UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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_ 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
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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 ___
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Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act).
YES ___ NO X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 1, 2005, the registrant has 4,500,017 shares of common stock, par
value $.50 per share, outstanding.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Index
Part I - Financial Information
Item 1 - Financial Statements:
Balance Sheets - June 30, 2005 (Unaudited)
and December 31, 2004.......................................3
Statements of Income (Loss) (Unaudited) -
Three and Six Months Ended June 30, 2005
and 2004....................................................4
Statements of Cash Flows (Unaudited) - Six
Months Ended June 30, 2005 and 2004.........................5
Notes to Financial Statements (Unaudited)................6-10
Item 2 -Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................11-14
Item 3 -Quantitative and Qualitative Disclosures
About Market Risk..........................................14
Item 4 -Controls and Procedures...................................14
Part II - Other Information:
Item 4 -Submission of Matters to a Vote of Security Holders.......15
Item 6 -Exhibits and Reports on Form 8-K..........................15
Signatures.............................................................16
EXHIBIT 31-Certification Pursuant To
Section 302 of The Sarbanes-Oxley
Act of 2002...............................................17-18
EXHIBIT 32-Certification Pursuant To
18 U.S.C. Section 1350, as Adopted
Pursuant To Section 906 of The
Sarbanes-Oxley Act of 2002...................................19
2
Item 1. Financial Statements
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
ASSETS
JUNE 30,DECEMBER 31,
2005 2004
(Unaudited)
------- -------
Current Assets:
Cash and cash equivalents ........................... $ 545 $ 1,735
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2005 and 2004 ......... 4,594 3,564
Materials and supplies .............................. 2,148 1,889
Prepaid expenses and other current assets ........... 327 239
Deferred income taxes ............................... 212 212
------- -------
Total Current Assets ............................... 7,826 7,639
Property and Equipment, net .......................... 72,639 71,874
Land Held for Development ............................ 11,958 11,958
------- -------
Total Assets ......................................... $92,423 $91,471
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 2,802 $ 1,679
Accrued expenses .................................... 1,197 1,284
------- -------
Total Current Liabilities .......................... 3,999 2,963
------- -------
Profit-Sharing Plan Contribution ..................... -- 188
------- -------
Deferred Income Taxes ................................ 11,334 11,129
------- -------
Deferred Grant Income ................................ 8,036 7,963
------- -------
Commitments and Contingent Liabilities................
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
645 shares in 2005 and 2004 ........................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,499,428 shares in 2005 and 4,481,007
shares in 2004 ..................................... 2,250 2,241
Additional paid-in capital .......................... 30,142 29,914
Retained earnings ................................... 36,630 37,041
------- -------
Total Shareholders' Equity ......................... 69,054 69,228
------- -------
Total Liabilities and Shareholders' Equity ........... $92,423 $91,471
======= =======
The accompanying notes are an integral part of the financial statements.
3
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME (LOSS) (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------- ------- ------- -------
Revenues:
Operating Revenues .............. $ 6,588 $ 6,493 $12,228 $11,560
Other Income .................... 164 142 359 263
------- ------- ------- -------
Total Revenues ................ 6,752 6,635 12,587 11,823
------- ------- ------- -------
Operating Expenses:
Maintenance of way and
structures ..................... 955 954 2,001 1,984
Maintenance of equipment ........ 697 659 1,413 1,349
Transportation .................. 1,946 1,899 3,670 3,501
General and administrative ...... 1,036 1,061 2,021 2,049
Depreciation .................... 691 660 1,382 1,348
Taxes, other than income
taxes .......................... 563 558 1,143 1,142
Car hire, net ................... 277 222 546 349
Employee retirement plans ....... 57 56 114 113
Track usage fees ................ 213 224 350 333
------- ------- ------- -------
Total Operating Expenses ....... 6,435 6,293 12,640 12,168
------- ------- ------- -------
Income (Loss) before Income
Taxes (Benefit) ................. 317 342 (53) (345)
Provision for Income Taxes
(Benefit) ....................... 110 120 (5) (105)
------- ------- ------- -------
Net Income (Loss) ................ 207 222 (48) (240)
Preferred Stock Dividends ........ -- -- 3 3
------- ------- ------- -------
Net Income (Loss) Available to
Common Shareholders ............. $ 207 $ 222 $ (51) $ (243)
======= ======= ======= =======
Basic and Diluted Income
(Loss) Per Common Share ......... $ .05 $ .05 $ (.01) $ (.05)
======= ======= ======= =======
The accompanying notes are an integral part of the financial statements.
4
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Six Months Ended June 30,
2005 2004
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Cash flows from operating activities:
Net loss ............................................. $ (48) $ (240)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation ........................................ 1,382 1,348
Amortization of deferred grant income ............... (115) (114)
Gains from sale and disposal of property,
equipment and easements, net ....................... (89) (21)
Deferred income taxes ............................... 205 185
Increase (decrease) in cash from:
Accounts receivable ................................ (869) 341
Materials and supplies ............................. (259) (50)
Prepaid expenses and other ......................... (88) (303)
Accounts payable and accrued expenses .............. 959 47
------- -------
Net cash flows from operating activities ............. 1,078 1,193
------- -------
Cash flows from Investing Activities:
Purchase of property and equipment ................... (2,071) (1,389)
Proceeds from sale of property, equipment and
easements ........................................... 90 56
Proceeds from deferred grant income .................. 27 157
------- -------
Net cash flows used in investing activities .......... (1,954) (1,176)
------- -------
Cash Flows from Financing Activities:
Dividends paid ....................................... (363) (360)
Issuance of common shares for stock options
exercised and employee stock purchases .............. 49 35
------- -------
Net cash flows used in financing activities .......... (314) (325)
------- -------
Decrease in Cash and Cash Equivalents ................ (1,190) (308)
Cash and Cash Equivalents, Beginning of
Period .............................................. 1,735 1,232
------- -------
Cash and Cash Equivalents, End of Period ............. $ 545 $ 924
======= =======
Non-cash transactions are described in Note 3.
The accompanying notes are an integral part of the financial statements.
5
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Dollars in Thousands Except Per Share Amounts)
1. In the opinion of management, the accompanying interim financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 2005 and
the results of operations and cash flows for the interim periods ended June
30, 2005 and 2004. Results for interim periods may not necessarily be
indicative of the results to be expected for the year. These interim
financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2004 filed with
the Securities and Exchange Commission.
2. Stock Based Compensation:
The Company accounts for stock-based compensation awards to employees using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Had the Company
used the fair value method to value compensation, as set forth in Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net income (loss) and net income (loss) per
share would have been reported as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net income (loss)
available to common
shareholders:
As reported ............... $ 207 $ 222 $ (51) $ (243)
Less impact of stock
option expense ........... 10 9 21 17
------ ------- ------- -------
Pro forma ................. $ 197 $ 213 $ (72) $ (260)
====== ======= ======= =======
Basic income (loss) per share:
As reported ................ $ .05 $ .05 $ (.01) $ (.05)
Less impact of stock
option expense ........... .01 -- .01 .01
------ ------- ------- -------
Pro forma .................. $ .04 $ .05 $ (.02) $ (.06)
====== ======= ======= =======
Diluted income (loss) per share:
As reported ................ $ .05 $ .05 $ (.01) $ (.05)
Less impact of stock
option expense ........... .01 -- .01 .01
------ ------- ------- -------
Pro forma .................. $ .04 $ .05 $ (.02) $ (.06)
====== ======= ======= =======
6
3. Changes in Shareholders' Equity:
Total
Additional Share
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance December 31,2004. $ 32 $ 2,241 $29,914 $37,041 $69,228
Issuance of 4,441
common shares for
stock options
exercised and
employee stock
purchases .............. 2 47 49
Issuance of 13,980
common shares to
fund the Company's
2004 profit-sharing
plan contribution
(non-cash
transaction) ........... 7 181 188
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.08
per share .............. (360) (360)
Net loss for the
period ................. (48) (48)
----- ------- ------- ------- -------
Balance June 30, 2005 ... $ 32 $ 2,250 $30,142 $36,630 $69,054
===== ======= ======= ======= =======
During the six months ended June 30, 2004 the Company issued 12,628 shares
of its common stock with an aggregate fair market value of $119 to fund its
2003 profit-sharing plan contribution.
4. Other Income:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2005 2004 2005 2004
------ ------ ------ ------
Gains from sale and
disposal of property,
equipment and
easements, net ...... $ 39 $ 1 $ 89 $ 21
Rentals .............. 120 140 259 240
Interest ............. 5 1 11 2
---- ---- ---- ----
$164 $142 $359 $263
==== ==== ==== ====
5. Income (Loss) per Common Share:
Basic income (loss) per common share is computed using the weighted-average
number of common shares outstanding during each period. Diluted income
(loss) per common share reflects the effect of the Company's outstanding
convertible preferred stock, options and warrants except where such items
would be antidilutive.
7
A reconciliation of weighted-average shares used for the basic computation
and that used for the diluted computation is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Weighted-average shares
for basic ............ 4,494,993 4,470,566 4,488,319 4,464,091
Dilutive effect of
convertible preferred
stock, options and
warrants ............. 79,278 75,511 -- --
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,574,271 4,546,077 4,488,319 4,464,091
========= ========= ========= =========
Options to purchase 5,394 and 12,559 shares of common stock were
outstanding for the three-month periods ended June 30, 2005 and 2004,
respectively, but were not included in the computation of income per share
because their effect would be antidilutive.
Preferred stock convertible into 64,500 shares of common stock was
outstanding for the six-month periods ended June 30, 2005 and 2004 and
options to purchase 51,011 and 56,854 shares of common stock were
outstanding for the six- month periods ended June 30, 2005 and 2004,
respectively. These common stock equivalents were not included in the
computation of the diluted loss per share for these periods because their
effect would be antidilutive.
6. Commitments and Contingent Liabilities:
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, in the total amount of $470 as of June
30, 2005, has been made in the financial statements for any expected
liabilities which may result from disposition of such lawsuits.
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 ("CERCLA"). 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 ("RI/FS")
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 sixty 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 and therefore no liability has been accrued for this matter.
On December 15, 2003, the EPA issued a second "Notice of Potential
Liability" letter to the Company regarding the Site. EPA again identified
8
the Company as a PRP, this time because EPA "believes that [the Company]
accepted hazardous substance for transport to disposal or treatment
facilities and selected the site for disposal." The Company responded again
to EPA stating that it is interested in cooperating with EPA but that it
does not believe it has engaged in any activities that caused contamination
at the Site.
In connection with the EPA claim described above, the two parties who have
committed to conduct the RI/FS at the Site filed a complaint in the U.S.
District Court of Rhode Island against the Company, in an action entitled
CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al
(consolidated with Unilever Bestfoods v. American Steel & Aluminum Corp. et
al), C.A. No. 01-496/L, on December 18, 2002. The Company is one of about
sixty parties named thus far by Plaintiffs, who seek to recover response
costs incurred in investigating and responding to the releases of hazardous
substances at the Site. Plaintiffs allege that the Company is liable under
42 U.S.C. section 961(a)(3) of CERCLA as an "arranger" or "generator" of
waste that ended up at the Site. The Company has entered into a Generator
Cooperation Agreement with other defendants to allocate costs in responding
to this suit, and to share technical costs and information in evaluating
the Plaintiffs' claims. Although the Company does not believe it generated
any waste that ended up at this Site, or that its activities caused
contamination at the Site, the Company has agreed to settle this suit for
$45 and has accrued a liability for this amount as of December 31, 2004. A
settlement agreement has not yet been finalized.
7. Dividends:
On July 27, 2005, the Company declared a dividend of $.04 per share on its
outstanding Common Stock payable August 22, 2005 to shareholders of record
August 8, 2005.
8. Recent Accounting Pronouncements:
On December 16, 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123R, "Share-Based Payment"
(SFAS No. 123R). This Statement is a revision of SFAS No. 123, "Accounting
for Stock-Based Compensation", and supersedes Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and its related
implementation guidance. SFAS No. 123R focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment transactions. The Statement requires entities to recognize stock
compensation expense for awards of equity instruments to employees based on
the grant-date fair value of those awards (with limited exceptions). On
April 14, 2005 the Securities and Exchange Commission issued a revision to
SFAS No. 123R and the effective date for this pronouncement will be for the
first annual reporting period that begins after June 15, 2005. We are
evaluating the two methods of adoption allowed by SFAS No. 123R: the
modified- prospective transition method and the modified-retrospective
transition method.
In May 2005, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 154, "Accounting Changes
and Error Corrections" (SFAS No. 154; the Statement). SFAS No. 154,
effective for interim or annual reporting periods beginning after
December 15, 2005, replaces APB Opinion No. 20, "Accounting Changes", and
FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial
Statements", and changes the requirements for and reporting of a change in
accounting principle. The Statement applies to all voluntary changes in
accounting principle and to changes required by new accounting
pronouncements that do not include specific transition provisions, and
requires retrospective application of changes in accounting principles to
prior periods financial statements unless it is impracticable to determine
either the period-specific or cumulative effects of the change. In the
event of a change in accounting principle, accounting estimate or reporting
9
entity, we will describe the nature of the change and the reason for the
change, and will reflect the impact of the change in the current and prior
period financial statements as appropriate.
In March 2005, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 47, "Accounting for Conditional Asset Retirement
Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47
clarifies the term conditional asset retirement obligation as used in SFAS
No. 143, "Accounting for Asset Retirement Obligations," and requires an
entity to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value can be reasonably estimated. Any
uncertainty about the amount and/or timing of the future settlement of a
conditional asset retirement obligation should be factored into the
measurement of the liability when sufficient information exists. FIN 47
also clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation.
FIN 47 is effective for fiscal years ending after December 15, 2005. The
Company is currently determining the impact of FIN 47 on its financial
reporting and disclosures.
10
PROVIDENCE AND WORCESTER RAILROAD COMPANY
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDA") which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions, however,
that actual results could differ materially from those indicated in MDA.
Critical Accounting Policies
- ----------------------------
The Securities and Exchange Commission ("SEC") defines critical accounting
policies as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
The Company's significant accounting policies are described in Note 1 of the
Notes to Financial Statements in its Annual Report on Form 10-K. Not all of
these significant accounting policies require management to make difficult,
subjective or complex judgments or estimates. Management believes that the
Company's policy for the evaluation of long-lived asset impairment is a critical
accounting policy.
The Company 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 carrying amounts of the assets are recoverable.
Results of Operations
- ---------------------
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $5,553 84.3% $5,486 84.5% $10,019 81.9% $9,686 83.8%
Containers ..... 691 10.5 653 10.0 1,401 11.5 1,261 10.9
Other freight
related ....... 181 2.7 167 2.6 441 3.6 320 2.8
Other Operating
Revenues ....... 163 2.5 187 2.9 367 3.0 293 2.5
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $6,588 100.0% $6,493 100.0% $12,228 100.0% $11,560 100.0%
====== ===== ====== ===== ======= ===== ======= =====
11
The following table sets forth a comparison of the Company's operating expenses
expressed in dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes
and employee
benefits ....... $3,477 52.8% $3,292 50.7% $6,822 55.8% $6,675 57.7%
Casualties and
insurance ...... 249 3.8 522 8.0 499 4.1 774 6.7
Depreciation .... 691 10.5 660 10.2 1,382 11.3 1,348 11.7
Diesel fuel ..... 502 7.6 284 4.4 851 7.0 533 4.6
Car hire, net ... 277 4.2 222 3.4 546 4.5 349 3.0
Purchased
services,
including legal
and professional
fees ........... 292 4.4 327 5.0 527 4.3 563 4.9
Repair and
maintenance of
equipment ...... 329 5.0 300 4.6 664 5.4 601 5.2
Track and signal
materials ...... 825 12.5 416 6.4 1,127 9.2 605 5.2
Track usage fees 213 3.2 224 3.5 350 2.9 333 2.9
Other materials
and supplies ... 250 3.8 235 3.6 516 4.2 445 3.9
Other ........... 418 6.4 450 6.9 894 7.3 882 7.6
------ ----- ------ ----- ------- ----- ------- -----
Total .......... 7,523 114.2 6,932 106.7 14,178 116.0 13,108 113.4
Less capitalized
and recovered
costs ......... 1,088 16.5 639 9.8 1,538 12.6 940 8.1
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $6,435 97.7% $6,293 96.9% $12,640 103.4% $12,168 105.3%
====== ===== ====== ===== ======= ===== ======= =====
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Operating Revenues:
Operating revenues increased $668,000, or 5.8%, to $12.2 million in the six
months ended June 30, 2005 from $11.6 million in 2004. This increase is the
combined result of a $333,000 (3.4%) increase in conventional freight revenues,
a $140,000 (11.1%) increase in container freight revenues, a $121,000 (37.8%)
increase in other freight related revenues and a $74,000 (25.3%) increase in
other operating revenues.
The increase in conventional freight revenues results from a 2.8% increase in
the average revenue received per conventional carloading and a small (.6%)
increase in traffic volume. The Company's conventional carloadings increased by
87 to 14,497 in the first six months of 2005 from 14,410 in 2004. Rate
increases, including diesel fuel surcharges, largely account for the increase in
the average revenue per carloading.
The increase in container freight revenues is the result of an 11.5% increase in
the average revenue received per container slightly offset by a .3% decrease in
the volume of containers handled. Intermodal containers handled during the
six-month period decreased by 102 to 29,613 in 2005 from 29,715 in 2004. The
increase in the average revenue received per container is attributable to
contractual rate adjustments, as well as a shift in the mix of containers
handled.
The increase in other freight related revenues results from increased demurrage
charges billed to freight customers. This revenue partially offsets the
increased car hire expense incurred during the period.
12
The increase in other operating revenues results from higher maintenance
department billings. Revenues of this type vary from period to period depending
upon the needs of freight customers and other outside parties.
Operating Expenses:
Operating expenses increased by $472,000, or 3.9%, to $12.6 million in 2005 from
$12.2 million in 2004. Diesel fuel costs for the six-month period increased by
$318,000 reflecting the higher prices paid for petroleum products. Car hire
expense increased by $197,000 during the period. These higher costs were
partially offset by increased demurrage billings to freight customers as
previously noted. Casualties and insurance expense in 2004 includes a provision
of $275,000 to cover a lawsuit judgment against the Company which was rendered
in May 2004 and subsequently settled in full in December 2004 for $208,000.
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
Operating Revenues:
Operating revenues increased $95,000, or 1.5% to $6.6 million in the second
quarter of 2005 from $6.5 million in the second quarter of 2004. This increase
is the net result of a $67,000 (1.2%) increase in conventional freight revenues,
a $38,000 (5.8%) increase in container freight revenues and a $14,000 (8.4%)
increase in other freight related revenues partially offset by a $24,000 (12.8%)
decrease in other operating revenues.
The increase in conventional freight revenues results from 1.1% increase in
conventional traffic volume and .1% increase in the average revenue received per
conventional carloading. The Company's conventional carloadings increased by 102
to 9,211 in the second quarter of 2005 from 9,109 in 2004. Increases in
construction aggregate and coal traffic (lower-rated commodities) were partially
offset by decreases in carloadings of higher rated commodities. The small
increase in the average revenue received per conventional carloading results
from modest rate increases, including diesel fuel surcharges, largely offset by
the effects of the changes in traffic mix as previously discussed.
The increase in container freight revenues is the net result of a 15.9% increase
in the average revenue received per container partially offset by an 8.7%
decrease in the volume of containers handled. Intermodal containers handled
during the second quarter of 2005 decreased by 1,362 to 14,263 from 15,625 in
the second quarter of 2004. The increase in the average revenue received per
container is attributable to contractual rate adjustments, as well as a shift in
the mix of containers handled. Lower rated containers accounted for much of the
decline in volume.
The increase in other freight related revenues results from increased demurrage
charges billed to freight customers as previously discussed.
The decrease in other operating revenues results from a reduction in maintenance
department billings to freight customers and other outside parties.
Operating Expenses:
Operating expenses for the second quarter of 2005 increased by $142,000, or
2.3%, from the second quarter of 2004. Increases in diesel fuel costs of
$218,000 and car hire expense of $55,000 during 2005 were offset by the $275,000
lawsuit provision which was included in 2004.
13
Liquidity and Capital Resources
- -------------------------------
During the first six months of 2005 the Company generated $1.1 million of cash
from its operations. Total cash and equivalents decreased by $1.2 million for
the period. The principal utilization of cash during the period, other than for
operations, was for expenditures for property and equipment, of which $1.1
million was for additions and improvements to track structure, and for the
payment of dividends.
In management's opinion, cash generated from operations during the remainder of
2005 will be sufficient to enable the Company to meet its operating expenses and
capital expenditure and dividend requirements.
Seasonality
- -----------
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during a portion of this
period and to winter weather conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Cash and Equivalents
As of June 30, 2005, 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 June 30, 2005. 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
should not be material.
Item 4. Controls and Procedures
- -------------------------------
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company carried out an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
as of the end of the period covered by this report. This evaluation was carried
out under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Treasurer and Chief Financial Officer. Based upon that evaluation, the Chief
Executive Officer and the Treasurer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission
rules and forms.
There was no significant change in the Company's internal control over financial
reporting that occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
14
PART II - Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders was held on April 27, 2005. Of the
4,481,784 shares of common stock entitled to vote, 4,141,807 shares
were present, in person or by proxy. Of the 645 shares of preferred
stock entitled to vote, 503 shares were present, in person or by
proxy.
All directors of the Company are elected on an annual basis and the
following were so elected at this Annual Meeting:
Richard W. Anderson, Robert H. Eder and John J. Healy were elected
Common Stock Directors. Mr. Anderson received 3,960,404 affirmative
votes and 181,403 votes withheld, Mr. Eder received 3,935,673
affirmative votes and 206,134 votes withheld and Mr. Healy received
3,960,154 affirmative votes and 181,653 votes withheld of common
shares.
Frank W. Barrett, J. Joseph Garrahy, James C. Garvey, Orville R.
Harrold, Charles M. McCollam, Jr. and Craig M. Scott were elected
Preferred Stock Directors. Messrs. Barrett and Scott each received 503
affirmative votes and no votes withheld of preferred shares. Messrs.
Garrahy, Garvey, Harrold and McCollam each received 500 affirmative
votes and 3 votes withheld of preferred shares.
A proposal was presented to approve the Company's All Star/Anniversary
Safety Incentive Plan which calls for the issuance of not more the
25,000 shares of newly issued common shares of the Company to its
eligible employees. The proposal received 2,575,378 affirmative votes,
152,131 negative votes, 73,674 abstentions and 1,340,624 no votes of
common shares. The proposal received 503 affirmative votes and no
negative votes of preferred shares.
A proposal was presented to amend the Company's Bylaws to eliminate
the mandatory retirement age for members of the Board of Directors.
The proposal received 3,967,601 affirmative votes, 94,858 negative
votes and 79,348 abstentions of common shares. The proposal received
500 affirmative votes and 3 negative votes of preferred shares.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) No reports on Form 8-K were filed during the quarter ended June
30, 2005.
15
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVIDENCE AND WORCESTER
RAILROAD COMPANY
By: /s/ Robert H. Eder
-------------------------------------
Robert H. Eder,
Chairman of the Board
and Chief Executive Officer
By: /s/ Robert J. Easton
-------------------------------------
Robert J. Easton,
Treasurer and Chief
Financial Officer
DATED: August 12, 2005
16
EXHIBIT 31.1
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT H. EDER, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report, based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATE: August 12, 2005
By: /s/ Robert H. Eder
-------------------------------------
Robert H. Eder
Chairman of the Board
and Chief Executive Officer
17
EXHIBIT 31.2
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT J. EASTON certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report, based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATE: August 12, 2005
By: /s/ Robert J. Easton
-------------------------------------
Robert J. Easton
Treasurer and Chief
Financial Officer
18
EXHIBIT 32
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Providence and Worcester Railroad
Company ("the Company") on form 10-Q for the quarterly period ended June 30,
2005, as filed with the Securities and Exchange Commission on the date hereof
("the Report"), I, Robert H. Eder, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Robert H. Eder
-------------------------------------
Robert H. Eder,
Chairman of the Board and Chief
Executive Officer
August 12, 2005
In connection with the Quarterly Report of Providence and Worcester Railroad
Company ("the Company") on form 10-Q for the quarterly period ended June 30,
2005, as filed with the Securities and Exchange Commission on the date hereof
("the Report"), I, Robert J. Easton, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Robert J. Easton
-------------------------------------
Robert J. Easton,
Treasurer and Chief Financial Officer
August 12, 2005