad operations 0 0
Equipment leasing operations 99,600 95,100
Corporate support services 1,615,481 1,541,613
----------------------------
Total intersegment revenues 1,715,081 1,636,713
============================
Segment profit
Railroad operations 1,314,807 1,363,535
Equipment leasing operations 503,966 309,001
Corporate support services 701,231 720,369
----------------------------
Total segment profit 2,520,004 2,392,905
Reconciling items
Intersegment revenues (1,715,081) (1,636,713)
Income taxes (216,600) (170,670)
Minority interest (31,308) (31,308)
Other income(expense), net (278,585) (303,685)
----------------------------
Total consolidated net income 278,430 250,529
=============================
<PAGE>
Nine Months Nine Months
Ended Ended
9/30/00 9/30/99
----------- -----------
Revenues from external customers
Railroad operations .............................. 8,893,195 8,544,380
Equipment leasing operations ..................... 2,392,812 1,978,512
Corporate support services ....................... 11,573 0
-------------------------
Total revenues from external customers ......... 11,297,580 10,522,892
=========================
Intersegment revenues
Railroad operations .............................. 0 0
Equipment leasing operations ..................... 294,300 293,600
Corporate support services ....................... 4,695,231 4,398,111
-------------------------
Total intersegment revenues ................... 4,989,531 4,691,711
=========================
Segment profit
Railroad operations .............................. 3,834,876 3,607,539
Equipment leasing operations ..................... 1,355,695 1,001,753
Corporate support services ....................... 2,180,084 2,036,083
------------------------
Total segment profit ........................... 7,370,655 6,645,375
Reconciling items
Intersegment revenues ........................... (4,989,531) (4,691,711)
Income taxes .................................... (602,600) (212,170)
Minority interest ............................... (93,924) (93,924)
Other income(expense), net ...................... (847,906) (1,367,652)
-------------------------
Total consolidated net income ................ 836,694 279,918
=========================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES
NOTE 1. STATEMENTS
The accompanying Consolidated Statements of Income, Balance Sheets, and
Statements of Cash Flows are unaudited. The interim financial statements reflect
all adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented. 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. The results of operations for the interim period should not be
considered indicative of results to be expected for the full year.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Pioneer Railcorp (Pioneer) and its
wholly-owned and controlled subsidiaries (collectively, "the Company"). The
Company's railroad operations segment consists of wholly-owned short line
railroad subsidiaries that offer similar services and includes the following
wholly-owned subsidiaries: West Michigan Railroad Co. (WMI), Michigan Southern
Railroad Company (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) (sold May 6, 1999), Keokuk Junction
Railway Co. (KJRY), Shawnee Terminal Railway Company (STR), Pioneer Industrial
Railway Co. (PRY), The Garden City Western Railway, Inc. (GCW), Indiana
Southwestern Railway Co. (ISW), and an inactive subsidiary Midwest Terminal
Railway Company (formerly Rochelle Railroad Co.) (RRCO). The Company's equipment
leasing segment leases railcars, locomotives, and other railroad equipment to
affiliated and unaffiliated entities and includes only the wholly-owned
subsidiary Pioneer Railroad Equipment Co., Ltd. (PREL). All other Company
operations are classified as corporate and include the following wholly- owned
subsidiaries: Pioneer Resources, Inc. (PRI), Pioneer Air, Inc. (PAR), and
Pioneer Railroad Services, Inc. (PRS). All significant intercompany balances and
transactions have been eliminated in consolidation.
NOTE 3. CONTINGENCIES
Pioneer Railcorp guaranteed certain long-term debt obligations of the Minnesota
Central Railroad Co. in connection with debt acquired as part of the initial
asset purchase by the Minnesota Central Railroad Co. in 1994. Pioneer Railcorp
remains as a guarantor on one note and could be required to repay the principal
and accrued interest on the note if it is defaulted upon. The principal balance
of the note as of December 31, 1999 was approximately $75,000. 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.
NOTE 4. PURCHASES OF RAILROAD FACILITIES
On April 1, 2000, the Company through its wholly-owned subsidiary Indiana
Southwestern Railway Co. (ISW) acquired, in a transaction accounted for by the
purchase method of accounting, certain assets including all of the rail
facilities owned or leased by the Evansville Terminal Railway Company (EVT). The
line begins in Evansville, Indiana and is 23 miles in length. The primary
commodities are grain, plastics and rail equipment. The total purchase price was
$564,000 allocated to track assets. There was no goodwill recognized as a result
of this transaction. Unaudited pro forma consolidated results of operations for
the nine months ended September 30, 2000 and 1999, as though the Indiana
Southwestern Railway Co. had been acquired as of January 1, 1999, follows:
2000 1999
-----------------------------------
Railway operating revenue $11,332,005 $10,664,810
Net income 834,178 264,651
Earnings per common share .18 .06
The Company projects the ISW will initially generate annual revenues of $300,000
and $50,000 of operating income.
<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
support services 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), Michigan Southern Railroad Company (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) (sold May 6, 1999), Keokuk Junction Railway Co. (KJRY), Shawnee Terminal
Railway Company (STR), Pioneer Industrial Railway Co. (PRY), The Garden City
Western Railway, Inc. (GCW), Indiana Southwestern Railway Co. (ISW), Pioneer
Resources, Inc. (PRI), Pioneer Railroad Equipment Co., Ltd. (PREL), Pioneer Air,
Inc. (PAR), Pioneer Railroad Services, Inc. (PRS) and an inactive subsidiary
Midwest Terminal Railway Company (formerly Rochelle Railroad Co.) (RRCO).
Summary: Third Quarter 2000 Compared to Third Quarter 1999.
The Company's net income in the third quarter 2000 was $278,400, an increase of
$27,900 from the third quarter 1999 which had net income of $250,500. Revenue
increased by $254,000 or 7% to $3,841,000 from $3,587,000 in the same period
last year. Operating expense increased by $205,000 or 7%, to $3,036,000 from
$2,831,000 in the same period last year. Operating income increased by $49,000,
or 6% to $805,000 from $756,000 in the same period last year.
Operating income was increased in the third quarter 2000 by the Company's
equipment leasing operations by approximately $195,000 in the period, primarily
from increased revenue generated from locomotive leases and an increase in the
utilization of its railcar fleet by non-affiliated railroads.
The railroad operations had a decrease in operating income in the period of
$45,000. Factors adversely affecting railroad operations include a $104,000
reduction in operating income from the Alabama & Florida Railway Co. resulting
from a service disruption to the line's primary customer due to track conditions
on the portion of the line that is leased by the Alabama & Florida Railway Co.
from the Alabama Electric Cooperative, Inc. Negotiations have been in process to
resolve this situtation, but to date the Alabama & Florida Railway has not been
able to reach a satisfactory agreement with the Alabama Electric Cooperative to
repair the line. Initially, the Alabama & Florida Railway believed that the
situation would not result in a material loss of revenue because the customer
had planned to transload on the Alabama & Florida Railway, however, the customer
changed its plans abruptly without notice once the track was embargoed. The
Alabama & Florida continues to serve the other customers on the line. In
addition, corporate support services increased operating income by approximately
$100,000 in the period resulting primarily from increased support services.
Revenue:
Revenue increased in the third quarter 2000 by approximately $254,000, or 7%, to
$3,841,000 from $3,587,000 in the same period last year. The railroad operations
increased revenue by approximately $41,000 in the period which resulted from a
combination of increased freight revenue and increased revenue from the storage
of private railcars from non-affiliated entities. Revenue from railroad
operations was adversely affected by Alabama & Florida Railway Co. as described
previously. In addition, the Company began operating the Indiana Southwestern
Railway Co. on April 1, 2000 which generated $60,000 of revenue in the third
quarter 2000. The equipment leasing operations had a $209,000 increase in
revenue in the period primarily from increased revenue generated from locomotive
leases and an increase in the utilization of its railcar fleet by non-affiliated
railroads.
<PAGE>
Operating Expense:
Operating expense increased in the third quarter 2000 by $205,000 or 7%, to
$3,036,000 from $2,831,000 in the prior year. The railroad operations increased
operating expense by approximately $87,000 in the period which resulted from a
variety of factors including increased fuel and other transportation expenses.
In the third quarter 2000 $54,000 of operating expense related to the Indiana
Southwestern which the Company began operating on April 1, 2000. The equipment
leasing operations increased operating expense approximately $19,000, primarily
from an increase in depreciation expense related to the acquisition of railcars
and locomotives. Corporate support services increased operating expense by
approximately $100,000 in the period resulting primarily from increased support
services.
Maintenance of way and structures expense (MOW) decreased $25,000 or 7% to
$359,000 from $384,000 in the same period last year. Railroad operations had a
decrease of $39,000 of MOW and corporate services increased MOW by $14,000.
Maintenance of equipment expense (MOE) increased $3,000, or 1% to $371,000 from
$368,000 in the same period last year. The equipment leasing operations had an
increase in MOE of approximately $11,000 as a result of increased costs
associated with maintaining the Company's railcar fleet. The railroad operations
had a decrease in MOE of $27,000. In addition, MOE was increased $19,000 from
corporate support services.
Transportation expense (TRAN) increased $137,000, or 18% to $879,000 from
$742,000 in the same period last year. Most of the increased TRAN expense was
generated by the railroad operations, primarily related to increased fuel and
carhire expenses.
General & administration expense (ADMIN) increased $51,000 in the third quarter
2000 to $953,000 from $902,000 in the prior year. The railroad operations had an
increase of $19,000 in ADMIN expense in the period. The equipment leasing
operations decreased ADMIN approximately $35,000 as a result of reduced expenses
related to repositioning the Company's railcar fleet. Corporate expenses related
to corporate support expenditures increased ADMIN expense by approximately
$67,000 in the period.
Depreciation and amortization expense increased $39,000, or 9%, to $474,000 from
$435,000 in the same period last year. Approximately $7,000 of the increase is
related to the Indiana Southwestern Railway. The equipment leasing operations
increased depreciation expense approximately $29,000 related to the acquisition
of railcars and locomotives.
Other Income and Expense Income Statement Line Item Discussion:
In the third quarter 2000 other income and expense decreased $2,000 to $55,000
compared to $57,000 in the same period last year. Other income relates primarily
to 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 increased $35,000 in the third
quarter 2000 to $201,000 compared to $166,000 in the same period last year. A
majority of this increase is the result of financing activities associated with
additional locomotive purchases made by the Company in the fourth quarter 1999
and first quarter 2000. Other interest expense decreased $4,000 in the third
quarter 2000 to $190,000 from $194,000 in the prior year.
In the third quarter 2000 the Company had a gain on fixed asset dispositions of
approximately $57,000 compared to an insignificant loss in the same period last
year. The gain in the third quarter 2000 primarily relates to the sale of a
locomotive.
<PAGE>
Summary: First Nine Months 2000 Compared to First Nine Months 1999.
The Company's net income in the first nine months 2000 was $836,700, an increase
of $556,700 from the first nine months 1999 which had net income of $280,000. In
the first nine months 1999, net income was affected by a one-time charge of
$342,000 relating to the sale of the Minnesota Central Railroad Co. stock.
Excluding the MCTA sale transaction from 1999 results, net income for the first
nine months 1999 would have been approximately $622,000. Revenue increased by
$775,000 or 7% to $11,298,000 from $10,523,000 in the same period last year.
Operating expense increased by $347,000 or 4%, to $8,916,000 from $8,569,000 in
the same period last year. The increase in operating expense includes increased
fuel costs of approximately $122,000 as a result of the current pricing
environment. Operating income increased by $427,000 or 22% to $2,381,000 from
$1,954,000 in the same period last year.
Operating income was increased by approximately $227,000 in the first nine
months 2000 by the Company's railroad operations. The equipment leasing
operations increased operating revenue by approximately $354,000 in the period,
primarily from increased revenue generated from locomotive leases and an
increase in the utilization of its railcar fleet by non-affiliated railroads. In
addition, corporate support services decreased operating income by approximately
$154,000 in the period.
Revenue:
Revenue increased in the first nine months 2000 by approximately $775,000, or
7%, to $11,298,000 from $10,523,000 in the same period last year. The railroad
operations increased revenue by approximately $349,000 in the period which
resulted from an increase in revenues of approximately $723,000 generated by the
railroads operated in the first nine months 2000 less a decrease in revenue of
approximately $374,000 as a result of the sale of the Minnesota Central Railroad
on May 6, 1999. The increase of revenue of $723,000 generated from the railroads
operated in the first nine months 2000 resulted from a combination of increased
freight revenue and increased revenue from the storage of private railcars from
non-affiliated entities. The increase in revenue includes $165,000 of increased
revenue generated by The Garden City Western Railway, which the Company began
operating on May 1, 1999. In addition, the Company began operating the Indiana
Southwestern Railway Co. on April 1, 2000 which generated $162,000 of revenue in
the first nine months 2000. The equipment leasing operations had a $415,000
increase in revenue in the period resulting primarily from increased revenue
generated from locomotive leases. Corporate support services increased revenue
approximately $11,000 in the first nine months 2000, primarily from subscription
revenue from its publication The Short Line.
Operating Expense:
Operating expense increased in the first nine months 2000 by $347,000 or 4%, to
$8,916,000 from $8,569,000 in the same period last year. The railroad operations
increased operating expense by approximately $121,000 in the period which
resulted from an increase in operating expense of approximately $512,000 from
the railroads operated in the first nine months 2000 less a decrease in
operating expense of approximately $391,000 as a result of the sale of the
Minnesota Central Railroad on May 6, 1999. The increase in operating expense of
$512,000 from the railroads operated in the first nine months 2000 resulted from
a variety of factors including increased track maintenance, fuel and other
transportation expenses. The increase in operating expense includes increased
fuel costs of approximately $122,000 as a result of the current pricing
environment. The increase in operating expense includes an increase of $135,000
of operating expense for The Garden City Western Railway, which the Company
began operating on May 1, 1999 and an increase of $127,000 of operating expense
for the Indiana Southwestern which the Company began operating on April 1, 2000.
The equipment leasing operations increased operating expense approximately
$61,000, primarily from an increase in depreciation expense related to the
acquisition of railcars and locomotives of $116,000 offset by a decrease in
maintenance and freight expenses of approximately $55,000. Corporate support
services increased operating expense approximately $165,000, primarily related
to payroll related expenditures.
Maintenance of way and structures expense (MOW) increased $49,000 or 4% to
$1,152,000 from $1,103,000 in the same period last year. Railroads operated in
the first nine months 2000 had an increase of $80,000 in MOW, primarily related
to increased track material by the railroad operations, $29,000 of increased MOW
expense for The Garden City Western Railway and $7,000 of increased MOW expense
for the Indiana Southwestern Railway. In addition, MOW was decreased by $51,000
as a result of the sale of the MCTA.
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Maintenance of equipment expense (MOE) decreased $71,000, or 6% to $1,055,000
from $1,126,000 in the same period last year. Approximately $18,000 of the
decrease related to the equipment leasing operations as a result of decreased
costs associated with maintaining the Company's railcar fleet. Railroads
operated in the first nine months 2000 had a decrease of $44,000 in MOE. The
Garden City Western Railway and the Indiana Southwestern Railway did not have a
significant amount of MOE in the period. In addition, MOE was decreased by
$27,000 as a result of the sale of the MCTA.
Transportation expense (TRAN) increased $135,000, or 6% to $2,490,000 from
$2,355,000 in the same period last year. Railroads operated in the first nine
months 2000 had an increase of $375,000 in TRAN, primarily related to increased
fuel and carhire expenses, $56,000 of increased TRAN expense for The Garden City
Western Railway and $63,000 of increased TRAN expense for the Indiana
Southwestern Railway. In addition, TRAN was decreased by $244,000 as a result of
the sale of the MCTA. The increase in TRAN expense includes increased fuel costs
of approximately $122,000 as a result of the current pricing environment.
General & administration expense (ADMIN) increased $112,000 or 4% to $2,786,000
from $2,674,000 in the prior year. Railroads operated in the first nine months
2000 had an increase of $51,000 in ADMIN expense in the period including $22,000
of increased ADMIN expense for The Garden City Western Railway and a $34,000
increase in ADMIN expense for the Indiana Southwestern Railway. In addition,
ADMIN was decreased by $25,000 as a result of the sale of the MCTA. The
equipment leasing operations decreased ADMIN approximately $61,000 as a result
of reduced expenses related to repositioning the Company's railcar fleet.
Corporate expenses related to corporate support expenditures increased ADMIN
expense by approximately $147,000 in the period.
Depreciation and amortization expense increased $121,000, or 9%, to $1,432,000
from $1,311,000 in the same period last year. Approximately $40,000 of the
increase is related to The Garden City & Western Railway and $14,000 of the
increase is related to the Indiana Southwestern Railway. In addition,
depreciation and amortization was decreased by $44,000 as a result of the sale
of the MCTA. The equipment leasing operations increased depreciation expense
approximately $116,000 related to the acquisition of railcars and locomotives.
Other Income and Expense Income Statement Line Item Discussion:
In the first nine months 2000 other income and expense increased $12,000 to
$267,000 compared to $255,000 in the same period last year. Other income and
expense relates primarily to 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 increased $109,000 in the first
nine months 2000 to $602,000 compared to $493,000 in the same period last year.
A majority of this increase is the result of financing activities associated
with additional locomotive purchases made by the Company in the fourth quarter
1999 and first nine months 2000. Other interest expense increased $3,000 in the
first nine months 2000 to $568,000 from $565,000 in the prior year. Other
interest expense increases relate to the Garden City & Western Railway
acquisition and the Indiana Southwestern Railway acquisition and was decreased
by $15,000 as a result of the sale of the MCTA.
In the first nine months 2000 the Company had a gain on fixed asset dispositions
of approximately $55,000 compared to an net gain of $1,000 in the same period
last year. The net gain in the first nine months 2000 primarily relates to the
disposition of 13 railcars and 2 locomotives.
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.
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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, all of which was available for
use at the end of the third quarter 2000. 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.
On June 23, 2000, the Company entered into a credit agreement with National City
Bank of Michigan/Illinois to provide a $5 million revolving acquisition line of
credit for railroad acquisitions at a variable interest rate of prime plus 1%,
maturing June 10, 2002. Amounts drawn on the line are amortized over a 10 year
period. This credit line is secured by all non real estate assets of the
Mississippi Central Railroad Co., the Alabama Railroad Co., and any company
acquired using proceeds from the credit line. In the second quarter 2000
$614,000 was borrowed on the line in connection with the asset purchase by the
Indiana Southwestern Railway Co. The monthly principal and interest payment
currently required to be repaid is $8,300. There were no new borrowings against
this credit agreement in the third quarter 2000.
On June 23, 2000, the Company entered into a credit agreement with National City
Bank of Michigan/Illinois to refinance the remaining balance related to the
acquisition of The Garden City Western Railway in the amount of $1,425,000,
previously financed by the Company's's acquisition line of credit. The note has
a variable interest rate of LIBOR plus 2.25% and matures July 1, 2005. The
interest rate of the note at September 30, 2000 was 8.9%. The monthly principal
and interest payment currently required to be repaid is $18,000.
On June 23, 2000, the Company entered into a credit agreement with National City
Bank of Michigan/Illinois to borrow $2,075,000 for the financing of 29
locomotives at a variable interest rate of LIBOR plus 2.25%, maturing July 1,
2005. The interest rate on this note at September 30, 2000 was 8.9%. The monthly
principal and interest payment currently required to be repaid is approximately
$33,000.
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.
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. As of
September 30, 2000, a total of 67,766 warrants originally issued had been
exercised, and the Company realized $135,532 on the issuance of the warrants.
The Company granted 836,000 options to certain employees under its 1994
incentive stock option plan. As of September 30, 2000, the remaining 151,759
unexercised options under this plan have expired and no further options can be
exercised 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 prices ranging from $2.75 to $3.03, based upon
the trading price on the date of the grant, in whole or in part within 10 years
from the date of grant. As of September 30, 2000, a total of 215,000 options are
outstanding under this plan.
<PAGE>
Pioneer Railcorp guaranteed certain long-term debt obligations of the Minnesota
Central Railroad Co. in connection with debt acquired as part of the initial
asset purchase by the Minnesota Central Railroad Co. in 1994. Pioneer Railcorp
remains as a guarantor on one note and could be required to repay the principal
and accrued interest on the note if it is defaulted upon. The principal balance
of the note as of December 31, 1999 was approximately $75,000.
In 1999, Pioneer Railcorp's Board of Directors authorized and approved the
repurchase of up to one million shares (1,000,000) of the Company's common stock
and as of September 30, 2000, a total of 77,240 shares had been repurchased at a
cost of $111,132. The Company plans to continue buying back its common stock but
believes the repurchase will be on a more limited scope then previously
anticipated due to capital requirements and the trading volume of the Company's
stock.
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 operating activities in the first nine months 2000 generated cash of
$641,000. Net cash generated from operating activities for the first nine months
2000 was generated primarily from $836,700 of net income, $1,437,000 of
depreciation and amortization, and a decrease of accounts receivable of
$428,000. Net cash was used by operating activities for the first nine months
2000 from a decrease in accounts payable of $1,589,000 a decrease in income tax
payable of $267,000 and a decrease in net cash of $162,700 by changes in various
other operating assets and liabilities.
In the first nine months 2000, the Company purchased approximately $3,514,000 of
fixed assets and capital improvements. Capital expenditures included $1.6
million for 22 locomotives. The Company plans to expand it's locomotive leasing
operations and update it's current fleet. In addition, the Company purchased 140
railcars for approximately $1,022,000. The capital expenditures for locomotives
and railcars were financed with long-term financing. Capital expenditures for
track and leasehold improvements totaled $130,000 in the first nine months 2000.
Fixed asset expenditures of approximately $198,000 relate to equipment purchases
and railcar betterments. In addition, the Company recorded $564,000 of track
assets purchased by the Indiana Southwestern Railway Co. as discussed further in
"Part 2, Item 5 other information"of this report.
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 third quarter
2000.
Item 5. OTHER INFORMATION
On April 6, 2000, Pioneer Railcorp's Board of Directors declared a $.025 per
common share dividend payable to shareholders of record as of April 30, 2000,
and was paid May 24, 2000. The total dividend paid out was approximately
$115,000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit # 11 - Statement regarding computation of per share earnings.
Exhibit # 27 - Financial data schedule.
No reports were filed on Form 8-K during the first nine months 2000.
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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)
11/07/00 /S/ Guy L. Brenkman
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DATE GUY L. BRENKMAN
PRESIDENT & CEO
11/07/00 /S/ J. Michael Carr
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DATE J. MICHAEL CARR
TREASURER & CHIEF FINANCIAL OFFICER