UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 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 November 12, 2007, the registrant has 4,550,930 shares of common stock,
par value $.50 per share, outstanding.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Index
Part I - Financial Information
Item 1 - Financial Statements (Unaudited):
Balance Sheets - September 30, 2007 (Unaudited)
and December 31, 2006........................................... 3
Statements of Operations (Unaudited) - Three and
Nine Months Ended September 30, 2007
and 2006........................................................ 4
Statements of Cash Flows (Unaudited) - Nine
Months Ended September 30, 2007 and 2006........................ 5
Notes to Financial Statements (Unaudited)....................... 6-10
Item 2 -Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................11-15
Item 3 -Quantitative and Qualitative Disclosures About Market Risk... 15
Item 4 -Controls and Procedures...................................... 15
Part II - Other Information:
Item 5 - Reports on Form 8-K......................................... 15
Item 6 - Exhibits.................................................... 16
Signatures ............................................................... 17
2
Item 1. Financial Statements
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
ASSETS
September 30,December 31,
2007 2006
(Unaudited)
------- -------
Current Assets:
Cash and cash equivalents ........................... $ 135 $ 1,253
Accounts receivable, net of allowance for
doubtful accounts of $175 in 2007 and 2006 ......... 3,743 3,244
Materials and supplies .............................. 1,317 1,483
Prepaid expenses and other current assets ........... 149 148
Deferred income taxes ............................... 359 347
------- -------
Total Current Assets ............................... 5,703 6,475
Property and Equipment, net .......................... 78,032 76,591
Land Held for Development ............................ 11,958 11,958
------- -------
Total Assets ......................................... $95,693 $95,024
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank ................................. $ 1,200 $ --
Accounts payable .................................... 3,307 2,717
Accrued expenses .................................... 1,522 1,433
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Total Current Liabilities .......................... 6,029 4,150
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Profit-Sharing Plan Contribution ..................... -- 178
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Deferred Income Taxes ................................ 11,733 12,051
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Deferred Grant Income ................................ 8,120 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
4,549,928 shares in 2007 and 4,534,056
shares in 2006 ..................................... 2,275 2,267
Additional paid-in capital .......................... 31,040 30,680
Retained earnings ................................... 36,464 37,645
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Total Shareholders' Equity ......................... 69,811 70,624
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Total Liabilities and Shareholders' Equity ........... $95,693 $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 Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
(as restated, (as restated,
see Note 2) see Note 2)
------- ------ -------- -------
Revenues:
Operating Revenues ................ $ 7,296 $7,786 $ 19,453 $ 21,636
Other Income ...................... 159 682 752 1,106
------- ------ -------- -------
Total Revenues ................. 7,455 8,468 20,205 22,742
------- ------ -------- -------
Operating Expenses:
Maintenance of way and
structures ...................... 881 1,002 3,095 3,559
Maintenance of equipment ......... 885 820 2,654 2,640
Transportation ................... 2,191 2,035 6,237 6,241
General and administrative ....... 1,336 1,173 3,932 3,332
Depreciation ..................... 707 690 2,122 2,071
Taxes, other than income
taxes ........................... 580 572 1,746 1,741
Car hire, net .................... 282 349 651 875
Employee retirement plans ........ 59 215 177 329
Track usage fees ................. 253 278 554 614
------- ------ -------- -------
Total Operating Expenses ........ 7,174 7,134 21,168 21,402
------- ------ -------- -------
Income (Loss) before Income
Taxes ............................ 281 1,334 (963) 1,340
Provision for Income Taxes
(Benefit) ........................ 100 425 (330) 441
------- ------ -------- -------
Net Income (Loss) ................. 181 909 (633) 899
Preferred Stock Dividends ......... -- -- 3 3
------- ------ -------- -------
Net Income (Loss) Available to
Common Shareholders. ............. $ 181 $ 909 $ (636) $ 896
======= ======= ======= =======
Basic and Diluted Income
(Loss) Per Common Share .......... $ .04 $ .20 $ (.14) $ .20
======= ======= ======= =======
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)
Nine Months Ended September 30,
2007 2006
(as restated,
see Note 2)
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Cash Flows from Operating Activities:
Net(loss) income .................................... $ (633) $ 899
Adjustments to reconcile net (loss) income to net
cash flows from operating activities:
Depreciation ........................................ 2,122 2,071
Amortization of deferred grant income ............... (180) (178)
Profit-sharing plan contribution to be
funded with common stock ........................... -- 158
Gains from sale and disposal of property,
equipment and easements ............................ (285) (638)
Deferred income taxes ............................... (330) 371
Share-based compensation ............................ 131 89
Increase (decrease) in cash from:
Accounts receivable ................................ (403) (707)
Materials and supplies ............................. 166 (43)
Prepaid expenses and other ......................... (1) (22)
Accounts payable and accrued expenses .............. 775 177
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Net cash flows from operating activities ............. 1,362 2,177
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Cash Flows from Investing Activities:
Purchase of property and equipment ................... (3,659) (2,757)
Proceeds from sale and condemnation of
property, equipment and easements ................... 285 723
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Net cash flows used in investing activities .......... (3,374) (2,034)
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Cash Flows from Financing Activities:
Borrowings under line of credit ...................... 1,200 --
Dividends paid ....................................... (548) (545)
Issuance of common shares for stock options
exercised and employee stock purchases .............. 59 105
Proceeds from deferred grant income .................. 183 207
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Net cash flows from (used in) financing
activities .......................................... 894 (233)
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Decrease in Cash and Cash Equivalents ................ (1,118) (90)
Cash and Cash Equivalents, Beginning of
Period .............................................. 1,253 2,063
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Cash and Cash Equivalents, End of Period ............. $ 135 $ 1,973
======= =======
Supplemental Disclosure, Cash Paid for Income
Taxes ............................................... $ -- $ 51
======= =======
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)
NINE MONTHS ENDED SEPTEMBER 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 September 30, 2007
and the results of operations and cash flows for the Interim periods ended
September 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 September 30, 2006 are
summarized as follows:
6
Three Months Ended Nine Months Ended
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September 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 .... $ 992 $ 10 $1,002 $ 3,530 $ 29 $ 3,559
Maintenance
of equipment ...... 806 14 820 2,600 40 2,640
Taxes, other than
income taxes ...... 568 4 572 1,728 13 1,741
------ ----- ------ -------- ----- -------
Total Operating
Expenses .......... 7,106 28 7,134 21,320 82 21,402
Income before
Income Taxes ...... 1,362 (28) 1,334 1,422 (82) 1,340
Provision for
Income Taxes ...... 435 (10) 425 470 (29) 441
Net Income ......... 927 (18) 909 952 (53) 899
Net Income
Attributable to
Common Shareholders.$ 927 $ (18) $ 909 $ 949 $ (53) $ 896
Basic and
Diluted
Income per
Common Share ...... $ .20 $ -- $ .20 $ .21 $(.01) $ .20
====== ===== ====== ======== ===== =======
Statements of Cash
Flows:
Cash flows from
Operating
Activities:
Net Income ......... $ 952 $ (53) $ 899
Deferred
income taxes ...... 400 (29) 371
Accounts payable
and accrued
expenses .......... 95 82 177
Net cash flows
from operating
activities ........ $ 2,177 $ -- $ 2,177
------- ----- -------
Net cash flows
used in investing
activities ........ $(1,827) $(207) $(2,034)
------- ----- -------
Net cash flows
used in financing
activities ........ $ (440) $ 207 $ (233)
------- ----- -------
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 6,291
common shares for
stock options
exercised, employee
stock purchases and
employee stock
awards ................. 3 97 100
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 ........ 90 90
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.12
per share .............. (545) (545)
Net loss for the
period ................. (633) (633)
------- ------- ------- ------- -------
Balance,
September 30, 2007 ..... $ 32 $ 2,275 $31,040 $36,464 $69,811
======= ======= ======= ======= =======
During the nine months ended September 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. This balance
was outstanding as of September 30, 2007 at a blended annual interest rate
of 7.21%. Interest expense in the amount of $21 and $34 was incurred during
the three and nine-month periods ended September 30, 2007, respectively,
and is included in general and administrative expense.
8
5. Other Income:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2007 2006 2007 2006
------ ------ ------ ------
Gains from sale and
disposal of property,
equipment and
easements, net ...... $ 10 $ 509 $ 285 $ 638
Rentals .............. 145 156 446 425
Interest ............. 4 17 21 43
------ ------ ------ ------
$ 159 $ 682 $ 752 $1,106
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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 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Weighted average shares
for basic ............ 4,548,864 4,528,407 4,543,292 4,519,796
Dilutive effect of
convertible preferred
stock and options .... 79,065 81,706 -- 79,640
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,627,929 4,610,113 4,543,292 4,599,436
========= ========= ========= =========
Options to purchase 12,041 shares of common stock which were outstanding
for the three month period ended September 30, 2007 and options to purchase
48,137 and 3,821 shares of common stock which were outstanding for the nine
month periods ended September 30, 2007 and 2006, respectively, were not
included in the computation of diluted income or loss per share because
their effect would be antidilutive.
Preferred stock convertible into 64,000 shares of common stock was
outstanding for the nine month period ended September 30, 2007 but was not
included in the computation of the diluted loss per share for that period
because its effect would be antidilutive.
9
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 ("the 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 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 October 31, 2007, the Company declared a dividend of $.04 per share on
its outstanding Common Stock payable November 26, 2007 to shareholders of
record on November 12, 2007.
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 September 30,Nine Months Ended September 30,
---------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $6,517 89.3% 6,484 83.3% $16,731 86.0% $17,884 82.7%
Containers ..... 539 7.4 995 12.8 1,960 10.1 2,708 12.5
Other freight
related ....... 174 2.4 221 2.8 543 2.8 609 2.8
Other Operating
Revenues ....... 66 .9 86 1.1 219 1.1 435 2.0
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $7,296 100.0% 7,786 100.0% $19,453 100.0% $21,636 100.0%
====== ===== ====== ===== ======= ===== ======= =====
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 September 30,Nine Months Ended September 30,
---------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits $3,898 53.4% $3,768 48.4% $11,367 58.4% $11,306 52.3%
Casualties and
insurance ....... 226 3.1 228 2.9 691 3.6 595 2.7
Depreciation ..... 707 9.7 690 8.9 2,122 10.9 2,071 9.6
Diesel fuel ...... 672 9.2 594 7.6 1,733 8.9 1,836 8.5
Car hire, net .... 282 3.9 349 4.5 651 3.4 875 4.0
Purchased
services,
including legal
and professional
fees ............ 531 7.3 408 5.2 1,436 7.4 1,400 6.5
Repair and
maintenance of
equipment ....... 389 5.3 362 4.6 1,309 6.7 1,382 6.4
Track and signal
materials ....... 601 8.2 728 9.4 1,591 8.2 2,142 9.9
Track usage fees . 253 3.5 278 3.6 554 2.8 614 2.8
Other materials
and supplies .... 324 4.4 312 4.0 930 4.8 863 4.0
Other ............ 400 5.5 491 6.3 1,440 7.4 1,384 6.4
------ ----- ------ ----- ------- ----- ------ -----
Total ........... 8,283 113.5 8,208 105.4 23,824 122.5 24,468 113.1
Less capitalized
and recovered
costs .......... 1,109 15.2 1,074 13.8 2,656 13.7 3,066 14.2
------ ----- ------ ----- ------- ----- ------ -----
Total ......... $7,174 98.3% $7,134 91.6% $21,168 108.8% $21,402 98.9%
====== ===== ====== ===== ======= ===== ======= =====
Nine Months Ended September 30, 2007 Compared to Nine Months
Ended September 30, 2006
Operating Revenues:
Operating revenues decreased $2.2 million, or 10.1%, to $19.4 million in the
nine months ended September 30, 2007 from $21.6 million in 2006. This decrease
is the combined result of a $1.2 million (6.4%) decrease in conventional freight
revenues, a $748,000 (27.6%) decrease in container freight revenues, a $66,000
(10.8%) decrease in other freight-related revenues and a $216,000 (49.7%)
decrease in other operating revenues. It should be noted that $1.4 million of
this decrease in operating revenues occurred during the first quarter of the
year.
The decrease in conventional freight revenues results from an 11.0% reduction in
traffic volume partially offset by a 5.2% increase in the average revenue
received per carloading. The Company's conventional carloadings decreased by
2,826 to 22,769 in the nine months ended September 30, 2007 from 25,595 in 2006.
While declines in carloadings of coal, steel ingots and contaminated soil were
particularly heavy during the first quarter of 2007 they have returned to more
normal levels during the second and third quarters of the year. Year-to-date
traffic for these commodities has not yet caught up to their 2006 levels,
however. In addition the Company has experienced a significant reduction in
construction aggregate traffic during the period. Reductions in the volume of
other commodities handled has pretty much mirrored the experience of the rest of
the North American railroad industry which has seen a 2.6% decline in
conventional traffic volume during 2007. On a more positive, note the Company
began handling shipments of ethanol and automobiles during the third quarter of
the year and anticipates that these commodities will contribute to future
traffic growth. The increase in the average revenue received per conventional
carloading is largely attributable to a shift in the mix of traffic away from
lower rated commodities such as construction aggregates, as well as modest rate
increases.
12
The decrease in container freight revenues is the result of a 30.9% reduction in
traffic volume somewhat offset by a 4.7% increase in the average revenue
received per container. Container traffic volume decreased by 14,867 containers
to 33,250 in the nine months ended September 30, 2007 from 48,117 in 2006.
Significant rate increases imposed by western United States rail carriers have
resulted in steamship lines using "all water" routings to the East Coast for a
larger portion of the traffic thereby significantly reducing the volume of
containers shipped cross country by rail. The Company is unable to predict if
and when this trend will be reversed. The 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 attributable to reduced
billings for demurrage resulting from the reduction in conventional traffic.
The decrease in other operating revenues results from a reduction in maintenance
department billings. Revenues of this nature can vary from period to period
depending upon the needs of freight customers and other third parties.
Other Income:
Other income for the nine-month period decreased by $354,000 to $752,000 in 2007
from $1.1 million in 2006. This decrease is largely attributable to a reduction
in gains from the sale and disposal of property equipment and easements which
can vary significantly from period to period.
Operating Expenses:
Operating expenses for the nine month period ended September 30, 2007 decreased
by $234,000, or 1.1%, to $21.2 million from $21.4 million in 2006. As discussed
in Note 2 to the financial statements the Company has restated its Statement of
Operations for the nine months ended September 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 $82,000. The Company's operating expenses are of a
relatively fixed nature and do not fluctuate proportionally with changes in
operating revenues.
Provision for Income Taxes (Benefit):
The income tax benefit for the nine months ended September 30, 2007 was
calculated at 35.5% of the pre-tax loss after excluding non-tax deductible
expense items. This is the effective 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 nine months
ended September 30, 2007 was reduced by $29,000 as part of the restatement
previously noted.
Three Months Ended September 30, 2007 Compared to Three Months
Ended September 30, 2006
Operating Revenues:
Operating revenues decreased $490,000, or 6.3%, to $7.3 million in the third
quarter of 2007 from $7.8 million in the third quarter of 2006. This decrease is
the net result of a $456,000 (45.8%) decrease in container freight revenues, a
$47,000 (21.3%) decrease in other freight-related revenues and a $20,000 (23.3%)
decrease in other operating revenues offset to a limited degree by a $33,000
(.5%) increase in conventional freight revenues.
13
The significant decrease in container freight revenues experienced during the
third quarter results from a 48.1% decrease in traffic volume slightly offset by
a 4.4% increase in the average revenue received per container. Container traffic
volume decreased by 8,383 containers to 9,043 in the third quarter of 2007 from
17,426 in 2006. As previously discussed this decrease is primarily due to a
substantial increase in container traffic being transported to the east coast of
the United States by ship rather than being brought overland from the west coast
by rail. The increase in the average revenue received per container is
attributable to contractual rate adjustments based upon railroad industry cost
indices.
The relatively small increase in conventional freight revenues results from a
3.2% increase in the average revenue received per conventional carloading
largely offset by a 2.6% decrease in traffic volume. The Company's conventional
carloadings decreased by 255 to 9,423 in the third quarter of 2007 from 9,678 in
2006. This decline in conventional traffic is virtually identical to that
experienced by the railroad industry in North America as a whole. While the
Company experienced a reduction in construction aggregate traffic during the
quarter it was largely offset by carloadings of other commodities including
ethanol and automobiles. The shift in traffic volume away from construction
aggregates to higher rated commodities largely accounts for the increase in the
average revenue received per carloading.
The decrease in other freight-related revenues is primarily related to a
decrease in demurrage billings.
The decrease in other operating revenues is the result of a reduction in
maintenance department billings.
Other Income:
Other income for the third quarter decreased by $523,000 to $159,000 in 2007
from $682,000 in 2006. The decrease is largely attributable to the fact that no
significant gains from the sale of property and easements were realized during
the third quarter of 2007.
Operating Expenses:
Operating expenses for the third quarter increased by $40,000, or .6%, to $7.2
million in 2007 from $7.1 million in 2006. As disclosed in Note 2 to the
financial statements the Company has restated its Statement of Operations for
the third 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 third quarter of 2007 is 35.6% of pre tax
income which is the approximate effective rate which the Company expects to
realize for the year. The income tax provision for the third quarter of 2007 was
increased by $10,000 as a result of the restatement of the Statement of
Operations as previously discussed.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 2007 the Company generated $1.4 million of cash
from its operations. Total cash and cash equivalents decreased by $1.1 million
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 interest rates ranging from 6.82% to 8.25%, for
working capital purposes. In November 2007 the Company repaid $200,000 of these
borrowings and intends to make additional repayments as sufficient surplus cash
is generated.
14
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.
Seasonality
- -----------
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during a portion of this
period and to winter weather conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Cash and Equivalents
As of September 30, 2007, the Company is exposed to market risks which primarily
include changes in U.S. interest rates.
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 September 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. Based upon that evaluation, the Chief Executive Officer and the
Treasurer concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms.
There was no significant change in the Company's internal control over financial
reporting that occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to affect, the Company's internal
control over financial reporting.
PART II - Other Information
- ---------------------------
Item 5. Reports on Form 8-K
-------------------
(a) A report on Form 8-K was filed on July 11, 2007 in which the Company
reported that it had entered into an eight-year collective bargaining
agreement with the Brotherhood of Railroad Signalman, whose members
constitute all of the Company's maintenance crafts.
15
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: November 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: November 14, 2007
By: /s/ Robert H. Eder
---------------------------
Robert H. Eder,
Chairman of the Board
and Chief Executive Officer
18
EXHIBIT 31.2
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT J. EASTON certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report, based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATE: November 14, 2007
By: /s/ Robert J. Easton
---------------------------
Robert J. Easton
Treasurer and Chief
Financial Officer
19
EXHIBIT 32
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Providence and Worcester Railroad
Company (the Company) on form 10-Q for the quarterly period ended September 30,
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
November 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 September 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
November 14, 2007