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, 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
-------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
- ---------------------------------------------------------------------------
Rhode Island 05-0344399
----------------------------- --------------------------
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
75 Hammond Street, Worcester, Massachusetts 01610
----------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 755-4000
--------------
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 ___
---
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
---
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 13, 2008, the registrant has 4,798,372 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, 2008 (Unaudited)
and December 31, 2007........................................... 3
Statements of Operations (Unaudited) - Three and
Nine Months Ended September 30, 2008
and 2007........................................................ 4
Statements of Cash Flows (Unaudited) - Nine
Months Ended September 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 5 - Reports on Form 8-K......................................... 13
Item 6 - Exhibits.................................................... 13
Signatures ............................................................... 14
2
Item 1. Financial Statements
- -----------------------------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
ASSETS
September 30,December 31,
2008 2007
(Unaudited)
------- -------
Current Assets:
Cash and cash equivalents ........................... $ 2,309 $ 181
Accounts receivable, net of allowance for
doubtful accounts of $130 in 2008 and $150
in 2007 ............................................ 2,751 2,726
Materials and supplies .............................. 811 914
Prepaid expenses and other current assets ........... 632 90
Deferred income taxes ............................... 327 325
------- -------
Total Current Assets ............................... 6,830 4,236
Property and Equipment, net .......................... 80,198 78,964
Land Held for Development ............................ 11,958 11,958
------- -------
Total Assets ......................................... $98,986 $95,158
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank ................................. $ -- $ 900
Accounts payable .................................... 2,654 2,809
Accrued expenses .................................... 1,472 1,511
------- -------
Total Current Liabilities .......................... 4,126 5,220
------- -------
Deferred Income Taxes ................................ 11,936 11,969
------- -------
Deferred Grant Income ................................ 8,201 8,294
------- -------
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
4,798,162 shares in 2008 and 4,552,557
shares in 2007 ..................................... 2,399 2,276
Additional paid-in capital .......................... 36,675 31,104
Retained earnings ................................... 35,617 36,263
------- -------
Total Shareholders' Equity ......................... 74,723 69,675
------- -------
Total Liabilities and Shareholders' Equity ........... $98,986 $95,158
======= =======
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,
2008 2007 2008 2007
------- ------ -------- -------
Revenues:
Operating Revenues ............... $ 8,136 $7,296 $ 22,226 $19,453
Other Income ..................... 617 159 924 752
------- ------ -------- -------
Total Revenues ................ 8,753 7,455 23,150 20,205
------- ------ -------- -------
Operating Expenses:
Maintenance of way and
structures ..................... 1,103 881 3,627 3,095
Maintenance of equipment ........ 1,019 885 2,749 2,654
Transportation .................. 2,726 2,191 7,749 6,237
General and administrative ...... 1,179 1,336 3,719 3,932
Depreciation .................... 720 707 2,158 2,122
Taxes, other than income
taxes .......................... 594 580 1,805 1,746
Car hire, net ................... 374 282 805 651
Employee retirement plans ....... 55 59 171 177
Track usage fees ................ 194 253 470 554
------- ------ -------- -------
Total Operating Expenses ....... 7,964 7,174 23,253 21,168
------- ------ -------- -------
Income (Loss) before Income
Taxes ........................... 789 281 (103) (963)
Provision for Income Taxes
(Benefit) ....................... 255 100 (35) (330)
------- ------ -------- -------
Net Income (Loss) ................ 534 181 (68) (633)
Preferred Stock Dividends ........ -- -- 3 3
------- ------ -------- -------
Net Income (Loss) Available to
Common Shareholders. ............ $ 534 $ 181 $ (71) $ (636)
======= ======= ======= =======
Basic and Diluted Income
(Loss) Per Common Share ......... $ .11 $ .04 $ (.02) $ (.14)
======= ======= ======= =======
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,
2008 2007
------- -------
Cash Flows from Operating Activities:
Net loss ............................................. $ (68) $ (633)
Adjustments to reconcile net (loss) income to
net cash flows from operating activities:
Depreciation ........................................ 2,158 2,122
Amortization of deferred grant income ............... (189) (180)
Gains from sale and disposal of property,
equipment and easements ............................ (510) (285)
Deferred income tax benefit ......................... (35) (330)
Share-based compensation ............................ 123 131
Increase (decrease) in cash from:
Accounts receivable ................................ (119) (403)
Materials and supplies ............................. 103 166
Prepaid expenses and other ......................... (542) (1)
Accounts payable and accrued expenses .............. (149) 775
------- -------
Net cash flows from operating activities ............. 772 1,362
------- -------
Cash Flows from Investing Activities:
Purchase of property and equipment ................... (3,485) (3,659)
Proceeds from sale of property, equipment and
easements ........................................... 558 285
------- -------
Net cash flows used in investing activities .......... (2,927) (3,374)
------- -------
Cash Flows from Financing Activities:
Borrowings (payments) under line of credit ........... (900) 1,200
Dividends paid ....................................... (578) (548)
Issuance of common shares to GATX Corporation ........ 5,509 --
Issuance of common shares for stock options
exercised and employee stock purchases .............. 62 59
Proceeds from deferred grant income .................. 190 183
------- -------
Net cash flows from financing activities ............. 4,283 894
------- -------
Increase (Decrease) in Cash and Cash
Equivalents ......................................... 2,128 (1,118)
Cash and Cash Equivalents, Beginning of
Period .............................................. 181 1,253
------- -------
Cash and Cash Equivalents, End of Period ............. $ 2,309 $ 135
======= =======
Supplemental Disclosure, Cash Paid (Received)
for Income Taxes, net ............................... $ (14) $ --
======= =======
Non-cash transactions are described in Note 2.
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, 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 September 30, 2008
and the results of operations and cash flows for the Interim periods ended
September 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 6,082
common shares for
stock options
exercised, employee
stock purchases and
employee stock awards .. 3 92 95
Share-based
compensation - options
granted ................ 90 90
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.12
per share .............. (575) (575)
Net loss for the period . (68) (68)
----- ------- ------- ------- -------
Balance,
September 30, 2008 ..... $ 32 $ 2,399 $36,675 $35,617 $74,723
===== ======= ======= ======= =======
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.
During the nine months ended September 30, 2007 the Company issued 9,581
shares of its common stock with an aggregate fair market value of $178 to
fund its 2006 profit-sharing plan contribution.
6
3. Other Income:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2008 2007 2008 2007
------ ------ ------ ------
Gains from sale and
disposal of property,
equipment and
easements, net ...... $ 484 $ 10 $ 510 $ 285
Rentals .............. 126 145 386 446
Interest ............. 7 4 28 21
------ ------ ------ ------
$ 617 $ 159 $ 924 $ 752
====== ====== ====== ======
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 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,
--------------------- ---------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Weighted average shares
for basic ............ 4,796,569 4,548,864 4,787,033 4,543,292
Dilutive effect of
convertible preferred
stock and options .... 85,614 79,065 -- --
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,882,183 4,627,929 4,787,033 4,543,292
========= ========= ========= =========
Options to purchase 7,503 shares and 48,833 shares of common stock which
were outstanding for the three and nine-month periods ended September 30,
2008, respectively, and options to purchase 12,041 shares and 48,137 shares
of common stock which were outstanding for the three and nine-month periods
ended September 30, 2007, respectively, were not included in the
computation of diluted income or loss per share since their effect would be
antidilutive.
Preferred stock convertible into 64,000 shares of common stock was
outstanding for the nine-month periods ended September 30, 2008 and 2007
but was not included in the computation of the diluted loss per share for
those periods because its 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 ("the Site") that includes the J.M. Mills Landfill
7
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.
6. Dividends:
On October 29, 2008, the Company declared a dividend of $.04 per share on
its outstanding Common Stock payable November 26, 2008 to shareholders of
record on November 12, 2008.
8
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 September 30,Nine Months Ended September 30,
---------------------------- -----------------------------
2008 2007 2008 2007
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $7,487 92.0% $6,517 89.3% $20,243 91.1% $16,731 86.0%
Containers ..... 351 4.3 539 7.4 1,071 4.8 1,960 10.1
Other freight-
related ....... 174 2.2 174 2.4 591 2.7 543 2.8
Other Operating
Revenues ....... 124 1.5 66 .9 321 1.4 219 1.1
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $8,136 100.0% $7,296 100.0% $22,226 100.0% $19,453 100.0%
====== ===== ====== ===== ======= ===== ======= =====
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 September 30,Nine Months Ended September 30,
---------------------------- -----------------------------
2008 2007 2008 2007
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits.$3,886 47.8% $3,898 53.4% $11,686 52.6% $11,367 58.4%
Casualties and
insurance ....... 198 2.4 226 3.1 645 2.9 691 3.6
Depreciation ..... 720 8.8 707 9.7 2,158 9.7 2,122 10.9
Diesel fuel ...... 1,161 14.3 672 9.2 3,081 13.9 1,733 8.9
Car hire, net .... 374 4.6 282 3.9 805 3.6 651 3.4
Purchased
services,
including legal
and professional
fees ............ 496 6.1 531 7.3 1,465 6.6 1,436 7.4
Repair and
maintenance of
equipment ....... 537 6.6 389 5.3 1,183 5.3 1,309 6.7
Track and signal
materials ....... 846 10.4 601 8.2 1,391 6.3 1,591 8.2
Track usage fees . 195 2.4 253 3.5 470 2.1 554 2.8
Other materials
and supplies .... 317 3.9 324 4.4 894 4.0 930 4.8
Other ............ 423 5.2 400 5.5 1,398 6.3 1,440 7.4
------ ----- ------ ----- ------- ----- ------ -----
Total ........... 9,153 112.5 8,283 113.5 25,176 113.3 23,824 122.5
Less capitalized
and recovered
costs .......... 1,189 14.6 1,109 15.2 1,923 8.7 2,656 13.7
------ ----- ------ ----- ------- ----- ------ -----
Total ......... $7,964 97.9% $7,174 98.3% $23,253 104.6% $21,168 108.8%
====== ===== ====== ===== ======= ===== ======= =====
Nine Months Ended September 30, 2008 Compared to Nine Months
Ended September 30, 2007
Operating Revenues:
Operating revenues increased $2.8 million, or 14.3%, to $22.2 million in the
nine months ended September 30, 2008 from $19.4 million in the nine months ended
September 30, 2007. This increase is the net result of a $3.5 million (21.0%)
increase in conventional freight revenues, a $48,000 (8.8%) increase in other
freight-related revenues and a $102,000 (46.6%) increase in other operating
revenues partially offset by an $889,000 (45.4%) decrease in container freight
revenues.
The increase in conventional freight revenues is attributable to a 12.3%
increase in traffic volume and an 8.4% increase in the average revenue received
per carloading. The Company's conventional carloadings increased by 2,808 to
25,577 in the nine- month period ended September 30, 2008 from 22,769 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 rate increases, including diesel fuel surcharges.
The decrease in container freight revenues is the result of a 49.4% decline in
traffic volume partially offset by a 7.9% increase in the average revenue
10
received per container. Container traffic volume decreased by 16,409 containers
to 16,841 in the nine-month period ended September 30, 2008 from 33,250 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 nine 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 increased by $172,000 to $924,000 in the nine-month period ended
September 30, 2008 from $752,000 in 2007. The most significant change was an
increase 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 nine months ended September 30, 2008 increased by
$2.1 million, or 9.8%, to $23.3 million from $21.2 million in 2007. The
increased cost of diesel fuel during the period accounted for $1.3 million of
this increase. This is primarily the result of significantly higher prices for
petroleum products which have been in effect for most of 2008. The Company
anticipates that expenditures for diesel fuel will decrease, somewhat, during
the fourth quarter of 2008 due to lower prices. 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 nine 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 September 30, 2008 Compared to Three Months
Ended September 30, 2007
Operating Revenues:
Operating revenues increased $840,000, or 11.5%, to $8.1 million in the third
quarter of 2008 from $7.3 million in the third quarter of 2007. This increase is
the net result of a $970,000 (14.9%) increase in conventional freight revenues
and a $58,000 (87.9%) increase in other operating revenues partially offset by a
$188,000 (34.9%) decrease in container freight revenues. The amount of other
freight-related revenues was virtually unchanged between quarters.
The increase in conventional freight revenues is attributable to a 1.7% increase
in traffic volume and a 13.0% increase in the average revenue received per
conventional carloading. The Company's conventional carloadings increased by 160
to 9,583 in the third quarter of 2008 from 9,423 in the third quarter of 2007.
11
The reasons for the increases in traffic volume and revenue received per
carloading are as explained in the discussion of the results of operations for
the nine months ended September 30, 2008.
The decrease in container freight revenues is the result of a 40.7% decrease in
traffic volume partially offset by a 9.8% increase in the average revenue
received per container. Container traffic volume decreased by 3,681 containers
to 5,362 in the third quarter of 2008 from 9,043 in the third quarter of 2007.
The reasons for the decrease in traffic volume and the increase in the average
revenue received per container are as previously explained in the discussion of
the results of operations for the nine months ended September 30, 2008.
Other freight-related revenues consisting of billings for demurrage, secondary
switching, weighing, special train and other ancillary services were virtually
unchanged between quarters.
The increase in other operating income reflects higher maintenance department
billings for services rendered to freight customers and other outside parties.
Other Income:
Other income increased by $458,000 to $617,000 in the third quarter of 2008 from
$159,000 in the third quarter 2007. Increased gains from the sale of property
and equipment accounts for this increase.
Operating Expenses:
Operating expenses for the third quarter of 2008 increased by $790,000, or
11.0%, to $8.0 million from $7.2 million. The increased cost of diesel fuel, as
previously discussed, accounts for $489,000 of this increase.
Income Taxes:
The income tax provision for the third quarter of 2008 is approximately 33% of
pre tax income. This is the effective federal income tax rate which the Company
expects to pay in 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
equity is being used for capital improvements to enhance the Company's railroad
lines.
During the first nine months of 2008 the Company's operations generated $772,000
of cash. Total cash and cash equivalents, increased by $2.1 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.
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.
12
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, 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, 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 September 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.
PART II - Other Information
- ---------------------------
Item 5. Reports on Form 8-K
-------------------
(a) No reports on Form 8-K were filed during the quarter ended September
30, 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
13
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 13, 2008
14
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 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: November 13, 2008
By: /s/ Robert J. Easton
---------------------------
Robert J. Easton
Treasurer and Chief
Financial Officer
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,
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
November 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 September 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
November 13, 2008