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, 2007
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 13, 2007, the registrant has 4,548,852 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, 2007 (Unaudited)
and December 31, 2006.......................................3
Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 2007
and 2006 (as restated)......................................4
Statements of Cash Flows (Unaudited) - Six
Months Ended June 30, 2007 and 2006 (as restated)...........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,
2007 2006
(Unaudited)
------- -------
Current Assets:
Cash and cash equivalents ........................... $ 398 $ 1,253
Accounts receivable, net of allowance for
doubtful accounts of $175 in 2007 and 2006 ......... 3,423 3,244
Materials and supplies .............................. 1,600 1,483
Prepaid expenses and other current assets ........... 97 148
Deferred income taxes ............................... 348 347
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Total Current Assets ............................... 5,866 6,475
Property and Equipment, net .......................... 77,138 76,591
Land Held for Development ............................ 11,958 11,958
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Total Assets ......................................... $94,962 $95,024
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank ................................. $ 1,200 $ --
Accounts payable .................................... 2,820 2,717
Accrued expenses .................................... 1,459 1,433
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Total Current Liabilities .......................... 5,479 4,150
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Profit-Sharing Plan Contribution ..................... -- 178
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Deferred Income Taxes ................................ 11,622 12,051
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Deferred Grant Income ................................ 8,097 8,021
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Commitments and Contingent Liabilities................
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
640 shares in 2007 and 2006 ........................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,548,852 shares in 2007 and 4,534,056
shares in 2006 ..................................... 2,274 2,267
Additional paid-in capital .......................... 30,994 30,680
Retained earnings ................................... 36,464 37,645
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Total Shareholders' Equity ......................... 69,764 70,624
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Total Liabilities and Shareholders' Equity ........... $94,962 $95,024
======= =======
The accompanying notes are an integral part of the financial statements.
3
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
(as restated, (as restated,
see Note 2) see Note 2)
------- ------- ------- -------
Revenues:
Operating Revenues .............. $ 6,972 $ 7,243 $12,157 $13,850
Other Income .................... 478 244 593 424
------- ------- ------- -------
Total Revenues ................ 7,450 7,487 12,750 14,274
------- ------- ------- -------
Operating Expenses:
Maintenance of way and
structures ..................... 870 1,149 2,214 2,557
Maintenance of equipment ........ 929 915 1,769 1,820
Transportation .................. 2,092 2,101 4,046 4,206
General and administrative ...... 1,268 1,118 2,596 2,159
Depreciation .................... 708 690 1,415 1,381
Taxes, other than income
taxes .......................... 575 579 1,166 1,169
Car hire, net ................... 186 290 369 526
Employee retirement plans ....... 59 57 118 114
Track usage fees ................ 206 181 301 336
------- ------- ------- -------
Total Operating Expenses ....... 6,893 7,080 13,994 14,268
------- ------- ------- -------
Income (Loss) before Income
Taxes ........................... 557 407 (1,244) 6
Provision for Income Taxes
(Benefit) ....................... 210 148 (430) 16
------- ------- ------- -------
Net Income (Loss) ................ 347 259 (814) (10)
Preferred Stock Dividends ........ -- -- 3 3
------- ------- ------- -------
Net Income (Loss) Available to
Common Shareholders ............. $ 347 $ 259 $ (817) $ (13)
======= ======= ======= =======
Basic Income (Loss) Per Common
Share ........................... $ .08 $ .06 $ (.18) $ --
======= ======= ======= =======
Diluted Income (Loss) Per
Common Share .................... $ .07 $ .06 $ (.18) $ --
======= ======= ======= =======
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,
2007 2006
(as restated,
see Note 2)
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Cash flows from operating activities:
Net loss ............................................. $ (814) $ (10)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation ........................................ 1,415 1,381
Amortization of deferred grant income ............... (120) (119)
Gains from sale and disposal of property,
equipment and easements ............................ (275) (129)
Deferred income taxes ............................... (430) 236
Share-based compensation ............................ 101 67
Increase (decrease) in cash from:
Accounts receivable ................................ (57) (938)
Materials and supplies ............................. (117) (280)
Prepaid expenses and other ......................... 51 (156)
Accounts payable and accrued expenses .............. 451 827
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Net cash flows from operating activities ............. 205 879
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Cash flows from Investing Activities:
Purchase of property and equipment ................... (2,284) (1,409)
Proceeds from sale of property, equipment and
easements ........................................... 275 213
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Net cash flows used in investing activities .......... (2,009) (1,196)
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Cash Flows from Financing Activities:
Borrowings under line of credit ...................... 1,200 --
Dividends paid ....................................... (367) (364)
Issuance of common shares for stock options
exercised and employee stock purchases .............. 42 61
Proceeds from deferred grant income .................. 74 184
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Net cash flows from (used in) financing
activities .......................................... 949 (119)
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Decrease in Cash and Cash Equivalents ................ (855) (436)
Cash and Cash Equivalents, Beginning of
Period .............................................. 1,253 2,063
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Cash and Cash Equivalents, End of Period ............. $ 398 $ 1,627
======= =======
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, 2007 AND 2006
(Dollars in Thousands Except Per Share Amounts)
1. In the opinion of management, the accompanying interim financial statements
of the Providence and Worcester Railroad Company (the "Company") contain
all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 2007 and
the results of operations and cash flows for the Interim periods ended June
30, 2007 and 2006. Results for interim periods may not be necessarily
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, 2006 filed with
the Securities and Exchange Commission.
2. Restatement of Previously issued financial statements:
Prior to the issuance of the 2006 financial statements, the Company
determined that its liability for accrued compensated time off had not been
recorded.
The Company's contracts with the labor unions representing its union
employees require the Company to provide employees with accrued compensated
time off at the rate of one or one and one half hours, as applicable, for
each hour worked in excess of eight hours per day (for a five-day work
week) or forty hours per week. The Company did not accrue any liability for
such compensation and related payroll taxes in the past.
The Company has restated its financial statements for 2004, 2005 and the
first three quarters of 2006 to reflect this liability reduced by the
related deferred income tax benefit.
In addition, the Company has reclassified the proceeds from deferred grant
income in the statement of cash flows from investing activities to
financing activities.
The effects of the restatement adjustments on the Statements of Operations
and Cash Flows for the Interim periods Ended June 30, 2006 are summarized
as follows:
6
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, 2006
-------------------------------------------------
As As
Previously Adjust- As Previously Adjust- As
Reported ment Restated Reported ment Restated
------------------------ ------------------------
Statement of Operations:
Operating Expenses:
Maintenance of way
and structures .... $1,139 $ 10 $1,149 $ 2,538 $ 19 $ 2,557
Maintenance
of equipment ...... 901 14 915 1,794 26 1,820
Taxes, other than
income taxes ...... 575 4 579 1,160 9 1,169
------ ----- ------ -------- ----- -------
Total Operating
Expenses .......... 7,052 28 7,080 14,214 54 14,268
Income before
Income Taxes ...... 435 (28) 407 60 (54) 6
Provision for
Income Taxes ...... 158 (10) 148 35 (19) 16
Net Income (Loss) .. 277 (18) 259 25 (35) (10)
Net Income (Loss)
Attributable to
Common Shareholders.$ 277 $ (18) $ 259 $ 22 $ (35) $ (13)
====== ===== ====== ======== ===== =======
Statements of Cash
Flows:
Cash flows from
Operating
Activities:
Net Income (Loss)... $ 25 $ (35) $ (10)
Deferred
income taxes ...... 255 (19) 236
Accounts payable
and accrued
expenses .......... 773 54 827
Net cash flows
from operating
activities ........ $ 879 $ -- $ 879
------- ----- ------
Net cash flows
used in investing
activities ........ $(1,012) $(184) $(1,196)
------- ----- -------
Net cash flows
used in financing
activities ........ $ (303) $ 184 $ (119)
------- ----- ------
7
3. Changes in Shareholders' Equity:
Total
Additional Share
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance December 31,2006. $ 32 $ 2,267 $30,680 $37,645 $70,624
Issuance of 5,215
common shares for
stock options
exercised, employee
stock purchases and
employee stock
awards ................. 2 81 83
Issuance of 9,581
common shares to
fund the Company's
2006 profit-sharing
plan contribution
(non-cash
transaction) ........... 5 173 178
Share-based
compensation -
options granted ........ 60 60
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.08
per share .............. (364) (364)
Net loss for the
period ................. (814) (814)
----- ------- ------- ------- -------
Balance June 30,2007 .... $ 32 $ 2,274 $30,994 $36,464 $69,764
===== ======= ======= ======= =======
During the six months ended June 30, 2006 the Company issued 13,011 shares
of its common stock with an aggregate fair market value of $211 to fund its
2005 profit-sharing plan contribution.
4. Revolving Line of Credit
The Company has a revolving line of credit with its principal bank in the
amount of $5,000 expiring May 31, 2009. Borrowings under this line of
credit are unsecured, due on demand and bear interest at either the bank's
prime rate or one and one half percent over either the one or three month
London Interbank Offered Rates. The Company pays no commitment fee on this
line and has no compensating balance requirements. During the second
quarter of 2007 the Company borrowed $1,200 under this line, at an annual
interest rate of 6.82%. This balance was outstanding as of June 30, 2007.
Interest expense in the amount of $13 was incurred during the second
quarter and is included in general and administrative expense.
5. Other Income:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2007 2006 2007 2006
------ ------ ------ ------
Gains from sale and
disposal of property,
equipment and
easements, net ...... $269 $ 98 $275 $129
Rentals .............. 202 134 301 269
Interest ............. 7 12 17 26
---- ---- ---- ----
$478 $244 $593 $424
==== ==== ==== ====
8
6. Income Taxes:
The Company adopted the provisions of Financial Accounting Standards Board
("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109, Accounting for Income Taxes.
Based on its evaluation, the Company has concluded that there are no
significant uncertain tax positions requiring recognition in its financial
statements.
7. 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.
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,
--------------------- ---------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Weighted-average shares
for basic ............ 4,546,337 4,521,650 4,540,460 4,515,419
Dilutive effect of
convertible preferred
stock and stock options 89,149 86,139 -- --
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,635,486 4,607,789 4,540,460 4,515,419
========= ========= ========= =========
Options to purchase 8,310 and 5,029 shares of common stock were outstanding
for the three-month periods ended June 30, 2007 and 2006, respectively, but
were not included in the computation of diluted income per share because
their effect would be antidilutive.
Preferred stock convertible into 64,500 shares of common stock and options
to purchase 48,137 and 48,274 shares of common stock were outstanding for
the six-month periods ended June 30, 2007 and 2006, respectively. These
common stock equivalents were not included in the computation of the
diluted loss per share for these periods because their effect would be
antidilutive.
8. 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 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
9
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). 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. 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.
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 was one of about
sixty parties named by Plaintiffs, in this suit, to recover response costs
incurred in investigating and responding to the releases of hazardous
substances at the Site. Plaintiffs alleged 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 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.
9. Dividends:
On July 25, 2007, the Company declared a dividend of $.04 per share on its
outstanding Common Stock payable August 20, 2007 to shareholders of record
August 6, 2007.
10
PROVIDENCE AND WORCESTER RAILROAD COMPANY
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDA") which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions, however,
that actual results could differ materially from those indicated in MDA.
Critical Accounting Policies
- ----------------------------
The Securities and Exchange Commission ("SEC") defines critical accounting
policies as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
The Company's significant accounting policies are described in Note 1 of the
Notes to Financial Statements in its Annual Report on Form 10-K. Not all of
these significant accounting policies require management to make difficult,
subjective or complex judgments or estimates. Management believes that the
Company's policy for the evaluation of long-lived asset impairment is a critical
accounting policy.
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. When factors indicate that assets should be evaluated for
possible impairment, the Company uses an estimate of the related undiscounted
future cash flows over the remaining lives of the assets in measuring whether
the carrying amounts of the assets are recoverable.
Results of Operations
- ---------------------
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $6,033 86.5% $6,095 84.2% $10,214 84.0% $11,400 82.3%
Containers ..... 649 9.3 871 12.0 1,421 11.7 1,713 12.4
Other freight
related ....... 219 3.2 124 1.7 369 3.0 388 2.8
Other Operating
Revenues ....... 71 1.0 153 2.1 153 1.3 349 2.5
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $6,972 100.0% $7,243 100.0% $12,157 100.0% $13,850 100.0%
====== ===== ====== ===== ======= ===== ======= =====
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,
---------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits. $3,719 53.3% $3,722 51.4% $ 7,469 61.4% $ 7,538 54.4%
Casualties and
insurance ....... 232 3.3 181 2.5 465 3.8 367 2.6
Depreciation ..... 708 10.1 690 9.5 1,415 11.6 1,381 10.0
Diesel fuel ...... 597 8.6 641 8.8 1,061 8.7 1,242 9.0
Car hire, net .... 186 2.7 290 4.0 369 3.0 526 3.8
Purchased
services,
including legal
and professional
fees ............ 437 6.3 607 8.4 905 7.5 992 7.2
Repair and
maintenance of
equipment ....... 503 7.2 574 7.9 920 7.6 1,020 7.4
Track and signal
materials ....... 574 8.2 510 7.0 990 8.1 1,414 10.2
Track usage fees.. 206 3.0 181 2.5 301 2.5 336 2.4
Other materials
and supplies .... 272 3.9 207 2.9 606 5.0 551 4.0
Other ............ 535 7.7 454 6.3 1,040 8.6 893 6.4
------ ----- ------ ----- ------- ----- ------- -----
Total ........... 7,969 114.3 8,057 111.2 15,541 127.8 16,260 117.4
Less capitalized
and recovered
costs .......... 1,076 15.4 977 13.5 1,547 12.7 1,992 14.4
------ ----- ------ ----- ------- ----- ------- -----
Total ......... $6,893 98.9% $7,080 97.7% $13,994 115.1% $14,268 103.0%
====== ===== ====== ===== ======= ===== ======= =====
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Operating Revenues:
Operating revenues decreased $1.7 million, or 12.2%, to $12.2 million in the six
months ended June 30, 2007 from $13.9 million in 2006. This decrease is the
combined result of a $1.2 million (10.4%) decrease in conventional freight
revenues, a $292,000 (17.0%) decrease in container freight revenues, a $19,000
(4.9%) decrease in other freight-related revenues and an $196,000 (56.2%),
decrease in other operating revenues. It should be noted that $1.4 million of
these revenue reductions were attributable to the first quarter of 2007.
The decrease in conventional freight revenues results from a 16.2% reduction in
traffic volume partially offset by a 6.9% increase in the average revenue
received per carloading. The Company's conventional carloadings decreased by
2,571 to 13,346 in the first six months of 2007 from 15,917 in 2006. Significant
declines in carloadings of coal, steel ingots and contaminated soil were
particularly heavy during the first quarter of 2007. Traffic in these
commodities returned to more normal levels during the second quarter of the
year. In addition the Company experienced more modest declines in the volumes of
other commodities consistent with the experience of the railroad industry in
North America taken as a whole. The increase in the average revenue received per
conventional carloading is largely attributable to a shift in the mix of traffic
toward higher rated commodities.
The decrease in container freight revenues is the result of a 21.1% reduction in
traffic volume partially offset by a 5.2% increase in the average revenue
received per container. Container traffic volume decreased by 6,484 containers
to 24,207 in the six months ended June 30, 2007 from 30,691 in 2006. The
12
increase in the average revenue received per container is attributable to
contractual rate adjustments based upon railroad industry cost indices.
The decrease in other freight-related revenues is largely attributable to
reduced billings for demurrage resulting from the reduction in conventional
traffic volume.
The decrease in other operating revenues results from a reduction in maintenance
department billings. Revenues of this nature vary from period to period
depending upon the needs of freight customers and other outside parties.
Other Income:
Other income for the six-month period increased by $169,000 to $593,000 in 2007
from $424,000 in 2006. The largest portion of this increase is attributable to
gains from the sale of property and equipment, which can vary significantly from
period to period.
Operating Expenses:
Operating expenses for the six-month period ended June 30, 2007 decreased by
$274,000, or 1.9%, to $14.0 million from $14.3 million in 2006. As described in
Note 2 to the financial statements the Company has restated its statement of
operations for the six months ended June 30, 2006 to reflect its liability for
accrued compensated time off and related payroll taxes. The impact of this
restatement was to increase operating expenses (salaries, wages, payroll taxes
and employee benefits) by $54,000. The Company's Operating expenses are of a
relatively fixed nature and do not vary proportionally with changes in operating
revenues.
Provision for Income Tax (Benefit):
The income tax benefit for the six months ended June 30, 2007 was calculated at
35.5% of the pre-tax loss after excluding non- taxable expense items. This is
the effective federal and state income tax rate which the Company expects to
realize for all of 2007 before giving effect to any track maintenance credits to
which it may be entitled. The provision for income taxes for the six months
ended June 30, 2006 was reduced by $19,000 as a result of the restatement of the
statement of operations as previously discussed.
Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
Operating Revenues:
Operating revenues decreased $271,000, or 3.7%, to $7.0 million in the second
quarter of 2007 from $7.2 million in the second quarter of 2006. This decrease
is the net result of a $62,000 (1.0%) decrease in conventional freight revenues,
a $222,000 (25.5%) decrease in container freight revenues and an $82,000 (53.6%)
decrease in other operating revenues offset, to a small extent, by a $95,000
(76.6%) increase in other freight-related revenues.
The decrease in conventional freight revenues for the quarter is attributable to
a 7.5% decrease in traffic volume largely offset by a 7.0% increase in the
average revenue received per carloading. The Company's carloadings decreased by
700 to 8,648 in the second quarter of 2007 from 9,348 in the second quarter of
2006. The decrease in conventional traffic volume is consistent with that
experienced by the railroad industry in North America as a whole. The increase
in the average revenue received per conventional carloading is largely
attributable to a shift in traffic volume toward higher rated commodities.
13
The decline in container freight revenues for the second quarter is the result
of a 29.4% reduction in traffic volume somewhat offset by a 5.5% increase in the
average revenue received per container. Intermodal containers handled during the
quarter decreased by 4,557 to 10,942 from 15,499 in the second quarter of 2006.
The increase in the average revenue received per container is attributable to
contractual rate adjustments based upon railroad industry cost indices.
The increase in other freight-related revenues is the result of increased
billings for demurrage, secondary switching and special train services.
The decrease in other operating revenues results from a decline in maintenance
department billings for services rendered to outside parties.
Other Income:
Other income for the second quarter of 2007 increased by $239,000 to $478,000
from $244,000 in the second quarter of 2006. This increase reflects higher gains
from the sale of property, equipment and easements and rental income.
Operating Expenses:
Operating expenses for second quarter of 2007 decreased by $187,000, or 2.6%, to
$6.9 million from $7.1 million in 2006. As described in Note 2 to the financial
statements the Company has restated its statement of Income for the second
quarter of 2006 to reflect its liability for accrued compensated time off and
related payroll taxes. The impact of this restatement was to increase operating
expenses (salaries, wages, payroll taxes and employee benefits) by $28,000.
Provision for Income Taxes:
The income tax provision for the second quarter of 2007 is 37.7% of pre-tax
income. This provision was calculated using the Company expected effective
annual federal and state income tax rate of 35.5% and adjusting for non tax
deductible expenses. No effect was given to any track maintenance credits to
which the Company may be entitled. The income tax provision for the second
quarter of 2006 was increased by $10,000 as a result of the restatement of the
statement of income as previously discussed.
Liquidity and Capital Resources
- -------------------------------
During the first six months of 2007 the Company generated $205,000 of cash from
its operations. Total cash and cash equivalents decreased by $855,000 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.
During the second quarter of 2007, the Company borrowed $1.2 million under its
revolving line of credit, at an interest rate of 6.82%, for working capital
purposes. Management intends to make repayments on these borrowings during the
second half of the year.
In management's opinion, cash generated from operations during the remainder of
2007 will be sufficient to enable the Company to meet its operating expenses and
capital expenditure and dividend requirements, as well as to make repayments on
the borrowings under its revolving line of credit.
14
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, 2007, 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 $1,200,000 of borrowings outstanding pursuant to
the revolving line of credit agreement at June 30, 2007. 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.
15
PART II - Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on April 25, 2007. Of the
4,534,056 shares of common stock entitled to vote, 4,349,790 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 4,284,581 affirmative
votes and 65,209 votes withheld, Mr. Eder received 3,590,543
affirmative votes and 809,247 votes withheld and Mr. Healy received
4,282,967 affirmative votes and 66,823 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. Mr. Conti received 511 affirmative votes and no votes
withheld of preferred shares. Messrs. Barrett, Garrahy 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 Employee Stock
Purchase Plan extending the term thereof for an additional ten years.
The proposal received 3,191,111 affirmative votes, 65,850 negative
votes, 29,319 abstentions and 1,063,510 votes withheld of common
shares. The proposal received 508 affirmative votes and 3 abstentions
of preferred shares.
Item 5. Reports on Form 8-K
-------------------
(a) No reports on Form 8-K were filed during the quarter ended June
30, 2007.
Item 6. Exhibits
--------
(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
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVIDENCE AND WORCESTER
RAILROAD COMPANY
By: /s/ Robert H. Eder
----------------------------
Robert H. Eder,
Chairman of the Board
and Chief Executive Officer
By: /s/ Robert J. Easton
----------------------------
Robert J. Easton
Treasurer and Chief
Financial Officer
DATED: August 14, 2007
17
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, 2007
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, 2007
By: /s/ Robert J. Easton
----------------------------
Robert J. Easton
Treasurer and Chief
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,
2007, 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, 2007
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,
2007, 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, 2007