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, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-16704
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
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(Exact name of registrant as specified in its charter)
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Rhode Island 05-0344399
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(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
75 Hammond Street, Worcester, Massachusetts 01610
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 755-4000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.)
YES X NO ___
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Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act).
YES ___ NO X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of October 31, 2003, the registrant has 4,454,016 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, 2003 and December 31, 2002...... 3
Statements of Income (Loss) - Three and
Nine Months Ended September 30, 2003
and 2002........................................................ 4
Statements of Cash Flows - Nine
months Ended September 30, 2003 and 2002........................ 5
Notes to Financial Statements .................................. 6-10
Item 2 -Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 11-15
Item 3 -Quantitative and Qualitative Disclosures About Market Risk... 15
Item 4 -Controls and Procedures...................................... 16
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K .......................... 16
Signatures ............................................................... 17
EXHIBIT 31-Certifications Pursuant To Section 302
of The Sarbanes-Oxley Act of 2002.............................. 18-19
EXHIBIT 32- Certifications Pursuant To 18 U.S.C.
Section 1350, as Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002................. 20
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,
2003 2002
(Unaudited)
------- -------
Current Assets:
Cash and equivalents ................................ $ 1,208 $ 2,888
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2003 and 2002 ......... 3,570 3,304
Materials and supplies .............................. 1,420 1,634
Prepaid expenses and other .......................... 174 536
Deferred income taxes ............................... 168 126
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Total Current Assets ............................... 6,540 8,488
Property and Equipment, net .......................... 71,234 70,057
Land Held for Development ............................ 11,958 11,955
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Total Assets ......................................... $89,732 $90,500
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 1,655 $ 3,017
Accrued expenses .................................... 1,024 964
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Total Current Liabilities .......................... 2,679 3,981
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Profit-Sharing Plan Contribution ..................... 100 --
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Deferred Grant Income ................................ 8,068 7,980
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Deferred Income Taxes ................................ 10,145 9,898
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Commitments and Contingent Liabilities
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
645 shares in 2003 and 2002 ........................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,452,517 shares in 2003 and 4,443,380
shares in 2002 ..................................... 2,226 2,222
Additional paid-in capital .......................... 29,673 29,619
Retained earnings ................................... 36,809 36,768
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Total Shareholders' Equity ......................... 68,740 68,641
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Total Liabilities and Shareholders' Equity ........... $89,732 $90,500
======= =======
The accompanying notes are an integral part of the financial statements.
3
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME (LOSS) (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------- ------- ------- -------
Revenues:
Operating Revenues - Freight
and Non-Freight ..................... $ 6,674 $6,313 $ 17,789 $17,553
Other Income ......................... 253 147 515 643
------- ------ -------- -------
Total Revenues .................... 6,927 6,460 18,304 18,196
------- ------ -------- -------
Operating Expenses:
Maintenance of way and
structures ......................... 865 678 2,700 2,819
Maintenance of equipment ............ 561 518 1,709 1,555
Transportation ...................... 1,614 1,705 4,902 4,818
General and administrative .......... 980 998 2,814 2,932
Depreciation ........................ 718 668 2,153 1,991
Taxes, other than income
taxes .............................. 555 568 1,703 1,798
Car hire, net ....................... 218 192 618 737
Employee retirement plans ........... 157 57 270 171
Track usage fees .................... 190 248 533 1,513
------- ------ -------- -------
Total Operating Expenses ........... 5,858 5,632 17,402 18,334
------- ------ -------- -------
Income (Loss) before Income
Taxes (Benefit) ..................... 1,069 828 902 (138)
Provision for Income Taxes
(Benefit) ........................... 375 285 325 (50)
------- ------ -------- -------
Net Income (Loss) .................... 694 543 577 (88)
Preferred Stock Dividends ............ -- -- 3 3
------- ------ -------- -------
Net Income (Loss) Available to
Common Shareholders ................. $ 694 $ 543 $ 574 $ (91)
======= ====== ======== =======
Basic Income (Loss) Per Common
Share ............................... $ .16 $ .12 $ .13 $ (.02)
======= ====== ======== =======
Diluted Income (Loss) Per
Common Share ........................ $ .15 $ .12 $ .13 $ (.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)
Nine Months Ended September 30,
2003 2002
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Cash Flows from Operating Activities:
Net income (loss) .................................... $ 577 $ (88)
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation ........................................ 2,153 1,991
Amortization of deferred grant income ............... (165) (160)
Profit-sharing plan contribution to be
funded with common stock ........................... 100 --
Gains from sale of property, equipment and
easements, net ..................................... (157) (239)
Deferred income tax expense ......................... 205 245
Other ............................................... -- 6
Increase (decrease) in cash from:
Accounts receivable ................................ (365) 269
Materials and supplies ............................. 214 76
Prepaid expenses and other ......................... 362 22
Accounts payable and accrued expenses .............. (1,359) 1,451
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Net cash flows from operating activities ............. 1,565 3,573
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Cash Flows from Investing Activities:
Purchase of property and equipment ................... (3,294) (3,932)
Proceeds from sale of property, equipment and
easements ........................................... 175 315
Proceeds from deferred grant income .................. 352 285
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Net cash flows used in investing activities .......... (2,767) (3,332)
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Cash Flows from Financing Activities:
Dividends paid ....................................... (536) (535)
Issuance of common shares for stock options
exercised and employee stock purchases .............. 58 75
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Net cash flows used in financing activities .......... (478) (460)
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Decrease in Cash and Equivalents ..................... (1,680) (219)
Cash and Equivalents, Beginning of Period ............ 2,888 3,804
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Cash and Equivalents, End of Period .................. $ 1,208 $ 3,585
======= =======
Supplemental Disclosures:
Cash received during the period from Income
tax refunds ......................................... $ 156 $ --
======= =======
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, 2003 AND 2002
(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, 2003
and the results of operations and cash flows for the interim periods ended
September 30, 2003 and 2002. Certain prior period amounts have been
reclassified to be consistent with current period presentation. 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 Annual Report on Form 10-K for the year
ended December 31, 2002 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 31,2002 $ 32 $ 2,222 $29,619 $36,768 $68,641
Issuance of 9,137
common shares for
stock options
exercised and
employee stock
purchases .............. 4 54 58
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.12
per share .............. (533) (533)
Net income for the
period ................. 577 577
------- ------- ------- ------- -------
Balance, September 30, 2003 $ 32 $ 2,226 $29,673 $36,809 $68,740
======= ======= ======= ======= =======
During the nine months ended September 30, 2002 the Company issued 16,205
shares of its common stock with an aggregate fair market value of $151 to
fund its 2001 profit-sharing plan contribution.
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 created 33 acres of waterfront land in East
Providence, Rhode Island ("South Quay") originally 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.
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, 2009 and the CRMC permit has been extended to May 11, 2009.
6
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) - (Continued)
(Dollars in Thousands Except Per Share Amounts)
4. Other Income:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2003 2002 2003 2002
------ ------ ------ ------
Gains from sale of
property, equipment and
easements, net ...... $ 145 $ 38 $ 157 $ 239
Rentals .............. 107 99 350 365
Interest ............. 1 10 8 39
------ ------ ------ ------
$ 253 $ 147 $ 515 $ 643
====== ====== ====== ======
5. Income (Loss) Per Share:
Basic income (loss) per common share is computed using the weighted average
number of common shares outstanding during each period. Diluted income
(loss) per common share reflects the effect of the Company's outstanding
convertible preferred stock, 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,
--------------------- ---------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Weighted average shares
for basic ............ 4,449,774 4,435,596 4,446,775 4,424,715
Dilutive effect of
convertible preferred
stock, options and
warrants ............. 69,355 67,829 65,912 --
--------- --------- --------- ---------
Weighted average shares
for diluted .......... 4,519,129 4,503,425 4,512,687 4,424,715
========= ========= ========= =========
Options and warrants to purchase 187,559 shares and 208,214 shares of
common stock were outstanding for the three and nine month periods ended
September 30, 2003, respectively, and 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, but
were not included in the computation of diluted earnings (loss) per share
because their effect would be antidilutive.
6. Amtrak Arbitration:
The Company was 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 usage fees and siding
maintenance costs retroactive to July 9, 1999. The total amount owed by the
Company for the period from July 9, 1999 through March 31, 2002 was
approximately $1,250, of which $1,150 relates to years prior to 2002. This
amount was charged to operations during the nine months ended September 30,
2002.
7
7. 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
Cumberland, Rhode Island. EPA sends these "Notice" letters to potentially
responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"). EPA identified the
Company as a PRP based on its status as an owner and/or operator because
its railroad property traverses the Superfund Site. Via these Notice
letters, EPA makes a demand for payment of past costs (identified in the
letter as $762) and future costs associated with the response actions taken
to address the contamination at the Site, and requests PRPs to indicate
their willingness to participate and resolve their potential liability at
the Site. The Company has responded to EPA by stating that it does not
believe it has any liability for this Site, but that it is interested in
cooperating with EPA to address issues concerning liability at the Site. At
this point, two other parties have already committed via a consent order
with EPA to pay for the Remedial Investigation/Feasibility Study ("RI/FS")
phase of the clean-up at the Site, which will take approximately two or
more years to complete. After that, EPA will likely seek to negotiate the
cost of the Remedial Design and implementation of the remedy at the Site
with the PRPs it has identified via these Notice Letters (which presently
includes over sixty parties, and is likely to increase after EPA completes
its investigation of the identity of PRPs). The Company believes that none
of its activities caused contamination at the Site, and will contest this
claim by EPA.
In connection with the EPA claim described above, the two parties who have
committed to conduct the RI/FS at the Site filed a complaint in the U.S.
District Court of Rhode Island against the Company, in an action entitled
CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al
(consolidated with Unilever Bestfoods v. American Steel & Aluminum Corp. et
al), C.A. No. 01-496/L, on December 18, 2002. The Company is one of about
sixty parties named thus far by Plaintiffs, who seek to recover response
costs incurred in investigating and responding to the releases of hazardous
substances at the Site. Plaintiffs allege that the Company is liable under
42 U.S.C. section 961(a)(3) of CERCLA as an "arranger" or "generator" of
waste that ended up at the Site. The Company has entered into a Generator
Cooperation Agreement with other defendants to allocate costs in responding
to this suit, and to share technical costs and information in evaluating
the Plaintiffs' claims. The Company does not believe it generated any waste
that ended up at this Site, or that its activities caused contamination at
the Site. The Company will contest this suit.
8. Dividends:
On October 29, 2003, the Company declared a dividend of $.04 per share on
its outstanding Common Stock payable November 20, 2003 to shareholders of
record November 6, 2003.
9. Stock Based Compensation:
The Company accounts for stock-based compensation awards to employees using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Had the Company
used the fair value method to value compensation, as set forth in Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
8
Compensation", the Company's net income (loss) and net income (loss) per
share would have been reported as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2003 2002 2003 2002
------ ------ ------ ------
Net income (loss)
available to common
shareholders:
As reported ................. $ 694 $ 543 $ 574 $ (91)
Less impact of stock
option expense 10 8 28 25
------ ------ ------ ------
Pro forma ................... $ 684 $ 535 $ 546 $ (116)
====== ====== ====== ======
Basic income (loss) per share:
As reported .................. $ .16 $ .12 $ .13 $ (.02)
Less impact of stock
option expense ............. .01 -- .01 .01
------ ------ ------ ------
Pro forma .................... $ .15 $ .12 $ .12 $ (.03)
====== ====== ====== ======
Diluted income (loss) per share:
As reported .................. $ .15 $ .12 $ .13 $ (.02)
Less impact of stock
option expense ............. -- -- .01 .01
------ ------ ------ ------
Pro forma .................... $ .15 $ .12 $ .12 $ (.03)
====== ====== ====== ======
10. Recently Issued Financial Accounting Standards:
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 adopted this Statement on January 1, 2003 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
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 adopted
this Statement on January 1, 2003 and there was no effect on the Company's
financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
9
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 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 adopted
this Statement on January 1, 2003 and there was no effect on the Company's
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an Amendment of FASB Statement No.
123". SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. The Company does not currently intend to
adopt the fair value based method of measuring compensation associated with
stock awards and grants. As a consequence of continuing to utilize the
intrinsic value method of measuring such compensation, the Company has
provided additional disclosures in its quarterly financial statements which
reflect the impact on net income and earnings per share on a pro forma
basis as if it had applied the fair value method to stock-based employee
compensation.
In May 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities" for
certain decisions made by the FASB as part of the Derivatives
Implementation Group process. This Statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designed after June 30, 2003. The Company adopted this statement in 2003
and there was no effect on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments With Characteristics of Both Liabilities and Equity".
This Statement establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. The
Company adopted this statement in 2003 and there was no effect on the
Company's financial statements.
10
PROVIDENCE AND WORCESTER RAILROAD COMPANY
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDA") which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions, however,
that actual results could differ materially from those indicated in MDA.
Critical Accounting Policies
- ----------------------------
The Securities and Exchange Commission ("SEC") defines critical accounting
policies as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
The Company's significant accounting policies are described in Note 1 of the
Notes to Financial Statements in its Annual Report on Form 10-K. None of these
significant accounting policies requires management to make difficult,
subjective or complex judgments or estimates, and therefore none meets the SEC
definition of "critical."
Results of Operations
- ---------------------
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2003 2002 2003 2002
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ........ $5,516 82.7% $5,291 83.8% $14,697 82.6% $14,704 83.8%
Containers ....... 800 12.0 679 10.8 2,218 12.5 1,913 10.9
Non-Freight
Operating
Revenues:
Transportation
services ........ 228 3.4 233 3.7 542 3.0 579 3.3
Other ............ 130 1.9 110 1.7 332 1.9 357 2.0
Total........... $6,674 100.0% $6,313 100.0% $17,789 100.0% $17,553 100.0%
====== ===== ====== ===== ======= ===== ======= =====
11
The following table sets forth a comparison of the Company's operating expenses
expressed in dollars and as a percentage of operating revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2003 2002 2003 2002
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits $3,465 51.9% $3,454 54.7% $9,987 56.1% $9,960 56.7%
Casualties and
insurance ....... 244 3.7 300 4.8 788 4.4 781 4.5
Depreciation ..... 718 10.8 668 10.6 2,153 12.1 1,991 11.3
Diesel fuel ...... 276 4.1 256 4.1 833 4.7 762 4.3
Car hire, net .... 218 3.3 192 3.0 618 3.5 737 4.2
Purchased
services,
including legal
and professional
fees ............ 374 5.6 328 5.2 968 5.4 1,277 7.3
Repair and
maintenance of
equipment ....... 169 2.5 186 2.9 609 3.4 595 3.4
Track and signal
materials ...... 700 10.5 365 5.8 1,771 9.9 1,458 8.3
Track usage fees 190 2.8 248 3.9 533 3.0 1,513 8.6
Other materials
and supplies .... 213 3.2 202 3.2 792 4.5 615 3.5
Other ............ 324 4.9 318 5.0 1,149 6.5 1,097 6.3
------ ----- ------ ----- ------- ----- ------ -----
Total .......... 6,891 103.3 6,517 103.2 20,201 113.5 20,786 118.4
Less capitalized
and recovered
costs ......... 1,033 15.5 885 14.0 2,799 15.7 2,452 14.0
------ ----- ------ ----- ------- ----- ------ -----
Total ........ $5,858 87.8% $5,632 89.2% $17,402 97.8% $18,334 104.4%
====== ===== ====== ===== ======= ===== ======= =====
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
Amtrak Arbitration:
The Company was 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 usage fees and siding maintenance costs retroactive to July 9,
1999. The statement of loss for the nine months ended September 30, 2002
includes $940,000 of track usage fees and $210,000 of siding maintenance costs
which relate to years prior to 2002. In prior years it was the Company's
practice to net its track usage fees against conventional freight revenues.
Because of the increased significance of track usage fees upon the Company's
operations and in order to conform to common industry practice the Company began
reporting track usage fees as an operating expense in its financial statements
for the year ended December 31, 2002. Operating revenues and expenses for the
nine months ended September 30, 2002 have been reclassified to conform to the
current presentation.
Operating Revenues:
Operating revenues increased $236,000, or 1.3%, to $17.8 million in the nine
months ended September 30, 2003 from $17.6 million in 2002. This increase is the
net result of a $305,000 (15.9%) increase in container freight revenues
partially offset by a $7,000 decrease in conventional freight revenues and a
$62,000 (6.6%) decrease in non-freight operating revenues.
12
The increase in container freight revenues is the result of a 4.7% increase in
traffic volume and a 10.8% increase in the average revenue received per
container. Intermodal containers handled during the nine-month period increased
by 2,211 to 49,717 in 2003 from 47,506 in 2002. The increase in the average
revenue received per container is the result of a contractual rate increase as
well as a change in the mix of containers handled.
The small decrease in conventional freight revenues is the result of a 4.1%
decrease in conventional carloadings largely offset by a 4.2% increase in the
average revenue received per carloading. The Company's conventional carloadings
decreased by 999 to 23,354 in the first nine months of 2003 from 24,353 in 2002.
The decline in conventional traffic is largely attributable to a decrease in
construction aggregate carloadings partially offset by an increase in
carloadings of coal. The decrease in construction aggregate traffic, a lower
rated commodity, has had the effect of increasing the traffic mix toward higher
rated commodities, thereby resulting in an increase in the average revenue
received per carloading.
The decrease in non-freight operating revenues for the nine-month period is the
result of modest decreases in maintenance department billings, as well as
demurrage and other miscellaneous billings. Revenues of this nature typically
vary from period to period depending upon the needs of freight customers and
other outside parties.
Other Income:
Other income decreased by $128,000 to $515,000 in the first nine months of 2003
from $643,000 in 2002. This decrease results from lower gains from sales of
property, equipment and easements. In addition interest earned on temporary cash
investments has decreased due to lower cash balances and a decrease in interest
rates.
Operating Expenses:
Operating expenses for the nine-month period decreased by $932,000 to $17.4
million in 2003 from $18.3 million in 2002. This decrease reflects the impact of
the prior year portion of the Amtrak arbitration award upon 2002. Operating
expenses for 2003 include $100,000 of profit-sharing expense, whereas there was
no profit-sharing expense in 2002.
Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002
Operating Revenues:
Operating revenues increased $361,000, or 5.7%, to $6.7 million in the third
quarter of 2003 from $6.3 million in the third quarter of 2002. This increase is
the combined result of a $225,000 (4.3%) increase in conventional freight
revenues, a $121,000 (17.8%) increase in container freight revenues and a
$15,000 (4.4%) increase in non-freight operating revenues.
The increase in conventional freight revenues results from a 6.1% increase in
the average revenue received per conventional carloading partially offset by a
1.7% decrease in carloadings. The Company's conventional carloadings decreased
by 168 to 9,655 in the third quarter of 2003 from 9,823 in the third quarter of
2002. The decline in conventional traffic volume for the quarter is mainly
attributable to a decrease in construction aggregate carloadings partially
offset by an increase in carloadings of coal. This change in commodity mix is
primarily responsible for the increase in the average revenue received per
conventional carloading during the quarter.
The increase in container freight revenues during the quarter is the result of a
1.8% increase in traffic volume and a 15.7% increase in the average revenue
13
received per container. Intermodal containers handled during the quarter
increased by 316 to 17,462 in the third quarter of 2003 from 17,146 in the third
quarter of 2002. The increase in the average revenue received per container is
attributable to a contractual rate increase, as well as a change in the mix of
containers handled.
The small increase in non-freight operating revenues for the quarter results
from an increase in maintenance departmental billings.
Other Income:
Other income increased by $106,000 to $253,000 in the third quarter of 2003 from
$147,000 in the third quarter of 2002. The cause of this increase was a $107,000
increase in gains from the sale of property, equipment and easements. Income of
this nature can vary significantly from period to period.
Operating Expenses:
Operating expenses for the third quarter increased by $226,000, or 4.0%, to $5.9
million in 2003 from $5.6 million in 2002. The third quarter of 2003 includes
$100,000 of employee profit-sharing expense, whereas no profit-sharing expense
was incurred in 2002.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 2003 the Company generated $1.6 million of cash
from its operations. Total cash and equivalents decreased by $1.7 million for
the period. The principal utilization of cash during the period, other than for
operations, was for expenditures for property and equipment, of which $2.0
million was for additions and improvements to track structure, and for the
payment of dividends.
In management's opinion, cash generated from operations during the remainder of
2003 will be sufficient to enable the Company to meet its operating expenses and
its capital expenditure and dividend requirements.
Seasonality
- -----------
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during a portion of this
period and to winter weather conditions.
Recent Accounting Pronouncements
- --------------------------------
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 adopted this statement on
January 1, 2003 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 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
14
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
adopted this statement on January 1, 2003 and there was no effect on the
Company's financial statements.
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 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 adopted this Statement on January 1, 2003 and there was no
effect on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an Amendment of FASB Statement No. 123".
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. The Company does not currently intend to adopt the fair value
based method of measuring compensation associated with stock awards and grants.
As a consequence of continuing to utilize the intrinsic value method of
measuring such compensation, the Company has provided additional disclosures in
its quarterly financial statements which reflect the impact on net income and
earnings per share on a pro forma basis as if it had applied the fair value
method to stock-based employee compensation.
In May 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" for certain
decisions made by the FASB as part of the Derivatives Implementation Group
process. This Statement is effective for contracts entered into or modified
after June 30 2003, and for hedging relationships designed after June 30, 2003.
The Company adopted this statement in 2003 and there was no effect of the
Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments With Characteristics of Both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. The Company adopted this statement in 2003 and there was
no effect of the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Cash and Equivalents
As of September 30, 2003, 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, 2003. 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.
15
Item 4. Controls and Procedures
- -------------------------------
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company carried out an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
as of the end of the period covered by this report. This evaluation was carried
out under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Treasurer. Based upon that evaluation, the Chief Executive Officer and the
Treasurer concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms.
There was no significant change in the Company's internal control over financial
reporting that occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to affect, the Company's internal
control over financial reporting.
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, 2003.
16
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 14, 2003
17
EXHIBIT 31.1
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT H. EDER, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report, based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATE: November 14, 2003
By: /s/ Robert H. Eder
---------------------------
Robert H. Eder,
Chairman of the Board
And Chief Executive Officer
18
EXHIBIT 31.2
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT J. EASTON certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report, based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATE: November 14, 2003
By: /s/ Robert J. Easton
---------------------------
Robert J. Easton
Treasurer and Principal
Financial Officer
19
EXHIBIT 32
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Providence and Worcester Railroad
Company (the Company) on form 10-Q for the quarterly period ended September 30,
2003, 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 14, 2003
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,
2003, 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 14, 2003