UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.)
YES X NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 1, 2002, the registrant has 4,435,177 shares of common stock, par
value $.50 per share, outstanding.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Index
Part I - Financial Information
Item 1 - Financial Statements:
Balance Sheets - June 30, 2002 and December 31, 2001........3
Statements of (Loss) Income - Three and
Six Months Ended June 30, 2002 and 2001.....................4
Statements of Cash Flows - Six
Months Ended June 30, 2002 and
2001........................................................5
Notes to Financial Statements.............................6-8
Item 2 -Management's Discussion and Analysis of
Financial Condition and Results of Operations...........9-13
Item 3 -Quantitative and Qualitative Disclosures
About Market Risk.........................................13
Part II - Other Information:
Item 4-Submission of Matters to a Vote of
Security Holders...........................................14
Item 6-Exhibits and Reports on Form 8-K...........................14
Signatures.............................................................15
EXHIBIT 99 - Certification Pursuant To
18 U.S.C. Section 1350, as Adopted
Pursuant To Section 906 of The
Sarbanes-Oxley Act of 2002.....................................16
2
Item 1. Financial Statements
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
ASSETS
JUNE 30,DECEMBER 31,
2002 2001
(Unaudited)
------- -------
Current Assets:
Cash and equivalents ................................ $ 3,025 $ 3,804
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2002 and 2001 ......... 4,211 3,809
Materials and supplies .............................. 1,392 1,434
Prepaid expenses and other .......................... 442 493
Deferred income taxes ............................... 46 73
------- -------
Total Current Assets ............................... 9,116 9,613
Property and Equipment, net .......................... 68,872 67,647
Land Held for Development ............................ 11,946 11,901
------- -------
Total Assets ......................................... $89,934 $89,161
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 3,352 $ 1,745
Accrued expenses .................................... 690 781
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Total Current Liabilities .......................... 4,042 2,526
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Profit-Sharing Plan Contribution ..................... -- 151
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Deferred Grant Income ................................ 7,934 7,891
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Deferred Income Taxes ................................ 9,668 9,520
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Commitments and Contingent Liabilities
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
645 shares in 2002 and 2001 ........................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,435,065 shares in 2002 and 4,411,238
shares in 2001 ..................................... 2,218 2,206
Additional paid-in capital .......................... 29,569 29,376
Retained earnings ................................... 36,471 37,459
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Total Shareholders' Equity ......................... 68,290 69,073
------- -------
Total Liabilities and Shareholders' Equity ........... $89,934 $89,161
======= =======
The accompanying notes are an integral part of the financial statements.
3
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF (LOSS) INCOME (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Revenues:
Operating Revenues - Freight
and Non-Freight .................... $ 6,006 $5,735 $ 10,915 $10,777
Track Mileage Charge Adjustment...... (940) -- (940) --
Other Income ........................ 165 194 496 397
------- ------ -------- -------
Total Revenues .................... 5,231 5,929 10,471 11,174
------- ------ -------- -------
Operating Expenses:
Maintenance of way and
structures ......................... 837 813 1,931 1,781
Maintenance of equipment ............ 500 479 1,037 980
Transportation ...................... 1,642 1,589 3,113 3,104
General and administrative .......... 927 1,014 1,934 1,906
Depreciation ........................ 661 667 1,323 1,317
Taxes, other than income
taxes .............................. 601 621 1,230 1,264
Car hire, net ....................... 284 232 545 532
Employee retirement plans ........... 57 57 114 114
Siding maintenance cost adjustment... 210 -- 210 --
------- ------ -------- -------
Total Operating Expenses ........... 5,719 5,472 11,437 10,998
------- ------ -------- -------
(Loss) Income before Income
Taxes (Benefit) ..................... (488) 457 (966) 176
Provision for Income Taxes
(Benefit) ........................... (170) 156 (335) 66
------- ------ -------- -------
Net (Loss) Income .................... (318) 301 (631) 110
Preferred Stock Dividends ............ -- -- 3 3
------- ------ -------- -------
Net (Loss) Income Available to
Common Shareholders ................. $ (318) $ 301 $ (634) $ 107
======= ====== ======== =======
Basic and Diluted (Loss)
Income Per Common Share ............. $ (.07) $ .07 $ (.14) $ .02
======= ====== ======== =======
The accompanying notes are an integral part of the financial statements.
4
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Six Months Ended June 30,
2002 2001
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Cash flows from operating activities:
Net (loss) income .................................... $ (631) $ 110
Adjustments to reconcile net (loss) income to
net cash flows from operating activities:
Depreciation and amortization ....................... 1,323 1,364
Amortization of deferred grant income ............... (107) (104)
Gains from sale of properties, equipment
and easements, net ................................. (201) (39)
Deferred income taxes ............................... 175 171
Other, net .......................................... 8 3
Increase (decrease) in cash from:
Accounts receivable ................................ (471) (606)
Materials and supplies ............................. 42 168
Prepaid expenses and other ......................... 51 108
Accounts payable and accrued expenses .............. 1,415 (64)
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Net cash flows from operating activities ............. 1,604 1,111
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Cash flows from Investing Activities:
Purchase of property and equipment ................... (2,510) (2,228)
Proceeds from sale of properties, equipment
and easements ....................................... 232 52
Proceeds from deferred grant income .................. 203 369
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Net cash flows used in investing activities .......... (2,075) (1,807)
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Cash Flows from Financing Activities:
Dividends paid ....................................... (357) (353)
Issuance of common shares for stock options
exercised and employee stock purchases .............. 49 40
------- -------
Net cash flows used in financing activities .......... (308) (313)
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Decrease in Cash and Equivalents ..................... (779) (1,009)
Cash and Equivalents, Beginning of Period ............ 3,804 5,559
------- -------
Cash and Equivalents, End of Period .................. $ 3,025 $ 4,550
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Supplemental disclosures:
Cash paid during the period for Income taxes ......... $ -- $ 11
======= =======
Non-cash transactions are described in Note 2.
The accompanying notes are an integral part of the financial statements.
5
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Dollars in Thousands Except Per Share Amounts)
1. In the opinion of management, the accompanying interim financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 2002 and
the results of operations and cash flows for the interim periods ended June
30, 2002 and 2001. Results for interim periods may not necessarily be
indicative of the results to be expected for the year. These interim
financial statements should be read in conjunction with the Company's 2001
Annual Report on Form 10-K for the year ended December 31, 2001 filed with
the Securities and Exchange Commission.
2. Changes in Shareholders' Equity:
Total
Additional Share
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance December 31,2001. $ 32 $ 2,206 $29,376 $37,459 $69,073
Issuance of 7,622
common shares for
stock options
exercised, employee
stock purchases and
other ................. 4 50 54
Issuance of 16,205
common shares to
fund the Company's
2001 profit sharing
plan contribution ..... 8 143 151
Dividends:
Preferred stock,
$5.00 per share ....... (3) (3)
Common stock, $.08
per share ............. (354) (354)
Net loss for the
period ................ (631) (631)
----- ------- ------- ------- -------
Balance June 30,2002 ... $ 32 $ 2,218 $29,569 $36,471 $68,290
===== ======= ======= ======= =======
During the six months ended June 30, 2001 the Company issued 45,140 shares
of its common stock with an aggregate fair market value of $357 to fund its
2000 profit sharing plan contribution.
3. Other Income:
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
------ ------ ------ ------
Gains from sale of
properties, equipment
and easements, net .......... $ 34 $ 35 $201 $ 39
Rentals ...................... 118 109 266 236
Interest ..................... 13 50 29 122
---- ---- ---- ----
$165 $194 $496 $397
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6
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)-- (Continued)
(Dollars in Thousands Except Per Share Amounts)
4. (Loss) Income per Share:
Basic income (loss) per common share is computed using the weighted average
number of common shares outstanding during each year. Diluted income (loss)
per common share reflects the effect of the Company's outstanding
convertible preferred stock, options and warrants except where such items
would be antidilutive.
A reconciliation of weighted average shares used for the basic computation
and that used for the diluted computation is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Weighted average shares
for basic ............ 4,426,798 4,395,683 4,419,183 4,374,025
Dilutive effect of
convertible preferred
stock, options and
warrants ............. -- 71,914 -- 70,171
--------- --------- --------- ---------
Weighted average shares
for diluted .......... 4,426,798 4,467,597 4,419,183 4,444,196
========= ========= ========= =========
Preferred stock convertible into 64,500 shares of Common stock and options
and warrants to purchase 227,514 shares of common stock were outstanding
for the three and six-month periods ended June 30, 2002 but were not
included in the computation of the diluted loss per share because their
effect would be antidilutive. Options and warrants to purchase 188,711
shares of common stock were outstanding for the three and six-month periods
ended June 30, 2001, respectively, but were not included in the computation
of diluted earnings per share because their effect would be antidilutive.
5. Amtrak Arbitration:
The Company has been party to an arbitration proceeding with the National
Railroad Passenger Corporation ("Amtrak") concerning Amtrak's claim for
rate increases 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 arbitrator issued a decision in June 2002 in which he
ordered the Company to pay Amtrak additional track mileage charges and
siding maintenance costs retroactive to July 9, 1999. The Company
estimates, based upon the arbitrator's award, that the total amount owed by
the Company for the period from July 9, 1999 through March 31, 2002 is
approximately $ 1,250, of which $ 1,150 relates to years prior to 2002.
This amount was charged to operations during the second quarter of 2002 and
is included in accounts payable at June 30, 2002. The Company disagrees
with the findings of the arbitrator and is contesting this ruling.
6. Commitments and Contingent Liabilities:
The Company is a defendant in certain lawsuits relating to casualty losses,
many of which are covered by insurance subject to a deductible. The Company
believes that adequate provision has been made in the financial statements
for any expected liabilities which may result from disposition of such
lawsuits.
On January 29, 2002, the Company received a "Notice of Potential Liability"
from the United States Environmental Protection Agency ("EPA") regarding an
existing Superfund Site that includes the J. M. Mills Landfill in
7
Cumberland, Rhode Island. EPA sends these "Notice" letters to potentially
responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation, and Liability Act. EPA identified the Company as a
PRP based on its status as an owner and/or operator because its railroad
property traverses the Superfund Site. Via these Notice letters, EPA made a
demand for payment of past costs (identified in the letter as $762) and
future costs associated with the response actions taken to address the
contamination at the Site, and requests PRPs to indicate their willingness
to participate and resolve their potential liability at the Site. The
Company has responded to EPA by stating that it does not believe it has any
liability for this Site, but that it is interested in cooperating with EPA
to address issues concerning liability at the Site. At this point, two
other parties have already committed via a consent order with EPA to pay
for the Remedial Investigation/Feasibility Study phase of the cleanup at
the Site, which will take approximately two or more years to complete.
After that, EPA will likely seek to negotiate the cost of the Remedial
Design and implementation of the remedy at the Site with the PRPs it has
identified via these Notice Letters (which presently includes over fifty
parties, and is likely to increase after EPA completes its investigation of
the identify of PRPs). The Company believes that none of its activities
caused contamination at the Site, and will contest this claim by EPA.
7. Dividends:
On July 31, 2002, the Company declared a dividend of $.04 per share on its
outstanding Common stock payable August 22, 2002 to shareholders of record
August 8, 2002.
8. Recently Issued Financial Accounting Standards:
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 applies to all acquired intangible
assets whether acquired singly, as part of a group, or in a business
combination. SFAS 142 requires, among other things, the cessation of the
amortization of goodwill. The Company adopted this statement on January 1,
2002 and there was no effect on the Company's financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement establishes accounting standards
for recognition and measurement of a liability for an asset retirement
obligation and the associated costs. Under this statement, an entity must
recognize the fair value of a liability for an asset retirement obligation
in the period in which it is incurred or in a period in which a reasonable
estimate of fair value may be made. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
The Company does not expect any material financial statement impact as a
result of the adoption of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets or for
Long-Lived Assets to be Disposed Of," in its entirety, and APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," only for segments to be
disposed of. The provisions of this statement were adopted January 1, 2002
and there was no effect on the Company's financial statements.
8
PROVIDENCE AND WORCESTER RAILROAD COMPANY
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDA") which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions, however,
that actual results could differ materially from those indicated in MDA.
Critical Accounting Policies
- ----------------------------
The Securities and Exchange Commission (SEC) recently issued guidance for the
disclosure of "critical accounting policies." The SEC defines such policies as
those that require application of management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and may change in subsequent
periods.
The Company's significant accounting policies are described in Note 1 of the
Notes to Financial Statements in its Annual Report to Shareholders. None of
these significant accounting policies require management to make difficult,
subjective or complex judgments or estimates, and therefore do not meet the SEC
definition of "critical."
Results of Operations
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The following table sets forth the Company's operating revenues, excluding the
impact of the prior-year Amtrak track mileage charge adjustment, by category in
dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $5,097 84.9% $4,641 80.9% $ 9,088 83.2% $ 8,616 79.9%
Containers ..... 630 10.5 759 13.2 1,234 11.3 1,485 13.8
Non-Freight
Operating
Revenues:
Transportation
services ...... 107 1.8 217 3.8 346 3.2 483 4.5
Other .......... 172 2.8 118 2.1 247 2.3 193 1.8
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $6,006 100.0% $5,735 100.0% $10,915 100.0% $10,777 100.0%
====== ===== ====== ===== ======= ===== ======= =====
9
The following table sets forth a comparison of the Company's operating expenses,
excluding the prior year Amtrak siding maintenance cost adjustment, expressed in
dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits $3,258 54.2% $3,282 57.2% $ 6,506 59.6% $ 6,453 59.9%
Casualties and
insurance ....... 290 4.8 175 3.1 481 4.4 335 3.1
Depreciation and
amortization .... 661 11.0 691 12.0 1,323 12.1 1,364 12.7
Diesel fuel ...... 279 4.7 267 4.7 506 4.6 534 4.9
Car hire, net .... 284 4.7 232 4.1 545 5.0 532 4.9
Purchased
services,
including legal
and professional
fees ............ 364 6.1 361 6.3 739 6.8 581 5.4
Repair and
maintenance of
equipment ....... 212 3.5 180 3.1 409 3.8 423 3.9
Track and signal
materials ....... 665 11.1 1,144 19.9 1,093 10.0 1,443 13.4
Other materials
and supplies .... 170 2.8 247 4.3 413 3.8 428 4.0
Other ............ 385 6.4 386 6.7 779 7.1 808 7.5
------ ----- ------ ----- ------- ----- ------- -----
Total ........... 6,568 109.3 6,965 121.4 12,794 117.2 12,901 119.7
Less capitalized
and recovered
costs .......... 1,059 17.6 1,493 26.0 1,567 14.3 1,903 17.6
------ ----- ------ ----- ------- ----- ------- -----
Total ......... $5,509 91.7% $5,472 95.4% $11,227 102.9% $10,998 102.1%
====== ===== ====== ===== ======= ===== ======= =====
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Operating Revenues:
Operating revenues, excluding the impact of prior year Amtrak track mileage
charges in the amount of $940,000, increased $138,000, or 1.3%, to $10.9 million
in the six months ended June 30, 2002 from $10.8 million in 2001. This increase
is the net result of a $472,000 (5.5%) increase in conventional freight revenues
partially offset by a $251,000 (16.9%) decrease in container freight revenues
and an $83,000 (12.3%) decrease in non-freight operating revenues.
The increase in conventional freight revenues is the net result of a 10.9%
increase in carloadings partially offset by a 4.9% decrease in the average
revenue received per carloading. The Company's conventional carloadings
increased by 1,426 to 14,532 in 2002 from 13,106 in 2001. This increase has
resulted from new customers and increased traffic from existing customers
reflecting improved economic conditions. The decrease in the average revenue
received per conventional carloading has occurred because of a shift in traffic
toward lower rated commodities, such as construction and demolition debris and
construction aggregates. In addition, conventional freight revenues have been
reduced by an estimated $200,000 of additional Amtrak mileage charges resulting
from the arbitration decision rendered in June 2002.
The decrease in container freight revenues is primarily the result of a decrease
in traffic volume. Total intermodal containers handled decreased by 5,534, or
15.4%, to 30,360 containers in 2002 from 35,894 containers in 2001, principally
due to the loss of a customer during the third quarter of 2001.
10
The decrease in non-freight operating revenues for the six-month period results
from reduced billings for secondary switching services and demurrage charges,
partially offset by an increase in maintenance department billings. Revenues of
this nature typically vary from period to period depending upon the needs of
customers and other outside parties.
Other Income:
Other income increased by $99,000 to $496,000 in the six months ended June 30,
2002 from $397,000 in 2001. This increase results from gains from the sale of
property, equipment and easements, partially offset by a decrease in interest
income resulting from lower investable cash balances and lower rates of return.
Income from the sale of property, equipment and easements has, historically,
varied considerably from period to period.
Operating Expenses:
Operating expenses, excluding $210,000 of prior year Amtrak siding maintenance
costs, increased $229,000, or 2.1%, to $11.2 million in the six months ended
June 30, 2002 from $11.0 million in 2001. While increases in certain expense
categories were largely offset by decreases in others the overall increase in
operating expenses is largely attributable to the uninsured portion of costs
arising from a train derailment in April 2002 and legal and professional fees
related to the Company's arbitration proceedings with Amtrak. Most of the
Company's operating expenses are of a relatively fixed nature and do not
increase or decrease proportionately with variations in operating revenues.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Operating Revenues:
Operating revenues, excluding the impact of prior year Amtrak track mileage
charges in the amount of $940,000, increased $271,000, or 4.7%, to $6.0 million
in the second quarter of 2002 from $5.7 million in 2001. This increase is the
net result of a $456,000 (9.8%) increase in conventional freight revenues,
partially offset by a $129,000 (17.0%) decrease in container freight revenues
and a $56,000 (16.7%) decrease in non-freight operating revenues.
The increase in conventional freight revenues is the net result of a 15.5%
increase in carloadings partially offset by a 4.9% decrease in the average
revenue received per carloading. The Company's conventional carloadings
increased by 1,242 to 9,245 in the second quarter of 2002 from 8,003 in 2001.
This increase has resulted from new customers as well as increased traffic from
existing customers, reflecting improved economic conditions. The decrease in the
average revenue received per conventional carload has been significantly
impacted by an estimated $200,000 of additional Amtrak mileage charges which
were recorded during the quarter as a result of the arbitration decision
rendered in June 2002. Approximately $80,000 of these additional charges are
attributable to the operations of the first quarter of 2002. In addition the mix
of traffic handled during the quarter has shifted somewhat toward lower rated
commodities such as construction and demolition debris and construction
aggregates.
The decrease in container freight revenues is primarily due to a decrease in
traffic volume. Total intermodal containers handled during the quarter decreased
by 2,589, or 14.2% to 15,655 containers in 2002 from 18,244 containers in 2001,
principally due to the loss of a customer in the third quarter of 2001.
The decrease in non-freight operating revenues for the quarter results from
reduced billings for demurrage charges partially offset by increased maintenance
departmental billings.
11
Other Income:
Other income decreased by $29,000 to $165,000 in the second quarter of 2002 from
$194,000 in 2001. This decrease is attributable to a decrease in interest income
resulting from lower investable cash balances and lower rates of return.
Operating Expenses:
Operating expenses, excluding $210,000 of prior year Amtrak siding maintenance
costs, increased $37,000, or .7% in the second quarter of 2002 from 2001.
Increases in certain categories of expense were largely offset by decreases in
others. Amtrak siding maintenance costs, estimated at $40,000, were recorded
during the quarter. These costs, an estimated $20,000 of which relate to the
first quarter of 2002, result from the Amtrak arbitration decision which was
rendered in June 2002.
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 2002 the Company generated $1.6 million of
cash from operations. Total cash and equivalents, however, decreased by $779,000
during the six month period. The principal utilization of cash during the period
was for the payment of dividends and for expenditures for property and
equipment, of which $1.4 million was for additions and improvements to the
Company's track structure and bridges and $500,000 was attributable to the
acquisition of three used 3,900 horsepower GE B39-8 locomotives. The Company is
committed to acquiring four more of these locomotives during the remainder of
the year at a total cost of approximately $700,000.
In management's opinion, cash generated from operations during the remainder of
2002 will be sufficient to enable the Company to meet its operating expense,
capital expenditure and dividend requirements.
Seasonality
- -----------
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of aggregate shipments during a portion of this period and to
winter weather conditions.
Recently Issued Accounting Pronouncements
- -----------------------------------------
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 applies to all acquired intangible assets
whether acquired singly, as part of a group, or in a business combination. SFAS
142 requires, among other things, the cessation of the amortization of goodwill.
The Company adopted this statement on January 1, 2002 and there was no effect on
the Company's financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement establishes accounting standards for recognition
and measurement of a liability for an asset retirement obligation and the
associated costs. Under this statement, an entity must recognize the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred or in a period in which a reasonable estimate of fair value may be
made. This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. The Company does not expect any material
financial statement impact as a result of the adoption of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets or for Long-Lived Assets to
be Disposed Of," in its entirety, and APB Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
12
only for segments to be disposed of. The provisions of this statement were
adopted January 1, 2002 and there was no effect on the Company's financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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Cash and Equivalents
As of June 30, 2002, 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 June 30, 2002. The Company believes that
the effect, if any, of reasonably possible near-term changes in interest rates
on the Company's financial position, results of operations, and cash flows
should not be material.
13
PART II - Other Information
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Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders was held on April 24, 2002. Of the
4,411,576 shares of common stock entitled to vote, 4,064,266 shares
were present, in person or by proxy. Of the 645 shares of preferred
stock entitled to vote, 511 shares were present, in person or by
proxy.
All directors of the Company are elected on an annual basis and the
following were so elected at this Annual Meeting:
Richard W. Anderson, Robert H. Eder and Merrill W. Sherman were
elected Common Stock Directors. Mr. Anderson received 3,961,118
affirmative votes and 103,148 votes withheld, Mr. Eder received
3,509,221 affirmative votes and 555,045 votes withheld and Ms. Sherman
received 3,959,958 affirmative votes and 104,308 votes withheld of
common shares.
Frank W. Barrett, John H. Cronin, J. Joseph Garrahy, Orville R.
Harrold, John J. Healy and Charles M. McCollam, Jr. were elected
Preferred Stock Directors. Each director received 511 affirmative
votes and no votes withheld of preferred shares.
A resolution was presented for the appointment of Deloitte & Touche
LLP as independent auditors of the accounts of the Company for 2002.
The resolution received 4,001,190 affirmative votes and 36,815
negative votes of common shares with 26,261 common shares abstaining.
The resolution received 511 affirmative votes and no negative votes of
preferred shares.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) A report on Form 8-K was filed on April 4, 2002 reporting that by
press release dated April 3, 2002 the Registrant reported to the
general public that it had entered into a memorandum of
understanding with an affiliate of Chevron Texaco Corp. with
respect to joint development by the two companies of property
located on the waterfront in East Providence, Rhode Island.
A report on Form 8-K was filed on June 28, 2002 reporting that by
press release dated June 27, 2002 the Registrant announced to the
general public that a ruling had been issued by the arbitrator in
a proceeding with the National Railroad Passenger Corporation
("Amtrak") concerning Amtrak's claim for rate increases and
maintenance costs for rail sidings with respect to the
Registrant's freight operations over a portion of Amtrak's
Northeast Corridor in the States of Rhode Island and Connecticut.
14
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVIDENCE AND WORCESTER
RAILROAD COMPANY
By: /s/ Robert H. Eder
-------------------------------------
Robert H. Eder,
Chairman of the Board
And Chief Executive Officer
By: /s/ Robert J. Easton
-------------------------------------
Robert J. Easton,
Treasurer and Chief
Financial Officer
DATED: August 13, 2002
15
EXHIBIT 99
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Providence and Worcester Railroad
Company (the Company) on form 10-Q for the quarterly period ended June 30, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Robert H. Eder, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13 (a) or
15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Robert H. Eder
-------------------------------------
Robert H. Eder,
Chairman of the Board
And Chief Executive Officer
August 13, 2002
In connection with the Quarterly Report of Providence and Worcester Railroad
Company (the Company) on form 10-Q for the quarterly period ended June 30, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Robert J. Easton, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15
(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Robert J. Easton
-------------------------------------
Robert J. Easton,
Treasurer and Chief Financial Officer
August 13, 2002