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, 2008
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, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer X Smaller reporting company
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, 2008, the registrant has 4,796,876 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, 2008 ((Unaudited)
and December 31, 2007.......................................3
Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 2008 and 2007...........4
Statements of Cash Flows (Unaudited) - Six
Months Ended June 30, 2008 and 2007.........................5
Notes to Financial Statements (Unaudited).................6-8
Item 2 -Management's Discussion and Analysis of Financial
Condition and Results of Operations......................9-13
Item 3 -Quantitative and Qualitative Disclosures
About Market Risk..........................................13
Item 4 -Controls and Procedures...................................13
Part II - Other Information:
Item 4 -Submission of Matters to a Vote of Security Holders.......14
Item 5 -Reports on Form 8-K.......................................14
Item 6 -Exhibits..................................................14
Signatures.............................................................15
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,
2008 2007
(Unaudited)
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Current Assets:
Cash and cash equivalents ........................... $ 2,046 $ 181
Accounts receivable, net of allowance for
doubtful accounts of $130 in 2008 and $150
in 2007 ............................................ 3,484 2,726
Materials and supplies .............................. 1,075 914
Prepaid expenses and other current assets ........... 33 90
Deferred income taxes ............................... 315 325
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Total Current Assets ............................... 6,953 4,236
Property and Equipment, net .......................... 79,128 78,964
Land Held for Development ............................ 11,958 11,958
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Total Assets ......................................... $98,039 $95,158
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank ................................. $ -- $ 900
Accounts payable .................................... 2,513 2,809
Accrued expenses .................................... 1,330 1,511
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Total Current Liabilities .......................... 3,843 5,220
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Deferred Income Taxes ................................ 11,669 11,969
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Deferred Grant Income ................................ 8,193 8,294
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Commitments and Contingent Liabilities................
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
640 shares in 2008 and 2007 ........................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,796,002 shares in 2008 and 4,552,557
shares in 2007 ..................................... 2,398 2,276
Additional paid-in capital .......................... 36,630 31,104
Retained earnings ................................... 35,274 36,263
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Total Shareholders' Equity ......................... 74,334 69,675
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Total Liabilities and Shareholders' Equity ........... $98,039 $95,158
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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,
2008 2007 2008 2007
------- ------- ------- -------
Revenues:
Operating Revenues .............. $ 8,094 $ 6,972 $14,090 $ 12,157
Other Income .................... 188 478 307 593
------- ------- ------- -------
Total Revenues ................ 8,282 7,450 14,397 12,750
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Operating Expenses:
Maintenance of way and
structures ..................... 1,150 870 2,524 2,214
Maintenance of equipment ........ 888 929 1,730 1,769
Transportation .................. 2,772 2,092 5,023 4,046
General and administrative ...... 1,213 1,268 2,540 2,596
Depreciation .................... 719 708 1,438 1,415
Taxes, other than income
taxes .......................... 595 575 1,211 1,166
Car hire, net ................... 229 186 431 369
Employee retirement plans ....... 58 59 116 118
Track usage fees ................ 178 206 276 301
------- ------- ------- -------
Total Operating Expenses ....... 7,802 6,893 15,289 13,994
------- ------- ------- -------
Income (Loss) before Income
Taxes ........................... 480 557 (892) (1,244)
Provision for Income Taxes
(Benefit) ....................... 160 210 (290) (430)
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Net Income (Loss) ................ 320 347 (602) (814)
Preferred Stock Dividends ........ -- -- 3 3
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Net Income (Loss) Available to
Common Shareholders ............. $ 320 $ 347 $ (605) $ (817)
======= ======= ======= =======
Basic Income (Loss) Per Common
Share ........................... $ .07 $ .08 $ (.13) $ (.18)
======= ======= ======= =======
Diluted Income (Loss) Per
Common Share .................... $ .07 $ .07 $ (.13) $ (.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,
2008 2007
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Cash flows from operating activities:
Net loss ............................................ $ (602) $ (814)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation ...................................... 1,438 1,415
Amortization of deferred grant income ............. (126) (120)
Gains from sale and disposal of property,
equipment and easements ......................... (26) (275)
Deferred income taxes ............................. (290) (430)
Share-based compensation .......................... 103 101
Increase (decrease) in cash from:
Accounts receivable ............................. (915) (57)
Materials and supplies .......................... (161) (117)
Prepaid expenses and other ...................... 57 51
Accounts payable and accrued expenses ........... (333) 451
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Net cash flows (used in) from operating
activities ......................................... (855) 205
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Cash flows from Investing Activities:
Purchase of property and equipment .................. (1,746) (2,284)
Proceeds from sale of property, equipment
and easements ...................................... 26 275
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Net cash flows used in investing activities ......... (1,720) (2,009)
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Cash Flows from Financing Activities:
Borrowings (payments) under line of credit .......... (900) 1,200
Dividends paid ...................................... (387) (367)
Issuance of common shares to GATX
Corporation ........................................ 5,509 --
Issuance of common shares for stock options
exercised and employee stock purchases ............. 36 42
Proceeds from deferred grant income ................. 182 74
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Net cash flows from financing activities ............ 4,440 949
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Increase in Cash and Cash Equivalents ................ 1,865 (855)
Cash and Cash Equivalents, Beginning of
Period .............................................. 181 1,253
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Cash and Cash Equivalents, End of Period ............. $ 2,046 $ 398
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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, 2008 AND 2007
(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, 2008 and
the results of operations and cash flows for the Interim periods ended June
30, 2008 and 2007. 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, 2007 filed with
the Securities and Exchange Commission.
2. Changes in Shareholders' Equity:
Total
Additional Share
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance December 31,2007. $ 32 $ 2,276 $31,104 $36,263 $69,675
Issuance of 239,523
common shares to
GATX Corporation ....... 120 5,389 5,509
Issuance of 3,922
common shares for
stock options
exercised, employee
stock purchases and
employee stock
awards ................. 2 67 69
Share-based
compensation -
options granted ........ 70 70
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.08
per share .............. (384) (384)
Net loss for the
period ................. (602) (602)
----- ------- ------- ------- -------
Balance June 30, 2008 ... $ 32 $ 2,398 $36,630 $35,274 $74,334
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On January 10, 2008 the Company entered into an agreement with GATX
Corporation ("GATX") whereby GATX acquired 239,523 (approximately 4.99%)
newly issued shares of the Company's common stock for $5,509 to be utilized
for capital improvements to enhance the Company's railroad lines. The
parties also entered into an Exclusive Railcar Supply Agreement whereby
GATX has the exclusive right to supply the Company with railcars for
certain rail traffic on market- competitive terms to be determined by the
two parties. In addition the Company exchanged 72 of its mill gondolas for
137 open-top hoppers owned by GATX. The Company agreed to lease the 72 mill
gondolas from GATX under operating leases for a period of up to 7 years at
an annual rental of $248.
6
3. Other Income:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2008 2007 2008 2007
------ ------ ------ ------
Gains from sale and
disposal of property,
equipment and
easements, net ...... $ 26 $269 $ 26 $275
Rentals .............. 156 202 260 301
Interest ............. 6 7 21 17
---- ---- ---- ----
$188 $478 $307 $593
==== ==== ==== ====
4. 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,
--------------------- ---------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Weighted-average shares
for basic ............ 4,794,964 4,546,337 4,782,213 4,540,460
Dilutive effect of
convertible preferred
stock and stock options 80,949 89,149 -- --
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,875,813 4,635,486 4,782,213 4,540,460
========= ========= ========= =========
Options to purchase 8,310 shares of common stock were outstanding for the
three-month period ended June 30, 2007, but were not included in the
computation of diluted income per share because their effect would be
antidilutive.
Preferred stock convertible into 64,000 shares of common stock and options
to purchase 48,833 and 48,137 shares of common stock were outstanding for
the six-month periods ended June 30, 2008 and 2007, 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.
5. 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
7
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.
6. Dividends:
On July 30, 2008, the Company declared a dividend of $.04 per share on its
outstanding Common Stock payable August 25, 2008 to shareholders of record
August 11, 2008.
8
PROVIDENCE AND WORCESTER RAILROAD COMPANY
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDA") which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions, however,
that actual results could differ materially from those indicated in MDA.
Critical Accounting Policies
- ----------------------------
The Securities and Exchange Commission ("SEC") defines critical accounting
policies as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
The Company's significant accounting policies are described in Note 1 of the
Notes to Financial Statements in its Annual Report on Form 10-K. Not all of
these significant accounting policies require management to make difficult,
subjective or complex judgments or estimates. Management believes that the
Company's policy for the evaluation of long-lived asset impairment is a critical
accounting policy.
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. When factors indicate that assets should be evaluated for
possible impairment, the Company uses an estimate of the related undiscounted
future cash flows over the remaining lives of the assets in measuring whether
the carrying amounts of the assets are recoverable.
Results of Operations
- ---------------------
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2008 2007 2008 2007
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $7,477 92.4% $6,033 86.5% $12,756 90.5% $10,214 84.0%
Containers ..... 351 4.3 649 9.3 720 5.1 1,421 11.7
Other freight
related ....... 182 2.3 219 3.2 417 3.0 369 3.0
Other Operating
Revenues ....... 84 1.0 71 1.0 197 1.4 153 1.3
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $8,094 100.0% $6,972 100.0% $14,090 100.0% $12,157 100.0%
====== ===== ====== ===== ======= ===== ======= =====
9
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,
---------------------------- -----------------------------
2008 2007 2008 2007
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits $3,863 47.7% $3,719 53.3% $7,800 55.3% $7,469 61.4%
Casualties and
insurance ...... 222 2.7 232 3.3 447 3.2 465 3.8
Depreciation .... 719 8.9 708 10.1 1,438 10.2 1,415 11.6
Diesel fuel ..... 1,215 15.0 597 8.6 1,920 13.6 1,061 8.7
Car hire, net ... 229 2.8 186 2.7 431 3.0 369 3.0
Purchased
services,
including legal
and professional
fees ........... 461 5.7 437 6.3 969 6.9 905 7.5
Repair and
maintenance of
equipment ...... 338 4.2 503 7.2 646 4.6 920 7.6
Track and signal
materials ...... 271 3.3 574 8.2 545 3.9 990 8.1
Track usage fees. 177 2.2 206 3.0 275 2.0 301 2.5
Other materials
and supplies ... 280 3.5 272 3.9 577 4.1 606 5.0
Other ........... 499 6.2 535 7.7 975 6.9 1,040 8.6
------ ----- ------ ----- ------- ----- ------- -----
Total .......... 8,274 102.2 7,969 114.3 16,023 113.7 15,541 127.8
Less capitalized
and recovered
costs ......... 472 5.8 1,076 15.4 734 5.2 1,547 12.7
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $7,802 96.4% $6,893 98.9% $15,289 108.5% $13,994 115.1%
====== ===== ====== ===== ======= ===== ======= =====
Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
Operating Revenues:
Operating revenues increased $1.9 million, or 15.9%, to $14.1 million in the six
months ended June 30, 2008 from $12.2 million in 2007. This increase is the net
result of a $2.5 million (24.9%) increase in conventional freight revenues, a
$48,000 (13.0%) increase in other freight-related revenues and a $44,000
(28.8%), increase in other operating revenues partially offset by a $701,000
(49.3%) decrease in container freight revenues.
The increase in conventional freight revenues is attributable to a 19.8%
increase in traffic volume and a 4.2% increase in the average revenue received
per conventional carloading. The Company's conventional carloadings increased by
2,648 to 15,994 in the first six months of 2008 from 13,346 in 2007.
Shipments of ethanol, coal, automobiles and steel ingots accounted for most of
the increase in traffic volume. Ethanol and automobiles are commodities which
the Company began hauling during the second half of 2007. These increases were
somewhat offset by declines in shipments of construction aggregate, chemicals,
building products and other commodities during the period. These decreases
appear largely to result from the economic slow-down which the United States
economy is currently experiencing.
The increase in the average revenue received per conventional carloading is
attributable to a shift in the mix of freight toward higher rated commodities,
as well as some modest rate increases, including diesel fuel surcharges.
10
The decrease in container freight revenues is the result of a 52.6% decline in
traffic volume partially offset by a 6.8% increase in the average revenue
received per container. Container traffic volume decreased by 12,728 containers
to 11,479 in the first six months of 2008 from 24,207 in 2007. During the second
quarter of 2007 the Company began to experience a steady decrease in the volume
of its container traffic which has continued into 2008. Among other factors,
rate increases imposed by western rail carriers in the United States have
resulted in steamship lines using "all water" routings to the East Coast for an
increasingly larger portion of container traffic thereby significantly reducing
the volume of such traffic shipped cross- country by rail. While the reduced
level of traffic seems to have stabilized, the Company is unable to predict if
and when container traffic volume may significantly increase. The increase in
the average revenue received per container is attributable to contractual rate
adjustments based upon railroad industry cost indices and to a change in the mix
of containers handled.
The increase in other freight related revenues results from increased billings
for special train and secondary switching services. This is directly
attributable to the significant increase in conventional traffic volume during
the six month period.
The increase in other operating revenues reflects more maintenance department
billings for services rendered to freight customers and other outside parties
Other Income:
Other income decreased by $286,000 to $307,000 in the six-months ended June 30,
2008 from $593,000 in 2007. The most significant item was a reduction in gains
realized from the sale of property, equipment and easements, which revenues can
vary significantly from period to period.
Operating Expenses:
Operating expenses for the first six months of 2008 increased by $1.3 million,
or 9.3%, to $15.3 million from $14.0 million in 2007. The increased cost of
diesel fuel during the period accounted for $859,000 of this increase. This is
primarily the result of significant price increases for petroleum products which
have recently occurred. Also contributing to the increased operating expenses is
the fact that the Company's maintenance of way personnel have been engaged in
fewer capitalized track projects in 2008 than was the case in 2007.
Income Tax Benefit:
The income tax benefit for the first six months of 2008 is approximately 33% of
the pre-tax loss. This is the effective federal income tax rate which the
Company expects to realize for 2008 before giving effect to any track
maintenance credits to which it may be entitled.
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
Operating Revenues:
Operating revenues increased $1.1 million or 16.1%, to $8.1 million in the
second quarter of 2008 from $7.0 million in the second quarter of 2007. This
increase is the net result of a $1.4 million (23.9%) increase in conventional
freight revenues and a $13,000 (18.3%) increase in other operating revenues
partially offset by a $298,000 (45.9%) decrease in container freight revenues
and a $37,000 (16.9%) decrease in other freight- related revenues.
11
The increase in conventional freight revenues is attributable to a 17.1%
increase in traffic volume and a 5.8% increase in the average revenue received
per conventional carloading. The Company's conventional carloadings increased by
1,483 to 10,131 in the second quarter of 2008 from 8,648 in the second quarter
of 2007. The reasons for the increases in traffic volume and revenue received
per carloading are as previously explained in the discussion of the results of
operations for the six months ended June 30, 2008.
The decrease in container freight revenues is the result of a 49.3% decline in
traffic volume partially offset by a 6.7% increase in the average revenue
received per container. Container traffic volume decreased by 5,397 containers
to 5,545 in the second quarter of 2008 from the second quarter of 2007. The
reasons for the decrease in traffic volume and increase in the average revenue
received per container are as previously explained in the discussion of the
results of operations for the six months ended June 30, 2008.
The decrease in other freight-related revenues during the quarter is
attributable to a decline in billings for demurrage charges partially offset by
an increase in billings for special train services.
The increase in other operating revenues reflects more maintenance department
billings for services rendered to freight customers and other outside parties.
Other Income:
Other income decreased by $290,000 to $188,000 in the second quarter of 2008
from $478,000 in the second quarter of 2007. Reductions in gains realized from
the sale of property, equipment and easements, as previously discussed, accounts
for the largest portion of this decrease.
Operating Expenses:
Operating expenses for the second quarter of 2008 increased by $909,000, or
13.2%, to $7.8 million from $6.9 million in the second quarter of 2007. As
previously discussed for the six- months ended June 30, 2008, the increased cost
of diesel fuel ($618,000) and the decrease in capitalized track projects account
for substantially all of this increase.
Income Tax Benefit:
The income tax benefit for the second quarter of 2008 is approximately 33% of
pre-tax loss. This is the effective federal income tax rate which the Company
expects to realize for 2008 before giving effect to any track maintenance
credits to which it may be entitled.
Liquidity and Capital Resources
- -------------------------------
In January 2008 the Company, pursuant to an agreement with GATX Corporation
("GATX"), received approximately $5.5 million in cash in exchange for 239,523
newly-issued shares of its common stock which it sold to GATX. This infusion of
capital is to be used for future capital improvements to enhance the Company's
railroad lines.
During the first six months of 2008 the Company's operations consumed $855,000
of cash. Total cash and cash equivalents, however, increased by $1.9 million
during the period. The principal utilization of cash during the period, other
than for operations, was to pay off the Company's outstanding borrowings under
its bank line-of-credit and for capital expenditures and the payment of
dividends.
12
In management's opinion cash generated from operations during the remainder of
2008 will be sufficient to enable the Company to meet its operating expenses,
routine capital expenditures and dividend requirements.
Seasonality
- -----------
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during a portion of this
period and to winter weather conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Cash and Equivalents
As of June 30, 2008, 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 the prime rate
or one and one half percent over either the one or three month London Interbank
Offered Rates. The Company had no borrowings outstanding pursuant to the
revolving line of credit agreement at June 30, 2008. 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.
13
PART II - Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on April 30, 2008. Of the
4,793,909 shares of common stock entitled to vote, 4,619,988 shares
were present, in person or by proxy. Of the 640 shares of preferred
stock entitled to vote, 508 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, John J. Healy and Paul F.
Titterton were elected Common Stock Directors. Mr. Anderson received
4,526,292 affirmative votes and 93,696 votes withheld, Mr. Eder
received 4,036,405 affirmative votes and 583,583 votes withheld, Mr.
Healy received 4,198,600 affirmative votes and 421,388 votes withheld
and Mr. Titterton received 4,531,634 affirmative votes and 88,354
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. Each of them received 508 affirmative votes with no
votes withheld of preferred shares.
Item 5. Reports on Form 8-K
-------------------
A report on Form 8-K was filed on May 2, 2008 in which the Company
announced that its Board of Directors had voted to transfer the
listings of its common stock from the American Stock Exchange to The
NASDAQ Stock Market LLC effective May 14, 2008.
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
14
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 13, 2008
15
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 13, 2008
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 13, 2008
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,
2008, 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 13, 2008
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,
2008, 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 13, 2008