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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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
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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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.50 par value
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(Title of Class)
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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
As of March 2, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $28,618,093. (For this purpose, all
directors of the Registrant are considered affiliates.)
As of March 2, 2001, the Registrant had 4,352,099 shares of Common Stock
outstanding.
Documents Incorporated by Reference -
- -------------------------------------
None
Exhibit Index - Page IV-1.
PART I
Item 1. Business
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Providence and Worcester Railroad Company ("P&W") is a regional freight
railroad operating in Massachusetts, Rhode Island, Connecticut and New York. The
Company is the only interstate freight carrier serving the State of Rhode Island
and possesses the exclusive and perpetual right to conduct freight operations
over the Northeast Corridor between New Haven, Connecticut and the
Massachusetts/Rhode Island border. Since commencing independent operations in
1973, the Company, through a series of acquisitions of connecting lines, has
grown from 45 miles of track to its current system of approximately 545 miles.
P&W operates the largest double stack intermodal terminal facilities in New
England in Worcester, Massachusetts, a strategic location for regional
transportation and distribution enterprises.
The Company transports a wide variety of commodities for its customers,
including construction aggregate, iron and steel products, chemicals, lumber,
scrap metals, plastic resins, cement, processed foods and edible food stuffs,
such as frozen foods, corn syrup and animal and vegetable oils. Its customers
include The Dow Chemical Company, Exxon-Mobil Corporation, Frito-Lay, Inc.,
General Dynamics Corporation, Getty Petroleum Marketing Inc., International
Paper Company, R.R. Donnelly & Sons and Tilcon Connecticut, Inc. In 2000, P&W
transported approximately 30,000 carloads of freight and 72,000 intermodal
containers. The Company also generates income through sales of properties,
grants of easements and licenses and leases of land and tracks.
P&W's connections to multiple Class I railroads, either directly or through
connections with regional and short-line carriers, provide the Company with a
competitive advantage by allowing it to offer creative pricing and routing
alternatives to its customers. In addition, the Company's commitment to
maintaining its track and equipment to high standards enables P&W to provide
fast, reliable and efficient service.
Industry Overview
General
Railroads are divided into three classes based on operating revenues: Class I,
$258.5 million or more; Class II, $20.7 million to $258.5 million; and Class
III, less than $20.7 million. As a result of mergers and consolidations, there
are now only seven Class I railroads in the country. These large systems handle
91% of the nation's rail freight business.
The rail freight industry underwent a revitalization after the passage of the
Staggers Rail Act, which deregulated the pricing and types of services provided
by railroads. As a result, railroads were able to achieve significant
productivity gains and operating cost decreases while gaining pricing
flexibility. Rail freight service became more competitive with other
transportation modes with respect to both quality and price. The volume of
freight moved by rail has risen dramatically since 1980 and profitability has
improved significantly.
One result of the revitalization of the industry has been the growth of
regional (over 350 miles) and short-line railroads, which has been fueled by a
trend among Class I railroads to divest certain branch lines in order to focus
on their long-haul core systems. There are now more than 500 of these regional
and short-line railroads. They operate in all 50 states, account for nearly 30%
of all rail track, employ 12% of all rail workers and generate about 9% of all
rail revenue.
Generally, freight railroads handle two types of traffic: conventional
carloads and intermodal containers used in the shipment of goods via more than
one mode of transportation, e.g., by ship, rail and truck. By using a
hub-and-spoke approach to shipping, multiple containers can be moved by rail to
and from an intermodal terminal and then either delivered to their final
destinations by truck or transferred to ship for export. Over the past decade,
commodity shippers have increasingly turned to intermodal transportation
principally as an alternative to long-haul trucking. The development of new
intermodal technology, which allows containers to be moved by rail double
stacked (i.e., stacked one on top of the other) in specially designed railcars,
together with increasing highway traffic congestion and the shortage of
long-haul truck drivers have contributed to this trend.
Break Up of Conrail
Pursuant to the approval of the United States Surface Transportation Board
("STB"), CSX Corporation ("CSX") and Norfolk Southern Railroad ("Norfolk
Southern") jointly acquired Consolidated Rail Corporation ("Conrail") and split
its assets between them on June 1, 1999. CSX acquired and now operates Conrail's
New England facilities.
I-1
The acquisition of Conrail and the division of its assets between CSX and
Norfolk Southern resulted in service related delays and the temporary diversion
of some conventional carloads of freight to trucks during the third and fourth
quarters of 1999. Service, however, did improve during the fourth quarter of
1999 and largely returned to normal during 2000. Service issues notwithstanding,
the Company believes that the acquisition of Conrail should create business
opportunities as a result of longer Class I single line service on competitive
routes, particularly between the Southeast and New England.
The New York City and Long Island metropolitan area is one of the country's
largest markets for the consumption of products and freight transportation
services. In August 1997, the Company entered into an agreement with CSX that
enables the Company to market rail service between its system and New York City.
Moreover, in rendering its decision authorizing CSX's and Norfolk Southern's
acquisition of Conrail, the STB required CSX to discuss with the Company the
possibility of additional rail service between New Haven, CT and Fresh Pond
Junction (Queens), NY as a step to provide competitive rail service to and from
New York City. Although the STB has declined to compel formal discussions
between CSX and the Company, it continues to encourage the Company and CSX to
develop mutually beneficial business on this route. The Company intends to
aggressively pursue such opportunities.
Regional Developments
There are a number of development projects underway in New England to increase
port capacity along the extensive coastline and to improve the intermodal
transportation and distribution infrastructure in the region. These projects
present significant opportunities for the Company to increase its business.
Quonset/Davisville
The State of Rhode Island has proposed the redevelopment of a 1,000 acre
portion of the former Naval facility at Quonset/Davisville to a more active port
and industrial park. This facility already houses a number of rail oriented
industries and an auto port. Construction of a freight rail improvement project
to provide additional track capacity and double stack clearance on the Northeast
Corridor between Quonset/Davisville and the connection of the Corridor to the
Company's main line at Central Falls, R.I is expected to commence in 2002 at a
cost in excess of $120 million.
Massachusetts Highway Improvement Program
Work has begun on a significant expansion of the Company's bulk transload and
intermodal yards in Worcester in conjunction with the Massachusetts Highway
Department's $250 million project creating a direct Worcester connection to the
Massachusetts Turnpike. This project will result in a near doubling of the
Company's transload facilities over the next year.
Port of New Haven
The State of Connecticut is in the process of rebuilding the Tomlinson Bridge
in New Haven, which will provide rail access to the Port of New Haven. In
conjunction with this project, the Company is working with the City of New Haven
and area users of the rail systems to fund a design for the restoration of local
street rail service directly to port properties. Completion of this project,
which is scheduled for late 2002, will provide the Company with increased access
to customers at the Port of New Haven.
Middletown/Hartford Line
In cooperation with the state of Connecticut, the Company is engaged in the
restoration of the rail line extending from Middletown to Hartford, Connecticut.
In April 2000, the state of Connecticut appropriated $1.85 million to fund their
portion of the project (approx 70%). This 11 mile segment should be ready for
service by the summer of 2001. With a planned industrial park along this line
and a new connection to other carriers in Hartford, the Company believes
restoration of this line will present opportunities for revenue growth.
Railroad Operations
The Company's rail freight system extends over approximately 545 miles of
track. The Company interchanges freight traffic with CSX at Worcester,
Massachusetts and at New Haven, Connecticut; with the Springfield Terminal
I-2
Railway Company (formerly Boston and Maine Railroad) at Gardner, Massachusetts;
with the New England Central Railroad (formerly Central Vermont Railway) at New
London, Connecticut; and with the New York and Atlantic Railroad (formerly Long
Island Railroad) at Fresh Pond Junction on Long Island. Through its connections,
P&W links more than 80 communities on its lines. It operates four classification
yards (areas containing tracks used to group freight cars destined for a
particular industry or interchange), located in Worcester, Massachusetts,
Cumberland, Rhode Island and Plainfield and New Haven, Connecticut.
By agreement with a private operator, the Company operates two approved
customs intermodal yards in Worcester. A customs intermodal yard is an area
containing tracks used for the loading and unloading of containers. These yards
are U.S. Customs bonded, and international traffic must be inspected and
approved by U.S. Customs officials. The intermodal facility serves primarily as
a terminal for movement of container traffic from the Far East destined for
points in New England. Several major container ship lines utilize double stack
train service through this terminal. P&W works closely with the terminal
operator to develop and maintain strong relationships with steamship lines
involved in international intermodal transportation.
Customers
The Company serves approximately 160 customers in Massachusetts, Rhode
Island, Connecticut and New York. The Company's 10 largest customers account for
roughly half of its operating revenues. In 2000, Tilcon Connecticut, Inc., which
ships construction aggregate from three separate quarries on P&W's system to
asphalt production plants in Connecticut and New York, accounted for
approximately 12.6% of the Company's operating revenues. No other customer
accounted for 10% or more of its total operating revenues in 2000.
Markets
The Company transports a wide variety of commodities for its customers. In
2000, chemicals and plastics and construction aggregate were the two largest
commodity groups transported by the Company, constituting 38% and 17%,
respectively, of conventional carload freight revenues. The following table
summarizes the Company's conventional carload freight revenues by commodity
group as a percentage of such revenues:
Commodity 2000 1999 1998 1997 1996
- --------- ---- ---- ---- ---- ----
Chemicals and Plastics ............ 38% 41% 41% 42% 43%
Construction Aggregate ............ 17 17 17 20 18
Food and Agricultural ............. 13 14 15 15 17
Forest and Paper Products ......... 16 14 14 13 14
Scrap Metal and Waste ............. 6 6 6 5 3
Metal products and other .......... 10 8 7 5 5
--- --- --- --- ---
Total ............................. 100% 100% 100% 100% 100%
=== === === === ===
Sales and Marketing
P&W's sales and marketing staff of four people has nearly 50 years of combined
experience in pricing and marketing railroad services. The sales and marketing
staff focuses on understanding and addressing the raw material requirements and
transportation needs of its existing customers and businesses on its lines. The
staff grows existing business by maintaining close working relationships with
both customers and connecting carriers. The sales and marketing staff strives to
generate new business for the Company through (i) targeting companies already on
P&W's rail lines but not currently using rail services, (ii) working with state
and local development officials, developers and real estate brokers to encourage
the development of industry on the Company's rail lines and (iii) identifying
and targeting the non-rail transportation of goods into and out of the region in
which the Company operates. Unlike many other regional and short-line railroads,
the Company is able to offer its customers creative pricing and routing
alternatives because of its multiple connections to other carriers.
Safety
An important component of the Company's operating strategy is conducting safe
railroad operations for the benefit and protection of employees, customers and
the communities served by its rail lines. Since commencing active operations in
1973, the Company has committed significant resources to track maintenance to
minimize the risk of derailments and believes its rail system is in good
condition.
I-3
Safety of the Company's operations is of paramount importance for the benefit
and protection of the Company's employees, customers and the communities served
by its rail lines. The Company and its employees have made dramatic improvements
in preventing injuries while at the same time increasing operations and
expanding the work force.
Rail Traffic
Rail traffic is classified as on-line or overhead traffic. On-line traffic is
traffic that originates or terminates with shippers located on a railroad.
Overhead traffic passes from one connecting carrier to another and neither
originates nor terminates with shippers located on a railroad. Presently, P&W is
solely an on-line carrier but expects to provide overhead service in the future
for certain rail traffic to and from Long Island.
Rail freight rates can be in various forms. Generally, customers are given a
"through" rate, a single figure encompassing the rail transportation of a
commodity from point of origin to point of destination, regardless of the number
of carriers which handle the car. Rates are developed by the carriers based on
the commodity, volume, distance and competitive market considerations. The
entire freight bill is paid either to the originating carrier ("prepaid") or to
the destination carrier ("collect") and divided between all carriers which
handle the move. The basis for the division varies and can be based on factors
(or revenue requirements) independently established by each carrier which
comprise the through rate, or on a percentage basis established by division
agreements among the carriers. A carrier such as P&W, which actually places the
car at the customer's location and attends to the customer's daily switching
requirements, receives revenue greater than an amount based simply on mileage
hauled.
Employees
As of January 1, 2001, the Company had 154 full-time employees, 116 of which
were represented by three national railroad labor organizations. The Company's
employees have been represented by unions since the Company commenced
independent operations in 1973.
The Company's initial agreement with the United Transportation Union covering
the trainmen was unusual in the railroad industry since it provided the Company
with discretion in determining crew sizes, eliminated craft distinctions and
provided a guaranteed annual wage for a maximum number of hours worked. The
Company's collective bargaining agreements have been in effect since February
1973 for trainmen, since May 1974 for clerical employees, dispatchers and police
and since June 1974 for maintenance employees. These contracts do not expire but
are subject to re-negotiation after the agreed-upon moratoriums. The moratorium
periods are typically three to five years in length. The labor agreements may
next be amended at July 1, 2004 for the United Transportation Union (trainmen),
July 1, 2006 for the Brotherhood of Railroad Signalmen (maintenance) and
December 31, 2005 for the Transportation Communications Union (clerical). The
Company considers its employee and labor relations to be good.
Competition
The Company is the only rail carrier serving businesses located on- line.
However, the Company competes with other carriers in the location of new
rail-oriented businesses in the region. The Company also competes with other
modes of transportation, particularly long-haul trucking companies, for the
transportation of commodities. Any improvement in the cost or quality of these
alternate modes of transportation, for example, legislation granting material
increases in truck size or allowable weight, could increase competition and may
materially adversely affect the Company's business and results of operations. As
a means of competing, P&W strives to offer greater convenience and better
service than competing carriers and at costs lower than some competing non-rail
carriers. The Company also competes by participating in efforts to attract new
industry to the areas which it serves.
Certain rail competitors, including CSX and Norfolk Southern, are larger or
better capitalized than the Company. While P&W believes the acquisition and
division of Conrail will lead to expansion opportunities, the Conrail
transaction may lead to increased competition with other freight railroads,
particularly in Massachusetts, and efforts by CSX and Norfolk Southern to reduce
revenue to connecting regional and short-line carriers.
The Company believes that its ability to grow depends, in part, upon its
ability to acquire additional connecting rail lines. In making acquisitions, P&W
competes with other short-line and regional rail operators, some of which are
larger and have greater financial resources than the Company.
I-4
Governmental Regulation
The Company is subject to governmental regulation by the United States
Surface Transportation Board ("the STB"), the Federal Railroad Administration
("the FRA") and other federal, state and local regulatory authorities with
respect to certain rates and railroad operations, as well as a variety of
health, safety, labor, environmental and other matters, all of which could
potentially affect the competitive position and profitability of the Company.
Additionally, the Company is subject to STB regulation and may be required to
obtain STB approval prior to its acquisition of any new railroad properties.
Management of the Company believes that the regulatory freedoms granted by the
Staggers Rail Act have been beneficial to the Company by giving it flexibility
to adjust prices and operations to respond to market forces and industry
changes. However, various interests, and certain members of the United States
House of Representatives and Senate (which have jurisdiction over federal
regulation of railroads), have from time to time expressed their intention to
support legislation that would eliminate or reduce significant freedoms granted
by the Staggers Rail Act.
Environmental Matters
The Company's railroad operations and real estate ownership are subject to
extensive federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters and
the handling, storage, transportation and disposal of waste and other materials.
The Company handles, stores, transports and disposes of petroleum and other
hazardous substances and wastes. The Company also transports hazardous
substances for third parties and arranges for the disposal of hazardous wastes
generated by the Company. The Company believes that it is in material compliance
with applicable environmental laws and regulations.
Item 2. Properties
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Track
P&W's rail system extends over approximately 545 miles of track, of which it
owns approximately 170 miles. The Company has the right to use the remaining 375
miles pursuant to perpetual easements and long- term trackage rights agreements.
Under certain of these agreements, the Company pays fees based on usage.
Virtually all of the main lines on which the Company operates are in FRA
class 3 condition (allowing 40 m.p.h. speeds) or better. The Company intends to
maintain these lines in such excellent condition.
Of the approximately 545 miles of the Company's system, 313 miles, or 57%, are
located in Connecticut, 103 miles, or 19%, are located in Massachusetts, 102
miles, or 19%, are located in Rhode Island and 28 miles, or 5%, are located in
New York.
Rail Facilities
P&W owns land and a building with approximately 69,500 square feet of floor
space in Worcester, Massachusetts. The building houses the Company's executive
and administrative offices and some of the Company's storage space.
Approximately 2,100 square feet are leased to an outside tenant.
The Company owns and operates three principal classification yards located in
Worcester, Massachusetts, Cumberland, Rhode Island and Plainfield, Connecticut
and also operates a classification yard in New Haven, Connecticut. In addition,
the Company has maintenance facilities in Plainfield and Worcester. The Company
has completed an expansion of its primary locomotive and rail car maintenance
and repair facility in Worcester, MA. This approximately $1.8 million expansion
has increased capacity and productivity and has enabled the Company to accept
contract work for other railroads and customers. In addition, the Company has
upgraded its Plainfield, CT equipment maintenance facility to include a modern
paint shop. P&W believes that its executive and administrative office
facilities, classification yards and maintenance facilities are adequate to
support its current level of operations.
Other Properties
The Company owns or has the right to use a total of approximately 130 acres of
real estate located along the principal railroad lines from downtown Providence
through Pawtucket, Rhode Island. Of this amount, P&W owns approximately eight
acres in Pawtucket and has a perpetual easement for railroad purposes over the
remaining 122 acres.
I-5
The Company has invested nearly $12 million in the development of the South
Quay, which is adjacent to 12 acres of land owned by the Company. This
investment has resulted in the creation of approximately 33 acres of waterfront
land.
P&W actively manages its real estate assets in order to maximize revenues.
The income from property management is derived from sales and leasing of
properties and tracks and grants of easements to government agencies, utility
companies and other parties for the installation of overhead or underground
cables, pipelines and transmission wires as well as recreational uses such as
bike paths.
Rolling Stock
The following schedule sets forth the rolling stock owned by the Company as
of December 31, 2000:
Description Number
----------- ------
Locomotive................................................... 34
Gondola 77
Flat Car..................................................... 4
Ballast Car.................................................. 30
Passenger Equipment.......................................... 6
Caboose...................................................... 1
-------
Total................................................... 152
=======
The 34 diesel electric locomotives are used on a daily basis, are maintained
to a high standard, comply with all FRA and Association of American Railroads
rules and regulations and are adequate for the needs of the Company's freight
operations. The gondolas and flat cars are considered modern rail cars and are
used by certain P&W customers. Other rail freight customers use their own
freight cars or obtain such equipment from other sources. The ballast cars are
used in track maintenance. From time to time, the Company has leased ballast
cars to other adjoining railroads. The passenger equipment and caboose are not
utilized in P&W's rail freight operations but are used on an occasional basis
for Company functions, excursions and charter trips.
Equipment
P&W has a state-of-the-art digital touch control dispatching system at its
Worcester operations center permitting two-way radio contact with every train
crew and maintenance vehicle on its lines. The system also enables each train
crew to maintain radio contact with other crew members. The Company maintains a
computer facility in Worcester with back-up computer facilities in Worcester and
Plainfield, Connecticut to assure the Company's ability to operate in the event
of disruption of service in Worcester. The Company also has state-of-the-art
automatic train defect detectors at strategic locations which inspect passing
trains and audibly communicate the results to train crews and dispatchers in
order to protect against equipment failure en route.
The Company maintains a modern fleet of track maintenance equipment and
aggressively pursues available opportunities to work with federal and state
agencies for the rehabilitation of bridges, grade crossings and track. The
Company's locomotives are equipped with the cab signal technology necessary for
operations on the Northeast Corridor and are equipped with automatic civil speed
enforcement systems which were required by the introduction of high speed
passenger service on the Northeast Corridor.
Item 3. Legal Proceedings
- -------------------------
The Company is party to an arbitration proceeding with the National Railroad
Passenger Corporation ("Amtrak") concerning Amtrak's claim for rate increases
effective August 1999 with respect to the Company's freight operations over a
portion of Amtrak's Northeast Corridor in the states of Rhode Island and
Connecticut. The arbitration is in its early stages and as yet the Company has
not received sufficient data from Amtrak to evaluate the merits of Amtrak's
claim. Accordingly, the Company cannot predict the amount, if any, of such
increase or the period to which it might apply.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable.
I-6
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
- ----------------------------------------------------------------------------
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is quoted on the American Stock Exchange ("AMEX") under the
trading symbol "PWX". The following table sets forth, for the periods indicated,
the high and low sale prices per share for the Common Stock as reported on the
AMEX. Also included are dividends paid per share of Preferred Stock and Common
Stock during these quarterly periods.
Common Stock
------------
Trading Prices Dividends Paid
-------------- --------------
High Low Preferred Common
---- --- --------- ------
2000
First Quarter......... 9 7 $ 5.00 $ .04
Second Quarter........ 9.25000 6.5000 -0- .04
Third Quarter......... 8.31250 7.0000 -0- .04
Fourth Quarter........ 7.18750 5.8750 -0- .04
1999
First Quarter......... 12 7/8 10 1/2 $ 5.00 $ .03
Second Quarter........ 14 5/8 10 5/8 -0- .04
Third Quarter......... 14 1/4 10 5/8 -0- .04
Fourth Quarter........ 10 3/4 7 5/8 -0- .04
As of March 2, 2001, there were approximately 739 holders of record of the
Company's Common Stock.
The declaration of cash dividends on the Common Stock is made at the discretion
of the Board of Directors based on the Company's earnings, financial condition,
capital requirements and other relevant factors and restrictions.
II-1
Item 6. Selected Financial Data
- -------------------------------
The selected financial data set forth below has been derived from audited
financial statements. The data should be read in conjunction with the Company's
audited financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
information included elsewhere in this annual report on Form 10-K.
Years Ended December 31,
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(in thousands, except per share amounts)
Income Statement Data:
Operating revenues ............ $23,139 $21,871 $22,738 $22,083 $19,456
Other income .................. 2,049 3,974 4,156 638 1,660
------- ------- ------- ------- -------
Total Revenues ................ 25,188 25,845 26,894 22,721 21,116
------- ------- ------- ------- -------
Operating expenses ............ 21,970 21,129 20,036 18,333 17,714
Interest expense .............. -- -- 495 1,358 1,371
------- ------- ------- ------- -------
Total expenses ................ 21,970 21,129 20,531 19,691 19,085
------- ------- ------- ------- -------
Income before income taxes
and extraordinary item ....... 3,218 4,716 6,363 3,030 2,031
Provision for income taxes .... 1,200 1,690 2,360 1,100 780
------- ------- ------- ------- -------
Income before extraordinary
item ......................... 2,018 3,026 4,003 1,930 1,251
Extraordinary loss from
early extinguishment of
debt, net of income tax
benefit ...................... -- -- 219 -- --
------- ------- ------- ------- -------
Net income .................... 2,018 3,026 3,784 1,930 1,251
Preferred Stock dividend ...... 3 3 3 3 3
------- ------- ------- ------- -------
Net income available to
common shareholders .......... $ 2,015 $ 3,023 $ 3,781 $ 1,927 $ 1,248
======= ======= ======= ======= =======
Basic income per common
share (a) .................... $ .47 $ .71 $ 1.13 $ .87 $ .57
======= ======= ======= ======= =======
Diluted income per common
share (a) .................... $ .46 $ .70 $ 1.10 $ .81 $ .54
======= ======= ======= ======= =======
Weighted average
shares--basic ................ 4,323 4,260 3,352 2,209 2,178
======= ======= ======= ======= =======
Weighted average
shares--diluted .............. 4,390 4,334 3,433 2,489 2,461
======= ======= ======= ======= =======
Cash dividends declared on
Common Stock ................. $ 693 $ 640 $ 402 $ 267 $ 218
======= ======= ======= ======= =======
December 31,
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Balance Sheet Data:
Total assets .................. $89,073 $86,371 $84,594 $71,212 $ 68,491
Short-term debt ............... -- -- -- 2,281 2,117
Long-term debt, less current
portion ...................... -- -- -- 11,916 12,131
Shareholders' equity .......... 68,483 66,683 63,709 38,038 36,061
(a) The income per share amounts for 1998 are stated net of a loss of $.06 per
share attributable to the extraordinary item.
II-2
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The following discussion should be read in connection with the Company's audited
financial statements and notes thereto included elsewhere in this annual report
on Form 10-K.
This annual report on Form 10-K contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements.
Overview
The Company is a regional freight railroad operating in Massachusetts, Rhode
Island, Connecticut and New York.
The Company generates operating revenues primarily from the movement of freight
in both conventional freight cars and in intermodal containers on flat cars over
its rail lines. Freight revenues are recorded at the time delivery is made to
the customer or the connecting carrier. Modest non-freight operating revenues
are derived from demurrage, switching, weighing, special train and other
transportation services as well as from services rendered to freight customers
and other outside parties by the Company's Maintenance of Way, Communications &
Signals, and Maintenance of Equipment Departments. Operating revenues also
include amortization of deferred grant income.
The Company's operating expenses consist of salaries and wages and related
payroll taxes and employee benefits, depreciation and amortization, insurance
and casualty claim expense, diesel fuel, car hire, property taxes, materials and
supplies, purchased services and other expenses. Many of the Company's operating
expenses are of a relatively fixed nature and do not increase or decrease
proportionately with increases or decreases in operating revenues unless the
Company's management were to take specific actions to restructure the Company's
operations.
When comparing the Company's results of operations from one year to another, the
following factors should be taken into consideration. First, the Company has
historically experienced fluctuations in operating revenues and expenses due to
unpredictable events such as one-time freight moves and customer plant
expansions and shut-downs. Second, the Company's freight volumes are susceptible
to increases and decreases due to changes in international, national and
regional economic conditions. Third, the volume of capitalized track or
recollectable projects performed by the Company's Maintenance of Way and
Communications & Signals Departments can vary significantly from year to year
thereby impacting total operating expenses.
The Company also generates income through sales of properties, grants of
easements and licenses, and leases of land and tracks. Income or loss from sale,
condemnation and disposal of property and equipment and grants of easements is
recorded at the time the transaction is consummated and collectibility is
assured. This income varies significantly from year to year.
One of the Company's customers, Tilcon Connecticut, Inc., which ships
construction aggregate from three separate quarries on the Company's system to
asphalt production plants in Connecticut and New York, accounted for
approximately 12.6%, 13.2%, and 13.4% of its operating revenues in 2000, 1999,
and 1998, respectively. The Company does not believe that this customer will
cease to be a rail shipper or will significantly decrease its freight volume in
the foreseeable future. In the event that this customer should cease or
significantly reduce its rail freight operations, management believes that the
Company could restructure its operations to reduce operating costs by an amount
sufficient to offset the decrease in operating revenues.
II-3
Results of Operations
- ---------------------
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Years Ended December 31,
-----------------------------------------------
2000 1999 1998
------------- -------------- -------------
(in thousands, except percentages)
Freight Revenues:
Conventional carloads ....... $18,416 79.6% $18,006 82.3% $19,031 83.7%
Containers .................. 2,995 12.9 2,384 10.9 2,132 9.4
Non-Freight Operating Revenues:
Transportation services ..... 1,041 4.5 560 2.6 640 2.8
Other ....................... 687 3.0 921 4.2 935 4.1
------- ----- ------- ----- ------- -----
Total ...................... $23,139 100.0% $21,871 100.0% $22,738 100.0%
======= ===== ======= ===== ======= =====
The following table sets forth conventional carload freight revenues by
commodity group in dollars and as a percentage of such revenues:
Years Ended December 31,
-----------------------------------------------
2000 1999 1998
------------- -------------- -------------
(in thousands, except percentages)
Chemicals and plastics........... $ 6,928 37.6% $7,363 40.9% $ 7,813 41.1%
Construction aggregate........... 3,094 16.8 3,101 17.2 3,239 17.0
Food and agricultural products... 2,451 13.3 2,481 13.8 2,904 15.3
Forest and paper products........ 2,888 15.7 2,477 13.8 2,730 14.3
Scrap metal and waste............ 1,164 6.3 1,176 6.5 1,074 5.6
Metal products and other......... 1,891 10.3 1,408 7.8 1,271 6.7
------- ----- ------- ----- ------- -----
Total....................... $18,416 100.0% $18,006 100.0% $19,031 100.0%
======= ===== ======= ===== ======= =====
The following table sets forth a comparison of the Company's operating expenses
expressed in dollars and as a percentage of operating revenues:
Years Ended December 31,
-----------------------------------------------
2000 1999 1998
------------- -------------- -------------
Salaries, wages, payroll taxes
and employee benefits......... $12,688 54.9% $12,328 56.4% $11,587 51.0%
Casualties and insurance....... 795 3.4 755 3.4 745 3.3
Depreciation and amortization.. 2,681 11.6 2,517 11.5 2,225 9.8
Diesel fuel.................... 1,280 5.5 798 3.6 658 2.9
Car hire, net.................. 952 4.1 546 2.5 672 2.9
Purchased services, including
legal and professional fees... 2,385 10.3 2,183 10.0 1,868 8.2
Repairs and maintenance of
equipment..................... 971 4.2 1,130 5.2 1,007 4.4
Track and signal materials..... 2,245 9.7 2,091 9.6 1,666 7.3
Other materials and supplies... 918 4.0 1,175 5.4 1,113 4.9
Other.......................... 1,627 7.0 1,672 7.6 1,572 6.9
------- ---- ------- ----- ------- -----
Total....................... 26,542 114.7 25,195 115.2 23,113 101.6
Less capitalized and
recovered costs............ 4,572 19.8 4,066 18.6 3,077 13.5
------- ---- ------- ----- ------- -----
Total..................... $21,970 94.9% $21,129 96.6% $20,036 88.1%
======= ===== ======= ===== ======= =====
II-4
Year ended December 31, 2000 Compared to Year Ended December 31, 1999
Operating Revenues
Operating revenues increased $1.3 million, or 5.8%, to $23.1 million in 2000
from $21.9 million in 1999. This increase was comprised of a $410,000 (2.3%)
increase in conventional freight revenue, a $611,000 (25.6%) increase in net
container freight revenue and a $247,000 (16.7%) increase in non-freight
operating revenues.
The increase in conventional freight revenues results from an increase in the
average revenue received per conventional carloading of 2.8% partially offset by
a small decrease in traffic volume. The Company's conventional freight
carloadings decreased by 157, or .5%, to 29,776 in 2000 from 29,933 in 1999.
The decrease in conventional carloadings results primarily from a net decrease
in carloadings for existing customers partially offset by traffic from new
customers. The increase in the average revenue received per conventional
carloading is principally due to moderate increases in certain freight rates.
The increase in net container freight revenue is the result of an increase in
container traffic volume as well as a 4.9% increase in the average revenue
received per container. Total intermodal containers handled increased by 11,818,
or 19.7%, to 71,739 in 2000 from 59,921 in 1999. The increase in the average
revenue per container is attributable to increased rates tied to certain
railroad cost indices and to variations in the mix of containers handled. The
increase in container traffic volume is attributable to increased volume from
existing customers.
The increase in non-freight operating revenues for the year is the result of
increased demurrage and other transportation related revenues partially offset
by decreases in maintenance departmental billings. The increase in demurrage
revenue is related to the increase in net car hire expense incurred during the
year. Non-freight operating revenues can vary from year to year depending upon
customer needs.
Operating Expenses
Operating expenses increased $841,000, or 4.0%, to $22.0 million in 2000 from
$21.1 million in 1999. Operating expenses as a percentage of operating revenues
("operating ratio") decreased to 94.9% in 2000 from 96.6% in 1999. While
operating expenses increased generally, across the board, the more significant
increases were in the following areas:
o Diesel fuel increased by $482,000, or 60.4%, to $1.3 million in 2000 from
$798,000 in 1999 as a result of sharply increased prices for petroleum
products.
o Depreciation and amortization expense increased $164,000, or 6.5%, to $2.7
million in 2000 from $2.5 million in 1999 as a result of significant recent
additions to property and equipment.
o Net car hire expense increased $406,000, or 74.3%, to $952,000 in 2000 from
$546,000 in 1999. As previously discussed, this increase has been more than
offset by increased demurrage revenue.
Other Income
Other income decreased to $2.0 million in 2000 from $4.0 million in 1999
primarily due to a decrease in gains from the sale, condemnation and disposal of
property, equipment and easements (including fiber optics licenses). In addition
1999 included $947,000 of income related to the recovery of a portion of an
environmental claim paid by the Company in prior years.
Year ended December 31, 1999 Compared to Year Ended December 31, 1998
Operating Revenues
Operating revenues decreased $867,000, or 3.8%, to $21.9 million in 1999 from
$22.7 million in 1998. This decrease was comprised of a $1.0 million (5.4%)
decrease in conventional freight revenue, and a $94,000 (6.0%) decrease in
non-freight operating revenues partially offset by a $252,000 (11.8%) increase
in net container freight revenues.
The decrease in conventional freight revenues is attributable to a decrease in
traffic volume and to a decrease in the average revenue received per
conventional car-loading of 3.7%. The Company's conventional freight carloadings
decreased by 549, or 1.8%, to 29,933 in 1999 from 30,482 in 1998.
II-5
On June 1, 1999 the rail lines and operations of Consolidated Rail Corporation
("Conrail"), with which the Company has historically interchanged the majority
of its rail freight traffic, were split between CSX Corporation and Norfolk
Southern Railroad. The Company estimates that delays and other service problems
attributable to this split-up accounted for a traffic reduction of nearly 700
carloadings which were diverted to truck. The Company believes that most of this
traffic will be returned to rail once the service problems related to the
Conrail split-up have been overcome. While the situation has improved, service
problems still remained as of the end of 1999. During 1999, two of the Company's
rail-freight customers continued to phase out operations which utilized the
Company's rail-freight services. Reduced traffic to these two customers
accounted for a reduction of approximately 890 carloadings during the year. It
is anticipated that these two customers will complete the phase-out of their
rail-freight served operations over the next year or two.
The Company did experience increased rail-freight traffic from several new
customers and from certain existing customers which partially offset the traffic
declines discussed above. The reduction in the average revenue received per
conventional carloading, between years, is largely attributable to a change in
the mix of freight hauled toward lower revenue commodities. Management believes
that the average freight received per carloading should increase in the future
as freight, temporarily lost to Conrail split-up related service problems,
returns to the railroads.
The increase in container freight revenue was primarily the result of increased
container traffic volume. Total intermodal containers handled increased by
6,098, or 11.3%, to 59,921 containers in 1999 from 53,823 containers in 1998.
The average revenue received per intermodal container increased by approximately
.5% due to rate increases attributable to increases in certain railroad industry
cost indices. The increase in container traffic volume results from both new
customers and increased volume from existing customers.
The decrease in non-freight operating revenues is attributable to decreases in
billings for demurrage, secondary switching and other transportation related
services. Such revenues can vary from year to year depending upon traffic
volumes and customer requirements.
Operating Expenses
Operating expenses increased $1.1 million, or 5.5%, to $21.1 million in 1999
from $20.0 million in 1998. The operating ratio increased to 96.6% in 1999 from
88.1% in 1998. While operating expenses have risen generally across the board,
the most significant increase was in the area of salaries, wages, payroll taxes
and employee benefits which increased $741,000, or 6.4%, to $12.3 million in
1999 from $11.6 million in 1998. This increase results from additional employees
hired throughout 1998, increases in the average rates of pay due to semi- annual
cost of living adjustments and pay rate increases mandated by union contracts
and from higher costs of payroll taxes and employee health and welfare benefits.
In addition the amount expended for diesel fuel increased by $140,000, or 21.3%,
between years due to the increased cost of petroleum products, and depreciation
and amortization expense increased by $292,000 or 13.1% as a result of recent
additions to property and equipment and amortization of goodwill related to the
1998 acquisition of Connecticut Central Railroad Company.
Other Income
Other income decreased by $182,000, or 4.4% to $4.0 million in 1999 from $4.2
million in 1998. The principal items of income in this category for 1999 were
$2.1 million derived from the sale of long-term fiber optics cable licenses and
$947,000 related to the recovery of the portion of an environmental claim paid
by the Company in prior years.
Interest Expense
The Company had no interest expense in 1999 compared with $495,000 of interest
expense in 1998. This decrease resulted from the Company utilizing a portion of
the net proceeds of its 1998 public stock offerings and other income to retire
all of its long and short-term debt.
Liquidity and Capital Resources
The Company generated $3.9 million, $2.4 million and $2.3 million of cash from
operations in 2000, 1999 and 1998, respectively. The Company's total cash and
cash equivalents increased by $933,000 in 2000, decreased by $2.7 million in
1999, and increased by $6.8 million in 1998. The principal utilization of cash
II-6
during the three year period was for expenditures for property and equipment
acquisitions, principal payments on long-term debt obligations, reduction of
current liabilities and payment of dividends.
During 2000, 1999 and 1998 the Company generated $1.2 million, $2.4 million and
$2.6 million, respectively, from the sales and disposals of properties not
considered essential for railroad operations and from the granting of easements
and licenses. Included in these amounts are $1.1 million in 2000 generated from
the sale of permanent easements and $2.1 million in 1999 and $2.3 million in
1998 generated from sales of fiber optics cable licenses. In addition, the
Company received $947,000 in 1999 and $1.0 million in 1998 from Bestfoods as
payment of the Company's 10% recovery due from Bestfoods relating to Bestfoods'
recovery from its insurance carrier for the portion of an environmental claim
paid by the Company in previous years. The Company holds various properties
which could be made available for sale, lease or grants of easements and
licenses. Revenues from sales of properties, easements and licenses can vary
significantly from year to year.
The Company completed secondary public offerings of 1,000,000 newly issued
shares of its common stock in March 1998 and 750,000 shares in October 1998. Net
proceeds from these offerings totaled $20.1 million. These funds were utilized
to retire all of the Company's long and short-term borrowings, for acquisitions
of equipment and to expand the Company's Worcester MA maintenance facility.
In June 1999, the Company's principal bank renewed the Company's $2.0 million
revolving line of credit for a two year period through June 1, 2001. Borrowings
under this line are unsecured and bear interest at either the prime rate or one
and one half per cent over either the one or three month London Interbank
Offered Rates. The Company does not pay any commitment fee on this line. The
Company had no advances against the line of credit during 2000.
The Company entered into a contract in 1999 for the expansion of its equipment
maintenance facilities in Worcester, Massachusetts in the amount of $1.8
million. This project was substantially completed in 1999 and was placed in
service early in 2000.
Substantially all of the mainline track owned by the Company meets FRA Class 3
standards (permitting freight train speeds of 40 miles per hour), and the
Company intends to continue to maintain this track at this level. The Company
expended $3.0 million, $2.5 million and $3.0 million for track structure and
bridge improvements in 2000, 1999 and 1998, respectively. Deferred grant income
of $679,000 in 2000, $664,000 in 1999 and $144,000 in 1998 financed a portion of
these improvements. Management estimates that approximately $2.5 million of
improvements to the Company's track structure and bridges will be made in 2001,
provided that sufficient funds, including grant proceeds, are available.
Improvements to the Company's track structure are made, for the most part, by
the Company's Maintenance of Way Department personnel.
In 2000, the Company paid dividends in the amount of $5.00 per share,
aggregating $3,000, on its outstanding noncumulative Preferred Stock and $0.16
per share, aggregating $693,000, on its outstanding Common Stock. Continued
payment of such dividends is contingent upon the Company's continuing to have
the necessary financial resources available.
The Company believes that expected cash flows from operating activities and cash
flows from financing activities will be sufficient to fund the Company's capital
requirements for at least the next 12 months. To the extent that the Company is
successful in consummating acquisitions or implementing its expansion plans, it
may be necessary to finance such acquisitions or expansion plans through the
issuance of additional equity securities, incurrence of indebtedness or both.
The Company is party to an arbitration proceeding with the National Railroad
Passenger Corporation ("Amtrak") concerning Amtrak's claim for rate increases
effective August 1999 with respect to the Company's freight operations over a
portion of Amtrak's Northeast Corridor in the states of Rhode Island and
Connecticut. The arbitration is in its early stages and as yet the Company has
not received sufficient data from Amtrak to evaluate the merits of Amtrak's
claim. Accordingly, the Company cannot predict the amount, if any, of such
increase or the period to which it might apply.
Selected Quarterly Financial Data
Historically the Company has experienced lower operating revenues in the first
quarter of the year. The following table sets forth selected financial data for
each quarter of 2000 and 1999. The information for each of these quarters is
unaudited but includes all normal recurring adjustments that the Company
considers necessary for a fair presentation. These results, however are not
necessarily indicative of results for any future period.
II-7
Year Ended December 31, 2000
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Operating Revenues .................... $ 5,266 $ 6,041 $ 6,138 $ 5,694
Income (Loss) from Operations ......... (184) 283 581 489
Net Income ............................ 14 1,018 502 484
Basic Income Per Common Share ......... $ -- $ .24 $ .12 $ .11
Diluted Income Per Common Share ....... $ -- $ .23 $ .11 $ .11
Year Ended December 31, 2000
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Operating Revenues .................... $ 4,926 $ 5,507 $ 5,961 $ 5,477
Income (Loss) from Operations ......... 136 466 206 (66)
Net Income ............................ 260 389 1,688 689
Basic Income Per Common Share ......... $ .06 $ .09 $ .39 $ .16
Diluted Income Per Common Share ....... $ .06 $ .09 $ .39 $ .16
Inflation
In recent years, inflation has not had a significant impact on the Company's
operations.
Seasonality
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during this period and to
winter weather conditions.
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", subsequently amended in June 1999 and
effective for fiscal years beginning after June 15, 2000. The new standard
requires that all companies record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company
adopted this accounting standard, as required. The Company does not utilize
instruments covered by this standard; accordingly, adoption has had no impact on
financial position or results of operations.
II-8
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- ------------------------------------------------------------------
Cash and Cash Equivalents
As of December 31, 2000, the Company is exposed to market risks which primarily
include changes in U.S. interest rates.
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's revolving line of credit agreement provides for
borrowings which bear interest at variable rates based on either prime rate or
one and one half percent over either the one or three month London Interbank
Offered Rates. The Company had no borrowings outstanding pursuant to the
revolving line of credit agreement at December 31, 2000. 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
would not be material.
II-9
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ......................... II-11
Balance Sheets as of December 31, 2000 and 1999 ...... II-12
Statements of Income for the Years Ended December 31,
2000, 1999 and 1998 ................................. II-13
Statements of Shareholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 .................... II-14
Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 .................... II-15
Notes to Financial Statements ........................ II-16
II-10
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Providence and
Worcester Railroad Company
Worcester, Massachusetts
We have audited the accompanying balance sheets of Providence and Worcester
Railroad Company as of December 31, 2000 and 1999, and the related statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Providence and Worcester Railroad Company as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 2, 2001
II-11
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
December 31,
2000 1999
------- -------
ASSETS
Current Assets:
Cash and equivalents .................................. $ 5,559 $ 4,626
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2000 and 1999 ........... 3,346 3,251
Materials and supplies ................................ 1,732 2,107
Prepaid expenses and other ............................ 712 181
Deferred income taxes ................................. 123 58
------- -------
Total Current Assets ................................. 11,472 10,223
Property and Equipment, net ............................ 65,703 64,156
Land Held for Development .............................. 11,851 11,851
Goodwill, net .......................................... 47 141
------- -------
Total Assets ........................................... $89,073 $86,371
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...................................... $ 2,236 $ 2,347
Accrued expenses ...................................... 934 650
------- -------
Total Current Liabilities ............................ 3,170 2,997
------- -------
Profit-Sharing Plan Contribution ....................... 357 400
------- -------
Deferred Grant Income .................................. 7,898 7,421
------- -------
Deferred Income Taxes .................................. 9,165 8,870
------- -------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding 645
shares in 2000 and 647 shares in 1999 ................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,351,815 shares in 2000 and 4,281,280 shares
in 1999 .............................................. 2,176 2,141
Additional paid-in capital ............................ 28,962 28,519
Retained earnings ..................................... 37,313 35,991
------- -------
Total Shareholders' Equity ........................... 68,483 66,683
------- -------
Total Liabilities and Shareholders' Equity ............. $89,073 $86,371
======= =======
The accompanying notes are an integral part of the financial statements.
II-12
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
Years Ended December 31,
2000 1999 1998
-------- -------- --------
Revenues:
Operating Revenues - Freight and Non-
Freight .................................... $ 23,139 $ 21,871 $ 22,738
Other Income ................................ 2,049 3,974 4,156
-------- -------- --------
Total Revenues ............................ 25,188 25,845 26,894
-------- -------- --------
Expenses:
Operating:
Maintenance of way and structures .......... 3,324 3,526 3,593
Maintenance of equipment ................... 2,175 2,269 2,063
Transportation ............................. 6,376 5,784 5,244
General and administrative ................. 3,541 3,640 3,464
Depreciation ............................... 2,587 2,409 2,192
Taxes, other than income taxes ............. 2,441 2,384 2,169
Car hire, net .............................. 952 546 672
Employee retirement plans .................. 574 571 639
-------- -------- --------
Total Operating Expenses .................. 21,970 21,129 20,036
Interest .................................... -- -- 495
-------- -------- --------
Total Expenses ............................ 21,970 21,129 20,531
-------- -------- --------
Income before Income Taxes and Extraordinary
Item ........................................ 3,218 4,716 6,363
Provision for Income Taxes ................... 1,200 1,690 2,360
-------- -------- --------
Income before Extraordinary Item ............. 2,018 3,026 4,003
Extraordinary Loss from Early Extinguishment
of Debt, Net of Income Tax Benefit .......... -- -- 219
-------- -------- --------
Net Income ................................... 2,018 3,026 3,784
Preferred Stock Dividends .................... 3 3 3
-------- -------- --------
Net Income Available to Common Shareholders .. $ 2,015 $ 3,023 $ 3,781
======== ======== ========
Basic Income Per Common Share:
Income before Extraordinary Item ............ $ .47 $ .71 $ 1.19
Extraordinary Item .......................... -- -- (.06)
-------- -------- --------
Net Income .................................. $ .47 $ .71 $ 1.13
======== ======== ========
Diluted Income Per Common Share:
Income before Extraordinary Item ............ $ .46 $ .70 $ 1.16
Extraordinary Item .......................... -- -- (.06)
-------- -------- --------
Net Income .................................. $ .46 $ .70 $ 1.10
======== ======== ========
The accompanying notes are an integral part of the financial statements.
II-13
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands Except Per Share Amounts)
Years Ended December 31, 2000, 1999, and 1998
---------------------------------------------
Total
Additional Share-
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance, January 1, 1998 .... $ 33 $ 1,111 $ 6,665 $30,229 $38,038
Issuance of 22,156 common
shares to fund the Company's
1997 profit sharing plan
contribution ............... 11 326 337
Issuance of 9,828 common
shares for stock options
exercised, employee stock
purchases and other ........ 5 91 96
Issuance of 1,750,000 common
shares for underwritten
public stock offerings (net
of expenses of $2,538) ..... 875 19,181 20,056
Issuance of 200,000 common
shares for stock purchase
warrants exercised ......... 100 1,320 1,420
Issuance of 23,614 common
shares for the acquisition
of Conn Central ............ 11 372 383
Conversion of 6 preferred
shares into 600 common
shares ..................... (1) 1
Dividends:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.12 per share (402) (402)
Net income for the year ..... 3,784 3,784
------- ------- ------- ------- -------
Balance, December 31, 1998 .. 32 2,114 27,955 33,608 63,709
Issuance of 31,095 common
shares to fund the Company's
1998 profit sharing plan
contribution ............... 16 369 385
Issuance of 14,554 common
shares for stock options
exercised, employee stock
purchases, and other ....... 7 117 124
Issuance of 7,500 additional
common shares for the
Company's 1998 acquisition
of Conn Central ............ 4 78 82
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.15 per share (640) (640)
Net income for the year ..... 3,026 3,026
------- ------- ------- ------- -------
Balance, December 31, 1999 .. 32 2,141 28,519 35,991 66,683
Issuance of 56,418 common
shares to fund the Company's
1999 profit sharing plan
contribution ............... 28 363 391
Issuance of 14,117 common
shares for stock options
exercised, employee stock
purchases, conversion of 2
preferred shares and other . 7 80 87
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.16 per share (693) (693)
Net income for the year ..... 2,018 2,018
------- ------- ------- ------- -------
Balance, December 31, 2000 .. $ 32 $ 2,176 $28,962 $37,313 $68,483
======= ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements.
II-14
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
2000 1999 1998
-------- -------- --------
Cash Flows from Operating
Activities:
Net income ................................ $ 2,018 $ 3,026 $ 3,784
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization ........... 2,681 2,517 2,225
Amortization of deferred grant income ... (201) (171) (161)
Profit-sharing plan contribution to be
funded with common stock .............. 348 360 425
Gains from sale, condemnation and
disposal of property and equipment, and
easements, net ........................ (1,244) (2,353) (2,561)
Gain from recovery of environmental claim -- (947) (1,000)
Deferred income taxes ................... 230 90 245
Other, net .............................. 55 59 74
Increase (decrease) in cash and
equivalents from:
Accounts receivable ................... (73) (225) (504)
Materials and supplies ................ 375 (297) 276
Prepaid expenses and other ............ (531) 387 (401)
Accounts payable and accrued expenses . 208 (93) (94)
-------- -------- --------
Net cash flows from operating activities .. 3,866 2,353 2,308
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment ........ (4,255) (8,295) (6,751)
Proceeds from sale and condemnation of
property and equipment, and easements .... 1,288 2,333 2,996
Proceeds from recovery of environmental
claim .................................... -- 947 1,000
Proceeds from deferred grant income ....... 647 518 203
-------- -------- --------
Net cash flows used by investing activities (2,320) (4,497) (2,552)
-------- -------- --------
Cash Flows from Financing Activities:
Net payments under line of credit ......... -- -- (1,350)
Payments of long-term debt ................ -- -- (11,491)
Dividends paid ............................ (696) (643) (405)
Net proceeds from public offerings of
common stock ............................. -- -- 20,056
Issuance of common shares for stock options
exercised, employee stock purchases and
cash acquired in acquisition of subsidiary 83 119 209
-------- -------- --------
Net cash flows from (used by) financing
activities ............................... (613) (524) 7,019
-------- -------- --------
Increase (Decrease) in Cash and Equivalents 933 (2,668) 6,775
Cash and Equivalents, Beginning of Year .... 4,626 7,294 519
-------- -------- --------
Cash and Equivalents, End of Year .......... $ 5,559 $ 4,626 $ 7,294
======== ======== ========
Supplemental Disclosures:
Cash paid during year for:
Interest ................................. $ -- $ -- $ 493
======== ======== ========
Income taxes ............................. $ 1,464 $ 1,263 $ 2,342
======== ======== ========
The accompanying notes are an integral part of the financial statements.
II-15
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, and 1998
(Dollars in Thousands Except Per Share Amounts)
1. Description of Business and Summary of Significant Accounting
Policies
Description of Business
-----------------------
Providence and Worcester Railroad Company (the "Company") is an interstate
freight carrier conducting railroad operations in Massachusetts, Rhode
Island, Connecticut and New York. Through its connecting carriers, it
services customers located throughout North America.
One customer accounted for approximately 12.6%, 13.2% and 13.4% of the
Company's operating revenues in 2000, 1999 and 1998, respectively.
Cash and Equivalents
--------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents for purposes of
classification in the balance sheets and statements of cash flows. Cash
equivalents are stated at cost, which approximates fair market value.
Materials and Supplies
----------------------
Materials and supplies, which consist of items for the improvement and
maintenance of track structure and equipment, are stated at cost,
determined on a first-in, first-out basis, and are charged to expense or
added to the cost of property and equipment when used.
Property and Equipment
----------------------
Property and equipment, including land held for development, is stated at
historical cost (including self-construction costs). Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments
are capitalized while routine maintenance and repairs, which do not improve
or extend asset lives, are charged to expense when incurred. Gains or
losses on sales or other dispositions are credited or charged to income.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
Track structure 20 to 67 years
Buildings and other structures 33 to 45 years
Equipment 4 to 25 years
The Company continually evaluates long-lived assets and certain
identifiable intangibles held and used 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 assets are recoverable.
Goodwill
--------
Goodwill is being amortized on a straight-line basis over a period of three
years.
Deferred Grant Income
---------------------
The Company has availed itself of various federal and state programs
administered by the states of Connecticut, Massachusetts and Rhode Island
for reimbursement of expenditures for capital improvements. In order to
receive reimbursement, the Company must submit requests for the projects,
including cost estimates. The Company receives from 70% to 100% of the
costs of such projects, which have included bridges, track structure and
public improvements. To the extent that such grant proceeds are used for
capital improvements to bridges and track structure, they are recorded as
II-16
deferred grant income and amortized into operating revenues on a
straight-line basis over the estimated useful lives of the related
improvements ($201 in 2000, $171 in 1999 and $161 in 1998).
Grant proceeds utilized to finance public improvements, such as grade
crossings and signals, are recorded as a direct offset to the related
expense.
Although the Company cannot predict the extent and length of future grant
programs, it intends to continue filing requests for such grants when they
are available.
Revenue Recognition
-------------------
Freight revenues are recorded at the time delivery is made to the customer
or the connecting carrier.
Gain or loss from sale, condemnation and disposal of property and equipment
and easements is recorded at the time the transaction is consummated and
collectibility is assured.
Income Taxes
------------
Deferred income taxes are recorded based on the differences between the
financial statement and tax basis of assets and liabilities and tax credit
carry forwards, using enacted rates in effect in the years in which the
differences are expected to reverse.
Income per Common Share
-----------------------
Basic income per common share is computed using the weighted average number
of common shares outstanding during each year. Diluted income per common
share reflects the effect of the Company's outstanding convertible
preferred stock, options and warrants (using the treasury stock method),
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:
Years Ended December 31,
2000 1999 1998
--------- --------- ---------
Weighted average shares for basic ........ 4,323,237 4,260,073 3,352,052
Dilituve effect of convertible preferred
stock, options and warrants ............. 67,028 74,382 81,104
--------- --------- ---------
Weighted average shares for diluted ...... 4,390,265 4,334,455 3,433,156
========= ========= =========
Options and warrants to purchase 204,563, 188,952 and 182,960 shares of
common stock were outstanding during 2000, 1999 and 1998, respectively, but
were not included in the computation of diluted earnings per common share
because their effect would be antidilutive.
Employee Stock Option Plan
--------------------------
The Company accounts for stock-based awards to employees using the
intrinsic value method.
Use of Estimates
----------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
II-17
expenses during the reporting period. Actual results may differ from those
estimates. The Company's principal estimates include the allowance for
doubtful accounts, useful lives of properties, goodwill, accrued
liabilities including health insurance claims and legal and other
contingencies, and income taxes.
Comprehensive Income
--------------------
Comprehensive Income equals net income for 2000, 1999 and 1998.
Segment Reporting
-----------------
The Company organizes itself as one segment reporting to the chief
operating decision maker. Products and services consist primarily of
interstate freight rail services. These include the movement of freight in
both conventional freight cars and in intermodal containers on flat cars
over the Company's rail lines, as well as non-freight transportation
services such as switching, weighing and special trains and other services
rendered to freight customers and other outside parties by the Company's
Maintenance of Way, Communications & Signals and Maintenance of Equipment
Departments.
Recently Issued Financial Accounting Standards
----------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", subsequently amended in June 1999 and
effective for fiscal years beginning after June 15, 2000. The new standard
requires that all companies record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company has adopted this accounting standard, as required.
The Company does not utilize instruments covered by this standard;
accordingly, adoption has had no impact on financial position or results of
operations.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to be consistent with the
current year presentation.
2. Property and Equipment
Property and equipment consists of the following:
December 31,
2000 1999
------- -------
Land and improvements .......................... $10,106 $ 9,692
Track structure ................................ 56,389 53,497
Buildings and other structures ................. 7,379 5,422
Construction in progress ....................... 58 1,821
Equipment ...................................... 23,376 23,221
------- -------
97,308 93,653
Less accumulated depreciation .................. 31,605 29,497
------- -------
Total property and equipment, net .............. $65,703 $64,156
======= =======
3. Land Held for Development
Pursuant to permits issued by the United States Department of the Army Corp
of Engineers ("ACE") and the Rhode Island Coastal Resources Management
Council ("CRMC"), the Company has created 33 acres of waterfront land in
East Providence, Rhode Island ("South Quay") designed to capitalize on the
growth of intermodal transportation utilizing rail, water and highway
connections. The property has good highway access (1/2 mile from I-195) and
direct rail access and is adjacent to a 12 acre site also owned by the
Company.
II-18
The permits for the property allow for construction of a dock along the
west face of the South Quay. The ACE permit has been extended to December
31, 2003 and the CRMC permit has been extended to May 11, 2009.
In April 1999, the Rhode Island Supreme Court issued an Opinion confirming
the Company's fee simple absolute title to the South Quay. In January 2000,
the Rhode Island Superior Court confirmed the Company's fee simple absolute
title to the 12 acre parcel adjacent to the South Quay. Also in 1999, the
Rhode Island Department of Transportation entered into a contract for
engineering services to undertake roadway improvements to provide direct
vehicular access from the interstate highway system to the South Quay. The
project is anticipated to be complete by 2002.
Cushman & Wakefield, a real estate services company engaged by the Company
in 1999 to provide real estate advisory and marketing services for the
South Quay and the adjacent 12 acre parcel, has developed an analysis of
the "highest and best use" of the property and a marketing strategy, and
has provided brokerage services for the property. The combined 45 acre site
enjoys excellent visibility and is located approximately 2 miles from
downtown Providence, Rhode Island. Potential uses identified include
development of a private port facility, manufacturing use with direct
multi-modal access (truck, port and rail), and other commercial, industrial
or residential development. The Company intends to explore all development
opportunities for the South Quay including both rail and non-rail related
uses and believes its costs will be fully recovered from such future
developments, including the lease or sale of the property, associated rail
freight revenues, particularly intermodal double-stack container trains,
and possible port charges such as wharfage, dockage, and storage. The
Company is considering a proposal to develop the site to provide freight
service for the transport of automobiles along the Company's Main Line to
and from East Providence, pending the development of the Quonset
Point-Davisville Industrial Park. In addition, the Company is considering
development options consistent with the plans of the City of East
Providence, including a corporate office park.
If able to attract user or investment commitments, the Company intends to
construct a vessel unloading area. The Company has engaged in discussions
with potential users interested in utilizing the property for offloading
bulk products such as salt and construction aggregate. The Company has also
explored the development of the facility for offloading container vessels
and barges. The Company will need additional terminal capacity to achieve
expected growth in its intermodal container business and may use a portion
of the property as an intermodal terminal facility to provide it with such
capacity. This development will not proceed, however, until the Company
completes overhead clearances which are anticipated to be completed during
2001.
4. Notes Payable, Bank and Long-Term Debt
The Company has a revolving line of credit with its principal bank in the
amount of $2,000 expiring June 1, 2001. Borrowings outstanding 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. There were no loans outstanding under the line at any time
during 2000 or 1999.
In 1998 the Company utilized a substantial portion of the proceeds from its
common stock offerings and other income to pre-pay all of its outstanding
long-term debt. Prepayment penalties of $344 were incurred on early
extinguishments of a significant portion of this debt which penalties, net
of a $125 income tax benefit, have been reported as an extraordinary item
on the accompanying statement of income for 1998.
II-19
5. Other Income
Other income consists of the following: Years Ended December 31,
2000 1999 1998
------ ------ ------
Gains from sale, condemnation and
disposal of property and equipment
and easements, net ........................ $1,244 $2,353 $2,561
Recovery of prior year environmental
claim (See Note 7) ........................ -- 947 1,000
Rentals and license fees under
various operating leases .................. 489 453 423
Interest ................................... 316 221 172
------ ------ ------
$2,049 $3,974 $4,156
====== ====== ======
Gains from sale, condemnation and disposal of property and equipment and
easements for 2000 includes $1,132 received from the sale of permanent
easements and for 1999 and 1998 includes $2,127 and $2,293 received from
the sale of long-term fiber optics cable licenses, respectively.
6. Income Taxes
The provision for income taxes consists of the following:
Years Ended December 31,
2000 1999 1998
------ ------ ------
Current:
Federal .......................... $ 900 $1,495 $1,865
State ............................ 70 105 125
------ ------ ------
970 1,600 1,990
Deferred, Federal ................. 230 90 245
------ ------ ------
$1,200 $1,690 $2,235
====== ====== ======
The 1998 provision for income taxes is net of a $125 current income tax
benefit related to the extraordinary loss from early extinguishment of
debt.
The following summarizes the estimated tax effect of temporary differences
that are included in the net deferred income tax provision:
Years Ended December 31,
2000 1999 1998
----- ----- -----
Depreciation and amortization .............. $ 207 $ 196 $ 194
General business tax credits ............... -- -- 61
Deferred grant income ...................... (272) (123) (15)
Gains from sale, condemnation and
disposal of properties and equipment ...... 346 -- (83)
Accrued casualty and other claims .......... (71) 2 88
Other ...................................... 20 15 --
----- ----- -----
$ 230 $ 90 $ 245
===== ===== =====
II-20
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) tax credit carryforwards. The tax effects of significant items
comprising the Company's net deferred income tax liability as of December
31, 2000 and 1999 are as follows:
December 31,
2000 1999
------- -------
Deferred income tax liabilities:
Differences between book and tax basis of
property and equipment .......................... $11,947 $11,394
------- -------
Other ............................................ 89 23
------- -------
12,036 11,417
------- -------
Deferred income tax assets:
Rental income received in advance ................ 27 36
Deferred grant income ............................ 2,797 2,525
Accrued casualty and other claims ................ 80 9
Allowance for doubtful accounts and other ........ 90 35
------- -------
2,994 2,605
------- -------
Net deferred income tax liability ................. $ 9,042 $ 8,812
======= =======
A reconciliation of the U.S. federal statutory rate to the
effective tax rate is as follows:
Years Ended December 31,
2000 1999 1998
---- ---- ----
Federal statutory rate ........................ 34% 34% 34%
Depreciation of properties acquired from
bankrupt railroads having a tax basis
in excess of cost ............................ (2) (2) (1)
Non deductible expenses, etc .................. 4 2 2
State income tax, net of federal income
tax benefit .................................. 1 2 2
---- ---- ----
Effective tax rate ............................ 37% 36% 37%
==== ==== ====
7. Commitments and Contingencies
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.
The Company is party to an arbitration proceeding with the National
Railroad Passenger Corporation ("Amtrak") concerning Amtrak's claim for
rate increases effective August 1999 with respect to the Company's freight
operations over a portion of Amtrak's Northeast Corridor in the states of
Rhode Island and Connecticut. The arbitration is in its early stages and as
yet the Company has not received sufficient data from Amtrak to evaluate
the merits of Amtrak's claim. Accordingly, the Company cannot predict the
amount, if any, of such increase or the period to which it might apply.
In 1995 the Company entered into a settlement agreement with Bestfoods
(formerly CPC International, Inc.) resolving an environmental claim against
the Company, arising out of a 1974 rail car incident. Pursuant to the
settlement agreement, the Company paid Bestfoods $990 in common stock of
the Company and cash. The Company and Bestfoods agreed that in the event
Bestfoods recovered proceeds from its insurance carrier for the costs of
remediation of the involved site, the Company would be entitled to 10% of
Bestfoods' net recovery after deduction of litigation expenses. In 1997,
Bestfoods obtained a judgment in its favor from its insurance carrier for
over $18,000 (which amount includes approximately $5,000 of prejudgment
interest). The insurance carrier's appeal of this judgment was unsuccessful
and it paid the $18,000 judgment to Bestfoods. In July 1998, Bestfoods paid
$1,000 to the Company as an interim payment of the Company's 10% recovery
II-21
pending final resolution of amounts to be paid to Bestfoods by its
insurance carrier. In September 1999, Bestfoods and the insurance carrier
entered into a final settlement agreement. In December 1999 the Company
received $947 in final payment of its 10% share of the recovery net of
litigation expenses.
8. Issuance of Common Stock
In March 1998 the Company completed an underwritten secondary public
offering of common stock and issued 1,000,000 shares of common stock at
$14.25 per share. In October 1998 the Company completed another secondary
public offering of common stock and issued 750,000 shares of Common Stock
at $11.125 per share. Net proceeds from these offerings amounted to
$20,056. A substantial portion of these funds were utilized to retire the
Company's long and short-term debt, to acquire rail cars and to expand the
Company's Worcester, Massachusetts maintenance facility.
In connection with the March Offering the Company sold to the underwriters
warrants to purchase up to 100,000 shares of common stock at an exercise
price of $22.09 per share. In connection with the October Offering the
Company sold to the underwriter warrants to purchase up to 75,000 shares of
common stock at an exercise price of $17.24 per share. These warrants
became exercisable in 1999, one year from the effective dates of the
respective Offerings, and expire four years thereafter. They grant to the
holders thereof certain demand and "piggyback" rights of registration of
the securities issuable upon exercise. These warrants have not been
included in the calculation of diluted income per common share since their
effect is antidilutive.
In March 1998 Massachusetts Capital Resource Company ("MCRC") exercised its
warrants to acquire 200,000 newly issued shares of the Company's common
stock for $7.10 per share. Proceeds to the Company consisted of a $1,420
reduction in the outstanding principal balance of its 10% subordinated
long-term note payable to MCRC.
9. Acquisition of Connecticut Central Railroad Company
On April 21, 1998 the Company acquired all of the outstanding common stock
of Connecticut Central Railroad Company ("Conn Central") for 20,000 shares
of newly issued common stock of the Company. The Company issued an
additional 3,614 shares of its common stock to retire $50 of debt owed by
Conn Central to two of its former shareholders. The total fair market value
of the shares issued was $383, which exceeded the fair market value of the
net assets acquired by $199, which amount, net of amortization, is reported
as goodwill on the accompanying balance sheet. In April 1999, the Company
issued an additional 7,500 shares of its Common Stock to the former
shareholders of Conn Central since certain financial and other
considerations as specified in the purchase and sale agreement were met.
Issuance of these shares gave rise to additional goodwill in the amount of
$82. The Company is amortizing this goodwill over a period of three years.
Conn Central was a shortline railroad which had operating rights over
approximately 28 miles of track in central Connecticut connecting to the
Company's Middletown Secondary line. Conn Central's operations were merged
into those of the Company at the time of acquisition. Pro forma information
would not be materially different from historical information.
10. Employee Benefit Plans
Stock Option Plan
-----------------
The Company has a non-qualified stock option plan ("SOP") covering all
management personnel having a minimum of one year of service with the
Company and who are not holders of a majority of either its outstanding
common stock or its outstanding preferred stock. In addition, the Company's
outside directors are eligible to participate in the SOP. The SOP covers
50,000 common shares or 5% of the shares of common stock outstanding,
II-22
whichever is greater (217,591 shares at December 31, 2000). Options granted
under the SOP, which are fully vested when granted, are exercisable over a
ten year period at the market price for the Company's common stock as of
the date the options are granted.
Changes in stock options outstanding are as follows:
Weighted Average
----------------
Number Exercise Fair
of shares Price Value
------ ------ ------
Outstanding at January 1, 1998 ..... 34,018 $ 6.76
Granted ............................ 8,040 18.38 $ 7.98
Exercised .......................... (3,574) 7.15
Expired ............................ (80) 18.38
------ ------ ------
Outstanding and exercisable at
December 31, 1998 ................. 38,404 9.13
Granted ............................ 8,310 12.38 $ 9.53
Exercised .......................... (5,439) 7.53
Expired ............................ (3,706) 10.73
------ ------ ------
Outstanding and exercisable at
December 31, 1999 ................. 37,569 9.92
Granted ............................ 8,060 8.00 $ 4.20
Exercised .......................... (614) 5.37
Expired ............................ (3,411) 8.90
------ ------ ------
Outstanding and exercisable at
December 31, 2000 ................. 41,604 9.70
====== ====== ======
The fair value of options on their grant date was measured using the
Black-Scholes options pricing model. Key assumptions used to apply this
pricing model are as follows:
2000 1999 1998
--------- --------- ---------
Average risk-free interest rate 6.30% 6.30% 4.53%
Expected life of option grants 7.0 years 7.0 years 7.0 years
Expected volatility of underlying stock 55% 30% 36%
Expected dividend payment rate, as
a percentage of the share price
on the date of grant 2.00% 1.21% .65%
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short useful lives. The
options granted to employees are not tradable and have contractual lives of
up to ten years. However, management believes that the assumptions used to
value the options and the model applied yield a reasonable estimate of the
fair value of the grants made under the circumstances.
The following table sets forth information regarding options at December
31, 2000:
Weighted Average
Range of Number ----------------
Number Exercise Currently Exercise Remaining
of Options Prices Exercisable Price Life (in years)
--------- ---------- ---------- ---------- -----------
4,716 $3.25 - 4.38 4,716 $3.76 1
23,177 5.50 - 8.25 23,177 4.88 3
6,889 8.50 - 12.75 6,889 12.38 8
6,822 18.38 6,822 18.38 7
II-23
The Company has elected to remain with the accounting prescribed by
Accounting Principles Board Opinion No. 25, instead of adopting SFAS No.
123, "Accounting for Stock-Based Compensation". Therefore, no compensation
cost has been recognized for the SOP. Had compensation cost for the
Company's SOP been determined on the fair value of the grant dates for
awards under the SOP consistent with the method of SFAS 123, the Company's
net income available to common shareholders and income per share would have
been as follows:
Years Ended December 31,
2000 1999 1998
------- ------- -------
Net income available to common shareholders:
As reported .......................... $ 2,015 $ 3,023 $ 3,781
Pro forma ............................ 1,985 3,000 3,764
Basic income per share:
As reported .......................... .47 .71 1.13
Pro forma ............................ .46 .70 1.12
Diluted income per share:
As reported .......................... .46 .70 1.10
Pro forma ............................ .45 .69 1.10
The income per share figures for 1998 are net of a $.06 per share loss
attributable to an extraordinary item.
Defined Contribution Retirement Plans
-------------------------------------
The Company has a deferred profit-sharing plan ("Plan") which covers all of
its employees who are members of its collective bargaining units.
Contributions to the Plan are required in years in which the Company has
income from "railroad operations" as defined in the Plan. Contributions are
to be equal to at least 10% but not more than 15% of the greater of income
before income taxes or income from railroad operations subject to a maximum
contribution of $3.5 per eligible employee. Contributions to the Plan may
be made in cash or in shares of the Company's common stock. Contributions
accrued under this Plan amounted to $357 in 2000, $400 in 1999, and $425 in
1998. The Company made its 1998 and 1999 contributions and intends to make
its 2000 contribution in newly issued shares of its common stock.
The Company also has a Simplified Employee Pension Plan ("SEPP") which
covers substantially all employees who are not members of one of its
collective bargaining units. Contributions to the SEPP are discretionary
and are determined annually as a percentage of each covered employee's
compensation. Contributions accrued under the SEPP amounted to $208 in 2000
and $197 in 1999 and 1998.
Employee Stock Purchase Plan
----------------------------
The Company has an Employee Stock Purchase Plan ("ESPP") under which
eligible employees may purchase registered shares of common stock at 85% of
the market price for such shares. An aggregate of 200,000 shares of common
stock are authorized for issuance under the ESPP which was established in
1997. Any shares purchased under the ESPP are subject to a two year
lock-up. ESPP purchases amounted to 12,828 shares in 2000, 8,665 shares in
1999, and 5,504 shares in 1998.
11. Preferred Stock
The Company's $50 par value preferred stock is convertible into 100 shares
of common stock at the option of the shareholder. The noncumulative stock
dividend is fixed by the Company's Charter at an annual rate of $5.00 per
share, out of funds legally available for the payment of dividends.
The holders of preferred stock are entitled to one vote for each share in
the election of two-thirds of the Board of Directors. The holders of
preferred stock and holders of common stock are entitled to one vote per
share, voting as separate classes, upon matters voted on by shareholders.
II-24
Item 9. Disagreements on Accounting and Financial Disclosure
- ------------------------------------------------------------
None.
II-25
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The Company's Charter and Bylaws provide that the members of the Board of
Directors (the "Board") shall be elected separately by the Company's two classes
of stock. Holders of Common Stock elect one-third of the Board of Directors and
the holders of Preferred Stock elect the remainder of the Board. Directors are
elected to serve until the next annual meeting and until their successors have
been duly elected by the shareholders. There are currently three directors
elected by the holders of the Common Stock and six directors elected by the
holders of the Preferred Stock. Officers are elected by and serve at the
discretion of the Board of Directors.
Directors and Executive Officers
The current directors and executive officers, their ages and their positions
held with the Company are as follows:
Name Age Position
---- --- --------
Robert H. Eder(a) ................ 68 Chairman of the Board and Chief
Executive Officer
Orville R. Harrold(b) ............ 68 President, Chief Operating
Officer and Director
Robert J. Easton ................. 57 Treasurer
P. Scott Conti ................... 43 Vice President Engineering
Mary A. Tanona ................... 43 Secretary and General Counsel
Richard W. Anderson (a) .......... 53 Director
Frank W. Barrett(b) .............. 61 Director
John H. Cronin(b) ................ 67 Director
J. Joseph Garrahy(b) ............. 70 Director
John J. Healy(b) ................. 65 Director
Charles M. McCollam, Jr.(b) ...... 68 Director
Merrill W. Sherman(a) ............ 52 Director
(a) Elected by holders of Common Stock.
(b) Elected by holders of Preferred Stock.
The following is a brief summary of the background of each director and
executive officer.
Directors and Executive Officers
Robert H. Eder, Chairman of the Board and Chief Executive Officer. Mr. Eder
became President of the Company in 1966 and led the Company through its efforts
to become an independent operating company. He has been Chairman of the Board
since 1980. He is a graduate of Harvard College and Harvard Law School. He (with
his wife) is also majority owner and Chairman of an affiliated company, Capital
Properties, Inc., a real estate holding company of which he is also a Director.
Mr. Eder is admitted to practice law in Rhode Island and New York.
Orville R. Harrold, President, Chief Operating Officer and Director. Mr.
Harrold has been with the Company since the commencement of independent
operations in February 1973. Over the past 28 years, he has held the positions
of Chief Engineer and General Manager, becoming President in 1980. Mr. Harrold
has a bachelors degree in mechanical engineering from the Pratt Institute,
Brooklyn, New York and has been employed in the railroad industry in various
capacities since 1960.
Robert J. Easton, Treasurer. Mr. Easton has been with the Company since
1986, initially as Controller. He was promoted to the position of Treasurer and
Controller in 1988. Prior to joining the Company, Mr. Easton had 21 years of
experience in public accounting. He is a Certified Public Accountant with a
bachelors degree in accounting from the University of Rochester.
P. Scott Conti, Vice President Engineering. Mr. Conti has been with the
Company since 1988 and is responsible for all activities of the Maintenance of
Way and Engineering Department which maintains the Company's tracks, bridges,
III-1
buildings and grade crossings, overseeing all construction activity on or
affecting railroad property. From June 1988 to December 1997, Mr. Conti served
as Engineering Manager. In January 1998 he was promoted to Chief Engineer and in
March 1999 he was promoted to Vice President. Prior to Joining the Company, Mr.
Conti was employed by Perini Corporation.
Mary A. Tanona, Secretary and General Counsel. Ms. Tanona joined the
Company in 1999 as Assistant General Counsel and Assistant Secretary. In 2000
she was promoted to General Counsel. Prior to joining the Company, Ms Tanona was
an associate with Dewey Ballantine in New York. Most recently, she served as
associate general counsel at Arbor National Mortgage. She is a 1987 graduate of
Fordham University School of Law and holds a bachelor of arts degree from Smith
College. Ms. Tanona is admitted to practice law in Massachusetts, Rhode Island
and New York.
Richard W. Anderson, Director. Mr. Anderson has been a Director of the Company
since 1998. He is Senior Vice President of Massachusetts Capital Resource
Company ("MCRC"), a private investment firm funded by major Massachusetts based
life insurance companies providing higher risk growth capital to Massachusetts
businesses. He began working at MCRC in 1981 as Vice President. He was promoted
to Senior Vice President in 1985.
Frank W. Barrett, Director. Mr. Barrett has been a Director of the Company
since 1995. From 1993 to 1998 he was Executive Vice President at Springfield
Institution for Savings ("SIS"). Effective January 1, 1999 he became Executive
Vice President and Chief Lending Officer of Family Bank. Family Bank is a
Massachusetts subsidiary of Peoples Heritage Financial Group and the acquirer of
SIS. He is also a director of Dairy Mart Convenience Store, Inc.
John H. Cronin, Director. Mr. Cronin has been a Director of the Company
since 1986. Since 1971 until his retirement in 1996, Mr. Cronin was owner and
President of Ideal Products, Inc., a wholesale entertainment supply company.
J. Joseph Garrahy, Director. Mr. Garrahy has been a Director of the Company
since 1992. He is a former four term Governor of Rhode Island and, since 1990,
has been an independent business consultant in the State of Rhode Island. Mr.
Garrahy is also a director of Grove Real Estate Investment Trust.
John J. Healy, Director. Mr. Healy has been a Director of the Company since
1991. He has been President of Worcester Affiliated Mfg. L.L.C., an independent
business consulting firm involved in efforts to revitalize manufacturing in
Massachusetts, since January 1997. Prior thereto, Mr. Healy was President and
Chief Executive Officer of HMA Behavioral Health, Inc., a behavioral health care
management service provider.
Charles M. McCollam, Jr., Director. Mr. McCollam has been a Director of the
Company since 1996. He owns and operates a number of insurance businesses in the
State of Connecticut, as well as McCollam Associates, a consulting firm. He was
the Chief of Staff to a former governor of Connecticut.
Merrill W. Sherman, Director. Ms. Sherman has been a Director of the
Company since 1999. She has been President, Director and Chief Executive Officer
of Bank Rhode Island, a community bank in the greater Providence metropolitan
area since its formation in March 1996. Prior thereto, from September 1993 to
August 1995, Ms. Sherman was a partner in the corporate and real estate
departments of the law firm Brown, Rudnick, Freed & Gesmer where she headed the
firm's banking consulting group affiliate. She retired from her position in
August 1995 to devote full-time efforts to the creation of Bank Rhode Island.
Committees of the Board of Directors
The Board of Directors has an Executive Committee, a Stock Option &
Compensation Committee and an Audit Committee. The Board of Directors does not
have a nominating committee. In accordance with the By-laws of the Company, the
Executive Committee, currently comprised of Robert H. Eder, Chairman, John J.
Healy and Orville R. Harrold, exercises the authority of the Board of Directors
when formal Board action is required between meetings, subject to the
limitations imposed by law, the By-laws or the Board of Directors. The Executive
Committee acts on routine matters such as authorizing the execution of
government contracts for reimbursement for Company work on highway projects
adjacent to the railroad and grade crossing rehabilitation.
III-2
The Stock Option & Compensation Committee, currently comprised of John H.
Cronin, Chairman, Richard W. Anderson and Charles M. McCollam, Jr., is
responsible for establishing the amount of option shares to be granted to the
Company's employees under the Stock Option Plan and for making recommendations
to the full Board concerning executive officer compensation.
The Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight of the Company's accounting functions and
internal controls. The Audit Committee is composed of three directors, all of
whom are independent as defined by the American Stock Exchange listing
standards. The Audit Committee operates under a written charter first adopted
and approved by the Board of Directors on April 26, 2000. A copy of the Audit
Committee Charter is attached to this Proxy Statement as Appendix A.
The Board of Directors held four meetings, the Audit Committee held six
meetings, the Stock Option & Compensation Committee held one meeting and the
Executive Committee held eight meetings during the fiscal year ended December
31, 2000.
Audit Committee Report
Management is responsible for the Company's internal controls and financial
reporting process. The independent accountants are responsible for performing an
audit of the Company's consolidated financial statements in accordance with
auditing standards generally accepted in the United States of America and to
issue a report thereon. The Audit Committee's responsibility is to monitor and
oversee these processes.
The responsibilities of the Audit Committee include recommending to the
Board an accounting firm to be engaged as the Company's independent accountants.
Additionally, and as appropriate, the Audit Committee reviews and evaluates, and
discusses and consults with the Company's management and independent accountants
regarding the scope of the audit plan, the results of the audit, the Company's
financial statement disclosure documents, the adequacy and effectiveness of the
Company's accounting and financial controls and changes in accounting
principles.
In connection with these responsibilities, the Audit Committee reviewed and
discussed the audited financial statements with management and the Company's
independent accountants, Deloitte & Touche LLP. The Audit Committee also
discussed with Deloitte & Touche LLP the matters required by Statement on
Auditing Standards No. 61. The Audit Committee received from Deloitte & Touche
LLP written disclosures and the letter regarding its independence as required by
Independence Standards Board Standard No. 1. The Audit Committee discussed this
information with Deloitte & Touche LLP and also considered the compatibility of
non-audit services provided by Deloitte & Touche LLP with its independence.
Based on the review of the audited financial statements and these various
discussions, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K, to be filed with the SEC.
Audit Committee:
J. Joseph Garrahy, Chairman
Frank W. Barrett
Merrill W. Sherman
Compensation of Directors
During the fiscal year ended December 31, 2000, each director who was not
an employee of the Company received a base fee of $500 for each attended meeting
of the Board of Directors plus $50 per attended meeting for each year of service
as a director, and each member of the Audit Committee and the Stock Option &
Compensation Committee received $300 for each attended meeting of the committee
(other than the Chairman of the Committee, who received $350).
During the month of January of each year, directors of the Company who were
serving as such on the preceding December 31 and are not full time employees of
the Company are granted options for the purchase of 100 shares of the Common
Stock of the Company, plus options for an additional ten shares for each full
year of service to the Company. The exercise price is the last sale price of the
Common Stock on the last business day of the preceding year, and the term of
each option is ten years (subject to earlier termination if the grantee ceases
to serve as a director), provided, however, that no option is exercisable within
six months following the date of grant.
III-3
Item 11. Executive Compensation
- -------------------------------
The following table summarizes the compensation paid or accrued by the
Company during the three year period ended December 31, 2000, to its Chief
Executive Officer and each of its four most highly compensated executive
officers who earned more than $100,000 in salary and bonus in 2000, for services
rendered in all capacities to the Company during 2000.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All
Other Options to Other
Annual Purchase Compen-
Salary Compen- Common sation
Name and Principal Position Year ($)(a) Bonus($) sation($) Stock ($)(b)
- ---------------------------- ---- ------ ------ -------- ------------ ------
Robert H. Eder.............. 2000 325,621 0 35,337(c) 0 47,302
Chairman of the Board and 1999 307,403 17,500 23,653(c) 0 48,024
Chief Executive Officer 1998 286,210 0 31,216(c) 0 48,696
Orville R. Harrold.......... 2000 279,077 0 0 1,178 39,242
President and Chief 1999 262,181 0 0 1,087 42,726
Operating Officer 1998 240,382 20,000 0 1,011 43,940
P. Scott Conti.............. 2000 105,546 0 0 232 7,916
Vice President Engineering 1999 99,072 0 0 147 8,068
1998 80,425 0 0 132 6,468
Robert J. Easton............ 2000 133,304 0 0 301 9,998
Treasurer 1999 130,858 0 0 346 10,469
1998 126,038 16,000 0 310 11,412
(a) Includes amounts taxable to employees for personal use of Company-owned
vehicles, other than Mr. Eder, who does not have personal use of a
Company-owned vehicle.
(b) Includes amounts paid directly to the retirement accounts of management
staff under the Company's simplified employee pension plan, and, in the
case of Robert H. Eder and Orville R. Harrold, includes for 2000 premiums
paid for life insurance coverage in the amounts of $34,552 and $26,492,
respectively.
(c) Includes the cost of a vehicle for Mr. Eder.
III-4
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's Non-Qualified Stock Option Plan to the Named
Executive Officers during the Company's last fiscal year. The Company does not
issue stock appreciation rights.
% of Total
Number of Options
Securities Granted To
Underlying Employees Grant Date
Options In Fiscal Exercise Expiration Present
Name Granted(a) 1999 Price($) Date Value($)(b)
------ ---------- --------- ------ -------- -----------
Robert H. Eder(c)...... 0 0 0 0 0
Orville R. Harrold..... 1,178 16.8 8.00 01/03/10 4,947.60
P. Scott Conti......... 232 3.3 8.00 01/03/10 974.40
Robert J. Easton....... 301 4.3 8.00 01/03/10 1,264.20
(a) All options were granted on January 3, 2000 and became exercisable on July
3, 2000.
(b) Amounts represent fair value of options and were estimated as of the date
of grant using Black-Scholes options - pricing model with the following
weighted average assumptions: expected volatility of 55%; expected life 7
years; and risk free interest rate of 6.3%. Dividends at the rate of 2.0%
per share were assumed for purposes of this estimate.
(c) Under the terms of the Company's Non-Qualified Stock Option Plan, Mr. Eder
is not eligible to receive a grant of stock options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth individual exercises of stock options during
2000 and the year-end values of options to purchase Common Stock held by the
Named Executive Officers as of December 31, 2000.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money at
December 31, 2000 December 31, 2000(b)
----------------- --------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized($)(a) Unexercisable Unexercisable($)
---- ----------- -------------- ------------- ----------------
Robert H. Eder ....... 0 0 0/0 0/0
Orville R. Harrold ... 0 0 3,060/0 0/0
P. Scott Conti ....... 0 0 511/0 0/0
Robert J. Easton ..... 0 0 1,614/0 25/0
(a) Based on the last sale price of the Common Stock on the date of exercise
minus the exercise price.
(b) Based on the difference between the exercise price of each grant and the
closing price of the Company's Common Stock on the AMEX on December 31,
2000, which was $7.125.
III-5
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The table set forth below reflects the only persons (including any "group"
as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934)
who, to the best of the Company's knowledge, were on March 2, 2001 the
beneficial owners of more than five percent of the Company's outstanding Common
Stock, $.50 par value, or Preferred Stock, $50 par value. Each share of the
Company's outstanding Preferred Stock is convertible at any time, at the option
of the holder, into one hundred shares of Common Stock of the Company. The
footnote to the table below sets forth the percentages of the outstanding Common
Stock which would be held by the indicated owners if such owners' Preferred
Stock were converted in whole into Common Stock.
Percent
Name and Address Number of Shares Owned of Class
- ---------------- ---------------------- --------
Robert H. and Linda Eder 842,742 (Common) 19.4%(a)
2441 S.E. Bahia Way 500 (Preferred) 77.5%
Stuart, Florida 34996
Steinberg Asset Management Company, Inc. 488,100 (Common) 11.2%
Michael A. Steinberg & Company, Inc.
Michael A. Steinberg
12 East 49th Street
New York, New York 10017
Keeley Asset Management Corp. 223,545 (Common) 5.1%
Kamco Performance Limited Partnership
Kamco Limited Partnership No. 1
401 South LaSalle Street
Chicago, Illinois 60605
(a) Assuming no conversion of Preferred Stock. If their Preferred Stock
were converted in whole to Common Stock, Mr. and Mrs. Eder would own 20.2% of
the outstanding Common Stock.
Of the shares owned by Mr. and Mrs. Eder, 768,162 shares of Common Stock
and 500 shares of Preferred Stock were held directly by Mr. Eder, and 74,580
shares of Common Stock were held directly by Mrs. Eder. By reason of their
ownership, Mr. and Mrs. Eder may be deemed to be "control persons" with respect
to the Company.
III-6
The following table reflects, as of March 2, 2001, the beneficial ownership
of the Common Stock of the Company by directors, nominees for directors and
officers of the Company.
Name Number Percentage
- ---- ------ ----------
Richard W. Anderson(a) .......................... 200,910 4.6%
Frank W. Barrett(b).............................. 1,000 *
P. Scott Conti(c)................................ 2,088 *
John H. Cronin(d)................................ 1,990 *
Robert J. Easton(e) ............................. 3,503 *
Robert H. Eder(f)................................ 892,742 20.2%
J. Joseph Garrahy(g)............................. 750 *
Orville R. Harrold(h)............................ 29,596 *
John J. Healy(i)................................. 1,350 *
Charles M. McCollam, Jr.(j)...................... 880 *
Merrill W. Sherman(k)............................ 600 *
All executive officers and directors as a group
(12 people)(l)................................ 1,135,578 25.7%
* Less than one percent
(a) Includes 200,000 shares of common stock held by Massachusetts Capital
Resource Company of which Mr. Anderson disclaims beneficial ownership.
Mr. Anderson is Senior Vice President of Massachusetts Capital
Resource Company. Also includes 210 shares of Common Stock issuable
under stock options exercisable within 60 days.
(b) Includes 500 shares of Common Stock issuable under stock options
exercisable within 60 days.
(c) Includes 511 shares of Common Stock issuable under stock options
exercisable within 60 days.
(d) Includes 660 shares of Common Stock issuable under stock options
exercisable within 60 days.
(e) Includes 118 shares of Common Stock held by Mr. Easton's wife in her
name and 1,614 shares of Common Stock issuable under stock options
exercisable within 60 days.
(f) Mr. Eder's business address is 75 Hammond Street, Worcester,
Massachusetts 01610. Includes 74,580 shares of Common Stock owned by
Mr. Eder's wife and assumes the conversion of the 500 shares of
Preferred Stock owned by Mr. Eder.
(g) Includes 480 shares of Common Stock issuable under stock options
exercisable within 60 days.
(h) Includes (i) 1,700 shares of Common Stock held by Mr. Harrold's wife,
(ii) 2,600 shares of Common Stock held by a custodian in an individual
retirement account for the benefit of Mr. Harrold and (iii) 3,060
shares of Common Stock issuable under stock options exercisable within
60 days.
(i) Includes 1,050 shares of Common Stock issuable under stock options
exercisable within 60 days.
(j) Includes 230 shares of Common Stock issuable under stock options
exercisable within 60 days.
(k) Includes 100 shares of Common Stock issuable under stock options
exercisable within 60 days.
(l) Includes 50,000 shares of Common Stock issuable upon conversion of
Preferred Stock and 8,415 shares of Common Stock issuable under stock
options exercisable within 60 days.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Not Applicable
III-7
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) (1) All financial statements:
An index of financial statements is included in Item 8, page
II-10 of this annual report
(2) Financial Statement schedule:
Schedule II Valuation and Qualifying Accounts ....... Page IV-3
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or the notes thereto.
(3) Listing of Exhibits.
(10A) Material Contracts (incorporated by reference to Exhibit 10
to the registration statement of the Registrant on Form 10, to
the Non-Qualified Stock Option Plan and Employee Stock Purchase
Plan of the Registrant on Forms S-8 and to the registration
statements of the Registrant on Form S-1).
(23) Independent Auditors' Consent
(b) A report on Form 8-K was filed on June 9, 2000. In it the Registrant
reported that it had advised the general public through a press
release dated June 8, 2000 the commencement of construction of a 12
mile right-of-way bringing freight service into Hartford, Connecticut.
(c) Exhibits (annexed).
Financial Statement Schedule. See item (a) (2.) above
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Robert H. Eder
________________________
By Robert H. Eder
Chief Executive Officer
Dated: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert H. Eder
________________________ Chief Executive Officer March 30, 2001
Robert H. Eder and Chairman (Principal
Executive Officer)
/s/ Orville R. Harrold
________________________ President and Director March 30, 2001
Orville R. Harrold (Chief Operating Officer)
/s/ Robert J. Easton
________________________ Treasurer March 30, 2001
Robert J. Easton (Principal financial officer and
principal accounting officer)
/s/ Frank W. Barrett
________________________ Director March 30, 2001
Frank W. Barrett
/s/ J. Joseph Garrahy
________________________ Director March 30, 2001
J. Joseph Garrahy
/s/ Merrill W. Sherman
________________________ Director March 30, 2001
Merrill W. Sherman
IV-2
SCHEDULE II
PROVIDENCE AND WORCESTER RAILROAD COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSAND DOLLARS)
Column A Column B Column C Additions Column D Column E
-------- -------- ------------------ -------- --------
(1) (2)
Balance Charged to Charged to Balance
at costs and other at end
Description beginning expenses accounts Deductions of
of period describe (A) period
Allowance for doubtful
accounts:
Year ended
December 31, 2000..... $ 125 $125
===== ====
Year ended
December 31, 1999..... $ 125 $125
===== ====
Year ended
December 31, 1998..... $ 125 $ 15 $ (15) $125
===== ==== ====== ====
(A) Bad debts written off.
IV-3
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-65937, 333-65949, and 333-21617 of Providence and Worcester Railroad Company
on Form S-8 of our report dated March 2, 2001 appearing in this Annual Report on
Form 10-K of Providence and Worcester Railroad Company for the year ended
December 31, 2000.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 27, 2001