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 June 30, 2000
Commission File Number 33-6658-C
Pioneer Railcorp
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(Exact name of Registrant as specified in its charter)
Iowa 37-1191206
------------------------------- -------------------
(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 [ ]
4,535,377
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(Shares of Common Stock outstanding on June 30, 2000)
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended June 30, 2000 and 1999
UNAUDITED
<TABLE>
Three Months Three Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Operating revenue ................................. $ 3,850,570 $ 3,493,955 $ 7,456,292 $ 6,935,933
-------------------------- --------------------------
Operating expenses
Maintenance of way ............................. 432,487 383,052 793,621 719,237
Maintenance of equipment ....................... 351,501 387,481 684,460 758,332
Transportation expense ......................... 784,721 730,197 1,611,012 1,613,028
Administrative expense ......................... 960,223 954,244 1,832,484 1,772,456
Depreciation & amortization ................... 489,861 453,560 958,513 875,409
-------------------------- --------------------------
3,018,793 2,908,534 5,880,090 5,738,462
-------------------------- --------------------------
Operating income .................................. 831,777 585,421 1,576,202 1,197,471
-------------------------- --------------------------
Other income & expense
Other (income) expense ......................... (58,361) (63,162) (212,340) (198,286)
Loss on sale of subsidiary ..................... -0- 341,872 -0- 341,872
Interest expense, equipment .................... 207,059 162,403 401,383 327,309
Interest expense, other ........................ 194,619 187,162 377,732 371,285
Net (gain) loss on sale of fixed assets ........ 88,033 (335) 2,547 (2,215)
-------------------------- --------------------------
431,350 627,940 569,322 839,965
-------------------------- --------------------------
Income (loss) before income taxes ................. 400,427 (42,519) 1,006,880 357,506
Provision for income taxes ........................ 151,200 112,701 386,000 265,501
-------------------------- --------------------------
Income (loss) before minority interest in preferred
stock dividends of consolidated subsidiaries ... $ 249,227 ($ 155,220) $ 620,880 $ 92,005
Minority interest in preferred stock dividends of
consolidated subsidiaries ..................... $ 31,308 $ 31,308 $ 62,615 $ 62,615
-------------------------- --------------------------
Net income (loss) ................................. $ 217,919 ($ 186,528) $ 558,265 $ 29,390
========================== ==========================
Basic earnings per common share ................... $ 0.05 ($ 0.04) $ 0.12 $ 0.01
========================== =========================
Diluted earnings per common share ................. $ 0.05 ($ 0.04) $ 0.12 $ 0.01
========================== ==========================
Cash dividends per common share ................... $ 0.0250 $ 0.0225 $ 0.0250 $ 0.0225
========================== ==========================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
UNAUDITED
<TABLE>
June 30, December 31,
2000 1999
----------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash ............................................... $ 1,090,769 $ 2,356,844
Accounts receivable, less allowance
for doubtful accounts 2000 $147,460; 1999 $186,998 3,516,545 3,940,029
Inventories ........................................ 272,278 272,278
Prepaid expenses ................................... 157,030 91,377
Income tax refund claims ........................... 94,449 94,449
Deferred taxes ..................................... 91,800 91,800
----------------------------
Total current assets .......................... 5,222,871 6,846,777
----------------------------
Property and Equipment less accumulated
depreciation 2000 $8,089,104; 1999 $7,242,732 ....... 25,988,168 24,159,995
----------------------------
Intangible Assets, less accumulated amortization
2000 $263,248; 1999 $239,846 ........................ 1,098,113 1,122,489
----------------------------
Other Assets .......................................... 359,044 131,503
----------------------------
Total assets .......................................... $ 32,668,196 $ 32,260,764
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ................................... $ 2,322,286 $ 3,983,617
Notes payable ...................................... 0 810,000
Income taxes payable ............................... 190,246 561,697
Current maturities of long-term debt ............... 2,744,815 2,390,042
Accrued liabilities ................................ 646,481 670,873
----------------------------
Total current liabilities ..................... 5,903,828 8,416,229
----------------------------
Long-term debt, net of current maturities ............. 15,697,036 13,121,553
----------------------------
Deferred income taxes ................................. 4,505,100 4,505,100
----------------------------
Minority interest in subsidiaries ..................... 1,138,000 1,154,000
----------------------------
Stockholders' Equity
Common stock ....................................... 4,611 4,611
In Treasury 2000 75,840 shares; 1999 19,000 shares . (76) (19)
----------------------------
Outstanding 2000 4,535,377; 1999 4,592,217 ......... 4,535 4,592
Additional paid-in capital ......................... 2,042,042 2,042,042
Retained earnings .................................. 3,377,655 3,017,248
----------------------------
Total stockholders' equity .................... 5,424,232 5,063,882
----------------------------
Total liabilities and equity .......................... $ 32,668,196 $ 32,260,764
============================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FIRST SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30,1999
UNAUDITED
<TABLE>
First Six Months
--------------------------
2000 1999
--------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ................................................... $ 558,265 $ 29,390
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in preferred stock dividends of
consolidated subsidiaries ....................... 62,615 62,615
Depreciation ...................................... 934,105 839,620
Amortization ...................................... 24,527 35,789
Increase in cash value life insurance ............. (9,148) (8,258)
Loss (gain) on sale of property & equipment ....... 2,547 (2,215)
Loss on sale of subsidiary ........................ -0- 341,872
Change in assets and liabilities, net of effects from
acquisition of subsidiaries:
(Increase) decrease accounts receivable ........... 423,484 (258,152)
(Increase) decrease inventories ................... -0- 32,168
(Increase) decrease prepaid expenses .............. (65,654) 59,739
(Increase) decrease intangible assets ............. (600) (4,283)
Increase (decrease) accounts payable .............. (1,661,331) 126,963
(Increase) decrease income tax refund claims ...... -0- 23,661
Increase (decrease) income tax payable ............ (371,451) 210,954
Increase (decrease) accrued liabilities ........... (24,392) 99,411
--------------------------
Net cash provided by (used in) operating activities (127,033) 1,589,274
--------------------------
Cash Flows From Investing Activities:
Proceeds from sale of property & equipment ........ 130,257 10,925
Purchase of property & equipment, net of property
and equipment from acquisition of subsidiaries .... (2,894,654) (1,206,913)
Business acquisitions, net of cash acquired ....... (55,000) (3,875,000)
--------------------------
Net cash (used in) investing activities ........... (2,819,397) (5,070,988)
--------------------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings ............... 3,961,719 1,013,472
Proceeds from long-term borrowings ................ 5,504,773 7,273,650
Issuance from notes receivable .................... (170,500)
Payments on short-term borrowings ................. (4,771,719) (1,321,358)
Payments on long-term borrowings .................. (2,574,517) (3,390,059)
Payments on notes receivable ...................... 7,107
Repurchase of minority interest ................... (16,000) (13,000)
Purchase of common stock for treasury ............. (82,605) -0-
Proceeds from warrants and options exercised ...... -0- 40
Cash dividends paid ............................... (115,288) (103,742)
Payments to minority interest ..................... (62,615) (62,615)
--------------------------
Net cash provided by financing activities ......... 1,680,355 3,396,388
--------------------------
Net increase (decrease) in cash .............................. (1,266,075) (85,326)
Cash, beginning of period .................................... 2,356,844 469,476
--------------------------
Cash, end of period .......................................... $ 1,090,769 $ 384,150
==========================
</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.
<TABLE>
Second Quarter
------------------------
2000 1999
------------------------
<S> <C> <C>
Revenues from external customers
Railroad operations ...................................................................... 3,068,945 2,816,860
Equipment leasing operations ............................................................. 777,864 677,095
Corporate support services ............................................................... 3,761 0
------------------------
Total revenues from external customers ................................................ 3,850,570 3,493,955
========================
Intersegment revenues
Railroad operations ...................................................................... 0 0
Equipment leasing operations ............................................................. 99,600 98,400
Corporate support services ............................................................... 1,567,796 1,578,853
------------------------
Total intersegment revenues ........................................................... 1,667,396 1,677,253
========================
Segment profit
Railroad operations ...................................................................... 1,338,192 1,189,681
Equipment leasing operations ............................................................. 430,335 337,902
Corporate support services ............................................................... 730,646 735,091
------------------------
Total segment profit .................................................................. 2,499,173 2,262,674
Reconciling items
Intersegment revenues ................................................................... (1,667,396) (1,677,253)
Income taxes ............................................................................ (151,200) 111,300
Minority interest ....................................................................... (31,308) (31,308)
Other income(expense), net .............................................................. (431,350) (851,941)
------------------------
Total consolidated net income (loss) ................................................. 217,919 (186,528)
========================
</TABLE>
<PAGE>
<TABLE>
Six Months
Ended June 30,
------------------------
2000 1999
------------------------
<S> <C> <C>
Revenues from external customers
Railroad operations ...................................................................... 5,916,242 5,609,389
Equipment leasing operations ............................................................. 1,536,199 1,326,544
Corporate support services ............................................................... 3,851 0
------------------------
Total revenues from external customers ................................................ 7,456,292 6,935,933
========================
Intersegment revenues
Railroad operations ...................................................................... 0 0
Equipment leasing operations ............................................................. 194,700 202,500
Corporate support services ............................................................... 3,079,750 2,856,499
------------------------
Total intersegment revenues ........................................................... 3,274,450 3,058,999
========================
Segment profit
Railroad operations ...................................................................... 2,520,069 2,247,003
Equipment leasing operations ............................................................. 851,730 693,751
Corporate support services ............................................................... 1,478,853 1,315,716
------------------------
Total segment profit .................................................................. 4,850,652 4,256,470
Reconciling items
Intersegment revenues ................................................................... (3,274,450) (3,058,999)
Income taxes ............................................................................ (386,000) (41,500)
Minority interest ....................................................................... (62,615) (62,615)
Other income(expense), net .............................................................. (569,322) (1,063,966)
------------------------
Total consolidated net income ........................................................ 558,265 29,390
========================
</TABLE>
<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
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 six months ended
June 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 $7,490,717 $7,039,629
Net income 555,748 18,007
Earnings per common share .12 .00
<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: Second Quarter 2000 Compared to Second Quarter 1999.
The Company's net income in the second quarter 2000 was $218,000 an increase of
$405,000 from the second quarter 1999 which had a net loss of $187,000. In the
second quarter 1999, net income was affected by a one-time charge relating to
the sale of the Minnesota Central Railroad Co. stock in the amount of $342,000.
Therefore, excluding the MCTA sale transaction, net income for the second
quarter 1999 would have been approximately $155,000. Revenue increased by
$357,000 or 10% to $3,851,000 from $3,494,000 in the same period last year.
Operating expense increased by $110,000 or 3%, to $3,019,000 from $2,909,000 in
the same period last year. Operating income increased by $247,000, or 42% to
$832,000 from $585,000 in the same period last year. Operating income was
increased in the second quarter 2000 by the Company's railroad operations which
increased operating income by approximately $149,000 in the period. The
equipment leasing operations increased operating income by approximately $92,000
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 increased operating income by
approximately $6,000 in the period.
Revenue:
Revenue increased in the second quarter 2000 by approximately $357,000, or 10%,
to $3,851,000 from $3,494,000 in the same period last year. The railroad
operations increased revenue by approximately $253,000 in the period which
resulted from an increase in revenues of approximately $335,000 generated by the
railroads operated in the second quarter 2000 less a decrease in revenue of
approximately $82,000 as a result of the sale of the Minnesota Central Railroad
on May 6, 1999. The increased revenue of $335,000 generated from the railroads
operated in the second quarter 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 $71,000 of 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 $102,000 of revenue in
the second quarter 2000. The equipment leasing operations had a $101,000
increase in revenue in the period resulting from increased revenue generated
from locomotive leases.
<PAGE>
Operating Expense:
Operating expense increased in the second quarter 2000 by $110,000 or 3%, to
$3,019,000 from $2,909,000 in the prior year. The railroad operations increased
operating expense by approximately $105,000 in the period which resulted from an
increase in operating expense of approximately $202,000 from the railroads
operated in the second quarter 2000 less a decrease in operating expense of
approximately $97,000 as a result of the sale of the Minnesota Central Railroad
on May 6, 1999. The increase in operating expense of $202,000 from the railroads
operated in the second quarter 2000 resulted from a variety of factors including
increased track maintenance, fuel and other transportation expenses. The
increase in operating expense includes $34,000 of operating expense for The
Garden City Western Railway, which the Company began operating on May 1, 1999
and $73,000 of operating expense for the Indiana Southwestern which the Company
began operating on April 1, 2000. The equipment leasing operations increased
operating expense approximately $9,000, primarily from an increase in
depreciation expense related to the acquisition of railcars and locomotives of
$46,000 offset by a decrease in maintenance and freight expenses of
approximately $37,000. Corporate support services decreased operating expense
approximately $6,000.
Maintenance of way and structures expense (MOW) increased $49,000 or 13% to
$432,000 from $383,000 in the same period last year. Railroads operated in the
second quarter 2000 had an increase of $60,000 in MOW, primarily related to
increased track material by the railroad operations, $13,000 of MOW expense for
The Garden City Western Railway and $5,000 of MOW expense for the Indiana
Southwestern Railway. In addition, MOW was decreased by $12,000 as a result of
the sale of the MCTA.
Maintenance of equipment expense (MOE) decreased $35,000, or 9% to $352,000 from
$387,000 in the same period last year. Approximately $20,000 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 second quarter 2000 had a decrease of $7,000 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 $5,000 as a result of
the sale of the MCTA.
Transportation expense (TRAN) increased $55,000, or 8% to $785,000 from $730,000
in the same period last year. Most of the increased TRAN expense was generated
by the railroad operations. Railroads operated in the second quarter 2000 had an
increase of $129,000 in TRAN, primarily related to increased fuel and carhire
expenses, $11,000 of TRAN expense for The Garden City Western Railway and
$30,000 of TRAN expense for the Indiana Southwestern Railway. In addition, TRAN
was decreased by $59,000 as a result of the sale of the MCTA.
General & administration expense (ADMIN) increased $6,000 in the second quarter
2000 to $960,000 from $954,000 in the prior year. Railroads operated in the
second quarter 2000 had an increase of $17,000 in ADMIN expense in the period
including $21,000 ADMIN expense for the Indiana Southwestern Railway. In
addition, ADMIN was decreased by $9,000 as a result of the sale of the MCTA. The
equipment leasing operations decreased ADMIN approximately $25,000 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 $23,000 in the period.
Depreciation and amortization expense increased $36,000, or 8%, to $490,000 from
$454,000 in the same period last year. Approximately $11,000 of the increase is
related to The Garden City & Western Railway and $7,000 of the increase is
related to the Indiana Southwestern Railway. In addition, depreciation and
amortization was decreased by $11,000 as a result of the sale of the MCTA. The
equipment leasing operations increased depreciation expense approximately
$46,000 related to the acquisition of railcars and locomotives.
Other Income and Expense Income Statement Line Item Discussion:
In the second quarter 2000 other income and expense decreased $5,000 to $58,000
compared to $63,000 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 $45,000 in the second
quarter 2000 to $207,000 compared to $162,000 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 increased $8,000 in the second
quarter 2000 to $195,000 from $187,000 in the prior year. Other interest expense
increases relate to the Garden City & Western Railway acquisition and the
Indiana Southwestern Railway acquisition.
<PAGE>
In the second quarter 2000 the Company had a net loss on fixed asset
dispositions of approximately $88,000 compared to an insignificant net gain in
the same period last year. The net loss in the second quarter 2000 primarily
relates to the disposition of railcars.
Summary: First Six Months 2000 Compared to First Six Months 1999.
The Company's net income in the first six months 2000 was $558,000 an increase
of $529,000 from the first six months 1999 which had net income of $29,000. In
the first six months 1999, net income was affected by a one-time charge relating
to the sale of the Minnesota Central Railroad Co. stock in the amount of
$342,000. Therefore, excluding the MCTA sale transaction, net income for the
first six months 1999 would have been approximately $371,000. Revenue increased
by $520,000 or 7.5% to $7,456,000 from $6,936,000 in the same period last year.
Operating expense increased by $142,000 or 2%, to $5,880,000 from $5,738,000 in
the same period last year. Operating income increased by $379,000, or 32% to
$1,576,000 from $1,197,000 in the same period last year.
Operating income was increased in the first six months 2000 by the Company's
railroad operations which increased operating income by approximately $273,000
in the period. The equipment leasing operations increased operating income by
approximately $167,000 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 $61,000 in the period.
Revenue:
Revenue increased in the first six months 2000 by approximately $520,000, or
7.5%, to $7,456,000 from $6,936,000 in the same period last year. The railroad
operations increased revenue by approximately $308,000 in the period which
resulted from an increase in revenues of approximately $681,000 generated by the
railroads operated in the first six 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 $681,000 generated from the railroads
operated in the first six 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 $219,000 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 $102,000 of revenue in
the first six months 2000. The equipment leasing operations had a $234,000
increase in revenue in the period resulting primarily from increased revenue
generated from locomotive leases.
Operating Expense:
Operating expense increased in the first six months 2000 by $142,000 or 2%, to
$5,880,000 from $5,738,000 in the prior year. The railroad operations increased
operating expense by approximately $35,000 in the period which resulted from an
increase in operating expense of approximately $426,000 from the railroads
operated in the first six 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 $426,000 from the railroads
operated in the first six months 2000 resulted from a variety of factors
including increased track maintenance, fuel and other transportation expenses.
The increase in operating expense includes $129,000 of operating expense for The
Garden City Western Railway, which the Company began operating on May 1, 1999
and $73,000 of operating expense for the Indiana Southwestern which the Company
began operating on April 1, 2000. The equipment leasing operations increased
operating expense approximately $43,000, primarily from an increase in
depreciation expense related to the acquisition of railcars and locomotives of
$87,000 offset by a decrease in maintenance and freight expenses of
approximately $44,000. Corporate support services increased operating expense
approximately $64,000, primarily related to payroll related expenditures.
Maintenance of way and structures expense (MOW) increased $75,000 or 10% to
$794,000 from $719,000 in the same period last year. Railroads operated in the
first six months 2000 had an increase of $119,000 in MOW, primarily related to
increased track material by the railroad operations, $35,000 of MOW expense for
The Garden City Western Railway and $5,000 of MOW expense for the Indiana
Southwestern Railway. In addition, MOW was decreased by $51,000 as a result of
the sale of the MCTA.
Maintenance of equipment expense (MOE) decreased $74,000, or 10% to $684,000
from $758,000 in the same period last year. Approximately $30,000 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 six months 2000 had a decrease of $18,000 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.
<PAGE>
Transportation expense (TRAN) decreased slightly, approximately $2,000, to
$1,611,000 from $1,613,000 in the same period last year. Railroads operated in
the first six months 2000 had an increase of $251,000 in TRAN, primarily related
to increased fuel and carhire expenses, $36,000 of TRAN expense for The Garden
City Western Railway and $30,000 of TRAN expense for the Indiana Southwestern
Railway. In addition, TRAN was decreased by $244,000 as a result of the sale of
the MCTA.
General & administration expense (ADMIN) increased $60,000 in the first six
months 2000 to $1,832,000 from $1,772,000 in the prior year. Railroads operated
in the first six months 2000 had an increase of $34,000 in ADMIN expense in the
period including a $20,000 ADMIN expense for The Garden City Western Railway and
a $21,000 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 $26,000 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 $75,000 in the period.
Depreciation and amortization expense increased $84,000, or 10%, to $959,000
from $875,000 in the same period last year. Approximately $39,000 of the
increase is related to The Garden City & Western Railway and $7,000 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 $87,000 related to the acquisition of railcars and locomotives.
Other Income and Expense Income Statement Line Item Discussion:
In the first six months 2000 other income and expense increased $14,000 to
$212,000 compared to $198,000 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 $74,000 in the first
six months 2000 to $401,000 compared to $327,000 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 six months 2000. Other interest expense increased $7,000 in the first
six months 2000 to $378,000 from $371,000 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 six months 2000 the Company had a net loss on fixed asset
dispositions of approximately $3,000 compared to a net gain of $2,000 in the
same period last year. The net loss in the first six months 2000 primarily
relates to the disposition of railcars at a loss of $90,000 and the sale of a
locomotive at a gain of $87,000.
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.
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 second 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.
<PAGE>
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 June 30, 2000 was 8.9%. The monthly principal and
interest payment currently required to be repaid is $18,000.
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
June 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 June 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 June 30, 2000, a total of 215,000 options are
outstanding under this plan.
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 (1,000,0000) of the Company's common
stock and as of June 30, 2000, a total of 75,840 shares had been repurchased at
a cost of $109,083. 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 six months 2000 resulted in a net
use of cash of $345,000. Net cash used in operating activities for the first six
months 2000 resulted from $558,000 of net income, $959,000 of depreciation and
amortization, a decrease in accounts payable of $1,661,000, a decrease of
accounts receivable of $423,000 a decrease in income tax payable of $371,000 and
a decrease in net cash of $253,000 by changes in various other operating assets
and liabilities.
In the first six months 2000, the Company purchased approximately $2,900,000 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. The locomotives were initially
financed with a short term note with National City Bank and converted to a long
term note on June 23, 2000. In addition, the Company purchased 100 railcars for
approximately $826,000. This transaction was initially paid by cash and
refinanced with a long term note on May 31, 2000. Capital expenditures for track
and leasehold improvements totaled $105,000 in the first six months 2000. Fixed
asset expenditures of approximately $125,000 relate to equipment purchases and
railcar betterments. In addition, the Company recorded $584,000 of track assets
purchased by the Indiana Southwestern Railway Co. as discussed further in "Part
2, Item 5 other information"of this report.
<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
The Annual Meeting of the Shareholders was held on June 20, 2000 at the
Company's headquarters in Peoria, Illinois. All five seats on the Board of
Directors were up for election at this meeting. Directors Guy L. Brenkman, J.
Michael Carr, Orvel L. Cox, Timothy F. Shea, and John S. Fulton were re-elected
for a one year term.
In addition to the election of the Board of Directors, shareholders ratified the
appointment of McGladrey & Pullen, LLP, Certified Public Accountants, as the
Company's independent public accountants for the coming year.
The vote totals for the matters voted upon at the Annual Meeting were as
follows:
Votes
Proposal Votes For Votes Against Abstained
--------------------------------------------------------------------------------
Nomination of Guy L. Brenkman
to the Board of Directors 3,555,676 204,760 40,666
Nomination of Orvel L. Cox
to the Board of Directors 3,559,236 122,670 40,666
Nomination of Timothy F.Shea
to the Board of Directors 3,512,036 225,850 40,666
Nomination of John S. Fulton
to the Board of Directors 3,556,236 183,150 40,666
Nomination of J. Michael Carr
to the Board of Directors 3,515,236 167,070 40,666
Ratification of McGladrey & Pullen, LLP
as Independent Auditor 3,575,222 139,400 7,050
Item 5. OTHER INFORMATION
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) and
began operations immediately. The total purchase price was $564,000 for track
assets and $55,000 for approximately 15 % of EVT common and preferred stock and
was funded with the Company's acquisition line of credit. Included in the amount
funded by the line of credit is $320,000 to pay off the debt of 4 locomotives
that were traded as part of the purchase agreement, and $238,000 to purchase
promissory notes and mortgages related to the assets purchased. The line begins
in Evansville, Indiana and is 23 miles in length. The primary commodities are
grain, plastics and rail equipment. The Company projects the ISW will initially
generate annual revenues of $300,000 and $50,000 of operating income.
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 $115,000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit # 11 - Statement re computation of per share earnings.
Exhibit # 20.1 Notice of Annual Meeting and Proxy Statement used to solicit
votes for the Annual Meeting of Shareholders, held June 20, 2000.
Exhibit # 20.2 Form of Ballot used at the Annual Meeting on June 20, 2000.
Exhibit # 20.3 Annual Report for 1999 sent to shareholders with the Notice of
Annual Meeting and Proxy Statement. Exhibit # 27 - Financial data schedule.
No reports were filed on Form 8-K during the first six months 2000.
<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)
8/04/00 /s/ Guy L. Brenkman
------- -----------------------------------
DATE GUY L. BRENKMAN
PRESIDENT & CEO
8/04/00 /s/ J. Michael Carr
------- -----------------------------------
DATE J. MICHAEL CARR
TREASURER & CHIEF FINANCIAL OFFICER
