UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-16704
PROVIDENCE AND WORCESTER RAILROAD COMPANY
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(Exact name of registrant as specified in its charter)
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Rhode Island 05-0344399
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(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
75 Hammond Street, Worcester, Massachusetts 01610
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code(508) 755-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.50 par value
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(Title of Class)
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
As of March 1, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $27,589,295. (For this purpose, all
directors of the Registrant are considered affiliates.)
As of March 1, 2002, the Registrant had 4,411,576 shares of Common Stock
outstanding.
Documents Incorporated by Reference -
- -------------------------------------
None
Exhibit Index - Page IV-1.
PART I
Item 1. Business
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Providence and Worcester Railroad Company ("P&W") is a regional freight
railroad operating in Massachusetts, Rhode Island, Connecticut and New York. The
Company is the only interstate freight carrier serving the State of Rhode Island
and possesses the exclusive and perpetual right to conduct freight operations
over the Northeast Corridor between New Haven, Connecticut and the
Massachusetts/Rhode Island border. Since commencing independent operations in
1973, the Company, through a series of acquisitions of connecting lines, has
grown from 45 miles of track to its current system of approximately 545 miles.
P&W operates the largest double stack intermodal terminal facilities in New
England in Worcester, Massachusetts, a strategic location for regional
transportation and distribution enterprises.
The Company transports a wide variety of commodities for its customers,
including construction aggregate, iron and steel products, chemicals, lumber,
scrap metals, plastic resins, cement, coal, processed foods and edible food
stuffs, such as frozen foods, corn syrup and animal and vegetable oils. Its
customers include The Dow Chemical Company, Exxon-Mobil Corporation, Frito-Lay,
Inc., General Dynamics Corporation, Getty Petroleum Marketing Inc.,
International Paper Company, Smurfit-Stone Container Corporation and Tilcon
Connecticut, Inc. In 2001, P&W transported approximately 30,000 carloads of
freight and 69,000 intermodal containers. The Company also generates income
through sales of properties, grants of easements and licenses and leases of land
and tracks.
P&W's connections to multiple Class I railroads, either directly or through
connections with regional and short-line carriers, provide the Company with a
competitive advantage by allowing it to offer creative pricing and routing
alternatives to its customers. In addition, the Company's commitment to
maintaining its track and equipment to high standards enables P&W to provide
fast, reliable and efficient service.
Industry Overview
General
Railroads are divided into three classes based on operating revenues: Class
I, $261.9 million or more; Class II, $21.0 million to $261.9 million; and Class
III, less than $21.0 million. As a result of mergers and consolidations, there
are now only seven Class I railroads in the country. These large systems handle
91% of the nation's rail freight business.
The rail freight industry underwent a revitalization after the passage of
the Staggers Rail Act, which deregulated the pricing and types of services
provided by railroads. As a result, railroads were able to achieve significant
productivity gains and operating cost decreases while gaining pricing
flexibility. Rail freight service became more competitive with other
transportation modes with respect to both quality and price. The volume of
freight moved by rail has risen dramatically since 1980 and profitability has
improved significantly.
One result of the revitalization of the industry has been the growth of
regional (over 350 miles) and short-line railroads, which has been fueled by a
trend among Class I railroads to divest certain branch lines in order to focus
on their long-haul core systems. There are now more than 500 of these regional
and short-line railroads. They operate in all 50 states, account for nearly 30%
of all rail track, employ 12% of all rail workers and generate about 9% of all
rail revenue.
Generally, freight railroads handle two types of traffic: conventional
carloads and intermodal containers used in the shipment of goods via more than
one mode of transportation, e.g., by ship, rail and truck. By using a
hub-and-spoke approach to shipping, multiple containers can be moved by rail to
and from an intermodal terminal and then either delivered to their final
destinations by truck or transferred to ship for export. Over the past decade,
commodity shippers have increasingly turned to intermodal transportation
principally as an alternative to long-haul trucking. The development of new
intermodal technology, which allows containers to be moved by rail double
stacked (i.e., stacked one on top of the other) in specially designed railcars,
together with increasing highway traffic congestion and the shortage of
long-haul truck drivers have contributed to this trend.
Break Up of Conrail
Pursuant to the approval of the United States Surface Transportation Board
("STB"), CSX Corporation ("CSX") and Norfolk Southern Railroad ("Norfolk
Southern") jointly acquired Consolidated Rail Corporation ("Conrail") and split
its assets between them on June 1, 1999. CSX acquired and now operates Conrail's
New England facilities.
I-1
The acquisition of Conrail and the division of its assets between CSX and
Norfolk Southern resulted in service related delays and the temporary diversion
of some conventional carloads of freight to trucks during the third and fourth
quarters of 1999. Service, however, did improve during the fourth quarter of
1999 and largely returned to normal thereafter.
The New York City and Long Island metropolitan area is one of the country's
largest markets for the consumption of products and freight transportation
services. In August 1997, the Company entered into an agreement with CSX that
enables the Company to market rail service between its system and New York City.
Moreover, in rendering its decision authorizing CSX's and Norfolk Southern's
acquisition of Conrail, the STB required CSX to discuss with the Company the
possibility of additional rail service between New Haven, CT and Fresh Pond
Junction (Queens), NY as a step to provide competitive rail service to and from
New York City. Although the STB has declined to compel formal discussions
between CSX and the Company, it continues to encourage the Company and CSX to
develop mutually beneficial business on this route. The Company continues to
aggressively pursue such opportunities.
Regional Developments
There are a number of development projects underway in New England to
increase port capacity along the extensive coastline and to improve the
intermodal transportation and distribution infrastructure in the region. These
projects present significant opportunities for the Company to increase its
business.
Quonset/Davisville
The State of Rhode Island has proposed the redevelopment of a 1,000 acre
portion of the former Naval facility at Quonset/Davisville to a more active port
and industrial park. This facility already houses a number of rail oriented
industries and an auto port. Construction of a freight rail improvement project
to provide additional track capacity and double stack clearance on the Northeast
Corridor between Quonset/Davisville and the connection of the Corridor to the
Company's main line at Central Falls, R.I is expected to commence in 2002 at a
cost in excess of $120 million.
Massachusetts Highway Improvement Program
Work has begun on a significant expansion of the Company's bulk transload
and intermodal yards in Worcester in conjunction with the Massachusetts Highway
Department's $250 million project creating a direct Worcester connection to the
Massachusetts Turnpike. This project will result in a near doubling of the
Company's transload facilities over the next year.
Port of New Haven
The State of Connecticut is in the process of rebuilding the Tomlinson
Bridge in New Haven, completion of which is scheduled for late 2002 and which
will provide rail access to the Port of New Haven. In conjunction with this
project, the Company is working with the City of New Haven and area users of the
rail systems to fund a design for the restoration of local street rail service
directly to port properties. Completion of this project will provide the Company
with improved access to customers at the Port of New Haven.
Middletown/Hartford Line
In cooperation with the state of Connecticut, the Company is engaged in the
restoration of the rail line extending from Middletown to Hartford, Connecticut.
In April 2000, the state of Connecticut appropriated $1.85 million to fund their
portion of the project (approx 70%). The restoration of this 11 mile segment is
now virtually complete and should be ready for service by the summer of 2002.
With a planned industrial park along this line and a new connection to other
carriers in Hartford, the Company believes restoration of this line presents
opportunities for revenue growth.
New London Interchange
Through its New London interchange with the New England Central Railroad
("NECR") P&W has been able to develop significant new business with the Canadian
National Railway ("CN"). The merger of CN with the Illinois Central Railroad
provided competive access to the chemical and plastics producing Texas and
Louisiana Gulf regions. P&W has worked aggressively to leverage its extensive
bulk transload facilities in developing additional chemical and plastics traffic
with CN. Additionally, P&W has developed a significant volume of steel traffic
with CN that had previously moved via truck.
I-2
Railroad Operations
The Company's rail freight system extends over approximately 545 miles of
track. The Company interchanges freight traffic with CSX at Worcester,
Massachusetts and at New Haven, Connecticut; with the Springfield Terminal
Railway Company (formerly Boston and Maine Railroad) at Gardner, Massachusetts;
with the New England Central Railroad (formerly Central Vermont Railway) at New
London, Connecticut; and with the New York and Atlantic Railroad (formerly Long
Island Railroad) at Fresh Pond Junction on Long Island. Through its connections,
P&W links more than 80 communities on its lines. It operates four classification
yards (areas containing tracks used to group freight cars destined for a
particular industry or interchange), located in Worcester, Massachusetts,
Cumberland, Rhode Island and Plainfield and New Haven, Connecticut.
By agreement with a private operator, the Company operates two approved
customs intermodal yards in Worcester. A customs intermodal yard is an area
containing tracks used for the loading and unloading of containers. These yards
are U.S. Customs bonded, and international traffic must be inspected and
approved by U.S. Customs officials. The intermodal facility serves primarily as
a terminal for movement of container traffic from the Far East destined for
points in New England. Several major container ship lines utilize double stack
train service through this terminal. P&W works closely with the terminal
operator to develop and maintain strong relationships with steamship lines
involved in international intermodal transportation.
Customers
The Company serves approximately 160 customers in Massachusetts, Rhode
Island, Connecticut and New York. The Company's 10 largest customers account for
nearly half of its operating revenues. In 2001, Tilcon Connecticut, Inc., which
ships construction aggregate from three separate quarries on P&W's system to
asphalt production plants in Connecticut and New York, accounted for
approximately 14.6% of the Company's operating revenues. No other customer
accounted for 10% or more of its total operating revenues in 2000.
Markets
The Company transports a wide variety of commodities for its customers. In
2001, chemicals and plastics and construction aggregate were the two largest
commodity groups transported by the Company, constituting 34% and 19%,
respectively, of conventional carload freight revenues. The following table
summarizes the Company's conventional carload freight revenues by commodity
group as a percentage of such revenues:
Commodity 2001 2000 1999 1998 1997
- --------- ---- ---- ---- ---- ----
Chemicals and Plastics ............ 34% 38% 41% 41% 42%
Construction Aggregate ............ 19 17 17 17 20
Forest and Paper Products ......... 16 16 14 14 13
Food and Agricultural ............. 13 13 14 15 15
Metal products and other .......... 12 10 8 7 5
Scrap Metal and Waste ............. 6 6 6 6 5
--- --- --- --- ---
Total .......................... 100% 100% 100% 100% 100%
=== === === === ===
Sales and Marketing
P&W's sales and marketing staff of four people has nearly 50 years of
combined experience in pricing and marketing railroad services. The sales and
marketing staff focuses on understanding and addressing the raw material
requirements and transportation needs of its existing customers and businesses
on its lines. The staff grows existing business by maintaining close working
relationships with both customers and connecting carriers. The sales and
marketing staff strives to generate new business for the Company through (i)
targeting companies already on P&W's rail lines but not currently using rail
services, (ii) working with state and local development officials, developers
and real estate brokers to encourage the development of industry on the
Company's rail lines and (iii) identifying and targeting the non-rail
transportation of goods into and out of the region in which the Company
operates. Unlike many other regional and short-line railroads, the Company is
able to offer its customers creative pricing and routing alternatives because of
its multiple connections to other carriers.
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Safety
An important component of the Company's operating strategy is conducting
safe railroad operations for the benefit and protection of employees, customers
and the communities served by its rail lines. Since commencing active operations
in 1973, the Company has committed significant resources to track maintenance to
minimize the risk of derailments and believes its rail system is in good
condition.
Safety of the Company's operations is of paramount importance for the
benefit and protection of the Company's employees, customers and the communities
served by its rail lines. The Company and its employees have made dramatic
improvements in preventing injuries while at the same time increasing operations
and expanding the work force.
Rail Traffic
Rail traffic is classified as on-line or overhead traffic. On-line traffic
is traffic that originates or terminates with shippers located on a railroad.
Overhead traffic passes from one connecting carrier to another and neither
originates nor terminates with shippers located on a railroad. Presently, P&W is
solely an on-line carrier but expects to provide overhead service in the future
for certain rail traffic to and from Long Island.
Rail freight rates can be in various forms. Generally, customers are given
a "through" rate, a single figure encompassing the rail transportation of a
commodity from point of origin to point of destination, regardless of the number
of carriers which handle the car. Rates are developed by the carriers based on
the commodity, volume, distance and competitive market considerations. The
entire freight bill is paid either to the originating carrier ("prepaid") or to
the destination carrier ("collect") and divided between all carriers which
handle the move. The basis for the division varies and can be based on factors
(or revenue requirements) independently established by each carrier which
comprise the through rate, or on a percentage basis established by division
agreements among the carriers. A carrier such as P&W, which actually places the
car at the customer's location and attends to the customer's daily switching
requirements, receives revenue greater than an amount based simply on mileage
hauled.
Employees
As of January 1, 2002, the Company had 152 full-time employees, 116 of
which were represented by three national railroad labor organizations. The
Company's employees have been represented by unions since the Company commenced
independent operations in 1973.
The Company's initial agreement with the United Transportation Union
covering the trainmen was unusual in the railroad industry since it provided the
Company with discretion in determining crew sizes, eliminated craft distinctions
and provided a guaranteed annual wage for a maximum number of hours worked. The
Company's collective bargaining agreements have been in effect since February
1973 for trainmen, since May 1974 for clerical employees and dispatchers and
since June 1974 for maintenance employees. These contracts do not expire but are
subject to re-negotiation after the agreed-upon moratoriums. The moratorium
periods are typically three to five years in length. The labor agreements may
next be amended at July 1, 2004 for the United Transportation Union (trainmen),
July 1, 2006 for the Brotherhood of Railroad Signalmen (maintenance) and
December 31, 2005 for the Transportation Communications Union (clerical). The
Company considers its employee and labor relations to be good.
Competition
The Company is the only rail carrier serving businesses located on-line.
However, the Company competes with other carriers in the location of new
rail-oriented businesses in the region. The Company also competes with other
modes of transportation, particularly long-haul trucking companies, for the
transportation of commodities. Any improvement in the cost or quality of these
alternate modes of transportation, for example, legislation granting material
increases in truck size or allowable weight, could increase competition and may
materially adversely affect the Company's business and results of operations. As
a means of competing, P&W strives to offer greater convenience and better
service than competing carriers and at costs lower than some competing non-rail
carriers. The Company also competes by participating in efforts to attract new
industry to the areas which it serves.
Certain rail competitors, including CSX and Norfolk Southern, are larger or
better capitalized than the Company. While P&W believes the acquisition and
division of Conrail will lead to expansion opportunities, the Conrail
I-4
transaction may lead to increased competition with other freight railroads,
particularly in Massachusetts, and efforts by CSX and Norfolk Southern to reduce
revenue to connecting regional and short-line carriers.
The Company believes that its ability to grow depends, in part, upon its
ability to acquire additional connecting rail lines. In making acquisitions, P&W
competes with other short-line and regional rail operators, some of which are
larger and have greater financial resources than the Company.
Governmental Regulation
The Company is subject to governmental regulation by the United States
Surface Transportation Board ("the STB"), the Federal Railroad Administration
("the FRA") and other federal, state and local regulatory authorities with
respect to certain rates and railroad operations, as well as a variety of
health, safety, labor, environmental and other matters, all of which could
potentially affect the competitive position and profitability of the Company.
Additionally, the Company is subject to STB regulation and may be required to
obtain STB approval prior to its acquisition of any new railroad properties.
Management of the Company believes that the regulatory freedoms granted by the
Staggers Rail Act have been beneficial to the Company by giving it flexibility
to adjust prices and operations to respond to market forces and industry
changes. However, various interests, and certain members of the United States
House of Representatives and Senate (which have jurisdiction over federal
regulation of railroads), have from time to time expressed their intention to
support legislation that would eliminate or reduce significant freedoms granted
by the Staggers Rail Act.
Environmental Matters
The Company's railroad operations and real estate ownership are subject to
extensive federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters and
the handling, storage, transportation and disposal of waste and other materials.
The Company handles, stores, transports and disposes of petroleum and other
hazardous substances and wastes. The Company also transports hazardous
substances for third parties and arranges for the disposal of hazardous wastes
generated by the Company. The Company believes that it is in material compliance
with applicable environmental laws and regulations.
Item 2. Properties
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Track
P&W's rail system extends over approximately 545 miles of track, of which
it owns approximately 170 miles. The Company has the right to use the remaining
375 miles pursuant to perpetual easements and long-term trackage rights
agreements. Under certain of these agreements, the Company pays fees based on
usage.
Virtually all of the main lines on which the Company operates are in FRA
class 3 condition (allowing 40 m.p.h. speeds) or better. The Company intends to
maintain these lines in such excellent condition.
Of the approximately 545 miles of the Company's system, 313 miles, or 57%,
are located in Connecticut, 103 miles, or 19%, are located in Massachusetts, 102
miles, or 19%, are located in Rhode Island and 28 miles, or 5%, are located in
New York.
Rail Facilities
P&W owns land and a building with approximately 69,500 square feet of floor
space in Worcester, Massachusetts. The building houses the Company's executive
and administrative offices and some of the Company's storage space.
Approximately 2,600 square feet are leased to outside tenants.
The Company owns and operates three principal classification yards located
in Worcester, Massachusetts, Cumberland, Rhode Island and Plainfield,
Connecticut and also operates a classification yard in New Haven, Connecticut.
In addition, the Company has maintenance facilities in Plainfield and Worcester.
The Company has completed an expansion of its primary locomotive and rail car
maintenance and repair facility in Worcester, MA. This approximately $1.8
million expansion has increased capacity and productivity and has enabled the
Company to accept contract work for other railroads and customers. In addition,
the Company has upgraded its Plainfield, CT equipment maintenance facility to
include a modern paint shop. P&W believes that its executive and administrative
office facilities, classification yards and maintenance facilities are adequate
to support its current level of operations.
I-5
Other Properties
The Company owns or has the right to use a total of approximately 130 acres
of real estate located along the principal railroad lines from downtown
Providence through Pawtucket, Rhode Island. Of this amount, P&W owns
approximately eight acres in Pawtucket and has a perpetual easement for railroad
purposes over the remaining 122 acres.
The Company has invested nearly $12 million in the development of the South
Quay, which is adjacent to 12 acres of land owned by the Company. This
investment has resulted in the creation of approximately 33 acres of waterfront
land.
P&W actively manages its real estate assets in order to maximize revenues.
The income from property management is derived from sales and leasing of
properties and tracks and grants of easements to government agencies, utility
companies and other parties for the installation of overhead or underground
cables, pipelines and transmission wires as well as recreational uses such as
bike paths.
Rolling Stock
The following schedule sets forth the rolling stock owned by the Company as
of December 31, 2001:
Description Number
----------- ------
Locomotive .................................................. 32
Gondola ..................................................... 77
Flat Car .................................................... 4
Ballast Car ................................................. 30
Passenger Equipment ......................................... 6
Caboose 1
------
Total .................................................. 150
======
The 32 diesel electric locomotives are used on a daily basis, are
maintained to a high standard, comply with all FRA and Association of American
Railroads rules and regulations and are adequate for the needs of the Company's
freight operations. The gondolas and flat cars are considered modern rail cars
and are used by certain P&W customers. Other rail freight customers use their
own freight cars or obtain such equipment from other sources. The ballast cars
are used in track maintenance. From time to time, the Company has leased ballast
cars to other adjoining railroads. The passenger equipment and caboose are not
utilized in P&W's rail freight operations but are used on an occasional basis
for Company functions, excursions and charter trips.
Equipment
P&W has a state-of-the-art digital touch control dispatching system at its
Worcester operations center permitting two-way radio contact with every train
crew and maintenance vehicle on its lines. The system also enables each train
crew to maintain radio contact with other crew members. The Company maintains a
computer facility in Worcester with back-up computer facilities in Worcester and
Plainfield, Connecticut to assure the Company's ability to operate in the event
of disruption of service in Worcester. The Company also has state-of-the-art
automatic train defect detectors at strategic locations which inspect passing
trains and audibly communicate the results to train crews and dispatchers in
order to protect against equipment failure en route.
The Company maintains a modern fleet of track maintenance equipment and
aggressively pursues available opportunities to work with federal and state
agencies for the rehabilitation of bridges, grade crossings and track. The
Company's locomotives are equipped with the cab signal technology necessary for
operations on the Northeast Corridor and are equipped with automatic civil speed
enforcement systems which were required by the introduction of high speed
passenger service on the Northeast Corridor.
Item 3. Legal Proceedings
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The Company is party to an arbitration proceeding with the National
Railroad Passenger Corporation ("Amtrak") concerning Amtrak's claim for rate
increases with respect to the Company's freight operations over a portion of
Amtrak's Northeast Corridor in the states of Rhode Island and Connecticut. On
July 31, 2001 Amtrak filed its brief in the arbitration in which Amtrak claims
I-6
that it is entitled to approximately $2.4 million under its contract with the
Company, of which $1.7 million relates to the period from July 1994 through June
1999. The Company believes that, pursuant to its contract with Amtrak, Amtrak's
claim for the period ended June 1999 is without merit. As to Amtrak's claim for
the period from July 1999 to date, totaling $724,000 the Company believes that
Amtrak's allocated expenses are overstated and that Amtrak's entitlement, if
any, to increased mileage charges would be significantly less than the amount
claimed. In addition, the Company has asserted that any new rate arrived at as a
result of the arbitration should take effect prospectively from the date of the
arbitrator's decision. The Company filed its brief on November 28, 2001.
Discovery has ended, and a hearing before the arbitrator is scheduled for March
27, 2002, with a decision to follow sometime thereafter. Given the extent of the
differences in the positions of the parties, the Company cannot predict the
amount, if any, of any liability to Amtrak which may result from this
arbitration.
On January 29, 2002, the Company received a "Notice of Potential Liability"
from the United States Environmental Protection Agency ("EPA") regarding an
existing Superfund Site that includes the J.M. Mills Landfill in Cumberland,
Rhode Island. EPA sends these "Notice" letters to potentially responsible
parties ("PRPs") under the Comprehensive Environmental Response, Compensation,
and Liability Act. EPA identified the Company as a PRP based on its status as an
owner and/or operator because its railroad property traverses the Superfund
Site. Via these Notice letters, EPA makes a demand for payment of past costs
(identified in the letter as $762,000) and future costs associated with the
response actions taken to address the contamination at the Site, and requests
PRPs to indicate their willingness to participate and resolve their potential
liability at the Site. The Company has responded to EPA by stating that it does
not believe it has any liability for this Site, but that it is interested in
cooperating with EPA to address issues concerning liability at the Site. At this
point, two other parties have already committed via a consent order with EPA to
pay for the Remedial Investigation/Feasibility Study phase of the clean-up at
the Site, which will take approximately two or more years to complete. After
that, EPA will likely seek to negotiate the cost of the Remedial Design and
implementation of the remedy at the Site with the PRPs it has identified via
these Notice Letters (which presently includes over fifty parties, and is likely
to increase after EPA completes its investigation of the identity of PRPs). The
Company believes that none of its activities caused contamination at the Site,
and will contest this claim by EPA.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable.
I-7
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
- ----------------------------------------------------------------------------
The Common Stock is quoted on the American Stock Exchange ("AMEX") under the
trading symbol "PWX". The following table sets forth, for the periods indicated,
the high and low sale prices per share for the Common Stock as reported on the
AMEX. Also included are dividends paid per share of Preferred Stock and Common
Stock during these quarterly periods.
Common Stock
------------
Trading Prices Dividends Paid
-------------- --------------
High Low Preferred Common
---- --- --------- ------
2001
First Quarter........ 9 6.875 $ 5.00 $ .04
Second Quarter....... 10.12 7.35 -0- .04
Third Quarter........ 8.52 6.57 -0- .04
Fourth Quarter....... 7.30 6.24 -0- .04
2000
First Quarter........ 9 7 $ 5.00 $ .04
Second Quarter....... 9.2500 6.500 -0- .04
Third Quarter........ 8.3125 7.000 -0- .04
Fourth Quarter....... 7.1875 5.875 -0- .04
As of March 1, 2002, there were approximately 703 holders of record of the
Company's Common Stock.
The declaration of cash dividends on the Common Stock is made at the discretion
of the Board of Directors based on the Company's earnings, financial condition,
capital requirements and other relevant factors and restrictions.
II-1
Item 6. Selected Financial Data
- -------------------------------
The selected financial data set forth below has been derived from audited
financial statements. The data should be read in conjunction with the Company's
audited financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
information included elsewhere in this annual report on Form 10-K.
Years Ended December 31,
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(in thousands, except per share amounts)
Income Statement Data:
Operating revenues .......... $22,268 $23,139 $21,871 $22,738 $22,083
Other income ................ 1,003 2,049 3,974 4,156 638
------- ------- ------- ------- -------
Total Revenues .............. 23,271 25,188 25,845 26,894 22,721
------- ------- ------- ------- -------
Operating expenses .......... 21,915 21,970 21,129 20,036 18,333
Interest expense ............ -- -- -- 495 1,358
------- ------- ------- ------- -------
Total expenses .............. 21,915 21,970 21,129 20,531 19,691
------- ------- ------- ------- -------
Income before income taxes
and extraordinary item ..... 1,356 3,218 4,716 6,363 3,030
Provision for income taxes .. 505 1,200 1,690 2,360 1,100
------- ------- ------- ------- -------
Income before extraordinary
item ....................... 851 2,018 3,026 4,003 1,930
Extraordinary loss from
early extinguishment of
debt, net of income tax
benefit .................... -- -- -- 219 --
------- ------- ------- ------- -------
Net income .................. 851 2,018 3,026 3,784 1,930
Preferred Stock dividend .... 3 3 3 3 3
------- ------- ------- ------- -------
Net income available to
common shareholders ........ $ 848 $ 2,015 $ 3,023 $ 3,781 $ 1,927
======= ======= ======= ======= =======
Basic income per common
share (a) ................... $ .19 $ .47 $ .71 $ 1.13 $ 0.87
======= ======= ======= ======= =======
Diluted income per common
share (a) ................... $ .19 $ .46 $ .70 $ 1.10 $ 0.81
======= ======= ======= ======= =======
Weighted average
shares-basic ................ 4,390 4,323 4,260 3,352 2,209
======= ======= ======= ======= =======
Weighted average
shares-diluted .............. 4,458 4,390 4,334 3,433 2,489
======= ======= ======= ======= =======
Cash dividends declared on
Common Stock ................ $ 702 $ 693 $ 640 $ 402 $ 267
======= ======= ======= ======= =======
December 31,
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
Balance Sheet Data:
Total assets ................ $89,161 $89,073 $86,371 $84,594 $71,212
Short-term debt ............. -- -- -- -- 2,281
Long-term debt, less current
portion .................... -- -- -- -- 11,916
Shareholders' equity ........ 69,073 68,483 66,683 63,709 38,038
(a) The income per share amounts for 1998 are stated net of a loss of $.06 per
share attributable to the extraordinary item.
II-2
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------- ----------------------------------------------------------
of Operations
-------------
The following discussion should be read in connection with the Company's audited
financial statements and notes thereto included elsewhere in this annual report
on Form 10-K.
This annual report on Form 10-K contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements.
Overview
The Company is a regional freight railroad operating in Massachusetts, Rhode
Island, Connecticut and New York.
The Company generates operating revenues primarily from the movement of freight
in both conventional freight cars and in intermodal containers on flat cars over
its rail lines. Freight revenues are recorded at the time delivery is made to
the customer or the connecting carrier. Modest non-freight operating revenues
are derived from demurrage, switching, weighing, special train and other
transportation services as well as from services rendered to freight customers
and other outside parties by the Company's Maintenance of Way, Communications &
Signals, and Maintenance of Equipment Departments. Operating revenues also
include amortization of deferred grant income.
The Company's operating expenses consist of salaries and wages and related
payroll taxes and employee benefits, depreciation and amortization, insurance
and casualty claim expense, diesel fuel, car hire, property taxes, materials and
supplies, purchased services and other expenses. Many of the Company's operating
expenses are of a relatively fixed nature and do not increase or decrease
proportionately with increases or decreases in operating revenues unless the
Company's management were to take specific actions to restructure the Company's
operations.
When comparing the Company's results of operations from one year to another, the
following factors should be taken into consideration. First, the Company has
historically experienced fluctuations in operating revenues and expenses due to
unpredictable events such as one-time freight moves and customer plant
expansions and shut-downs. Second, the Company's freight volumes are susceptible
to increases and decreases due to changes in international, national and
regional economic conditions. Third, the volume of capitalized track or
recollectable projects performed by the Company's Maintenance of Way and
Communications & Signals Departments can vary significantly from year to year
thereby impacting total operating expenses.
The Company also generates income through sales of properties, grants of
easements and licenses, and leases of land and tracks. Income or loss from sale,
condemnation and disposal of property and equipment and grants of easements is
recorded at the time the transaction is consummated and collectibility is
assured. This income varies significantly from year to year.
One of the Company's customers, Tilcon Connecticut, Inc., which ships
construction aggregate from three separate quarries on the Company's system to
asphalt production plants in Connecticut and New York, accounted for
approximately 14.6%, 12.6% and 13.2% of its operating revenues in 2001, 2000,
and 1999, respectively. The Company does not believe that this customer will
cease to be a rail shipper or will significantly decrease its freight volume in
the foreseeable future. In the event that this customer should cease or
significantly reduce its rail freight operations, management believes that the
Company could restructure its operations to reduce operating costs by an amount
sufficient to substantially offset the decrease in operating revenues.
II-3
Results of Operations
- ---------------------
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
------------- -------------- -------------
(in thousands, except percentages)
Freight Revenues:
Conventional carloads ....... $18,097 81.3% $18,416 79.6% $18,006 82.3%
Containers .................. 2,826 12.7 2,995 12.9 2,384 10.9
Non-Freight Operating Revenues:
Transportation services ..... 888 4.0 1,041 4.5 560 2.6
Other ....................... 457 2.0 687 3.0 921 4.2
------- ----- ------- ----- ------- -----
Total.................... $22,268 100.0% $23,139 100.0% $21,871 100.0%
======= ===== ======= ===== ======= =====
The following table sets forth conventional carload freight revenues by
commodity group in dollars and as a percentage of such revenues:
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
------------- -------------- -------------
(in thousands, except percentages)
Chemicals and plastics ....... $ 6,151 34.0% $6,928 37.6% $ 7,363 40.9%
Construction aggregate ....... 3,446 19.0 3,094 16.8 3,101 17.2
Forest and paper products .... 2,796 15.5 2,888 15.7 2,477 13.8
Food and agricultural products 2,409 13.3 2,451 13.3 2,481 13.8
Metal products and other ..... 2,113 11.7 1,891 10.3 1,408 7.8
Scrap metal and waste ........ 1,182 6.5 1,164 6.3 1,176 6.5
------- ----- ------- ----- ------- -----
Total....................... $18,097 100.0% $18,416 100.0% $18,006 100.0%
======= ===== ======= ===== ======= =====
The following table sets forth a comparison of the Company's operating expenses
expressed in dollars and as a percentage of operating revenues:
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
------------- -------------- -------------
(in thousands, except percentages)
Salaries, wages, payroll taxes
and employee benefits ....... $13,372 60.0% $12,688 54.9% $12,328 56.4%
Casualties and insurance ..... 709 3.2 795 3.4 755 3.4
Depreciation and amortization 2,728 12.2 2,681 11.6 2,517 11.5
Diesel fuel .................. 1,074 4.8 1,280 5.5 798 3.6
Car hire, net ................ 983 4.4 952 4.1 546 2.5
Purchased services, including
legal and professional fees . 2,159 9.7 2,385 10.3 2,183 10.0
Repairs and maintenance of
equipment ................... 803 3.6 971 4.2 1,130 5.2
Track and signal materials ... 2,381 10.7 2,245 9.7 2,091 9.6
Other materials and supplies . 910 4.1 918 4.0 1,175 5.4
Other ........................ 1,549 7.0 1,627 7.0 1,672 7.6
------- ----- ------- ----- ------- -----
Total ....................... 26,668 119.7 26,542 114.7 25,195 115.2
Less capitalized and
recovered costs ............ 4,753 21.3 4,572 19.8 4,066 18.6
------- ----- ------- ----- ------- -----
Total ...................... $21,915 98.4% $21,970 94.9% $21,129 96.6%
======= ===== ======= ===== ======= =====
II-4
Year ended December 31, 2001 Compared to Year Ended December 31, 2000
Operating Revenues
Operating revenues decreased $871,000, or 3.8%, to $22.3 million in 2001 from
$23.1 million in 2000. This decrease was comprised of a $319,000 (1.7%) decrease
in conventional freight revenues, a $169,000 (5.6%) decrease in net container
freight revenues and a $383,000 (22.2%) decrease in non-freight operating
revenues.
The decrease in conventional freight revenues results from a 2.9% decrease in
the average revenue received per conventional carloading, partially offset by a
small increase in traffic volume. The Company's conventional freight carloadings
increased by 359, or 1.2%, to 30,135 in 2001 from 29,776 in 2000.
The increase in conventional carloadings results from new customers and
increased traffic from certain existing customers, partially offset by decreases
in traffic from other existing customers, primarily in the manufacturing sector
of the economy. These decreases have resulted from weakening conditions in the
national economy and from several plant closings. The decrease in the average
revenue received per conventional carloading occurred because of a shift in
traffic mix toward lower rated commodities, such as construction and demolition
debris and construction aggregates. The impact of this shift in traffic mix more
than offset the effect of modest increases in the freight rates for certain
commodities.
The decrease in net container freight revenues is primarily due to a decrease in
container traffic volume. Total intermodal containers handled decreased by 3,043
or 4.2% to 68,696 in 2001 from 71,739 in 2000. This decrease is attributable to
weakened economic conditions as well as the loss of a customer.
The decrease in non-freight operating revenue is the result of decreased
demurrage charges and maintenance department billings. Revenues of this nature
typically vary from year to year depending upon the needs of customers and other
outside parties.
Operating Expenses
Operating expenses decreased $55,000, or .3%, to $21.9 million in 2001 from
$22.0 million in 2000. Operating expenses as a percentage of operating revenues
("operating ratio") increased to 98.4% in 2001 from 94.9% in 2000. Increases in
certain operating expense categories were offset by decreases in others. The
expense category with the greatest change was salaries, wages, payroll taxes and
employee benefits, which increased by $684,000 during 2001. An increase in
employee health and welfare costs of $418,000 accounts for the majority of this
increase.
Other Income
Other income decreased to $1.0 million in 2001 from $2.0 million in 2000. This
decrease is attributable to a reduction in gains from the sale, condemnation and
disposal of property, equipment and easements.
Year ended December 31, 2000 Compared to Year Ended December 31, 1999
Operating Revenues
Operating revenues increased $1.3 million, or 5.8%, to $23.1 million in 2000
from $21.9 million in 1999. This increase was comprised of a $410,000 (2.3%)
increase in conventional freight revenue, a $611,000 (25.6%) increase in net
container freight revenue and a $247,000 (16.7%) increase in non-freight
operating revenues.
The increase in conventional freight revenues results from an increase in the
average revenue received per conventional carloading of 2.8% partially offset by
a small decrease in traffic volume. The Company's conventional freight
carloadings decreased by 157, or .5%, to 29,776 in 2000 from 29,933 in 1999.
The decrease in conventional carloadings results primarily from a net decrease
in carloadings for existing customers partially offset by traffic from new
customers. The increase in the average revenue received per conventional
carloading is principally due to moderate increases in certain freight rates.
The increase in net container freight revenue is the result of an increase in
container traffic volume as well as a 4.9% increase in the average revenue
received per container. Total intermodal containers handled increased by 11,818,
or 19.7%, to 71,739 in 2000 from 59,921 in 1999. The increase in the average
II-5
revenue per container is attributable to increased rates tied to certain
railroad cost indices and to variations in the mix of containers handled. The
increase in container traffic volume is attributable to increased volume from
existing customers.
The increase in non-freight operating revenues for the year is the result of
increased demurrage and other transportation related revenues partially offset
by decreases in maintenance departmental billings. The increase in demurrage
revenue is related to the increase in net car hire expense incurred during the
year. Non-freight operating revenues can vary from year to year depending upon
customer needs.
Operating Expenses
Operating expenses increased $841,000, or 4.0%, to $22.0 million in 2000 from
$21.1 million in 1999. Operating expenses as a percentage of operating revenues
("operating ratio") decreased to 94.9% in 2000 from 96.6% in 1999. While
operating expenses increased generally, across the board, the more significant
increases were in the following areas:
o Diesel fuel increased by $482,000, or 60.4%, to $1.3 million in 2000
from $798,000 in 1999 as a result of sharply increased prices for
petroleum products.
o Depreciation and amortization expense increased $164,000, or 6.5%, to
$2.7 million in 2000 from $2.5 million in 1999 as a result of
significant recent additions to property and equipment.
o Net car hire expense increased $406,000, or 74.3%, to $952,000 in 2000
from $546,000 in 1999. This increase has been more than offset by
increased demurrage revenue.
Other Income
Other income decreased to $2.0 million in 2000 from $4.0 million in 1999
primarily due to a decrease in gains from the sale, condemnation and disposal of
property, equipment and easements (including fiber optics licenses). In addition
1999 included $947,000 of income related to the recovery of a portion of an
environmental claim paid by the Company in prior years.
Liquidity and Capital Resources
The Company generated $3.0 million, $3.9 million and $2.4 million of cash from
operations in 2001, 2000 and 1999, respectively. The Company's total cash and
cash equivalents decreased by $1.8 million in 2001, increased by $933,000 in
2000 and decreased by $2.7 million in 1999. The principal utilization of cash
during the three year period was for expenditures for property and equipment
acquisitions, reduction of current liabilities and payment of dividends.
During 2001, 2000 and 1999 the Company generated $498,000, $1.3 million and $2.3
million, respectively, from the sales and disposals of properties not considered
essential for railroad operations and from the granting of easements and
licenses. Included in these amounts are $1.1 million in 2000 generated from the
sale of permanent easements and $2.1 million in 1999 generated from sales of
fiber optics cable licenses. In addition, the Company received $947,000 in 1999
from Bestfoods as payment of the Company's 10% recovery due from Bestfoods
relating to Bestfoods' recovery from its insurance carrier for the portion of an
environmental claim paid by the Company in previous years. The Company holds
various properties which could be made available for sale, lease or grants of
easements and licenses. Revenues from sales of properties, easements and
licenses can vary significantly from year to year.
In June 2001, the Company's principal bank renewed the Company's revolving line
of credit for a two year period through June 1, 2003 and increased the borrowing
limit to $3.0 million. Borrowings under this line are unsecured and bear
interest at either the prime rate or one and one half per cent over either the
one or three month London Interbank Offered Rates. The Company does not pay any
commitment fee on this line. The Company had no advances against this line of
credit during 2001.
Substantially all of the mainline track owned by the Company meets FRA Class 3
standards (permitting freight train speeds of 40 miles per hour), and the
Company intends to continue to maintain this track at this level. The Company
expended $3.4 million, $3.0 million and $2.5 million for track structure and
bridge improvements in 2001, 2000 and 1999, respectively. Deferred grant income
of $204,000 in 2001, $679,000 in 2000 and $664,000 in 1999 financed a portion of
these improvements. Management estimates that approximately $3.0 million of
improvements to the Company's track structure and bridges will be made in 2002,
provided that sufficient funds, including grant proceeds, are available.
Improvements to the Company's track structure are made, for the most part, by
the Company's Maintenance of Way Department personnel.
II-6
The Company has agreed to acquire seven used 3,900 horsepower GE B39-8
locomotives in exchange for seven 2,250 horsepower GE U23B locomotives, which it
currently owns, and approximately $1,050,000 in cash. It is anticipated that
these locomotives will be acquired and placed in service during 2002.
In 2001, the Company paid dividends in the amount of $5.00 per share,
aggregating $3,000, on its outstanding noncumulative Preferred Stock and $0.16
per share, aggregating $702,000, on its outstanding Common Stock. Continued
payment of such dividends is contingent upon the Company's continuing to have
the necessary financial resources available.
The Company believes that expected cash flows from operating activities and cash
flows from financing activities will be sufficient to fund the Company's capital
requirements for at least the next 12 months. To the extent that the Company is
successful in consummating acquisitions or implementing its expansion plans, it
may be necessary to finance such acquisitions or expansion plans through the
issuance of additional equity securities, incurrence of indebtedness or both.
The Company is party to an arbitration proceeding with the National Railroad
Passenger Corporation ("Amtrak") concerning Amtrak's claim for rate increases
with respect to the Company's freight operations over a portion of Amtrak's
Northeast Corridor in the states of Rhode Island and Connecticut. On July 31,
2001 Amtrak filed its brief in the arbitration in which Amtrak claims that it is
entitled to approximately $2.4 million under its contract with the Company, of
which $1.7 million relates to the period from July 1994 through June 1999. The
Company believes that, pursuant to its contract with Amtrak, Amtrak's claim for
the period ended June 1999 is without merit. As to Amtrak's claim for the period
from July 1999 to date, totaling $724,000 the Company believes that Amtrak's
allocated expenses are overstated and that Amtrak's entitlement, if any, to
increased mileage charges would be significantly less than the amount claimed.
In addition, the Company has asserted that any new rate arrived at as a result
of the arbitration should take effect prospectively from the date of the
arbitrator's decision. The Company filed its brief on November 28, 2001.
Discovery has ended, and a hearing before the arbitrator is scheduled for March
27, 2002, with a decision to follow sometime thereafter. Given the extent of the
differences in the positions of the parties, the Company cannot predict the
amount, if any, of any liability to Amtrak which may result from this
arbitration.
On January 29, 2002, the Company received a "Notice of Potential Liability" from
the United States Environmental Protection Agency ("EPA") regarding an existing
Superfund Site that includes the J.M. Mills Landfill in Cumberland, Rhode
Island. EPA sends these "Notice" letters to potentially responsible parties
("PRPs") under the Comprehensive Environmental Response, Compensation, and
Liability Act. EPA identified the Company as a PRP based on its status as an
owner and/or operator because its railroad property traverses the Superfund
Site. Via these Notice letters, EPA makes a demand for payment of past costs
(identified in the letter as $762,000) and future costs associated with the
response actions taken to address the contamination at the Site, and requests
PRPs to indicate their willingness to participate and resolve their potential
liability at the Site. The Company has responded to EPA by stating that it does
not believe it has any liability for this site, but that it is interested in
cooperating with EPA to address issues concerning liability at the site. At this
point, two other parties have already committed via a consent order with EPA to
pay for the Remedial Investigation/Feasibility Study phase of the clean-up at
the Site, which will take approximately two or more years to complete. After
that, EPA will likely seek to negotiate the cost of the Remedial Design and
implementation of the remedy at the Site with the PRPs it has identified via
these Notice Letters (which presently includes over fifty parties, and is likely
to increase after EPA completes its investigation of the identity of PRPs). The
Company believes that none of its activities caused contamination at the Site,
and will contest this claim by EPA.
Land Held for Development
Pursuant to permits issued by the United States Department of the Army Corp of
Engineers ("ACE") and the Rhode Island Coastal Resources Management Council
("CRMC"), the Company created 33 acres of waterfront land in East Providence,
Rhode Island ("South Quay") originally designed to capitalize on the growth of
intermodal transportation utilizing rail, water and highway connections. The
property has good highway access (1/2 mile from I-195) and direct rail access
and is adjacent to a 12 acre site also owned by the Company.
The permits for the property allow for construction of a dock along the west
face of the South Quay. The ACE permit has been extended to December 31, 2003
and the CRMC permit has been extended to May 11, 2009.
In April 1999, the Rhode Island Supreme Court issued an Opinion confirming the
Company's fee simple absolute title to the South Quay. In January 2000, the
Rhode Island Superior Court confirmed the Company's fee simple absolute title to
II-7
the 12 acre parcel adjacent to the South Quay. Also in 1999, the Rhode Island
Department of Transportation entered into a contract for engineering services to
undertake roadway improvements to provide direct vehicular access from the
interstate highway system to the South Quay. The project is anticipated to be
complete by 2004.
The City of East Providence has been working to create a large waterfront
redevelopment area with a proposed zoning overlay (which has not yet been
unveiled) that would encourage development of restaurants, shops, marinas,
condominiums and "clean" employment. The Company has been cooperating with the
City of East Providence in these efforts.
In connection with the preparation by the ACE of the Final Environmental Impact
Statement ("FEIS") for the dredging of the Providence River, the Company was
approached about its willingness to accept up to 350,000 cubic yards of dredged
materials for de-watering on the South Quay property, with the understanding
that, following the de-watering, the Company would be free to use the material
for its own purposes. The FEIS, dated August 2001, identified the South Quay as
one of two potential "temporary sites for dewatering and storage or reuse of
high quality sand and gravel that would be excavated..." and went on to note
that the identified sites would be able to take only a portion of the dredged
material. The Company is pursuing this course in the belief that additional
clean, buildable fill, if available, could further enhance the value of the
site. In addition, the Company is considering a proposal to develop the site to
provide freight service for the transport of automobiles along the Company's
Main Line to and from East Providence, pending the development of the Quonset
Point-Davisville Industrial Park. In 2001, the Company completed overhead
clearances between Worcester and the South Quay, which enables operation of
double stack trains (having a height of nineteen feet, two inches) and
multi-level automobile cars.
Selected Quarterly Financial Data
Historically the Company has experienced lower operating revenues in the first
quarter of the year. The following table sets forth selected financial data for
each quarter of 2001 and 2000. The information for each of these quarters is
unaudited but includes all normal recurring adjustments that the Company
considers necessary for a fair presentation. These results, however, are not
necessarily indicative of results for any future period.
Year Ended December 31, 2001
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts)
Operating Revenues .................... $ 5,042 $ 5,735 $ 5,996 $ 5,495
Income (Loss) from Operations ......... (484) 263 526 48
Net Income (Loss) ..................... (191) 301 448 293
Basic Income (Loss) Per Common Share .. $ (.04) $ .07 $ .10 $ .06
Diluted Income (Loss) Per Common Share. $ (.04) $ .07 $ .10 $ .06
Year Ended December 31, 2000
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts)
Operating Revenues .................... $ 5,266 $ 6,041 $ 6,138 $ 5,694
Income (loss) from Operations ......... (184) 283 581 489
Net Income ............................ 14 1,018 502 484
Basic Income Per Common Share.......... $ -- $ .24 $ .12 $ .11
Diluted Income Per Common Share........ $ -- $ .23 $ .11 $ .11
II-8
Inflation
In recent years, inflation has not had a significant impact on the Company's
operations.
Seasonality
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during this period and to
winter weather conditions.
Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 applies to all business combinations initiated after June 30, 2001.
SFAS No. 142 applies to all acquired intangible assets whether acquired singly,
as part of a group, or in a business combination. SFAS 142 requires, among other
things, the cessation of the amortization of goodwill. All of the provisions of
the statement should be applied in fiscal years beginning after December 31,
2001 to all goodwill and other intangible assets recognized in an entity's
balance sheet at that date.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement establishes accounting standards for recognition
and measurement of a liability for an asset retirement obligation and the
associated costs. Under this statement, an entity must recognize the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred or in a period in which a reasonable estimate of fair value may be
made. This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. Early adoption is allowed.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement will supersede SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets or for Long-Lived Assets to
be Disposed Of," in its entirety, and APB Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
only for segments to be disposed of. The provisions of this statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001.
The Company is currently evaluating the effect, if any, that adopting these
standards will have on its financial statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- ------------------------------------------------------------------
Cash and Cash Equivalents
As of December 31, 2001, the Company is exposed to market risks which primarily
include changes in U.S. interest rates.
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's revolving line of credit agreement provides for
borrowings which bear interest at variable rates based on either prime rate or
one and one half percent over either the one or three month London Interbank
Offered Rates. The Company had no borrowings outstanding pursuant to the
revolving line of credit agreement at December 31, 2001. The Company believes
that the effect, if any, of reasonably possible near-term changes in interest
rates on the Company's financial position, results of operations, and cash flows
would not be material.
II-9
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report......................... II-11
Balance Sheets as of December 31, 2001 and 2000...... II-12
Statements of Income for the Years Ended December 31,
2001, 2000 and 1999................................. II-13
Statements of Shareholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999.................... II-14
Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.................... II-15
Notes to Financial Statements........................ II-16
II-10
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Providence
and Worcester Railroad Company
Worcester, Massachusetts
We have audited the accompanying balance sheets of Providence and Worcester
Railroad Company as of December 31, 2001 and 2000, and the related statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2001. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Providence and Worcester Railroad Company as
of December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 5, 2002
II-11
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
December 31,
2001 2000
------- -------
ASSETS
Current Assets:
Cash and equivalents .................................. $ 3,804 $ 5,559
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2001 and 2000 ........... 3,809 3,346
Materials and supplies ................................ 1,434 1,732
Prepaid expenses and other ............................ 493 712
Deferred income taxes ................................. 73 123
------- -------
Total Current Assets ................................. 9,613 11,472
Property and Equipment, net ............................ 67,647 65,703
Land Held for Development .............................. 11,901 11,851
Goodwill, net .......................................... -- 47
------- -------
Total Assets ........................................... $89,161 $89,073
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...................................... $ 1,745 $ 2,236
Accrued expenses ...................................... 781 934
------- -------
Total Current Liabilities ............................ 2,526 3,170
------- -------
Profit-Sharing Plan Contribution ....................... 151 357
------- -------
Deferred Grant Income .................................. 7,891 7,898
------- -------
Deferred Income Taxes .................................. 9,520 9,165
------- -------
Commitments and Contingencies (Note 7)..................
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding 645
shares in 2001 and 2000 .............................. 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,411,238 shares in 2001 and 4,351,815 shares
in 2000 .............................................. 2,206 2,176
Additional paid-in capital ............................ 29,376 28,962
Retained earnings ..................................... 37,459 37,313
------- -------
Total Shareholders' Equity ........................... 69,073 68,483
------- -------
Total Liabilities and Shareholders' Equity ............. $89,161 $89,073
======= =======
The accompanying notes are an integral part of the financial statements.
II-12
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
Years Ended December 31,
2001 2000 1999
-------- -------- --------
Revenues:
Operating Revenues - Freight and Non-
Freight .................................... $22,268 $23,139 $21,871
Other Income ................................ 1,003 2,049 3,974
-------- -------- --------
Total Revenues ............................ 23,271 25,188 25,845
-------- -------- --------
Expenses:
Operating:
Maintenance of way and structures .......... 3,124 3,324 3,526
Maintenance of equipment ................... 2,004 2,175 2,269
Transportation ............................. 6,326 6,376 5,784
General and administrative ................. 4,036 3,541 3,640
Depreciation ............................... 2,681 2,587 2,409
Taxes, other than income taxes ............. 2,391 2,441 2,384
Car hire, net .............................. 983 952 546
Employee retirement plans .................. 370 574 571
-------- -------- --------
Total Operating Expenses .................. 21,915 21,970 21,129
-------- -------- --------
Income before Income Taxes ................... 1,356 3,218 4,716
Provision for Income Taxes ................... 505 1,200 1,690
-------- -------- --------
Net Income ................................... 851 2,018 3,026
Preferred Stock Dividends .................... 3 3 3
-------- -------- --------
Net Income Available to Common Shareholders... $ 848 $ 2,015 $ 3,023
======= ======= =======
Basic Income Per Common Share................. $ .19 $ .47 $ .71
======= ======= =======
Diluted Income Per Common Share............... $ .19 $ .46 $ .70
======= ======= =======
The accompanying notes are an integral part of the financial statements.
II-13
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands Except Per Share Amounts)
Years Ended December 31, 2001, 2000 and 1999
---------------------------------------------
Total
Additional Share-
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance, January 1, 1999 ..... $ 32 $ 2,114 $27,955 $33,608 $63,709
Issuance of 31,095 common
shares to fund the Company's
1998 profit sharing plan
contribution ............... 16 369 385
Issuance of 14,554 common
shares for stock options
exercised, employee stock
purchases, and other ....... 7 117 124
Issuance of 7,500 additional
common shares for the
Company's 1998 acquisition
of Connecticut Central
Railroad Company ........... 4 78 82
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.15 per share (640) (640)
Net income for the year ..... 3,026 3,026
------- ------- ------- ------- -------
Balance, December 31, 1999 .. 32 2,141 28,519 35,991 66,683
Issuance of 56,418 common
shares to fund the Company's
1999 profit sharing plan
contribution ............... 28 363 391
Issuance of 14,117 common
shares for stock options
exercised, employee stock
purchases, conversion of 2
preferred shares and other.. 7 80 87
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.16 per share (693) (693)
Net income for the year ..... 2,018 2,018
------- ------- ------- ------- -------
Balance, December 31, 2000 .. 32 2,176 28,962 37,313 68,483
Issuance of 45,140 common
shares to fund the Company's
2000 profit sharing plan
contribution ............... 23 334 357
Issuance of 14,283 common
shares for stock options
exercised, employee stock
purchases, and other ....... 7 80 87
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.16 per share (702) (702)
Net income for the year ..... 851 851
------- ------- ------- ------- -------
Balance, December 31, 2001 .. $ 32 $ 2,206 $29,376 $37,459 $69,073
======= ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements.
II-14
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
2001 2000 1999
-------- -------- --------
Cash Flows from Operating
Activities:
Net income ................................. $ 851 $ 2,018 $ 3,026
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization ............ 2,728 2,681 2,517
Amortization of deferred grant income .... (211) (201) (171)
Profit-sharing plan contribution to be
funded with common stock ............... 151 348 360
Gains from sale, condemnation and
disposal of property, equipment and
easements, net ......................... (359) (1,244) (2,353)
Gain from recovery of environmental claim. -- -- (947)
Deferred income taxes .................... 405 230 90
Other, net ............................... 69 55 59
Increase (decrease) in cash and
equivalents from:
Accounts receivable .................... (642) (73) (225)
Materials and supplies ................. 298 375 (297)
Prepaid expenses and other ............. 219 (531) 387
Accounts payable and accrued expenses .. (489) 208 (93)
-------- -------- --------
Net cash flows from operating activities ... 3,020 3,866 2,353
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment ......... (5,019) (4,255) (8,295)
Proceeds from sale and condemnation of
property, equipment and easements ......... 498 1,288 2,333
Proceeds from recovery of environmental
claim ..................................... -- -- 947
Proceeds from deferred grant income ........ 368 647 518
-------- -------- --------
Net cash flows used by investing activities. (4,153) (2,320) (4,497)
-------- -------- --------
Cash Flows from Financing Activities:
Dividends paid ............................. (705) (696) (643)
Issuance of common shares for stock options
exercised and employee stock purchases .... 83 83 119
-------- -------- --------
Net cash flows used by financing activities. (622) (613) (524)
-------- -------- --------
Increase (Decrease) in Cash and Equivalents . (1,755) 933 (2,668)
Cash and Equivalents, Beginning of Year ..... 5,559 4,626 7,294
-------- -------- --------
Cash and Equivalents, End of Year ........... $ 3,804 $ 5,559 $ 4,626
======== ======== ========
Supplemental Disclosures:
Cash paid during year for Income taxes ..... $ 11 $ 1,464 $ 1,263
======== ======== ========
The accompanying notes are an integral part of the financial statements.
II-15
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000, and 1999
(Dollars in Thousands Except Per Share Amounts)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
-----------------------
Providence and Worcester Railroad Company (the "Company") is an interstate
freight carrier conducting railroad operations in Massachusetts, Rhode
Island, Connecticut and New York. Through its connecting carriers, it
services customers located throughout North America.
One customer accounted for approximately 14.6%, 12.6% and 13.2% of the
Company's operating revenues in 2001, 2000 and 1999, respectively.
Cash and Equivalents
--------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents for purposes of
classification in the balance sheets and statements of cash flows. Cash
equivalents are stated at cost, which approximates fair market value.
Materials and Supplies
----------------------
Materials and supplies, which consist of items for the improvement and
maintenance of track structure and equipment, are stated at cost,
determined on a first-in, first-out basis, and are charged to expense or
added to the cost of property and equipment when used.
Property and Equipment
----------------------
Property and equipment, including land held for development, is stated at
historical cost (including self-construction costs). Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments
are capitalized while routine maintenance and repairs, which do not improve
or extend asset lives, are charged to expense when incurred. Gains or
losses on sales or other dispositions are credited or charged to income.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
Track structure 20 to 67 years
Buildings and other structures 33 to 45 years
Equipment 4 to 25 years
The Company continually evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. When factors indicate that assets should be
evaluated for possible impairment, the Company uses an estimate of the
related undiscounted future cash flows over the remaining lives of the
assets in measuring whether the assets are recoverable.
Deferred Grant Income
---------------------
The Company has availed itself of various federal and state programs
administered by the states of Connecticut, Massachusetts and Rhode Island
for reimbursement of expenditures for capital improvements. In order to
receive reimbursement, the Company must submit requests for the projects,
including cost estimates. The Company receives from 70% to 100% of the
costs of such projects, which have included bridges, track structure and
public improvements. To the extent that such grant proceeds are used for
capital improvements to bridges and track structure, they are recorded as
deferred grant income and amortized into operating revenues on a
straight-line basis over the estimated useful lives of the related
improvements ($211 in 2001, $201 in 2000 and $171 in 1999).
Grant proceeds utilized to finance public improvements, such as grade
crossings and signals, are recorded as a direct offset to the related
expense.
II-16
Although the Company cannot predict the extent and length of future grant
programs, it intends to continue filing requests for such grants when they
are available.
Revenue Recognition
-------------------
Freight revenues are recorded at the time delivery is made to the customer
or the connecting carrier.
Gain or loss from sale, condemnation and disposal of property and equipment
and easements is recorded at the time the transaction is consummated and
collectibility is assured.
Income Taxes
------------
Deferred income taxes are recorded based on the differences between the
financial statement and tax basis of assets and liabilities. Such deferred
income taxes are also adjusted to reflect changes in the U.S. tax laws when
enacted and changes in blended state tax rates.
Income per Common Share
-----------------------
Basic income per common share is computed using the weighted average number
of common shares outstanding during each year. Diluted income per common
share reflects the effect of the Company's outstanding convertible
preferred stock, options and warrants (using the treasury stock method),
except where such items would be antidilutive.
A reconciliation of weighted average shares used for the basic computation
and that used for the diluted computation is as follows:
Years Ended December 31,
2001 2000 1999
--------- --------- ---------
Weighted average shares for basic ...... 4,389,916 4,323,237 4,260,073
Dilituve effect of convertible preferred
stock, options and warrants ........... 67,919 67,028 74,382
--------- --------- ---------
Weighted average shares for diluted .... 4,457,835 4,390,265 4,334,455
========= ========= =========
Options and warrants to purchase 195,503, 204,563 and 188,952 shares of
common stock were outstanding during 2001, 2000 and 1999, respectively, but
were not included in the computation of diluted earnings per common share
because their effect would be antidilutive.
Employee Stock Option Plan
--------------------------
The Company accounts for stock-based awards to employees using the
intrinsic value method.
Use of Estimates
----------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates. The Company's principal estimates include the allowance for
doubtful accounts, useful lives of properties, accrued liabilities
including health insurance claims and legal and other contingencies, and
income taxes.
II-17
Comprehensive Income
--------------------
Comprehensive Income equals net income for 2001, 2000 and 1999.
Segment Reporting
-----------------
The Company organizes itself as one segment reporting to the chief
operating decision maker. Products and services consist primarily of
interstate freight rail services. These include the movement of freight in
both conventional freight cars and in intermodal containers on flat cars
over the Company's rail lines, as well as non-freight transportation
services such as switching, weighing and special trains and other services
rendered to freight customers and other outside parties by the Company's
Maintenance of Way, Communications & Signals and Maintenance of Equipment
Departments.
Recently Issued Financial Accounting Standards
----------------------------------------------
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 applies to all business combinations initiated after June 30,
2001.
SFAS No. 142 applies to all acquired intangible assets whether acquired
singly, as part of a group, or in a business combination. SFAS 142
requires, among other things, the cessation of the amortization of
goodwill. All of the provisions of the statement should be applied in
fiscal years beginning after December 31, 2001 to all goodwill and other
intangible assets recognized in an entity's balance sheet at that date.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement establishes accounting standards
for recognition and measurement of a liability for an asset retirement
obligation and the associated costs. Under this statement, an entity must
recognize the fair value of a liability for an asset retirement obligation
in the period in which it is incurred or in a period in which a reasonable
estimate of fair value may be made. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Early adoption is allowed.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement will supersede
SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets or for
Long-Lived Assets to be Disposed Of," in its entirety, and APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," only for segments to be
disposed of. The provisions of this statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001.
The Company is currently evaluating the effect, if any, that adopting these
standards will have on its financial statements.
II-18
2. Property and Equipment
Property and equipment consists of the following:
December 31,
2001 2000
------- -------
Land and improvements .................... $ 10,303 $ 10,106
Track structure .......................... 59,499 56,389
Buildings and other structures ........... 7,686 7,437
Equipment ................................ 23,949 23,376
------- -------
101,437 97,308
Less accumulated depreciation ............ 33,790 31,605
------- -------
Total property and equipment, net ........ $ 67,647 $ 65,703
======= =======
3. Land Held for Development
Pursuant to permits issued by the United States Department of the Army Corp
of Engineers ("ACE") and the Rhode Island Coastal Resources Management
Council ("CRMC"), the Company created 33 acres of waterfront land in East
Providence, Rhode Island ("South Quay") originally designed to capitalize
on the growth of intermodal transportation utilizing rail, water and
highway connections. The property has good highway access (1/2 mile from
I-195) and direct rail access and is adjacent to a 12 acre site also owned
by the Company.
The permits for the property allow for construction of a dock along the
west face of the South Quay. The ACE permit has been extended to December
31, 2003 and the CRMC permit has been extended to May 11, 2009.
In April 1999, the Rhode Island Supreme Court issued an Opinion confirming
the Company's fee simple absolute title to the South Quay. In January 2000,
the Rhode Island Superior Court confirmed the Company's fee simple absolute
title to the 12 acre parcel adjacent to the South Quay. Also in 1999, the
Rhode Island Department of Transportation entered into a contract for
engineering services to undertake roadway improvements to provide direct
vehicular access from the interstate highway system to the South Quay. The
project is anticipated to be complete by 2004.
The City of East Providence has been working to create a large waterfront
redevelopment area with a proposed zoning overlay (which has not yet been
unveiled) that would encourage development of restaurants, shops, marinas,
condominiums and "clean" employment. The Company has been cooperating with
the City of East Providence in these efforts.
In connection with the preparation by the ACE of the Final Environmental
Impact Statement ("FEIS") for the dredging of the Providence River, the
Company was approached about its willingness to accept up to 350,000 cubic
yards of dredged materials for de- watering on the South Quay property,
with the understanding that, following the de-watering, the Company would
be free to use the material for its own purposes. The FEIS, dated August
2001, identified the South Quay as one of two potential "temporary sites
for dewatering and storage or reuse of high quality sand and gravel that
would be excavated..." and went on to note that the identified sites would
be able to take only a portion of the dredged material. The Company is
pursuing this course in the belief that additional clean, buildable fill,
if available, could further enhance the value of the site. In addition, the
Company is considering a proposal to develop the site to provide freight
service for the transport of automobiles along the Company's Main Line to
and from East Providence, pending the development of the Quonset
Point-Davisville Industrial Park. In 2001, the Company completed overhead
clearances between Worcester and the South Quay, which enables operation of
double stack trains (having a height of nineteen feet, two inches) and
multi-level automobile cars.
II-19
4. Revolving Line of Credit
The Company has a revolving line of credit with its principal bank in the
amount of $3,000 expiring June 1, 2003. Borrowings under this line of
credit are unsecured, due on demand and bear interest at either the bank's
prime rate or one and one half percent over either the one or three month
London Interbank Offered Rates. The Company pays no commitment fee on this
line. There were no loans outstanding under the line at any time during
2001 or 2000.
5. Other Income
Other income consists of the following: Years Ended December 31,
2001 2000 1999
------ ------ ------
Gains from sale, condemnation and
disposal of property, equipment and
easements, net ........................... $ 359 $1,244 $2,353
Recovery of prior year environmental
claim .................................... -- -- 947
Rentals and license fees under
various operating leases ................. 448 489 453
Interest .................................. 196 316 221
------ ------ ------
$1,003 $2,049 $3,974
====== ====== ======
Gains from sale, condemnation and disposal of property, equipment and
easements for 2000 includes $1,132 received from the sale of permanent
easements and for 1999 includes $2,127 received from the sale of long-term
fiber optics cable licenses.
6. Income Taxes
The provision for income taxes consists of the following:
Years Ended December 31,
2001 2000 1999
------ ------ ------
Current:
Federal ......................... $ 90 $ 900 $1,495
State ........................... 10 70 105
------ ------ ------
100 970 1,600
Deferred, Federal and State ...... 405 230 90
------ ------ ------
$ 505 $1,200 $1,690
====== ====== ======
II-20
The following summarizes the estimated tax effect of temporary differences
that are included in the net deferred income tax provision:
Years Ended December 31,
2001 2000 1999
----- ----- -----
Depreciation and amortization .......... $ 326 $ 207 $ 196
Deferred grant income .................. 2 (272) (123)
Gains from sale, condemnation and
disposal of property and equipment .... (20) 346 --
Accrued casualty and other claims ...... 56 (71) 2
Other .................................. 41 20 15
----- ----- -----
$ 405 $ 230 $ 90
===== ===== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of significant items comprising the Company's net deferred income
tax liability as of December 31, 2001 and 2000 are as follows:
December 31,
2001 2000
------- -------
Deferred income tax liabilities:
Differences between book and tax basis of
property and equipment ....................... $12,253 $11,947
------- -------
Other ......................................... 121 89
------- -------
12,374 12,036
------- -------
Deferred income tax assets:
Rental income received in advance ............. 17 27
Deferred grant income ......................... 2,801 2,797
Accrued casualty and other claims ............. 24 80
Allowance for doubtful accounts and other ..... 85 90
------- -------
2,927 2,994
------- -------
Net deferred income tax liability .............. $ 9,447 $ 9,042
======= =======
A reconciliation of the U.S. federal statutory rate to the
effective tax rate is as follows:
Years Ended December 31,
2001 2000 1999
---- ---- ----
Federal statutory rate ....................... 34% 34% 34%
Depreciation of properties acquired from
bankrupt railroads having a tax basis
in excess of cost ........................... (3) (2) (2)
Non deductible expenses, etc ................. 5 4 2
State income tax, net of federal income
tax benefit ................................. 1 1 2
---- ---- ----
Effective tax rate ........................... 37% 37% 36%
==== ==== ====
II-21
7. Commitments and Contingencies
The Company is a defendant in certain lawsuits relating to casualty losses,
many of which are covered by insurance subject to a deductible. The Company
believes that adequate provision has been made in the financial statements
for any expected liabilities which may result from disposition of such
lawsuits.
The Company is party to an arbitration proceeding with the National
Railroad Passenger Corporation ("Amtrak") concerning Amtrak's claim for
rate increases with respect to the Company's freight operations over a
portion of Amtrak's Northeast Corridor in the states of Rhode Island and
Connecticut. On July 31, 2001 Amtrak filed its brief in the arbitration in
which Amtrak claims that it is entitled to approximately $2,400 under its
contract with the Company, of which $1,676 relates to the period from July
1994 through June 1999. The Company believes that, pursuant to its contract
with Amtrak, Amtrak's claim for the period ended June 1999 is without
merit. As to Amtrak's claim for the period from July 1999 to date, totaling
$724, the Company believes that Amtrak's allocated expenses are overstated
and that Amtrak's entitlement, if any, to increased mileage charges would
be significantly less than the amount claimed. In addition, the Company has
asserted that any new rate arrived at as a result of the arbitration should
take effect prospectively from the date of the arbitrator's decision. The
Company filed its brief on November 28, 2001. Discovery has ended, and a
hearing before the arbitrator is scheduled for March 27, 2002, with a
decision to follow sometime thereafter. Given the extent of the differences
in the positions of the parties, the Company cannot predict the amount, if
any, of any liability to Amtrak which may result from this arbitration.
On January 29, 2002, the Company received a "Notice of Potential Liability"
from the United States Environmental Protection Agency ("EPA") regarding an
existing Superfund Site that includes the J.M. Mills Landfill in
Cumberland, Rhode Island. EPA sends these "Notice" letters to potentially
responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation, and Liability Act. EPA identified the Company as a
PRP based on its status as an owner and/or operator because its railroad
property traverses the Superfund Site. Via these Notice letters, EPA makes
a demand for payment of past costs (identified in the letter as $762) and
future costs associated with the response actions taken to address the
contamination at the Site, and requests PRPs to indicate their willingness
to participate and resolve their potential liability at the Site. The
Company has responded to EPA by stating that it does not believe it has any
liability for this Site, but that it is interested in cooperating with EPA
to address issues concerning liability at the Site. At this point, two
other parties have already committed via a consent order with EPA to pay
for the Remedial Investigation/Feasibility Study phase of the clean-up at
the Site, which will take approximately two or more years to complete.
After that, EPA will likely seek to negotiate the cost of the Remedial
Design and implementation of the remedy at the Site with the PRPs it has
identified via these Notice Letters (which presently includes over fifty
parties, and is likely to increase after EPA completes its investigation of
the identity of PRPs). The Company believes that none of its activities
caused contamination at the Site, and will contest this claim by EPA.
8. Employee Benefit Plans
Stock Option Plan
-----------------
The Company has a non-qualified stock option plan ("SOP") covering all
management personnel having a minimum of one year of service with the
Company and who are not holders of a majority of either its outstanding
common stock or its outstanding preferred stock. In addition, the Company's
outside directors are eligible to participate in the SOP. The SOP covers
50,000 common shares or 5% of the shares of common stock outstanding,
whichever is greater (220,562 shares at December 31, 2001). Options granted
under the SOP, which are fully vested when granted, are exercisable over a
ten year period at the market price for the Company's common stock as of
the date the options are granted.
II-22
Changes in stock options outstanding are as follows:
Weighted Average
----------------
Number Exercise Fair
of shares Price Value
------ ------ ------
Outstanding at January 1, 1999 ..... 38,404 $ 9.13
Granted ............................ 8,310 12.38 $ 9.53
Exercised .......................... (5,439) 7.53
Expired ............................ (3,706) 10.73
------ ------ ------
Outstanding and exercisable at
December 31, 1999.................. 37,569 9.92
Granted ............................ 8,060 8.00$ $ 4.20
Exercised .......................... (614) 5.37
Expired ............................ (3,411) 8.90
------ ------ ------
Outstanding and exercisable at
December 31, 2000.................. 41,604 9.70
Granted ............................ 8,130 7.13 $ 3.62
Exercised .......................... (1,220) 5.72
Expired ............................ (1,763) 5.99
------ ------ ------
Outstanding and exercisable at
December 31, 2001.................. 46,751 $ 9.50
====== ====== ======
The fair value of options on their grant date was measured using the
Black-Scholes options pricing model. Key assumptions used to apply this
pricing model are as follows:
2001 2000 1999
--------- --------- ---------
Average risk-free interest rate 4.97% 6.30% 6.30%
Expected life of option grants 7.0 years 7.0 years 7.0 years
Expected volatility of underlying stock 58% 55% 30%
Expected dividend payment rate, as
a percentage of the share price
on the date of grant 2.25% 2.00% 1.21%
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short useful lives. The
options granted to employees are not tradable and have contractual lives of
up to ten years. However, management believes that the assumptions used to
value the options and the model applied yield a reasonable estimate of the
fair value of the grants made under the circumstances.
The following table sets forth information regarding options at December
31, 2001:
Weighted Average
Range of Number ----------------
Number Exercise Currently Exercise Remaining
of Options Prices Exercisable Price Life (in years)
--------- ---------- ---------- ---------- -----------
2,796 $3.25 - 4.88 2,796 $3.97 1
30,482 5.50 - 8.25 30,482 7.44 6
6,889 8.50 - 12.75 6,889 12.38 7
6,584 18.38 6,584 18.38 6
The Company has elected to retain the accounting prescribed by Accounting
Principles Board Opinion No. 25, instead of adopting SFAS No. 123,
"Accounting for Stock-Based Compensation". Therefore, no compensation cost
has been recognized for the SOP. Had compensation cost for the Company's
SOP been determined on the fair value of the grant dates for awards under
the SOP consistent with the method of SFAS 123, the Company's net income
available to common shareholders and income per share would have been as
follows:
II-23
Years Ended December 31,
2001 2000 1999
------- ------- -------
Net income available to common shareholders:
As reported .................... $ 848 $ 2,015 $ 3,023
Pro forma ...................... 816 1,985 3,000
Basic income per share:
As reported .................... .19 .47 .71
Pro forma ...................... .19 .46 .70
Diluted income per share:
As reported .................... .19 .46 .70
Pro forma ...................... .18 .45 .69
Defined Contribution Retirement Plans
-------------------------------------
The Company has a deferred profit-sharing plan ("Plan") which covers all of
its employees who are members of its collective bargaining units.
Contributions to the Plan are required in years in which the Company has
income from "railroad operations" as defined in the Plan. Contributions are
to be equal to at least 10% but not more than 15% of the greater of income
before income taxes or income from railroad operations subject to a maximum
contribution of $3.5 per eligible employee. Contributions to the Plan may
be made in cash or in shares of the Company's common stock. Contributions
accrued under this Plan amounted to $151 in 2001, $357 in 2000 and $400 in
1999. The Company made its 1999 and 2000 contributions and intends to make
its 2001 contribution in newly issued shares of its common stock.
The Company also has a Simplified Employee Pension Plan ("SEPP") which
covers substantially all employees who are not members of one of its
collective bargaining units. Contributions to the SEPP are discretionary
and are determined annually as a percentage of each covered employee's
compensation up to the maximum amount allowable by law. Contributions
accrued under the SEPP amounted to $201 in 2001, $208 in 2000 and $197 in
1999.
Employee Stock Purchase Plan
----------------------------
The Company has an Employee Stock Purchase Plan ("ESPP") under which
eligible employees may purchase registered shares of common stock at 85% of
the market price for such shares. An aggregate of 200,000 shares of common
stock are authorized for issuance under the ESPP which was established in
1997. Any shares purchased under the ESPP are subject to a two year
lock-up. ESPP purchases amounted to 12,413 shares in 2001, 12,828 shares in
2000 and 8,665 shares in 1999.
9. Preferred Stock
The Company's $50 par value preferred stock is convertible into 100 shares
of common stock at the option of the shareholder. The noncumulative stock
dividend is fixed by the Company's Charter at an annual rate of $5.00 per
share, out of funds legally available for the payment of dividends.
The holders of preferred stock are entitled to one vote for each share in
the election of two-thirds of the Board of Directors. The holders of
preferred stock and holders of common stock are entitled to one vote per
share, voting as separate classes, upon matters voted on by shareholders.
II-24
Item 9. Disagreements on Accounting and Financial Disclosure
- ------------------------------------------------------------
None.
II-25
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The Company's Charter and Bylaws provide that the members of the Board of
Directors (the "Board") shall be elected separately by the Company's two classes
of stock. Holders of Common Stock elect one-third of the Board of Directors and
the holders of Preferred Stock elect the remainder of the Board. Directors are
elected to serve until the next annual meeting and until their successors have
been duly elected by the shareholders. There are currently three directors
elected by the holders of the Common Stock and six directors elected by the
holders of the Preferred Stock. Officers are elected by and serve at the
discretion of the Board of Directors.
Directors and Executive Officers
The current directors and executive officers, their ages and their
positions held with the Company are as follows:
Name Age Position
---- --- --------
Robert H. Eder(a)............... 69 Chairman of the Board and Chief
Executive Officer
Orville R. Harrold(b)........... 69 President, Chief Operating
Officer and Director
Robert J. Easton................ 58 Treasurer
P. Scott Conti.................. 44 Vice President Engineering
Mary A. Tanona.................. 44 Secretary and General Counsel
Richard W. Anderson (a)......... 54 Director
Frank W. Barrett(b)............. 62 Director
John H. Cronin(b)............... 68 Director
J. Joseph Garrahy(b)............ 71 Director
John J. Healy(b)................ 66 Director
Charles M. McCollam, Jr.(b)..... 69 Director
Merrill W. Sherman(a)........... 53 Director
- --------------
(a) Elected by holders of Common Stock.
(b) Elected by holders of Preferred Stock.
The following is a brief summary of the background of each director and
executive officer.
Directors and Executive Officers
Robert H. Eder, Chairman of the Board and Chief Executive Officer. Mr. Eder
became President of the Company in 1966 and led the Company through its efforts
to become an independent operating company. He has been Chairman of the Board
since 1980. He is a graduate of Harvard College and Harvard Law School. He (with
his wife) is also majority owner and Chairman of an affiliated company, Capital
Properties, Inc., a real estate holding company of which he is also a Director.
Mr. Eder is admitted to practice law in Rhode Island and New York.
Orville R. Harrold, President, Chief Operating Officer and Director. Mr.
Harrold has been with the Company since the commencement of independent
operations in February 1973. Over the past 28 years, he has held the positions
of Chief Engineer and General Manager, becoming President in 1980. Mr. Harrold
has a bachelors degree in mechanical engineering from the Pratt Institute,
Brooklyn, New York and has been employed in the railroad industry in various
capacities since 1960.
Robert J. Easton, Treasurer. Mr. Easton has been with the Company since
1986, initially as Controller. He was promoted to the position of Treasurer and
Controller in 1988. Prior to joining the Company, Mr. Easton had 21 years of
experience in public accounting. He is a Certified Public Accountant with a
bachelors degree in accounting from the University of Rochester.
P. Scott Conti, Vice President Engineering. Mr. Conti has been with the
Company since 1988 and is responsible for all activities of the Maintenance of
Way and Engineering Department which maintains the Company's tracks, bridges,
III-1
buildings and grade crossings, overseeing all construction activity on or
affecting railroad property. From June 1988 to December 1997, Mr. Conti served
as Engineering Manager. In January 1998 he was promoted to Chief Engineer and in
March 1999 he was promoted to Vice President. Prior to Joining the Company, Mr.
Conti was employed by Perini Corporation.
Mary A. Tanona, Secretary and General Counsel. Ms. Tanona joined the
Company in 1999 as Assistant General Counsel and Assistant Secretary. In 2000
she was promoted to General Counsel. Prior to joining the Company, Ms Tanona was
an associate with Dewey Ballantine in New York. Most recently, she served as
associate general counsel at Arbor National Mortgage. She is a 1987 graduate of
Fordham University School of Law and holds a bachelor of arts degree from Smith
College. Ms. Tanona is admitted to practice law in Massachusetts, Rhode Island
and New York.
Richard W. Anderson, Director. Mr. Anderson has been a Director of the
Company since 1998. He is Senior Vice President of Massachusetts Capital
Resource Company ("MCRC"), a private investment firm funded by major
Massachusetts based life insurance companies providing high risk growth capital
to Massachusetts businesses. He began working at MCRC in 1981. Mr. Anderson is
also a director of Matec Corporation, a company specializing in frequency
control devices.
Frank W. Barrett, Director. Mr. Barrett has been a Director of the Company
since 1995. From 1993 to 1998 he was Executive Vice President at Springfield
Institution for Savings ("SIS"). Effective January 1, 1999, he became Executive
Vice President and Chief Lending Officer of Family Bank. Family Bank is a
Massachusetts subsidiary of Peoples Heritage Financial Group and the acquirer of
SIS. Family Bank became First Massachusetts Bank, N.A. upon the acquisition of
Bank North Group by Peoples Heritage Financial Group (which then changed its
name to BankNorth Group). Effective June 2000, he became Executive Vice
President of First Massachusetts Bank, N.A. Effective January 2002, First
Massachusetts Bank, N.A. was merged into Banknorth Massachusetts. No change in
Mr. Barrett's responsibility was effected as a result of the merger. Mr. Barrett
is also a director of Dairy Mart Convenience Store, Inc.
John H. Cronin, Director. Mr. Cronin has been a Director of the Company
since 1986. Since 1971 until his retirement in 1996, Mr. Cronin was owner and
President of Ideal Products, Inc., a wholesale entertainment supply company.
J. Joseph Garrahy, Director. Mr. Garrahy has been a Director of the Company
since 1992. He is a former four term Governor of Rhode Island and, since 1990,
has been an independent business consultant in the State of Rhode Island. Mr.
Garrahy is also a director of Grove Real Estate Investment Trust.
John J. Healy, Director. Mr. Healy has been a Director of the Company since
1991. He has been President of Worcester Affiliated Mfg. L.L.C., an independent
business consulting firm involved in efforts to revitalize manufacturing in
Massachusetts, since January 1997. Mr. Healy is also President of the
Manufacturing Assistance Center. Prior thereto, Mr. Healy was President and
Chief Executive Officer of HMA Behavioral Health, Inc., a behavioral health care
management service provider.
Charles M. McCollam, Jr., Director. Mr. McCollam has been a Director of the
Company since 1996. He owns and operates a number of insurance businesses in the
State of Connecticut, as well as McCollam Associates, a consulting firm. He was
the Chief of Staff to a former governor of Connecticut.
Merrill W. Sherman, Director. Ms. Sherman has been a Director of the
Company since 1999. She is President and Chief Executive Officer of Bancorp
Rhode Island, Inc. and has been President, Director and Chief Executive Officer
of its primary subsidiary, Bank Rhode Island, a community bank in the greater
Providence metropolitan area, since its formation in March 1996. Prior thereto,
from September 1993 to August 1995, Ms. Sherman was a partner in the corporate
and real estate departments of the law firm Brown, Rudnick, Freed & Gesmer where
she headed the firm's banking consulting group affiliate. She retired from her
position in August 1995 to devote full-time efforts to the creation of Bank
Rhode Island.
Committees of the Board of Directors
The Board of Directors has an Executive Committee, a Stock Option &
Compensation Committee and an Audit Committee. The Board of Directors does not
have a nominating committee. In accordance with the By-laws of the Company, the
III-2
Executive Committee, currently comprised of Robert H. Eder, Chairman, John J.
Healy and Orville R. Harrold, exercises the authority of the Board of Directors
when formal Board action is required between meetings, subject to the
limitations imposed by law, the By-laws or the Board of Directors. The Executive
Committee acts on routine matters such as authorizing the execution of
government contracts for reimbursement for Company work on highway projects
adjacent to the railroad and grade crossing rehabilitation.
The Stock Option & Compensation Committee, currently comprised of John H.
Cronin, Chairman, Richard W. Anderson and Charles M. McCollam, Jr., is
responsible for establishing the amount of option shares to be granted to the
Company's employees under the Stock Option Plan and for making recommendations
to the full Board concerning executive officer compensation.
The Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight of the Company's accounting functions and
internal controls. The Audit Committee is composed of three directors, all of
whom are independent as defined by the American Stock Exchange listing
standards. The Audit Committee operates under a written charter first adopted
and approved by the Board of Directors on April 26, 2000.
The Board of Directors held four meetings, the Audit Committee held six
meetings, the Stock Option & Compensation Committee held four meetings and the
Executive Committee held ten meetings during the fiscal year ended December 31,
2001.
Compensation of Directors
During the fiscal year ended December 31, 2001, each director who was not
an employee of the Company received a base fee of $500 for each attended meeting
of the Board of Directors plus $50 per attended meeting for each year of service
as a director, and each member of the Audit Committee and the Stock Option &
Compensation Committee received $300 for each attended meeting of the committee
(other than the Chairman of the Committee, who received $350).
During the month of January of each year, directors of the Company who were
serving as such on the preceding December 31 and are not full time employees of
the Company are granted options for the purchase of 100 shares of the Common
Stock of the Company, plus options for an additional ten shares for each full
year of service to the Company. The exercise price is the last sale price of the
Common Stock on the last business day of the preceding year, and the term of
each option is ten years (subject to earlier termination if the grantee ceases
to serve as a director), provided, however, that no option is exercisable within
six months following the date of grant.
III-3
Item 11. Executive Compensation
- -------------------------------
The following table summarizes the compensation paid or accrued by the
Company during the three year period ended December 31, 2001, to its Chief
Executive Officer and each of its executive officers who earned more than
$100,000 in salary and bonus in 2001 (the "Named Executive Officers"), for
services rendered in all capacities to the Company during 2001.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All
Other Options to Other
Annual Purchase Compen-
Salary Compen- Common sation
Name and Principal Position Year ($)(a) Bonus($) sation($) Stock ($)(b)
- ---------------------------- ---- ------ ------ -------- ------------ ------
Robert H. Eder.............. 2001 342,464 0 36,459(c) 0 45,236
Chairman of the Board and 2000 325,621 0 35,337(c) 0 47,302
Chief Executive Officer 1999 307,403 17,500 23,653(c) 0 48,024
Orville R. Harrold.......... 2001 293,955 0 0 1,128 37,758
President and Chief 2000 279,077 0 0 1,178 39,242
Operating Officer 1999 262,181 0 0 1,087 42,726
P. Scott Conti.............. 2001 114,192 0 0 223 7,993
Vice President Engineering 2000 105,546 0 0 232 7,916
1999 99,072 0 0 147 8,068
Robert J. Easton............ 2001 138,846 0 0 281 9,719
Treasurer 2000 133,304 0 0 301 9,998
1999 130,858 0 0 346 10,469
Mary A. Tanona.............. 2001 109,373 0 0 90 7,656
2000 84,954 0 0 0 6,372
1999 32,789(d) 0 0 0 0
(a) Includes amounts taxable to employees for personal use of Company-owned
vehicles, other than Mr. Eder, who does not have personal use of a
Company-owned vehicle.
(b) Includes amounts paid directly to the retirement accounts of management
staff under the Company's simplified employee pension plan, and, in the
case of Robert H. Eder and Orville R. Harrold, includes for 2001 premiums
paid for life insurance coverage in the amounts of $33,336 and $25,858,
respectively.
(c) Includes the cost of a vehicle for Mr. Eder.
(d) Date of hire, July 26, 1999. Appointed to the position of Secretary and
General Counsel effective October 2, 2000.
III-4
Option/SAR Grants in Last Fiscal Year
The following table contains information concerning the grant of stock
options under the Company's Non-Qualified Stock Option Plan to the Named
Executive Officers during the Company's last fiscal year. The Company does not
issue stock appreciation rights.
% of Total
Number of Options
Securities Granted To
Underlying Employees Grant Date
Options In Fiscal Exercise Expiration Present
Name Granted(a) 2001 Price($) Date Value($)(b)
------ ---------- --------- ------ -------- -----------
Robert H. Eder(c)..... 0 0 0 0 0
Orville R. Harrold.... 1,128 16.12 7.125 01/02/11 4,083
P. Scott Conti........ 223 3.18 7.125 01/02/11 807
Robert J. Easton...... 281 4.02 7.125 01/02/11 1,017
Mary A. Tanona........ 90 1.28 7.125 01/02/11 326
(a) All options were granted on January 2, 2001 and became exercisable on July
2, 2001.
(b) Amounts represent fair value of options and were estimated as of the date
of grant using Black-Scholes options - pricing model with the following
weighted average assumptions: expected volatility of 58%; expected life 7
years; and risk free interest rate of 4.97%. Dividends at the rate of 2.25%
per share were assumed for purposes of this estimate.
(c) Under the terms of the Company's Non-Qualified Stock Option Plan, Mr. Eder
is not eligible to receive a grant of stock options.
Aggregated Option/SAR Exercises In Last Fiscal Year
And Fiscal Year End Option Values
The following table sets forth individual exercises of stock options during
2001 and the year-end values of options to purchase Common Stock held by the
Named Executive Officers as of December 31, 2001.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money at
December 31, 2001 December 31, 2001(b)
----------------- --------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized($)(a) Unexercisable Unexercisable($)
---- ----------- -------------- ------------- ----------------
Robert H. Eder....... 0 0 0/0 0/0
Orville R. Harrold... 619 762 3,559/0 0/0
P. Scott Conti....... 0 0 734/0 0/0
Robert J. Easton..... 0 0 1,895/0 0/0
Mary A. Tanona....... 0 0 90/0 0/0
(a) Based on the last sale price of the Common Stock on the date of exercise
minus the exercise price.
(b) Based on the difference between the exercise price of each grant and the
closing price of the Company's Common Stock on the AMEX on December 31,
2001, which was $6.75.
III-5
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The table set forth below reflects the only persons (including any "group"
as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934)
who, to the best of the Company's knowledge, were on March 1, 2002 the
beneficial owners of more than five percent of the Company's outstanding Common
Stock, $.50 par value, or Preferred Stock, $50 par value. Each share of the
Company's outstanding Preferred Stock is convertible at any time, at the option
of the holder, into one hundred shares of Common Stock of the Company. The
footnote to the table below sets forth the percentages of the outstanding Common
Stock which would be held by the indicated owners if such owners' Preferred
Stock were converted in whole into Common Stock.
Percent
Name and Address Number of Shares Owned of Class
- ---------------- ---------------------- --------
Robert H. and Linda Eder 842,742 (Common) 19.1%(a)
2441 S.E. Bahia Way 500 (Preferred) 77.5%
Stuart, Florida 34996
Steinberg Priest Capital Management 447,100 (Common) 10.1%
Company, Inc.
Michael A. Steinberg & Company, Inc.
Michael A. Steinberg
12 East 49th Street
New York, New York 10017
Keeley Asset Management Corp. 250,560 (Common) 5.7%
Kamco Performance Limited Partnership
Kamco Limited Partnership No. 1
401 South LaSalle Street
Chicago, Illinois 60605
Franklin resources, Inc. 245,000 (Common) 5.6%
One Franklin Parkway
San Mateo, CA 94403-1906
(a) Assuming no conversion of Preferred Stock. If their Preferred Stock
were converted in whole to Common Stock, Mr. and Mrs. Eder would own 20.0% of
the outstanding Common Stock.
Of the shares owned by Mr. and Mrs. Eder, 768,162 shares of Common Stock
and 500 shares of Preferred Stock were held directly by Mr. Eder, and 74,580
shares of Common Stock were held directly by Mrs. Eder. By reason of their
ownership, Mr. and Mrs. Eder may be deemed to be "control persons" with respect
to the Company.
III-6
The following table reflects, as of March 2, 2002, the beneficial ownership
of the Common Stock of the Company by directors, nominees for directors, Named
Executive Officers and all officers and directors as a group.
Name Number Percentage
- ---- ------ ----------
Richard W. Anderson(a) .......................... 201,030 4.5%
Frank W. Barrett(b).............................. 1,150 *
P. Scott Conti(c)................................ 3,112 *
John H. Cronin(d)................................ 2,230 *
Robert J. Easton(e) ............................. 4,042 *
Robert H. Eder(f)................................ 892,742 20.0%
J. Joseph Garrahy(g)............................. 1,330 *
Orville R. Harrold(h)............................ 32,400 *
John J. Healy(i)................................. 1,540 *
Charles M. McCollam, Jr.(j)...................... 900 *
Merrill W. Sherman(k)............................ 710 *
Mary A. Tanona(l)................................ 616 *
All executive officers and directors as a group
(12 people)(l)................................ 1,142,109 25.5%
* Less than one percent
(a) Includes 200,000 shares of common stock held by Massachusetts Capital
Resource Company of which Mr. Anderson disclaims beneficial ownership.
Mr. Anderson is Senior Vice President of Massachusetts Capital
Resource Company. Also includes 330 shares of Common Stock issuable
under stock options exercisable within 60 days.
(b) Includes 650 shares of Common Stock issuable under stock options
exercisable within 60 days.
(c) Includes 734 shares of Common Stock issuable under stock options
exercisable within 60 days.
(d) Includes 900 shares of Common Stock issuable under stock options
exercisable within 60 days.
(e) Includes 118 shares of Common Stock held by Mr. Easton's wife in her
name and 1,895 shares of Common Stock issuable under stock options
exercisable within 60 days.
(f) Mr. Eder's business address is 75 Hammond Street, Worcester,
Massachusetts 01610. Includes 74,580 shares of Common Stock owned by
Mr. Eder's wife and assumes the conversion of the 500 shares of
Preferred Stock owned by Mr. Eder.
(g) Includes 660 shares of Common Stock issuable under stock options
exercisable within 60 days.
(h) Includes (i) 1,700 shares of Common Stock held by Mr. Harrold's wife,
(ii) 3,200 shares of Common Stock held by a custodian in an individual
retirement account for the benefit of Mr. Harrold and (iii) 3,371
shares of Common Stock issuable under stock options exercisable within
60 days.
(i) Includes 1,240 shares of Common Stock issuable under stock options
exercisable within 60 days.
(j) Includes 110 shares of Common Stock issuable under stock options
exercisable within 60 days.
(k) Includes 210 shares of Common Stock issuable under stock options
exercisable within 60 days.
(l) Includes 90 shares of Common Stock issuable under stock options
exercisable within 60 days.
(m) Includes 307 shares of Common Stock owned by an officer of the Company
who is not a Named Executive Officer, 50,000 shares of Common Stock
issuable upon conversion of Preferred Stock and 10,190 shares of
Common Stock issuable under options exercisable within 60 days.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Not Applicable
III-7
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) (1) All financial statements:
An index of financial statements is included in Item 8, page II-11 of
this annual report
(2) Financial Statement schedule: Schedule II Valuation and
Qualifying Accounts................................Page IV-3
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or the notes thereto.
(3) Listing of Exhibits.
(10A) Material Contracts (incorporated by reference to Exhibit 10
to the registration statement of the Registrant on Form 10, to
the Non-Qualified Stock Option Plan and Employee Stock Purchase
Plan of the Registrant on Forms S-8 and to the registration
statements of the Registrant on Form S-1).
(23) Independent Auditors' Consent
(b) The Company did not file any reports on Form 8-K during the year ended
December 31, 2001.
(c) Exhibits (annexed).
Financial Statement Schedule. See item (a) (2.) above
IV-1
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
/s/ Robert H. Eder
--------------------------------------------
By Robert H. Eder
Chief Executive Officer
Dated: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert H. Eder
________________________ Chief Executive Officer March 29, 2002
Robert H. Eder and Chairman (Principal
Executive Officer)
/s/ Orville R. Harrold
________________________ President and Director March 29, 2002
Orville R. Harrold (Chief Operating Officer)
/s/ Robert J. Easton
________________________ Treasurer March 29, 2002
Robert J. Easton (Principal financial officer and
principal accounting officer)
/s/ Frank W. Barrett
________________________ Director March 29, 2002
Frank W. Barrett
/s/ J. Joseph Garrahy
________________________ Director March 29, 2002
J. Joseph Garrahy
/s/ Merrill W. Sherman
________________________ Director March 29, 2002
Merrill W. Sherman
IV-2
SCHEDULE II
PROVIDENCE AND WORCESTER RAILROAD COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(IN THOUSAND DOLLARS)
Column A Column B Column C Additions Column D Column E
-------- -------- ------------------ -------- --------
(1) (2)
Balance Charged to Charged to Balance
at costs and other at end
Description beginning expenses accounts Deductions of
of period describe (A) period
Allowance for doubtful
accounts:
Year ended
December 31, 2001..... $ 125 $ 5 $ (5) $125
===== ==== ====== ====
Year ended
December 31, 2000..... $ 125 $125
===== ====
Year ended
December 31, 1999..... $ 125 $125
===== ====
- ---------
(A) Bad debts written off.
IV-3
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-65937, 333-65949, and 333-21617 of Providence and Worcester Railroad Company
on Form S-8 of our report dated March 5, 2002 appearing in this Annual Report on
Form 10-K of Providence and Worcester Railroad Company for the year ended
December 31, 2001.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 29, 2002