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, 2006
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check one)
Large accelerated filer___ Accelerated filer___ Non-accelerated filer X
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange 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, 2006, the registrant has 4,527,624 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, 2006 (Unaudited)
and December 31, 2005.......................................3
Statements of Income (Loss) (Unaudited) -
Three and Six Months Ended June 30, 2006
and 2005....................................................4
Statements of Cash Flows (Unaudited) - Six
Months Ended June 30, 2006 and 2005.........................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 5 -Reports on Form 8-K.......................................15
Item 6 -Exhibits..................................................15
Signatures.............................................................16
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,
2006 2005
(Unaudited)
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Current Assets:
Cash and cash equivalents ........................... $ 1,627 $ 2,063
Accounts receivable, net of allowance for
doubtful accounts of $175 in 2006 and 2005 ......... 4,053 3,202
Materials and supplies .............................. 1,934 1,654
Prepaid expenses and other current assets ........... 308 152
Deferred income taxes ............................... 161 193
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Total Current Assets ............................... 8,083 7,264
Property and Equipment, net .......................... 74,139 74,126
Land Held for Development ............................ 11,958 11,958
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Total Assets ......................................... $94,180 $93,348
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 3,350 $ 1,905
Accrued expenses .................................... 868 1,471
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Total Current Liabilities .......................... 4,218 3,376
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Profit-Sharing Plan Contribution ..................... -- 211
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Deferred Income Taxes ................................ 11,753 11,530
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Deferred Grant Income ................................ 8,118 8,140
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Commitments and Contingent Liabilities................
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
640 shares in 2006 and 645 shares in 2005 .......... 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,527,367 shares in 2006 and 4,507,056
shares in 2005 ..................................... 2,264 2,254
Additional paid-in capital .......................... 30,559 30,230
Retained earnings ................................... 37,236 37,575
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Total Shareholders' Equity ......................... 70,091 70,091
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Total Liabilities and Shareholders' Equity ........... $94,180 $93,348
======= =======
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,
2006 2005 2006 2005
------- ------- ------- -------
Revenues:
Operating Revenues .................. $ 7,243 $ 6,588 $ 13,850 $12,228
Other Income ........................ 244 164 424 359
------- ------- ------- -------
Total Revenues .................... 7,487 6,752 14,274 12,587
------- ------- ------- -------
Operating Expenses:
Maintenance of way and
structures ......................... 1,139 955 2,538 2,001
Maintenance of equipment ............ 901 697 1,794 1,413
Transportation ...................... 2,101 1,946 4,206 3,670
General and administrative .......... 1,118 1,036 2,159 2,021
Depreciation ........................ 690 691 1,381 1,382
Taxes, other than income
taxes .............................. 575 563 1,160 1,143
Car hire, net ....................... 290 277 526 546
Employee retirement plans ........... 57 57 114 114
Track usage fees .................... 181 213 336 350
------- ------- ------- -------
Total Operating Expenses ........... 7,052 6,435 14,214 12,640
------- ------- ------- -------
Income (Loss) before Income
Taxes ............................... 435 317 60 (53)
Provision for Income Taxes
(Benefit) ........................... 158 110 35 (5)
------- ------- ------- -------
Net Income (Loss) .................... 277 207 25 (48)
Preferred Stock Dividends ............ -- -- 3 3
------- ------- ------- -------
Net Income (Loss) Available to
Common Shareholders ................. $ 277 $ 207 $ 22 $ (51)
======= ======= ======= =======
Basic and Diluted Income
(Loss) Per Common Share ............. $ .06 $ .05 $ -- $ (.01)
======= ======= ======= =======
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,
2006 2005
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Cash flows from operating activities:
Net income (loss) .................................... $ 25 $ (48)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation ........................................ 1,381 1,382
Amortization of deferred grant income ............... (119) (115)
Gains from sale and disposal of property,
equipment and easements, net ....................... (129) (89)
Deferred income taxes ............................... 255 205
Common shares issued to employees for services ...... 24 --
Share-based compensation ............................ 43 --
Increase (decrease) in cash from:
Accounts receivable ................................ (938) (869)
Materials and supplies ............................. (280) (259)
Prepaid expenses and other ......................... (156) (88)
Accounts payable and accrued expenses .............. 773 959
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Net cash flows from operating activities ............. 879 1,078
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Cash flows from Investing Activities:
Purchase of property and equipment ................... (1,409) (2,071)
Proceeds from sale of property, equipment and
easements ........................................... 213 90
Proceeds from deferred grant income .................. 184 27
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Net cash flows used in investing activities .......... (1,012) (1,954)
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Cash Flows from Financing Activities:
Dividends paid ....................................... (364) (363)
Issuance of common shares for stock options
exercised and employee stock purchases .............. 61 49
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Net cash flows used in financing activities .......... (303) (314)
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Decrease in Cash and Cash Equivalents ................ (436) (1,190)
Cash and Cash Equivalents, Beginning of
Period .............................................. 2,063 1,735
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Cash and Cash Equivalents, End of Period ............. $ 1,627 $ 545
======= =======
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, 2006 AND 2005
(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, 2006 and
the results of operations and cash flows for the interim periods ended June
30, 2006 and 2005. 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, 2005 filed with
the Securities and Exchange Commission.
2. Stock-Based Compensation:
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123(R), "Share-Based Payment," (SFAS No. 123(R))
using the modified prospective method. This method requires that companies
recognize compensation expense for new stock option grants and the unvested
portion of prior stock option grants at their fair value on the grant date
and recognize this expense over the requisite service period for awards
expected to vest. All of the Company's stock options granted prior to
January 1, 2006 were 100% vested and as a result did not impact the amount
of expense recorded during the three- and six-month periods ended June 30,
2006. The results for prior year periods have not been restated. As a
result of adopting SFAS No. 123(R), stock-based employee compensation
expense, net of income taxes, in the amount of $14 and $28, has been
charged against income in the three- and six month periods ended June 30,
2006, respectively, for stock options granted during these periods. The
Company's policy is to estimate the fair market value of each option
granted on the date of grant using the Black-Scholes option pricing model
and record the compensation expense on a straight-line basis over the year
in which the grant was made. The Company issues new common stock to satisfy
stock options exercised. Key assumptions used to apply the Black-Scholes
option pricing model are set forth below:
Average risk-free interest rate 4.32%
Expected life of option grants 7.0 years
Expected volatility of underlying stock 88.28%
Expected dividend payment rate, as a percentage of the
share price on the date of grant 1.07%
The following table illustrates the effect on the net loss and net loss per
share for the three-month and six month periods ended June 30, 2005 as if
the fair value based method of SFAS No. 123, "Accounting for Stock-Based
Compensation," had been applied for all outstanding awards for periods
prior to the adoption of SFAS No. 123(R).
6
Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
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Net income (loss)
attributable to common
shareholders:
As reported ........... $ 207 $ (51)
Less impact of stock
option expense ....... 10 21
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Pro forma ............. $ 197 $ (72)
======= =======
Basic and diluted income
(loss) per share:
As reported ............ $ .05 $ (.01)
Less impact of stock
option expense ....... .01 .01
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Pro forma .............. $ .04 $ (.02)
======= =======
At June 30, 2006, the Company had one stock option plan, the Nonqualified
Stock Option Plan. Under the plan, options to purchase common stock were
granted to officers, directors and management employees at prices not less
than the fair market value of the common stock on the date of the grant.
The options expire ten years from the grant date. As of June 30, 2006,
there were 226,368 shares available for stock option grants under the plan.
The following table summarizes the stock option activity under the
Company's plan for the three-month period ended June 31, 2006:
Weighted Average
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Remaining
Contractual
Number Exercise Term
of Options Price (Years)
------- ------- ------
Outstanding and exercisable
at December 31, 2005................... 44,668 $10.20 6
Granted ................................ 8,140 14.90 10
Exercised .............................. (2,927) 8.78 N/A
Expired ................................ (1,607) 6.88 N/A
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Outstanding and exercisable at
June 30, 2006 ........................ 48,274 $11.19 6
====== ====== ====
7
3. Changes in Shareholders' Equity:
Total
Additional Share
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance December 31,2005. $ 32 $ 2,254 $30,230 $37,575 $70,091
Issuance of 6,800
common shares for
stock options
exercised, employee
stock purchases and
other .................. 3 82 85
Issuance of 13,011
common shares to
fund the Company's
2005 profit-sharing
plan contribution
(non-cash
transaction) ........... 7 204 211
Conversion of 5
shares of preferred
stock into 500
shares of common
stock .................. -- -- --
Share-based
compensation ........... 43 43
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.08
per share .............. (361) (361)
Net income for the
period ................. 25 25
----- ------- ------- ------- -------
Balance June 30,2006 .... $ 32 $ 2,264 $30,559 $37,236 $70,091
===== ======= ======= ======= =======
During the six months ended June 30, 2005 the Company issued 13,980 shares
of its common stock with an aggregate fair market value of $188 to fund its
2004 profit-sharing plan contribution.
4. Other Income:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2006 2005 2006 2005
------ ------ ------ ------
Gains from sale and
disposal of property,
equipment and
easements, net ...... $ 98 $ 39 $129 $ 89
Rentals .............. 134 120 269 259
Interest ............. 12 5 26 11
---- ---- ---- ----
$244 $164 $424 $359
==== ==== ==== ====
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 and stock options except where such items would
be antidilutive.
8
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,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Weighted-average shares
for basic ............ 4,521,650 4,494,993 4,515,419 4,488,319
Dilutive effect of
convertible preferred
stock and stock options 86,139 79,278 85,108 --
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,607,789 4,574,271 4,600,527 4,488,319
========= ========= ========= =========
Options to purchase 5,029 and 5,394 shares of common stock were outstanding
for the three-month periods ended June 30, 2006 and 2005, 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 period ended June 30, 2005 and options to
purchase 5,029 and 51,011 shares of common stock were outstanding for the
six-month periods ended June 30, 2006 and 2005, respectively. These common
stock equivalents were not included in the computation of the diluted
income (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 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
9
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.
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 paid $45 to settle this suit in
March 2006.
7. Dividends:
On July 26, 2006, the Company declared a dividend of $.04 per share on its
outstanding Common Stock payable August 21, 2006 to shareholders of record
August 7, 2006.
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 June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2006 2005 2006 2005
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $6,095 84.2% $5,553 84.3% $11,400 82.3% $10,019 81.9%
Containers ..... 871 12.0 691 10.5 1,713 12.4 1,401 11.5
Other freight
related ....... 124 1.7 181 2.7 388 2.8 441 3.6
Other Operating
Revenues ....... 153 2.1 163 2.5 349 2.5 367 3.0
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $7,243 100.0% $6,588 100.0% $13,850 100.0% $12,228 100.0%
====== ===== ====== ===== ======= ===== ======= =====
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,
---------------------------- -----------------------------
2006 2005 2006 2005
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits. $3,694 51.0% $3,477 52.8% $ 7,484 54.0% $ 6,822 55.8%
Casualties and
insurance ....... 181 2.5 249 3.8 367 2.6 499 4.1
Depreciation ..... 690 9.5 691 10.5 1,381 10.0 1,382 11.3
Diesel fuel ...... 641 8.8 502 7.6 1,242 9.0 851 7.0
Car hire, net .... 290 4.0 277 4.2 526 3.8 546 4.5
Purchased
services,
including legal
and professional
fees ............ 607 8.4 292 4.4 992 7.2 527 4.3
Repair and
maintenance of
equipment ....... 574 7.9 329 5.0 1,020 7.4 664 5.4
Track and signal
materials ....... 510 7.1 825 12.5 1,414 10.2 1,127 9.2
Track usage fees . 181 2.5 213 3.2 336 2.4 350 2.9
Other materials
and supplies .... 207 2.9 250 3.8 551 4.0 516 4.2
Other ............ 454 6.3 418 6.4 893 6.4 894 7.3
------ ----- ------ ----- ------- ----- ------- -----
Total ........... 8,029 110.9 7,523 114.2 16,206 117.0 14,178 116.0
Less capitalized
and recovered
costs .......... 977 13.5 1,088 16.5 1,992 14.4 1,538 12.6
------ ----- ------ ----- ------- ----- ------- -----
Total ......... $7,052 97.4% $6,435 97.7% $14,214 102.6% $12,640 103.4%
====== ===== ====== ===== ======= ===== ======= =====
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Operating Revenues:
Operating revenues increased $1.6 million, or 13.3%, to $13.8 million in the six
months ended June 30, 2006 from $12.2 million in 2005. This increase is the net
result of a $1.4 million (13.8%) increase in conventional freight revenues and a
$312,000 (22.3%) increase in container freight revenues offset to a small extent
by a $53,000 decrease in other freight related revenues and an $18,000 decrease
in other operating revenues.
The increase in conventional freight revenues is attributable to a 9.8% increase
in traffic volume and a 3.6% increase in the average revenue received per
conventional carloading. The Company's conventional carloadings increased by
1,419 to 15,917 in the first six months of 2006 from 14,498 in 2005. Rate
increases, including diesel fuel surcharges, as well as changes in the mix of
commodities account for the increase in the average revenue per carloading.
The increase in container freight revenues is the combined result of an 18.0%
increase in the average revenue received per container and a 3.6% percent
increase in container traffic volume. Intermodal containers handled during the
six-month period increased by 1,078 to 30,691 in 2006 from 29,613 in 2005. The
increase in the average revenue received per container is attributable to
12
contractual rate adjustments based upon railroad industry cost indices, as well
as a continuing shift in the mix of containers handled toward higher rated
containers.
The decrease in other freight related revenues is the result of a decrease in
demurrage charges incurred by freight customers and the decrease in other
operating revenues is the result of lower maintenance department billings.
Revenues of these types vary from period to period depending upon the needs of
freight and other customers.
Operating Expenses:
Operating expenses increased by $1.6 million, or 12.5%, to $14.2 million during
the six months ended June 30, 2006 from $12.6 million in 2005. Diesel fuel
expense for the six-month period increased by $391,000 as a result of
significant increases in the cost of petroleum products. Employee health and
welfare costs increased by $383,000 between periods. This is largely a one- time
cost relating to changes in employee health insurance plans implemented in 2006.
The increase in expenditures for purchased services of $465,000 was largely
offset by grant proceeds resulting in increased cost recoveries.
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Operating Revenues:
Operating revenues increased $655,000, or 9.9%, to $7.2 million in the second
quarter of 2006 from $6.6 million in the second quarter of 2005. This increase
is the net result of a $542,000 (9.8%) increase in conventional freight revenues
and a $180,000 (26.0%) increase in container freight revenues offset to a small
extent by a $57,000 decrease in other freight-related revenues and a $10,000
decrease in other operating revenues.
The increase in conventional freight revenues for the quarter is attributable to
an 8.2% increase in the average revenue received per conventional carloading and
a 1.5% increase in traffic volume. The Company's conventional carloadings
increased by 136 to 9,348 in the second quarter of 2006 from 9,212 in the second
quarter of 2005. The increase in the average revenue per carloading during the
quarter results from a change in the mix in traffic towards higher rated
commodities, as well as rate increases, including diesel fuel surcharges.
The increase in container freight revenues for the quarter is the combined
result of a 16.0% increase in the average revenue received per container and an
8.7% increase in container traffic volume. Intermodal containers handled during
the quarter increased by 1,236 to 15,499 in 2006 from 14,263 in 2005. The
increase in the average revenue received per container is attributable to
contractual rate adjustments and to a shift in the mix of containers handled, as
previously discussed.
The decrease in other freight related revenues results from a decrease in
demurrage charges to freight customers. The decline in other operating revenues
is attributable to a lower level of maintenance department billings to outside
parties
Operating Expenses:
Operating expenses increased by $617,000, or 9.6%, to $7.1 million in the second
quarter of 2006 from $6.4 million in 2005. Increased diesel fuel and employee
health and welfare costs, as previously discussed, accounted for approximately
$250,000 of this increase.
13
Liquidity and Capital Resources
- -------------------------------
During the first six months of 2006 the Company generated $879,000 of cash from
its operations. Total cash and cash equivalents decreased by $436,000 for the
period. The principal utilization of cash during the period, other than for
operations, was for expenditures for property and equipment and for the payment
of dividends.
In management's opinion, cash generated from operations during the remainder of
2006 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, 2006, 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, 2006. 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 Shareholders was held on April 26, 2006. Of the
4,509,092 shares of common stock entitled to vote, 3,841,137 shares
were present, in person or by proxy. Of the 640 shares of preferred
stock entitled to vote, 511 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 3,739,673 affirmative
votes and 101,464 votes withheld, Mr. Eder received 3,483,171
affirmative votes and 357,966 votes withheld and Mr. Healy received
3,739,415 affirmative votes and 101,722 votes withheld of common
shares.
Frank W. Barrett, P. Scott Conti, J. Joseph Garrahy, James C. Garvey,
Charles M. McCollam, Jr. and Craig M. Scott were elected Preferred
Stock Directors. Messrs. Conti and Garrahy each received 511
affirmative votes and no votes withheld of preferred shares. Messrs.
Barrett, Garvey, McCollam, and Scott each received 508 affirmative
votes and 3 votes withheld of preferred shares.
A proposal was presented to amend the Company's Bylaws to eliminate
the requirement that salaries of all officers of the Company be fixed
by the Board of Directors. The proposal received 3,574,000 affirmative
votes, 251,091 negative votes and 16,046 abstentions of common shares.
The proposal received 508 affirmative votes and 3 abstentions of
preferred shares.
Item 5. Reports on Form 8-K
-------------------
(a) A report on Form 8-K was filed on June 1, 2006 in which the
Company reported that it had entered into a confidentiality
agreement with RailAmerica, Inc. with respect to exploring
possible business opportunities.
Item 6. Exhibits
--------
(3.2) By-laws
(31.1)Rule 13a-14(a) Certification of Chairman of the Board and Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
(31.2) Rule 13a-14(a) Certification of Treasurer and Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
(32) Certifications of Chairman of the Board and Chief Executive
Officer and Treasurer and Principal Financial Officer pursuant to
18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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 Principal
Financial Officer
DATED: August 14, 2006
16
EXHIBIT 3.2
MAY 1995
AMENDED AS OF JUNE 30, 2006
BY-LAWS
OF
PROVIDENCE AND WORCESTER RAILROAD COMPANY
ARTICLE I
OFFICES
The corporation may have offices at such places either within or without
the State of Rhode Island as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders for the election of
directors shall be held within or without the State of Rhode Island at such
place as may be fixed from time to time by the Board of Directors; at least ten
days' notice shall be given to the stockholders of the place so fixed. Meetings
of stockholders for any other purpose may be held at such time and place, within
or without the State of Rhode Island, as shall be stated in the notice of the
meeting.
Section 2. Annual meetings of stockholders, commencing with the year 1988,
shall be held on the last Wednesday of April if not a legal holiday, and if a
legal holiday, then on the secular day following, at which the stockholders
shall elect a Board of Directors and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting shall be given to each
stockholder of record at least ten days before the date of the meeting.
Section 4. Special meetings of the stockholders, for any purpose or
purposes, may be called by the President, or by the Chairman if there be a
Chairman, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting.
Section 5. Written notice of any special meeting of stockholders, stating
the time, place and purpose thereof, shall be given to each stockholder of
record at least ten days before the date fixed for the meeting.
Section 6. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 7. Stockholders representing a majority of each class of the shares
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted at the meeting as originally
notified.
ARTICLE. III
DIRECTORS
Section 1. The number of directors which shall constitute the whole Board
of Directors shall be not less than six [amended December 12, 1995] nor more
than fifteen [amended December 12, 1995]. Within the foregoing limits, the
number of directors to constitute the whole Board shall be fixed by vote of the
Board of Directors at any regular or special meeting of the Board of Directors,
or by the stockholders at the annual meeting. If, pursuant to the foregoing
authority, the number of directors constituting the whole Board shall be
decreased, such decrease shall not be effective with respect to the terms of
directors then holding office until the next annual meeting of stockholders. The
directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 2 of this Article, and each director elected shall hold
office until his successor is elected and qualified. [Amended as of April 27,
2005.] No person who is not a shareholder of the corporation shall be eligible
to serve as a director of the corporation. Any director who, during the period
beginning with his or her first election to office and ending on the December 31
next following such election, or during any calendar year thereafter, attends
less than seventy-five percent (75%) of either (i) the total number of meetings
of the Board of Directors held during such period, or (ii) the total number of
meetings held by all committees of the Board of Directors on which he or she
shall have served during such period, shall be ineligible for re- election as a
director upon the expiration of his or her term as a director; provided, that a
majority of the remaining directors may waive such requirement upon receipt of
evidence satisfactory to them that the failure of any director to satisfy the
foregoing requirements was due to medical reasons. [amended April 26, 1995]
Section 2. Vacancies in the Board of Directors may be filled in the manner
provided in the charter. A vacancy or vacancies shall be deemed to exist at any
time the number of directors then in office is less than the whole Board as
provided in Section 1, above.
Section 3. The business of the corporation shall be managed by its Board of
Directors, which may exercise all powers of the corporation and do all such
lawful acts and things as are not by statute or by the charter or by these
by-laws directed or required to be exercised or done by the stockholders.
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Rhode Island.
Section 5. The Board of Directors shall hold a meeting immediately after
each annual meeting of stockholders, at which meeting they shall elect a
President, a Vice President, a Treasurer, a Secretary, and such other officers
as they may deem appropriate, provided, however, that they may adjourn said
meeting to such time as they see fit and elect said officers at said adjourned
meeting. They may also, at any annual meeting, or at any adjournment thereof,
transact any other business which may be properly brought before them. Regular
quarterly meetings of the directors shall be held on the last Wednesdays in the
months of July, October, January and April. Special meetings of the directors
shall be held upon the call of the President, or by the Chairman if there be a
Chairman, as hereinafter provided. The Secretary shall give each director
notice, by mail, at least twenty-four hours before any meeting, whether regular
or special (except the first meeting), of the time and place of such meeting.
But in the case of necessity, such notice may be given at such time and in such
manner as the President or the Chairman may direct.
Section 6. At all meetings of the Board of Directors the presence of both
(i) a majority of the directors, and (ii) a majority of the directors elected by
the holders of the corporation's Preferred Stock (including any director elected
to fill any vacancy resulting from the resignation, death or removal of a
director elected by such holders), shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 7. The Board of Directors may, by resolution passed by a majority
of the directors, designate one or more committees, each committee to consist of
three or more of the directors of the corporation, which, to the extent provided
in the resolution, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the corporation and
may authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 8. The committees shall keep regular minutes of their proceedings
and report the same to the Board of Directors when required.
Section 9. Members of the Board of Directors or any committee designated
hereby may participate in any special meeting of the Board or any meeting of
such committee by means of a conference telephone or similar communications
equipment, by means of which all persons participating in the meeting can hear
each other at the same time, and participation by such means shall constitute
presence at any such meeting. Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors or any committee designated
by the Board, and directors who are not also full-time employees of the
corporation may be paid a fixed sum for attendance at each meeting of the Board
at which a quorum is present, whether regular or special, and at each meeting of
any such committee attended in person and at which a majority of the members are
present, such fixed sum to be determined in each case by the Board of Directors.
[amended April 26, 1995]
Section 10. A director may be removed, with or without cause, only in the
manner provided in the charter.
ARTICLE IV
OFFICERS
Section 1. The officers of the corporation shall include a President, a
Vice President, a Secretary and a Treasurer. The offices of Treasurer and
Secretary may be held by the same person.
Section 2. The Board of Directors may appoint such other officers and
agents, including a Chairman, as it shall deem necessary, who shall hold their
offices for such terms as shall be determined from time to time by the Board.
Section 3. [Deleted April 26, 2006]
Section 4. Any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
Section 5. The Chairman, if any, shall be the chief executive officer of
the corporation; the President shall be the chief operating officer of the
corporation; and the Treasurer shall be the chief financial officer of the
corporation. If no Chairman is elected, qualified and acting, the President
shall also be the chief executive officer of the corporation. The other officers
of the corporation shall have the powers and shall perform the duties
customarily appurtenant to their respective offices, and shall have such further
power and shall perform such further duties as shall be from time to time
assigned to them.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of, the corporation, by the
President and Treasurer or Secretary, certifying the number and class of shares
owned by him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such President, Secretary or
Treasurer may be facsimile. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such certificate
or certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature has been used thereon, had not ceased
to be such officer or officers of the corporation.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnify against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
ARTICLE VI
INDEMNIFICATION OF OFFICERS
The corporation shall indemnify, to the full extent permitted by law from
time to time, any person who is or was an officer of the corporation and any
person who, while an officer of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan, against all judgments,
penalties, fines, settlements and reasonable expenses actually incurred by such
person in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, in which
such person was, is or is threatened to be made a named defendant or respondent
by reason of the fact that such person is serving or at any time was serving in
one or more of the capacities set forth above.
ARTICLE VII
GENERAL PROVISIONS
Section 1. The President shall present at each annual meeting a statement
of the business and condition of the corporation.
Section 2. All checks and notes of the corporation shall be signed by such
officer or officers or such other person persons as the Board of Directors may
from time to time designate.
Section 3. The fiscal year of the corporation shall end on the thirty-first
day of December in each year.
Section 4. The corporate seal shall have the inscribed thereon the name of
the corporation, the year of its organization and the words "Incorporated 1969
Rhode Island". The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or reproduced or otherwise.
ARTICLE VIII
REPEAL AND AMENDMENT OF BY-LAWS
These By-laws may be amended or repealed at any annual or special meeting
of the stockholders, provided that they shall not be amended or repealed at a
special meeting unless notice that it is proposed to amend or repeal them is
given by the Secretary in the notice of such meeting. The Board of Directors
shall not have authority to amend these By-Laws.
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 14, 2006
By: /s/ Robert H. Eder
----------------------------
Robert H. Eder,
Chairman of the Board
and Chief Executive Officer
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 14, 2006
By: /s/ Robert J. Easton
----------------------------
Robert J. Easton
Treasurer and Principal
Financial Officer
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,
2006, 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 14, 2006
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,
2006, 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 14, 2006