UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 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
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
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(Exact name of registrant as specified in its charter)
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Rhode Island 05-0344399
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(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
75 Hammond Street, Worcester, Massachusetts 01610
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 755-4000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.)
YES X NO ___
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of October 31, 2002, the registrant has 4,439,508 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 - September 30, 2002 and December
31, 2001 ...................................................... 3
Statements of Income - Three and
Nine Months Ended September 30, 2002
and 2001 ...................................................... 4
Statements of Cash Flows - Nine
months Ended September 30, 2002 and 2001 ...................... 5
Notes to Financial Statements ................................. 6-9
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 9-13
Item 3 -Quantitative and Qualitative Disclosures About Market Risk... 13
Item 4 -Controls and Procedures...................................... 13
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K .......................... 13
Signatures ............................................................... 14
Certificates..............................................................15-16
EXHIBIT 99 - Certification Pursuant To 18 U.S.C. Section 1350,
as Adopted Pursuant To Section 906 of The
Sarbanes-Oxley Act of 2002................................... 17
2
Item 1. Financial Statements
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
ASSETS
September 30,December 31,
2002 2001
(Unaudited)
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Current Assets:
Cash and equivalents ................................ $ 3,585 $ 3,804
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2002 and 2001 ......... 3,389 3,809
Materials and supplies .............................. 1,358 1,434
Prepaid expenses and other .......................... 471 493
Deferred income taxes ............................... 65 73
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Total Current Assets ............................... 8,868 9,613
Property and Equipment, net .......................... 69,444 67,647
Land Held for Development ............................ 11,952 11,901
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Total Assets ......................................... $90,264 $89,161
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 3,109 $ 1,745
Accrued expenses .................................... 837 781
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Total Current Liabilities .......................... 3,946 2,526
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Profit-Sharing Plan Contribution ..................... -- 151
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Deferred Grant Income ................................ 7,881 7,891
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Deferred Income Taxes ................................ 9,757 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
4,439,168 shares in 2002 and 4,411,238
shares in 2001 ..................................... 2,220 2,206
Additional paid-in capital .......................... 29,592 29,376
Retained earnings ................................... 36,836 37,459
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Total Shareholders' Equity ......................... 68,680 69,073
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Total Liabilities and Shareholders' Equity ........... $90,264 $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 Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------- ------- ------- -------
Revenues:
Operating Revenues - Freight
and Non-Freight .................. $ 6,065 $ 5,996 $ 16,980 $ 16,773
Track Mileage Charge
Adjustment ....................... -- -- (940) --
Other Income ...................... 147 191 643 588
-------- -------- -------- --------
Total Revenues ................. 6,212 6,187 16,683 17,361
-------- -------- -------- --------
Operating Expenses:
Maintenance of way and
structures ...................... 678 794 2,609 2,575
Maintenance of equipment ......... 518 442 1,555 1,422
Transportation ................... 1,705 1,536 4,818 4,640
General and administrative ....... 998 988 2,932 2,894
Depreciation ..................... 668 664 1,991 1,981
Taxes, other than income
taxes ........................... 568 607 1,798 1,871
Car hire, net .................... 192 283 737 815
Employee retirement plans ........ 57 156 171 270
Siding maintenance cost
adjustment ...................... -- -- 210 --
-------- -------- -------- --------
Total Operating Expenses ........ 5,384 5,470 16,821 16,468
-------- -------- -------- --------
(Loss) Income before Income
Taxes (Benefit) .................. 828 717 (138) 893
Provision for Income Taxes
(Benefit) ........................ 285 269 (50) 335
-------- -------- -------- --------
Net (Loss) Income ................. 543 448 (88) 558
Preferred Stock Dividends ......... -- -- 3 3
-------- -------- -------- --------
Net (Loss) Income Available to
Common Shareholders .............. $ 543 $ 448 $ (91) $ 555
======== ======== ======== ========
Basic and Diluted (Loss)
Income Per Common Share .......... $ .12 $ .10 $ (.02) $ .13
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
4
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Nine Months Ended September 30,
2002 2001
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Cash Flows from Operating Activities:
Net (loss) income .................................... $ (88) $ 558
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization ....................... 1,991 2,028
Amortization of deferred grant income ............... (160) (156)
Profit-sharing plan contribution to be
funded with common stock ........................... -- 99
Gains from sale of properties, equipment
and easements, net ................................. (239) (92)
Deferred income tax expense ......................... 245 305
Other ............................................... 6 --
Increase (decrease) in cash from:
Accounts receivable ................................ 269 (466)
Materials and supplies ............................. 76 142
Prepaid expenses and other ......................... 22 221
Accounts payable and accrued expenses .............. 1,451 (164)
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Net cash flows from operating activities ............. 3,573 2,475
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Cash Flows from Investing Activities:
Purchase of property and equipment ................... (3,932) (3,641)
Proceeds from sale of properties, equipment
and easements ....................................... 315 231
Proceeds from deferred grant income .................. 285 369
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Net cash flows used in investing activities .......... (3,332) (3,041)
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Cash Flows from Financing Activities:
Dividends paid ....................................... (535) (530)
Issuance of common shares for stock options
exercised and employee stock purchases .............. 75 62
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Net cash flows used in financing activities .......... (460) (468)
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Decrease in Cash and Equivalents ..................... (219) (1,034)
Cash and Equivalents, Beginning of Period ............ 3,804 5,559
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Cash and Equivalents, End of Period .................. $ 3,585 $ 4,525
======= =======
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)
NINE MONTHS ENDED SEPTEMBER 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 September 30, 2002
and the results of operations and cash flows for the interim periods ended
September 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 11,725 common
shares for stock options
exercised, employee stock
purchases and other ...... 6 73 79
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, $.12 per
share .................... (532) (532)
Net loss for the period ... (88) (88)
------- ------- ------- ------- -------
Balance, September 30, 2002 $ 32 $ 2,220 $29,592 $36,836 $68,680
======= ======= ======= ======= =======
During the nine months ended September 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 Nine Months Ended
September 30, September 30,
------------------- -------------------
2002 2001 2002 2001
------ ------ ------ ------
Gains from sale of
properties, equipment
and easements, net ....... $ 38 $ 53 $ 239 $ 92
Rentals ................... 99 99 365 335
Interest .................. 10 39 39 161
------ ------ ------ ------
$ 147 $ 191 $ 643 $ 588
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6
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- (Continued)
(Dollars in Thousands Except Per Share Amounts)
4. Income Per Share:
Basic income per common share is computed using the weighted average number
of common shares outstanding during each period. Diluted income 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Weighted average shares
for basic................ 4,435,596 4,403,650 4,424,715 4,384,009
Dilutive effect of
convertible preferred
stock, options and
warrants ................ 67,829 68,115 -- 69,484
--------- --------- --------- ---------
Weighted average shares
for diluted.............. 4,503,425 4,471,765 4,424,715 4,453,493
========= ========= ========= =========
Options and warrants to purchase 199,010 shares and 226,576 shares of
common stock were outstanding for the three and nine month periods ended
September 30, 2002, respectively, and options and warrants to purchase
195,860 shares and 188,711 shares of common stock were outstanding for the
three and nine month periods ended September 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.
The Company disagrees with the findings of the arbitrator and is contesting
this ruling. The total liability to Amtrak as of September 30, 2002, which
is estimated at approximately $1,500, is included in accounts payable.
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 October 31, 2002, the Company declared a dividend of $.04 per share on
its outstanding Common stock payable November 21, 2002 to shareholders of
record November 7, 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.
In April 2002, the FASB issued SFAS no. 145, "Rescission of FASB Statements
No. 4. 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This Statement rescinds FASB Statement No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," and an amendment of that
Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy
8
Sinking-Fund Requirements". This Statement also rescinds FASB Statement
No. 44, "Accounting for Intangible Assets of Motor Carriers". This
Statement amends FASB Statement No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. This statement is
effective for financial statements issued on or after May 15, 2002. The
Company does not expect any material financial statement impact as a result
of the adoption of this statement.
In June 2002, the FASB issued SFAS no. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". This statement is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
expect any material financial statement impact as a result of the adoption
of this statement.
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.
Results of Operations
- ---------------------
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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ........ $5,043 83.2% $4,985 83.1% $14,131 83.2% $13,601 81.1%
Containers ....... 679 11.2 763 12.7 1,913 11.3 2,248 13.4
Non-Freight
Operating
Revenues:
Transportation
services ........ 233 3.8 150 2.5 579 3.4 633 3.8
Other ............ 110 1.8 98 1.7 357 2.1 291 1.7
------ ----- ------ ----- ------- ----- ------- -----
Total........... $6,065 100.0% 5,996 100.0% $16,980 100.0% $16,773 100.0%
====== ===== ====== ===== ======= ===== ======= =====
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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits $3,454 57.0% $3,446 57.4% $ 9,960 58.7% $ 9,899 59.0%
Casualties and
insurance ....... 300 5.0 173 2.9 781 4.6 508 3.0
Depreciation and
amortization ... 668 11.0 664 11.1 1,991 11.7 2,028 12.1
Diesel fuel ...... 256 4.2 233 3.9 762 4.5 767 4.6
Car hire, net .... 192 3.2 283 4.7 737 4.3 815 4.9
Purchased
services,
including legal
and professional
fees ............ 328 5.4 346 5.8 1,067 6.3 927 5.5
Repair and
maintenance of
equipment ....... 186 3.1 128 2.1 595 3.5 551 3.3
Track and signal
materials ...... 365 6.0 926 15.4 1,458 8.6 2,369 14.1
Other materials
and supplies .... 202 3.3 228 3.8 615 3.6 656 3.9
Other ............ 318 5.2 357 6.0 1,097 6.5 1,165 7.0
------ ----- ------ ----- ------- ----- ------ -----
Total .......... 6,269 103.4 6,784 113.1 19,063 112.3 19,685 117.4
Less capitalized
and recovered
costs ......... 885 14.6 1,314 21.9 2,452 14.5 3,217 19.2
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $5,384 88.8% $5,470 91.2% $16,611 97.8% $16,468 98.2%
====== ===== ====== ===== ======= ===== ======= =====
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Operating Revenues:
Operating revenues, excluding the impact of prior year Amtrak track mileage
charges in the amount of $940,000, increased $207,000, or 1.2%, to $17.0 million
in the nine months ended September 30, 2002 from $16.8 million in 2001. This
increase is the net result of a $530,000 (3.9%) increase in conventional freight
revenues and a $12,000 (1.3%) increase in non-freight operating revenues
partially offset by a $335,000 (14.9%) decrease in container freight revenues.
The increase in conventional freight revenues is the net result of an 11.8%
increase in carloadings partially offset by a 7.1% decrease in the average
revenue received per carloading. The Company's conventional carloadings
increased by 2,575 to 24,353 in 2002 from 21,778 in 2001. This increase has
resulted from new customers and increased traffic from certain existing
customers. 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 $310,000 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 7,008, or
12.9%, to 47,506 containers in 2002 from 54,514 containers in 2001, principally
due to the loss of a customer during the third quarter of 2001.
The small increase in non-freight operating revenues for the nine-month period
results from an increase in maintenance department billings partially offset by
10
reduced billings for secondary switching services and demurrage charges.
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 $55,000 to $643,000 in the nine months ended September
30, 2002 from $588,000 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 $143,000, or .9%, to $16.6 million in the nine months ended
September 30, 2002 from $16.5 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 September 30, 2002 Compared to Three Months Ended
September 30, 2001
Operating Revenues:
Operating revenues, increased $69,000, or 1.2%, to $6.1 million in the third
quarter of 2002 from $6.0 million in 2001. This increase is the net result of a
$58,000 (1.2%) increase in conventional freight revenues and a $95,000 (38.3%)
increase in non-freight operating revenues, partially offset by an $84,000
(11.0%) decrease in container freight revenues.
The increase in conventional freight revenues is the net result of a 13.2%
increase in carloadings partially offset by a 10.7% decrease in the average
revenue received per carloading. The Company's conventional carloadings
increased by 1,149 to 9,821 in the third quarter of 2002 from 8,672 in 2001.
This increase has resulted from new customers as well as increased traffic from
certain existing customers. The decrease in the average revenue received per
conventional carload has been significantly impacted by an estimated $110,000 of
additional Amtrak mileage charges which were recorded during the quarter as a
result of the arbitration decision rendered in June 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 1,474, or 7.9% to 17,146 containers in 2002 from 18,620 containers in 2001,
principally due to the loss of a customer in the third quarter of 2001.
The increase in non-freight operating revenues for the quarter results from
increased billings for demurrage and other transportation related services and
increased maintenance departmental billings.
11
Other Income:
Other income decreased by $44,000 to $147,000 in the third quarter of 2002 from
$191,000 in 2001. This decrease is primarily attributable to a decrease in
interest income resulting from lower investable cash balances and lower rates of
return.
Operating Expenses:
Operating expenses decreased $86,000, or 1.6% in the third quarter of 2002 from
2001. Increases in certain categories of expense were more than offset by
decreases in others during the quarter.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 2002 the Company generated $3.6
million of cash from operations. Total cash and equivalents, however, decreased
by $219,000 during the nine 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 $1.9 million was for additions and improvements
to the Company's track structure and bridges and $875,000 was attributable to
the acquisition of five used 3,900 horsepower GE B39-8 locomotives. The Company
is committed to acquiring two more of these locomotives during the remainder of
the year at a total cost of approximately $350,000.
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,"
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.
12
In April 2002, the FASB issued SFAS no. 145, "Rescission of FASB Statements No.
4. 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. This statement is
effective for financial statements issued on or after May 15, 2002. The Company
does not expect any material financial statement impact as a result of the
adoption of this statement.
In June 2002, the FASB issued SFAS no. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". This statement
is effective for exit or disposal activities that are initiated after December
31, 2002. The Company does not expect any material financial statement impact as
a result of the adoption of this statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Cash and Equivalents
As of September 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 September 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.
PART II - Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) No reports on Form 8-K were filed during the quarter ended September
30, 2002.
13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVIDENCE AND WORCESTER
RAILROAD COMPANY
By: /s/ Robert H. Eder
---------------------------
Robert H. Eder,
Chairman of the Board
And Chief Executive Officer
By: /s/ Robert J. Easton
---------------------------
Robert J. Easton
Treasurer and Principal
Financial Officer
DATED: November 12, 2002
14
I, Robert H. Eder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entries, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATE: November 12, 2002
By: /s/ Robert H. Eder
---------------------------
Robert H. Eder,
Chairman of the Board
And Chief Executive Officer
15
I, Robert J. Easton certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entries, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATE: November 12, 2002
By: /s/ Robert J. Easton
---------------------------
Robert J. Easton
Treasurer and Principal
Financial Officer
16
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 September 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
November 12, 2002
In connection with the Quarterly Report of Providence and Worcester Railroad
Company (the Company) on form 10-Q for the quarterly period ended September 30,
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
November 12, 2002