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 September 30, 2005
_ 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
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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 check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES ___ NO X
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Indicate by check mark whether the registrant is a shell company (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 November 1, 2005, the registrant has 4,504,638 shares of common stock, par
value $.50 per share, outstanding.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Index
Part I - Financial Information
Item 1 - Financial Statements (Unaudited):
Balance Sheets - September 30, 2005 (Unaudited)
and December 31, 2004........................................... 3
Statements of Income (Unaudited) - Three and
Nine Months Ended September 30, 2005
and 2004........................................................ 4
Statements of Cash Flows (Unaudited) - Nine
Months Ended September 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...................................... 15
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K ........................... 15
Signatures ............................................................... 16
EXHIBIT 31-Certifications Pursuant To Section 302
of The Sarbanes-Oxley Act of 2002..............................17-18
EXHIBIT 32-Certifications 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
September 30,December 31,
2005 2004
(Unaudited)
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Current Assets:
Cash and cash equivalents ........................... $ 995 $ 1,735
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2005 and 2004 ......... 4,563 3,564
Materials and supplies .............................. 1,899 1,889
Prepaid expenses and other .......................... 244 239
Deferred income taxes ............................... 211 212
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Total Current Assets ............................... 7,912 7,639
Property and Equipment, net .......................... 72,980 71,874
Land Held for Development ............................ 11,958 11,958
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Total Assets ......................................... $92,850 $91,471
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 2,197 $ 1,679
Accrued expenses .................................... 1,385 1,284
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Total Current Liabilities .......................... 3,582 2,963
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Profit-Sharing Plan Contribution ..................... 117 188
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Deferred Income Taxes ................................ 11,413 11,129
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Deferred Grant Income ................................ 8,101 7,963
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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
4,504,301 shares in 2005 and 4,481,007
shares in 2004 ..................................... 2,252 2,241
Additional paid-in capital .......................... 30,201 29,914
Retained earnings ................................... 37,152 37,041
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Total Shareholders' Equity ......................... 69,637 69,228
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Total Liabilities and Shareholders' Equity ........... $92,850 $91,471
======= =======
The accompanying notes are an integral part of the
financial statements (unaudited).
3
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
------- ------- ------- -------
Revenues:
Operating Revenues ................. $ 7,449 $ 7,036 $19,677 $18,596
Other Income ....................... 133 1,169 492 1,432
------- ------ -------- -------
Total Revenues .................. 7,582 8,205 20,169 20,028
------- ------ -------- -------
Operating Expenses:
Maintenance of way and
structures ....................... 865 733 2,866 2,717
Maintenance of equipment .......... 644 622 2,057 1,971
Transportation .................... 1,984 1,752 5,654 5,253
General and administrative ........ 1,075 1,072 3,096 3,121
Depreciation ...................... 691 728 2,073 2,076
Taxes, other than income
taxes ............................ 549 545 1,692 1,687
Car hire, net ..................... 280 245 826 594
Employee retirement plans ......... 173 241 287 354
Track usage fees .................. 214 255 564 588
------- ------ -------- -------
Total Operating Expenses ......... 6,475 6,193 19,115 18,361
------- ------ -------- -------
Income before Income Taxes ......... 1,107 2,012 1,054 1,667
Provision for Income Taxes ......... 405 715 400 610
------- ------ -------- -------
Net Income ......................... 702 1,297 654 1,057
Preferred Stock Dividends .......... -- -- 3 3
------- ------ -------- -------
Net Income Available to Common
Shareholders ...................... $ 702 $ 1,297 $ 651 $ 1,054
======= ======= ======= =======
Basic Income Per Common Share ...... $ .16 $ .29 $ .14 $ .24
======= ======= ======= =======
Diluted Income Per Common
Share ............................. $ .15 $ .28 $ .14 $ .23
======= ======= ======= =======
The accompanying notes are an integral part of the
financial statements (unaudited).
4
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Nine Months Ended September 30,
2005 2004
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Cash Flows from Operating Activities:
Net income ......................................... $ 654 $ 1,057
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation ...................................... 2,073 2,076
Amortization of deferred grant income ............. (173) (171)
Profit-sharing plan contribution to be
funded with common stock ......................... 117 185
Gains from sale, condemnation and disposal
of property, equipment and easements, net ........ (90) (1,081)
Deferred income tax expense ....................... 285 652
Increase (decrease) in cash from:
Accounts receivable .............................. (903) (526)
Materials and supplies ........................... (10) 124
Prepaid expenses and other ....................... (5) (61)
Accounts payable and accrued expenses ............ 510 (43)
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Net cash flows from operating activities ........... 2,458 2,212
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Cash Flows from Investing Activities:
Purchase of property and equipment ................. (3,072) (2,785)
Proceeds from sale and condemnation of
property, equipment and easements ................. 92 1,468
Proceeds from deferred grant income ................ 215 157
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Net cash flows used in investing activities ........ (2,765) (1,160)
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Cash Flows from Financing Activities:
Dividends paid ..................................... (543) (540)
Issuance of common shares for stock options
exercised, employee stock purchases and
other ............................................. 110 60
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Net cash flows used in financing activities ........ (433) (480)
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Increase (decrease) in Cash and Cash
Equivalents ....................................... (740) 572
Cash and Cash Equivalents, Beginning of
Period ............................................ 1,735 1,232
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Cash and Cash Equivalents, End of Period ........... $ 995 $ 1,804
======= =======
Non-cash transactions are described in Note 3.
The accompanying notes are an integral part of the
financial statements (unaudited).
5
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 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 September 30, 2005
and the results of operations and cash flows for the interim periods ended
September 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 and net income per share would have
been reported as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
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2005 2004 2005 2004
------ ------ ------ ------
Net income available to
common shareholders:
As reported ................ $ 702 $1,297 $ 651 $1,054
Less impact of stock
option expense ............ 10 9 32 26
------ ------ ------ ------
Pro forma .................. $ 692 $1,288 $ 619 $1,028
====== ====== ====== ======
Basic income per share:
As reported ................ $ .16 $ .29 $ .14 $ .24
Less impact of stock
option expense ........... .01 -- -- .01
------ ------ ------ ------
Pro forma .................. $ .15 $ .29 $ .14 $ .23
====== ====== ====== ======
Diluted income per share:
As reported ................ $ .15 $ .28 $ .14 $ .23
Less impact of stock
option expense ............ -- -- -- --
------ ------ ------ ------
Pro forma .................. $ .15 $ .28 $ .14 $ .23
====== ====== ====== ======
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 9,314
common shares for
stock options
exercised, employee
stock purchases and
other .................. 4 106 110
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, $.12
per share .............. (540) (540)
Net income for the
period ................. 654 654
------- ------- ------- ------- -------
Balance,
September 30, 2005 ..... $ 32 $ 2,252 $30,201 $37,152 $69,637
======= ======= ======= ======= =======
During the nine months ended September 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 Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
------ ------ ------ ------
Gains from sale,
condemnation and
disposal of property,
equipment and
easements, net ...... $ 1 $1,060 $ 90 $1,081
Rentals .............. 126 106 385 346
Interest ............. 6 3 17 5
------ ------ ------ ------
$ 133 $1,169 $ 492 $1,432
====== ====== ====== ======
Gains from sale, condemnation and disposal of property, equipment and
easements for 2004 includes a $948,000 gain realized on the disposal of a
portion of a branch line which the Commonwealth of Massachusetts acquired
by eminent domain.
5. Income Per Common Share:
Basic income per common share is computed using the weighted-average number
of common shares outstanding during each period. Diluted income per common
share reflects the effect of the Company's outstanding convertible
preferred stock and options 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Weighted average shares
for basic ............ 4,500,841 4,474,896 4,492,539 4,467,719
Dilutive effect of
convertible preferred
stock and options .... 80,244 76,599 79,568 75,007
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,581,085 4,551,495 4,572,107 4,542,726
========= ========= ========= =========
Options to purchase 5,394 shares of common stock which were outstanding for
the three and nine month periods ended September 30, 2005 and options to
purchase 12,559 shares of common stock which were outstanding for the three
and nine month periods ended September 30, 2004 were not included in the
computations of diluted earnings per share 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
September 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
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.
8
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. ss. 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 September 30, 2005
and December 31, 2004. A settlement agreement has not yet been finalized.
7. Dividends:
On October 26, 2005, the Company declared a dividend of $.04 per share on
its outstanding Common Stock payable November 21, 2005 to shareholders of
record November 7, 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. Refer to
Note 2 for the potential impacts of the adoption of this standard.
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). 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 principles. SFAS
No. 154 applies to all voluntary changes in accounting principles 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 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
9
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
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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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $6,245 83.8% $ 5,829 82.9% $16,264 82.7% $15,515 83.4%
Containers ..... 899 12.1 831 11.8 2,300 11.7 2,092 11.3
Other freight
related ....... 170 2.3 184 2.6 611 3.1 504 2.7
Other Operating
Revenues ....... 135 1.8 192 2.7 502 2.5 485 2.6
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $7,449 100.0% $7,036 100.0% $19,677 100.0% $18,596 100.0%
====== ===== ====== ===== ======= ===== ======= =====
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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits $3,717 49.9% $ 3,681 52.3% $10,539 53.6% $10,356 55.7%
Casualties and
insurance ....... 245 3.3 236 3.4 744 3.8 1,010 5.4
Depreciation ..... 691 9.3 728 10.3 2,073 10.5 2,076 11.1
Diesel fuel ...... 570 7.6 306 4.3 1,421 7.2 839 4.5
Car hire, net .... 280 3.7 245 3.5 826 4.2 594 3.2
Purchased
services,
including legal
and professional
fees ............ 453 6.1 421 6.0 980 5.0 984 5.3
Repair and
maintenance of
equipment ....... 245 3.3 193 2.7 909 4.6 794 4.2
Track and signal
materials ....... 440 5.9 583 8.3 1,567 8.0 1,188 6.4
Track usage fees . 214 2.9 255 3.6 564 2.9 588 3.2
Other materials
and supplies .... 221 3.0 296 4.2 737 3.7 741 4.0
Other ............ 369 4.9 342 4.9 1,263 6.4 1,224 6.6
------ ----- ------ ----- ------- ----- ------ -----
Total ........... 7,445 99.9 7,286 103.5 21,623 109.9 20,394 109.6
Less capitalized
and recovered
costs .......... 970 13.0 1,093 15.5 2,508 12.8 2,033 10.9
------ ----- ------ ----- ------- ----- ------ -----
Total ......... $6,475 86.9% $6,193 88.0% $19,115 97.1% $18,361 98.7%
====== ===== ====== ===== ======= ===== ======= =====
Nine Months Ended September 30, 2005 Compared to Nine Months
Ended September 30, 2004
Operating Revenues:
Operating revenues increased $1.1 million, or 5.8%, to $19.7 million in the nine
months ended September 30, 2005 from $18.6 million in 2004. This increase is the
combined result of a $749,000 (4.8%) increase in conventional freight revenues,
a $208,000 (9.9%) increase in container freight revenues, a $107,000 (21.2%)
increase in other freight related revenues and a $17,000 (3.5%) increase in
other operating revenues.
The increase in conventional freight revenues results from a 2.2% increase in
the average revenue received per conventional carloading and a 2.6% increase in
traffic volume. The Company's conventional carloadings increased by 637 to
24,946 in the first nine months of 2005 from 24,309 in 2004. Rate increases,
including diesel fuel surcharges, account for the increase in the average
revenue per carloading.
The increase in container revenues is the result of a 16.7% increase in the
average revenue received per container partially offset by a 5.8% decrease in
the volume of containers handled. Intermodal containers handled during the
nine-month period decreased by 2,841 to 46,426 in 2005 from 49,267 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 revenues results from increased demurrage charges
billed to freight customers. This revenue partially offsets the increased car
hire expense incurred during the nine-month period.
12
The increase in other operating revenues is the result of higher maintenance
department billings. Revenues of this type vary from period to period depending
upon the needs of freight customers and other outside parties.
Other Income:
Other income decreased by $940,000 to $492,000 in the nine months ended
September 30, 2005 from $1.4 million in 2004. Other income in 2004 includes a
gain of $948,000 realized on the disposal of a portion of a branch line which
the Commonwealth of Massachusetts acquired by eminent domain.
Operating Expenses:
Operating expenses increased by $754,000, or $4.1%, to $19.1 million in the
nine months ended September 30, 2005 from $18.4 million in 2004. Diesel fuel
expense for the period increased by $582,000 reflecting the high cost of
petroleum products. Car hire expense increased by $232,000 during the period,
which costs were partially offset by increased demurrage billings as previously
discussed. 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 September 30, 2005 Compared to Three Months
Ended September 30, 2004
Operating Revenues:
Operating revenues increased $413,000, or 5.9%, to $7.4 million in the third
quarter of 2005 from $7.0 million in the third quarter of 2004. This increase is
the net result of a $416,000 (7.1%) increase in conventional freight revenues
and a $68,000 (8.2%) increase in container freight revenues partially offset by
a $14,000 (7.6%) decrease in other freight related revenues and a $57,000
(42.2%) decrease in other operating revenues.
The increase in conventional freight revenues results from a 5.6% increase in
conventional traffic volume and a 1.5% increase in the average revenue received
per conventional carloading. The Company's conventional carloadings increased by
550 to 10,449 in the third quarter of 2005 from 9,899 in 2004, The increase in
the average revenue received per conventional carloading results from rate
increases, including diesel fuel surcharges.
The increase in container freight revenues is the net result of a 25.8% increase
in average revenue received per container partially offset by a 14.0% decrease
in the volume of containers handled. Intermodal containers handled during the
third quarter of 2005 decreased by 2,739 to 16,813 from 19,552 in the third
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 toward higher rated containers.
The small decrease in other freight related revenues is attributable to declines
in billings for secondary switching, weighing and other ancillary services which
more than offset increased demurrage billings.
The decrease in other operating revenues results from a reduction in maintenance
department billings to freight customers and other outside parties.
13
Other Income:
Other income decreased by $1.0 million to $133,000 in the third quarter of 2005
from $1.2 million in the third quarter of 2004. As previously noted, the third
quarter of 2004 includes a gain of $948,000 which the Company realized when a
portion of one of its branch lines was taken by the Commonwealth of
Massachusetts by eminent domain.
Operating Expenses:
Operating expenses for the third quarter of 2005 increased by $282,000, or 4.6%,
to $6.5 million from $6.2 million in the third quarter of 2004. Increases in
diesel fuel costs of $264,000, as previously discussed, accounts for most of
this increase.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 2005 the Company generated $2.5 million of cash
from its operations. Total cash and equivalents decreased by $740,000 for the
period. The principal utilization of cash during the period, other than for
operations, was for expenditures for property and equipment, of which $1.7
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 working capital,
capital expenditure and dividend requirements through the end of the year.
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 September 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 which expires May 31,
2007 provides for borrowings which bear interest at variable rates based on
either the 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 September 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.
14
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. Based upon that evaluation, the Chief Executive Officer and the
Treasurer 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 affect, the Company's internal
control over financial reporting.
PART II - Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) No reports on Form 8-K were filed during the quarter ended September
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: November 11, 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: November 11, 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: November 11, 2005
By: /s/ Robert J. Easton
---------------------------
Robert J. Easton
Treasurer and Chief
Financial Officer
18
EXHIBIT 32
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CERTIFICATIONS 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 September 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
November 11, 2005
In connection with the Quarterly Report of Providence and Worcester Railroad
Company (the Company) on form 10-Q for the quarterly period ended September 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
November 11, 2005