UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-16704
PROVIDENCE AND WORCESTER RAILROAD COMPANY
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(Exact name of registrant as specified in its charter)
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Rhode Island 05-0344399
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(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
75 Hammond Street, Worcester, Massachusetts 01610
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code(508) 755-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.50 par value
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(Title of Class)
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act). Yes No X
As of June 30, 2004, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $35,652,561. (For this purpose, all
directors of the Registrant are considered affiliates.)
As of March 4, 2005, the Registrant had 4,481,784 shares of Common Stock
outstanding.
Documents Incorporated by Reference - Portions of the Registrant's Proxy
Statement for the 2004 Annual Meeting of Shareholders to be held on April 27,
2005, is incorporated by reference into Part III of this Form 10-K.
Exhibit Index - Page III-2.
PART I
Item 1. Business
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Providence and Worcester Railroad Company ("P&W" or "the Company") is a
class II regional freight railroad operating in Massachusetts, Rhode Island,
Connecticut and New York. The Company is the only interstate freight carrier
serving the State of Rhode Island and possesses the exclusive and perpetual
right to conduct freight operations over the Northeast Corridor between New
Haven, Connecticut and the Massachusetts/Rhode Island border. Since commencing
independent operations in 1973, the Company, through a series of acquisitions of
connecting lines, has grown from 45 miles of track to its current system of
approximately 538 miles. P&W operates the largest double stack intermodal
terminal facilities in New England in Worcester, Massachusetts, a strategic
location for regional transportation and distribution enterprises.
The Company transports a wide variety of commodities for its customers,
including construction aggregate, iron and steel products, chemicals, lumber,
scrap metals, plastic resins, cement, coal, construction and demolition debris,
processed foods and edible food stuffs, such as frozen foods, corn syrup and
animal and vegetable oils. Its customers include Cargill, Inc., The Dow Chemical
Company, Exxon- Mobil Corporation, Frito-Lay, Inc., International Paper Company,
Northeast Utilities, Smurfit-Stone Container Corporation and Tilcon Connecticut,
Inc. In 2004, P&W transported approximately 33,000 carloads of freight and
65,000 intermodal containers. The Company also generates income through sales of
properties, grants of easements and licenses and leases of land and tracks.
P&W's connections to multiple Class I railroads, either directly or through
connections with regional and short-line carriers, provide the Company with a
competitive advantage by allowing it to offer creative pricing and routing
alternatives to its customers. In addition, the Company's commitment to
maintaining its track and equipment to high standards enables P&W to provide
fast, reliable and efficient service.
Industry Overview
General
Railroads are divided into three classes based on operating revenues: Class
I, $277.7 million or more; Class II, $22.2 million to $277.7 million; and Class
III, less than $22.2 million. As a result of mergers and consolidations, there
are now only seven Class I railroads in the country. The Class I railroads
handle 93% of the nation's rail freight business.
The rail freight industry underwent a revitalization after the passage of
the Staggers Rail Act, which deregulated the pricing and types of services
provided by railroads. As a result, railroads were able to achieve significant
productivity gains and operating cost decreases while gaining pricing
flexibility. Rail freight service became more competitive with other
transportation modes with respect to both quality and price. The volume of
freight moved by rail has risen dramatically since 1980 and profitability has
improved significantly.
One result of the revitalization of the industry has been the growth of
regional (over 350 miles) and short-line railroads, which has been fueled by a
trend among Class I railroads to divest certain branch lines in order to focus
on their long-haul core systems. There are now nearly 550 of these regional and
short-line railroads. They operate in all 50 states, account for nearly 30% of
all rail track, employ 11% of all rail workers and generate about 7% of all rail
revenue.
Generally, freight railroads handle two types of traffic: conventional
carloads and intermodal containers used in the shipment of goods via more than
one mode of transportation, e.g., by ship, rail and truck. By using a
hub-and-spoke approach to shipping, multiple containers can be moved by rail to
and from an intermodal terminal and then either delivered to their final
destinations by truck or transferred to ship for export. Over the past decade,
commodity shippers have increasingly turned to intermodal transportation
principally as an alternative to long-haul trucking. The development of new
intermodal technology, which allows containers to be moved by rail double
stacked (i.e., stacked one on top of the other) in specially designed railcars,
together with increasing highway traffic congestion and the shortage of
long-haul truck drivers have contributed to this trend.
Regional Developments
There are a number of development projects underway in New England to
increase port capacity along the extensive coastline and to improve the
intermodal transportation and distribution infrastructure in the region. These
projects present significant opportunities for the Company to increase its
business.
I - 1
Quonset/Davisville
The State of Rhode Island and the federal government are progressing with
the redevelopment of a 1,000 acre portion of the former Naval facility at
Quonset/Davisville to a more active port and industrial park. This facility
already houses a number of rail oriented industries and an auto port.
Construction of a freight rail improvement project to provide additional track
capacity and double stack clearance on the Northeast Corridor between
Quonset/Davisville and the connection of the Corridor to the Company's main line
at Central Falls, R.I commenced in 2002 at a cost in excess of $120 million to
Rhode Island and the federal government and is scheduled to be completed by the
end of 2005.
Massachusetts Highway Improvement Program
Work is continuing on a significant expansion of the Company's bulk
transload and intermodal yards in Worcester in conjunction with the
Massachusetts Highway Department's $250 million project creating a direct
Worcester connection to the Massachusetts Turnpike. This project adds six acres
and over 4,00 feet of track storage space to the Company's transload facilites
and is expected to be completed in 2005.
Port of New Haven
The State of Connecticut has completed rebuilding the Tomlinson Bridge in
New Haven, which provides rail access to the Port of New Haven. In conjunction
with this project, the Company is working with the City of New Haven and area
users of the rail systems to fund a design for the restoration of local street
rail service directly to port properties. Completion of this project will
provide the Company with improved access to customers at the Port of New Haven.
Middletown/Hartford Line
In cooperation with the state of Connecticut, the Company has been engaged
in the restoration of the rail line extending from Middletown to Hartford,
Connecticut. In April 2000, the state of Connecticut appropriated $1.85 million
to fund their portion of the project (approx 70%). The restoration of this 11
mile segment is now complete and the line is in service. With a planned
industrial park along this line and a new connection to other carriers in
Hartford, the Company believes restoration of this line presents opportunities
for future revenue growth.
New London Interchange
Through its New London interchange with the New England Central Railroad,
P&W has been able to develop significant new business with the Canadian National
Railway ("CN") and the Canadian Pacific Railway. P&W has worked aggressively to
leverage its extensive bulk transload facilities in developing additional
chemical and plastics traffic with CN and has developed a significant volume of
steel traffic with CN that had previously moved via truck.
Port of Providence
The Port of Providence, in conjunction with the Company, has made
investments in its infrastructure, including paving, lighting and "on dock"
rail, to accommodate growth in the movement of imported coal to inland markets
and to handle that product more efficiently. This is expected to be a growing
source of revenue for the Company over the next few years. Nearly 400,000 tons
of coal were handled through the Port of Providence in 2004.
I - 2
Railroad Operations
The Company's rail freight system extends over approximately 538 miles of
track. The Company interchanges freight traffic with CSX at Worcester,
Massachusetts and at New Haven, Connecticut; with the Springfield Terminal
Railway Company (formerly Boston and Maine Railroad) at Gardner, Massachusetts;
with the New England Central Railroad (formerly Central Vermont Railway) at New
London, Connecticut; and with the New York and Atlantic Railroad (formerly Long
Island Railroad) at Fresh Pond Junction on Long Island. Through its connections,
P&W links more than 80 communities on its lines. It operates four classification
yards (areas containing tracks used to group freight cars destined for a
particular industry or interchange), located in Worcester, Massachusetts,
Cumberland, Rhode Island and Plainfield and New Haven, Connecticut.
The Company is dependent upon the railroads with which it interchanges
freight traffic to enable it to properly service its customers at competitive
rates. Failure of any of these connecting railroads to provide adequate service
at reasonable rates can result in a loss of freight customers and revenues.
By agreement with a private operator, the Company operates two approved
customs intermodal yards in Worcester. A customs intermodal yard is an area
containing tracks used for the loading and unloading of containers. These yards
are U.S. Customs bonded, and international traffic must be inspected and
approved by U.S. Customs officials. The intermodal facility serves primarily as
a terminal for movement of container traffic from the Far East destined for
points in New England. Several major container ship lines utilize double stack
train service through this terminal. P&W works closely with the terminal
operator to develop and maintain strong relationships with steamship lines
involved in international intermodal transportation.
Customers
The Company serves approximately 165 customers in Massachusetts, Rhode
Island, Connecticut and New York. The Company's 10 largest customers account for
nearly half of its operating revenues. In 2004, Tilcon Connecticut, Inc., which
ships construction aggregate from three separate quarries on P&W's system to
asphalt production plants in Connecticut and New York, accounted for
approximately 12.6% of the Company's operating revenues. No other customer
accounted for 10% or more of its total operating revenues in 2004.
Markets
The Company transports a wide variety of commodities for its customers. In
recent years, chemicals and plastics and construction aggregate were the two
largest commodity groups transported by the Company, constituting 32% and 15%,
respectively, of conventional carload freight revenues in 2004. The following
table summarizes the Company's conventional carload freight revenues by
commodity group as a percentage of such revenues:
Commodity 2004 2003 2002 2001 2000
- --------- ---- ---- ---- ---- ----
Chemicals and plastics ............ 32% 33% 35% 34% 38%
Construction aggregate ............ 15 16 20 19 17
Forest and paper products ......... 15 12 13 16 16
Food and agricultural products .... 11 12 12 13 13
Metal products .................... 11 10 7 7 8
Other, including coal ............. 9 8 5 5 2
Scrap metal and waste ............. 7 9 8 6 6
--- --- --- --- ---
Total .......................... 100% 100% 100% 100% 100%
=== === === === ===
I - 3
Sales and Marketing
P&W's sales and marketing staff of three people has substantial experience
in pricing and marketing railroad services. The sales and marketing staff
focuses on understanding and addressing the raw material requirements and
transportation needs of its existing customers and businesses on its lines. The
staff grows existing business by maintaining close working relationships with
both customers and connecting carriers. The sales and marketing staff strives to
generate new business for the Company through (i) targeting companies already on
P&W's rail lines but not currently using rail services or not using them to
their full capacity, (ii) working with state and local development officials,
developers and real estate brokers to encourage the development of industry on
the Company's rail lines and (iii) identifying and targeting the non-rail
transportation of goods into and out of the region in which the Company
operates. Unlike many other regional and short-line railroads, the Company is
able to offer its customers creative pricing and routing alternatives because of
its multiple connections to other carriers.
Safety
An important component of the Company's operating strategy is conducting
safe railroad operations for the benefit and protection of employees, customers
and the communities served by its rail lines. Since commencing active operations
in 1973, the Company has committed significant resources to track maintenance to
minimize the risk of derailments and believes its rail system is in good
condition.
Safety of the Company's operations is of paramount importance for the
benefit and protection of the Company's employees, customers and the communities
served by its rail lines. The Company and its employees have continued to make
improvements in preventing injuries while at the same time increasing operations
and expanding the work force.
Rail Traffic
Rail traffic is classified as on-line or overhead traffic. On-line traffic
is traffic that originates or terminates with shippers located on a railroad.
Overhead traffic passes from one connecting carrier to another and neither
originates nor terminates with shippers located on a railroad. Presently, P&W is
solely an on-line carrier but may provide overhead service in the future for
certain rail traffic to and from Long Island.
Rail freight rates can be in various forms. Generally, customers are given
a "through" rate, a single figure encompassing the rail transportation of a
commodity from point of origin to point of destination, regardless of the number
of carriers which handle the car. Rates are developed by the carriers based on
the commodity, volume, distance and competitive market considerations. The
entire freight bill is paid either to the originating carrier ("prepaid") or to
the destination carrier ("collect") and divided between all carriers which
handle the move. The basis for the division varies and can be based on factors
(or revenue requirements) independently established by each carrier which
comprise the through rate, or on a percentage basis established by division
agreements among the carriers. A carrier such as P&W, which actually places the
car at the customer's location and attends to the customer's daily switching
requirements, receives revenue greater than an amount based simply on mileage
hauled.
Employees
As of January 1, 2005, the Company had 147 full-time employees, 113 of whom
are represented by three railroad labor organizations that are national in
scope. The Company's employees have been represented by unions since the Company
commenced independent operations in 1973.
The Company's initial agreement with the United Transportation Union
covering the trainmen was unusual in the railroad industry since it provided the
Company with discretion in determining crew sizes, eliminated craft distinctions
and provided a guaranteed annual wage for a maximum number of hours worked. The
Company's collective bargaining agreements have been in effect since February
1973 for trainmen, since May 1974 for clerical employees and dispatchers and
since June 1974 for maintenance employees. These contracts do not expire but are
subject to re-negotiation after the agreed-upon moratoriums. P&W's moratorium
periods are currently five years in length. The labor agreements may next be
amended at July 1, 2006 for the Brotherhood of Railroad Signalmen (maintenance)
and December 31, 2005 for the Transportation Communications Union (clerical),
and the United Transportation Union (trainmen) agreement is currently in
negotiations. The Company considers its employee and labor relations to be good.
I - 4
Competition
The Company is the only rail carrier serving businesses located on- line.
However, the Company competes with other carriers in the location of new
rail-oriented businesses in the region. The Company also competes with other
modes of transportation, particularly long-haul trucking companies, for the
transportation of commodities. Any improvement in the cost or quality of these
alternate modes of transportation, for example, legislation granting material
increases in truck size or allowable weight, could increase competition and may
materially adversely affect the Company's business and results of operations. As
a means of competing, P&W strives to offer greater convenience and better
service than competing rail carriers and at costs lower than some competing
non-rail carriers. The Company also competes by participating in efforts to
attract new industry to the areas which it serves.
Certain rail competitors, including CSX and Norfolk Southern, are larger
and better capitalized than the Company. While P&W believes that CSX and Norfolk
Southern's acquisition and division of Conrail will lead to expansion
opportunities, this transaction has also led to increased competition with other
freight railroads, particularly in Massachusetts, and efforts by CSX and Norfolk
Southern to reduce revenue to connecting regional and short-line carriers.
The Company believes that its ability to grow depends, in part, upon its
ability to acquire additional connecting rail lines. In making acquisitions, P&W
competes with other short-line and regional rail operators, some of which are
larger and have greater financial resources than the Company.
Governmental Regulation
The Company is subject to governmental regulation by the United States
Surface Transportation Board ("the STB"), the Federal Railroad Administration
("the FRA") and other federal, state and local regulatory authorities with
respect to certain rates and railroad operations, as well as a variety of
health, safety, labor, environmental and other matters, all of which could
potentially affect the competitive position and profitability of the Company.
Additionally, the Company is subject to STB regulation and may be required to
obtain STB approval prior to its acquisition of any new railroad properties.
Management of the Company believes that the regulatory freedoms granted by the
Staggers Rail Act have been beneficial to the Company by giving it flexibility
to adjust prices and operations to respond to market forces and industry
changes. However, various interests, and certain members of the United States
Congress (which has jurisdiction over federal regulation of railroads), have
from time to time expressed their intention to support legislation that would
eliminate or reduce significant freedoms granted by the Staggers Rail Act.
Environmental Matters
The Company's railroad operations and real estate ownership are subject to
extensive federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters and
the handling, storage, transportation and disposal of waste and other materials.
The Company handles, stores, transports and disposes of petroleum and other
hazardous substances and wastes. The Company also transports hazardous
substances for third parties and arranges for the disposal of hazardous wastes
generated by the Company. The Company believes that it is in material compliance
with applicable environmental laws and regulations.
Internet Address and SEC Reports
We maintain a website with the address www.pwrr.com. We are not including
the information contained on our website as a part of, or incorporating it by
reference into, this Annual Report on Form 10-K. We make available free of
charge through our website our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as
soon as reasonably practicable after we electronically file such material with,
or furnish such material to, the Securities and Exchange Commission. We also
include on our website our corporate governance guidelines and the charters for
each of the major committees of our board of directors. In addition, we intend
to disclose on our website any amendments to, or waivers from, our code of
business conduct and ethics that are required to be publicly disclosed pursuant
to rules of the SEC.
I - 5
Item 2. Properties
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Track
P&W's rail system extends over approximately 538 miles of track, of which
it owns approximately 163 miles. The Company has the right to use the remaining
375 miles pursuant to perpetual easements and long- term trackage rights
agreements. Under certain of these agreements, the Company pays fees based on
usage.
Virtually all of the main lines on which the Company operates are in FRA
class 3 condition (allowing 40 m.p.h. speeds) or better. The Company intends to
maintain the main line tracks which it owns in such excellent condition.
Of the approximately 538 miles of the Company's system, 312 miles, or 58%,
are located in Connecticut, 96 miles, or 18%, are located in Massachusetts, 102
miles, or 19%, are located in Rhode Island and 28 miles, or 5%, are located in
New York.
Rail Facilities
P&W owns land and a building with approximately 69,500 square feet of floor
space in Worcester, Massachusetts. The building houses the Company's executive
and administrative offices and some of the Company's storage space.
Approximately 2,600 square feet are leased to outside tenants.
The Company owns and operates three principal classification yards located
in Worcester, Massachusetts, Cumberland, Rhode Island and Plainfield,
Connecticut and also operates a classification yard in New Haven, Connecticut.
In addition, the Company has maintenance facilities in Plainfield and Worcester.
P&W believes that its executive and administrative office facilities,
classification yards and maintenance facilities are adequate to support its
current level of operations.
Other Properties
The Company owns or has the right to use a total of approximately 130 acres
of real estate located along the principal railroad lines from downtown
Providence through Pawtucket, Rhode Island. Of this amount, P&W owns
approximately eight acres in Pawtucket and has a perpetual easement for railroad
purposes over the remaining 122 acres.
The Company has invested nearly $12 million in the development of the South
Quay, which is adjacent to 12 acres of land owned by the Company. This
investment has resulted in the creation of approximately 33 acres of waterfront
land which is being held for future development.
P&W actively manages its real estate assets in order to maximize revenues.
The income from property management is derived from sales and leasing of
properties and tracks and grants of easements to government agencies, utility
companies and other parties for the installation of overhead or underground
cables, pipelines and transmission wires as well as recreational uses such as
bike paths.
Rolling Stock
The following schedule sets forth the rolling stock owned by the Company as
of December 31, 2004:
Description Number
----------- ------
Locomotive .................................................. 31
Gondola ..................................................... 77
Flat Car .................................................... 5
Ballast Car ................................................. 30
Passenger Equipment ......................................... 7
Caboose ..................................................... 2
------
Total .................................................. 152
======
The 31 diesel electric locomotives, which include nine used 3,900
horsepower GE B39-8 locomotives acquired in 2002 and 2003 and one used GE B40-8
locomotive acquired in 2004, are used on a daily basis, are maintained to a high
standard, comply with all FRA and Association of American Railroads rules and
regulations and are adequate for the needs of the Company's freight operations.
I - 6
The gondolas and flat cars are considered modern rail cars and are used by
certain P&W customers. Other rail freight customers use their own freight cars
or obtain such equipment from other sources. The ballast cars are used in track
maintenance. From time to time, the Company has leased ballast cars to other
adjoining railroads. The passenger equipment and caboose are not utilized in
P&W's rail freight operations but are used on an occasional basis for Company
functions, excursions and charter trips.
Equipment
P&W has a state-of-the-art digital touch control dispatching system at its
Worcester operations center permitting two-way radio contact with every train
crew and maintenance vehicle on its lines. The system also enables each train
crew to maintain radio contact with other crew members. The Company maintains a
computer facility in Worcester with back-up computer facilities in Worcester and
Plainfield, Connecticut to assure the Company's ability to operate in the event
of disruption of service in Worcester. The Company also has state-of-the-art
automatic train defect detectors at strategic locations which inspect passing
trains and audibly communicate the results to train crews and dispatchers in
order to protect against equipment failure en route.
The Company maintains a modern fleet of track maintenance equipment and
aggressively pursues available opportunities to work with federal and state
agencies for the rehabilitation of bridges, grade crossings and track. The
Company's locomotives are equipped with the cab signal technology necessary for
operations on the Northeast Corridor and are equipped with automatic civil speed
enforcement systems which were required by the introduction of high speed
passenger service on the Northeast Corridor.
Item 3. Legal Proceedings
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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 $762,000) 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 and therefore no
liability has been accrued for this matter.
On December 15, 2003, the EPA issued a second "Notice of Potential
Liability" letter to the Company regarding the Site. EPA again identified the
Company as a PRP, this time because EPA "believes that [the Company] accepted
hazardous substance for transport to disposal or treatment facilities and
selected the site for disposal." The Company responded again to EPA stating that
it is interested in cooperating with EPA but that it does not believe it has
engaged in any activities that caused contamination at the Site.
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. ss. 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. Although the Company does not believe it
generated any waste that ended up at this Site, or that its activities caused
contamination at the Site, the Company has agreed to settle this suit for
$45,000 and has accrued a liability for this amount as of December 31, 2004. A
settlement agreement has not yet been finalized.
I - 7
During May of 2004 a decision was rendered in the case of George W. O'Leary
v. Providence and Worcester Railroad Company, et al., C.A. No. 99-560. The jury
found the Company liable for compensatory and punitive damages which, along with
accrued interest amounted to approximately $330,000. The Company appealed this
judgment to the Rhode Island Supreme Court and in December 2004 paid $208,000 in
full settlement of this judgment.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable.
I - 8
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters and
- --------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------
The Common Stock is quoted on the American Stock Exchange ("AMEX") under the
trading symbol "PWX". The following table sets forth, for the periods indicated,
the high and low sale prices per share for the Common Stock as reported on the
AMEX. Also included are dividends paid per share of Preferred Stock and Common
Stock during these quarterly periods.
Common Stock
------------
Trading Prices Dividends Paid
-------------- --------------
High Low Preferred Common
---- --- --------- ------
2004
- ----
First Quarter ........ 9.75 8.89 $ 5.00 $ .04
Second Quarter ....... 10.91 9.25 -0- .04
Third Quarter ........ 11.38 9.63 -0- .04
Fourth Quarter ....... 13.50 10.75 -0- .04
2003
- ----
First Quarter ........ 7.87 6.75 $ 5.00 $ .04
Second Quarter ....... 7.30 6.25 -0- .04
Third Quarter ........ 9.46 7.00 -0- .04
Fourth Quarter ....... 9.50 8.60 -0- .04
As of March 4, 2005, there were approximately 659 holders of record of the
Company's common stock.
The declaration of cash dividends on both the preferred and the common stock is
made at the discretion of the Board of Directors based on the Company's
earnings, financial condition, capital requirements and other relevant factors
and restrictions.
II - 1
Item 6. Selected Financial Data
- -------------------------------
The selected financial data set forth below has been derived from the
Company's audited financial statements. The data should be read in conjunction
with the Company's audited financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other information included elsewhere in this annual report
on Form 10-K.
Years Ended December 31,
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
(in thousands, except per share amounts)
Income Statement Data:
Operating revenues .......... $24,943 $23,961 $22,868 $22,598 $23,470
Other income ................ 1,547 661 877 1,003 2,049
------- ------- ------- ------- -------
Total Revenues .............. 26,490 24,622 23,745 23,601 25,519
Operating expenses .......... 24,802 23,554 23,698 22,245 22,301
------- ------- ------- ------- -------
Income before income taxes .. 1,688 1,068 47 1,356 3,218
Provision for income taxes .. 650 400 25 505 1,200
------- ------- ------- ------- -------
Net income .................. 1,038 668 22 851 2,018
Preferred Stock dividend .... 3 3 3 3 3
------- ------- ------- ------- -------
Net income available to
common shareholders ........ $ 1,035 $ 665 $ 19 $ 848 $ 2,015
======= ======= ======= ======= =======
Basic income per common
share ...................... $ .23 $ .15 $ -- $ .19 $ .47
======= ======= ======= ======= =======
Diluted income per common
share ...................... $ .23 $ .15 $ -- $ .19 $ .46
======= ======= ======= ======= =======
Weighted average
shares-basic ............... 4,470 4,449 4,429 4,390 4,323
======= ======= ======= ======= =======
Weighted average
shares-diluted ............. 4,548 4,516 4,497 4,458 4,390
======= ======= ======= ======= =======
Cash dividends declared on
Common Stock ............... $ 715 $ 712 $ 710 $ 702 $ 693
======= ======= ======= ======= =======
December 31,
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
(in thousands)
Balance Sheet Data:
Total assets ................ $91,471 $90,619 $90,500 $89,161 $89,073
Shareholders' equity ........ 69,228 68,691 68,641 69,073 68,483
II - 2
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The following discussion should be read in connection with the Company's audited
financial statements and notes thereto included elsewhere in this annual report.
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. Not all of these significant accounting policies
require management to make difficult, subjective or complex judgments or
estimates. Management believes that the Company's policy for the evaluation of
long-lived asset impairment meets the SEC definition of critical.
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. When factors indicate that assets should be evaluated for
possible impairment, the Company uses an estimate of the related undiscounted
future cash flows over the remaining lives of the assets in determining whether
the carrying amounts of the assets are recoverable. If an impairment exists it
is measured by comparing the carrying value to the fair value.
Overview
The Company is a regional freight railroad operating in Massachusetts, Rhode
Island, Connecticut and New York.
The Company generates operating revenues primarily from the movement of freight
in both conventional freight cars and in intermodal containers on flat cars over
its rail lines. Freight revenues are recorded at the time delivery is made to
the customer or the connecting carrier. Modest freight related operating
revenues are derived from demurrage, switching, weighing, special train and
other transportation services. Other operating revenues are derived from
services rendered to freight customers and other outside parties by the
Company's Maintenance of Way, Communications & Signals, and Maintenance of
Equipment Departments. Operating revenues also include amortization of deferred
grant income.
The Company's operating expenses consist of salaries and wages and related
payroll taxes and employee benefits, depreciation, insurance and casualty claim
expense, diesel fuel, car hire, property taxes, materials and supplies,
purchased services, track usage fees and other expenses. Many of the Company's
operating expenses are of a relatively fixed nature and do not increase or
decrease proportionately with increases or decreases in operating revenues
unless the Company's management were to take specific actions to restructure the
Company's operations.
When comparing the Company's results of operations from one year to another, the
following factors should be taken into consideration. First, the Company has
historically experienced fluctuations in operating revenues and expenses due to
unpredictable events such as one-time freight moves and customer plant
expansions and shut-downs. Second, the Company's freight volumes are susceptible
to increases and decreases due to changes in international, national and
regional economic conditions. Third, the volume of capitalized track or
recollectible projects performed by the Company's Maintenance of Way and
Communications & Signals Departments can vary significantly from year to year,
thereby impacting total operating expenses.
II - 3
The Company also generates income through sales of properties, grants of
easements and licenses, and leases of land and tracks. Income or loss from sale,
condemnation and disposal of property and equipment and grants of easements is
recorded at the time the transaction is consummated and collectibility is
assured. This income varies significantly from year to year.
One of the Company's customers, Tilcon Connecticut, Inc., which ships
construction aggregate from three separate quarries on the Company's system to
asphalt production plants in Connecticut and New York, accounted for
approximately 12.6%, 13.3% and 15.7% of its operating revenues in 2004, 2003,
and 2002, respectively. The Company does not believe that this customer will
cease to be a rail shipper or will significantly decrease its freight volume in
the foreseeable future. In the event that this customer should cease or
significantly reduce its rail freight operations, management believes that the
Company could restructure its operations to reduce operating costs by an amount
sufficient to substantially offset the decrease in operating revenues.
Results of Operations
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Years Ended December 31,
-----------------------------------------------
2004 2003 2002
------------- -------------- -------------
(in thousands, except percentages)
Freight Revenues:
Conventional carloads ....... $20,705 83.0% $19,795 82.6% $19,119 83.6%
Containers .................. 2,778 11.1 2,953 12.3 2,406 10.5
Other freight related........ 836 3.4 727 3.1 806 3.5
Other operating revenues...... 624 2.5 486 2.0 537 2.4
------- ----- ------- ----- ------- -----
Total ...................... $24,943 100.0% $23,961 100.0% $22,868 100.0%
======= ===== ======= ===== ======= =====
The following table sets forth conventional carload freight revenues by
commodity group in dollars and as a percentage of such revenues:
Years Ended December 31,
-----------------------------------------------
2004 2003 2002
------------- -------------- -------------
(in thousands, except percentages)
Chemicals and plastics ....... $6,684 32.3% $6,463 32.7% $6,783 35.5%
Construction aggregate ....... 3,102 15.0 3,086 15.6 3,759 19.7
Forest and paper products .... 3,036 14.7 2,454 12.4 2,434 12.7
Food and agricultural products 2,325 11.2 2,480 12.5 2,400 12.5
Metal products ............... 2,222 10.7 1,966 9.9 1,382 7.2
Coal and other ............... 1,868 9.0 1,652 8.3 853 4.5
Scrap metal and waste ........ 1,468 7.1 1,694 8.6 1,508 7.9
------- ----- ------- ----- ------- -----
Total ...................... $20,705 100.0% $19,795 100.0% $19,119 100.0%
======= ===== ======= ===== ======= =====
II - 4
The following table sets forth a comparison of the Company's operating expenses
expressed in dollars and as a percentage of operating revenues:
Years Ended December 31,
-----------------------------------------------
2004 2003 2002
------------- -------------- -------------
(in thousands, except percentages)
Salaries, wages, payroll taxes
and employee benefits ....... $13,758 55.2% $13,550 56.5% $13,402 58.6%
Casualties and insurance ..... 1,409 5.6 1,031 4.3 1,049 4.6
Depreciation.................. 2,764 11.1 2,754 11.5 2,734 12.0
Diesel fuel .................. 1,348 5.4 1,203 5.0 1,051 4.6
Car hire, net ................ 954 3.8 753 3.1 874 3.8
Purchased services, including
legal and professional fees . 1,357 5.4 1,313 5.5 1,550 6.8
Repairs and maintenance of
equipment ................... 1,046 4.2 947 4.0 875 3.8
Track and signal materials ... 1,862 7.5 1,985 8.3 2,242 9.8
Track usage fees ............. 899 3.6 812 3.4 1,715 7.5
Other materials and supplies . 1,060 4.3 1,056 4.4 842 3.7
Other ........................ 1,628 6.5 1,596 6.7 1,449 6.3
------- ----- ------- ----- ------- -----
Total ....................... 28,085 112.6 27,000 112.7 27,783 121.5
Less capitalized and
recovered costs ............ 3,283 13.2 3,446 14.4 4,085 17.9
------- ----- ------- ----- ------- -----
Total ...................... $24,802 99.4% $23,554 98.3% $23,698 103.6%
======= ===== ======= ===== ======= =====
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Operating Revenues
Operating Revenues increased $982,000, or 4.1%, to $24.9 million in 2004 from
$24.0 million in 2003. This increase was the net result of a $910,000 (4.6%)
increase in conventional freight revenues, a $109,000 (15.0%) increase in other
freight related revenues and a $138,000 (28.4%) increase in other operating
revenues partially offset by a $175,000 (5.9%) decrease in container freight
revenues.
The increase in conventional freight revenues results from a 4.1% increase in
carloadings. The average revenue received per carloading increased by less than
one percent between years. The Company's conventional carloadings increased by
1,296 to 33,244 in 2004 from 31,948 in 2003. The increase in carloadings was
spread throughout the mix of commodities handled by the Company with no
particular commodity experiencing a disproportionate increase or decrease in
volume. The small increase in the average revenue per carloading reflects a
slight shift in the mix of commodities from construction aggregates to higher
rated commodities.
The decrease in container freight revenues results from a 1.0% decrease in
traffic volume and a 4.9% decrease in the average revenue received per
container. Intermodal containers handled decreased by 667 to 64,818 in 2004 from
65,485 in 2003. The decrease in the average revenue received per container
results from contractual rate adjustments, as well as a shift in the mix of
containers handled.
The increase in other freight related revenues is largely attributable to
increased demurrage charges, secondary switching fees, weighing charges, special
train charges, etc. Revenues of this nature can vary from year to year depending
upon the needs of freight customers.
The increase in other operating revenues is due to maintenance department
billings to freight customers and other outside parties. Revenues of this type
typically vary from year to year depending upon customer requirements.
Other Income
Other income increased by $886,000 to $1.5 million in 2004 from $661,000 in
2003. This increase is the result of a $948,000 gain realized on the disposal of
a portion of a branch line which the Commonwealth of Massachusetts acquired by
eminent domain during the year.
II - 5
Operating Expenses
Operating expenses increased $1.2 million, or 5.3%, to $24.8 million in 2004
from $23.6 million in 2003. Operating expenses as a percentage of operating
revenues increased to 99.4% from 98.3% in 2003. Operating expenses in 2004
includes a $425,000 provision for casualty losses, $208,000 of which was to
settle a lawsuit judgment against the Company. In addition, the Company's
profit-sharing expense for 2004 was $188,000 compared to $119,000 in 2003.
Year Ended December 31, 2003 Compared to Year Ended December 31, 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 income for 2002 includes $935,000 of track usage fees and
$165,000 of siding maintenance costs which relate to years prior to 2002.
Operating Revenues
Operating revenues increased $1.1 million, or 4.8%, to $24.0 million in 2003
from $22.9 million in 2002. This increase was comprised of a $676,000 (3.5%)
increase in conventional freight revenues and a $547,000 (22.7%) increase in
container freight revenues partially offset by a $130,000 (9.7%) decrease in
other freight related and operating revenues.
The increase in conventional freight revenues results from a 3.5% increase in
the average revenue received per conventional carloading. The Company's
conventional freight carloadings increased by just 10 to 31,948 in 2003 from
31,938 in 2002. Increases in carloadings of certain commodities, such as metal
products and coal were largely offset by decreases in carloadings of
construction aggregates and certain other commodities. The increase in the
average revenue received per conventional carloading is attributable to a shift
in traffic mix away from construction aggregates, a lower rated commodity, as
well as some modest rate increases.
The increase in container freight revenues results from an increase in traffic
volume and from an 11.3% increase in the average revenue received per container.
Intermodal containers handled increased by 6,094, or 10.3% to 65,485 containers
in 2003 from 59,391 containers 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 decrease in other freight related and operating revenues for the year is the
result of decreases in maintenance department billings, as well as a decrease in
demurrage charges. Revenues of this nature typically vary from year to year
depending upon the needs of freight customers and other outside parties.
Other Income
Other income decreased to $661,000 in 2003 from $877,000 in 2002. This decrease
results from lower gains from the sale of property, equipment and easements as
well as decreases in rental income and interest earned on temporary cash
investments.
Operating Expenses
Operating expenses decreased $144,000, or .6%, to $23.6 million in 2003 from
$23.7 million in 2002. Operating expenses as a percentage of operating revenues
decreased to 98.3% in 2003 from 103.6% in 2002. This small decrease is
attributable to the impact of the Amtrak arbitration decision on 2002, as
previously discussed, offset, in part, by increases in various other expense
categories including profit sharing, maintenance and utility costs.
Liquidity and Capital Resources
The Company generated $3.1 million, $2.4 million and $4.3 million of cash from
operations in 2004, 2003 and 2002, respectively. The Company's total cash and
II - 6
cash equivalents increased by $503,000 in 2004 and decreased by $1.7 million in
2003 and $916,000 in 2002. The principal utilization of cash during the three
year period was for expenditures for property and equipment acquisitions and
payment of dividends.
During 2004, 2003 and 2002 the Company generated $1.5 million, $237,000 and
$444,000, respectively, from the sales and disposals of properties not
considered essential for railroad operations and from the granting of easements
and licenses. The Company holds various properties which could be made available
for sale, lease or grants of easements and licenses. Revenues from sales of
properties, easements and licenses can vary significantly from year to year.
In June 2003, the Company's principal bank renewed the Company's $3.0 million
revolving line of credit for a two year period through May 31, 2005. Borrowings
under this line are unsecured and bear interest at either the prime rate or one
and one half per cent over either the one or three month London Interbank
Offered Rates. The Company does not pay any commitment fee on this line and has
no compensating balance requirements. The Company had no advances against this
line of credit during 2004 and 2003.
Substantially all of the mainline track owned by the Company meets FRA Class 3
standards (permitting freight train speeds of 40 miles per hour), and the
Company intends to continue to maintain this track at this level. The Company
expended $2.5 million, $2.5 million and $3.1 million for track structure and
bridge improvements in 2004, 2003 and 2002, respectively. Deferred grant income
of $39,000 in 2004, $399,000 in 2003 and $305,000 in 2002 financed a portion of
these improvements. Management estimates that $2.5 million to $3.0 million of
improvements to the Company's track structure and bridges will be made in 2005,
provided that sufficient funds, including grant proceeds, are available.
Improvements to the Company's track structure are made, for the most part, by
the Company's Maintenance of Way Department personnel.
During 2004 the Company entered into a $218,000 contract for the construction of
a building for its Communication and Signals Department on land which it owns in
Plainfield Connecticut. Construction costs of $44,000 were incurred under this
contract through December 31, 2004 and it is expected that the building will be
completed in 2005.
The Company has entered into an agreement to acquire four used GE B40-8 diesel
locomotives for $200,000 in cash and five older GE U23B and B23- 7 locomotives
which it owns. The Company has acquired one of these B40-8 locomotives as of
December 31, 2004 and expects that the balance of the transaction will be
completed in 2005.
In 2004, the Company paid dividends in the amount of $5.00 per share,
aggregating $3,000, on its outstanding noncumulative preferred stock and $0.16
per share, aggregating $715,000, on its outstanding common stock. Continued
payment of such dividends is contingent upon the Company's continuing to have
the necessary financial resources available.
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 $762,000) 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 and therefore no
liability has been accrued for this matter.
II - 7
On December 15, 2003, the EPA issued a second "Notice of Potential Liability"
letter to the Company regarding the Site. EPA again identified the Company as a
PRP, this time because EPA "believes that [the Company] accepted hazardous
substance for transport to disposal or treatment facilities and selected the
site for disposal." The Company responded again to EPA stating that it is
interested in cooperating with EPA but that it does not believe it has engaged
in any activities that caused contamination at the Site.
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. ss. 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. Although the Company does not believe it
generated any waste that ended up at this Site, or that its activities caused
contamination at the Site, the Company has agreed to settle this suit for
$45,000 and has accrued a liability for this amount as of December 31, 2004. A
settlement agreement has not yet been finalized.
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
permits for the property, both of which have been extended to 2009, allow for
construction of a dock along the west face of the South Quay. The property is
adjacent to a 12 acre site also owned by the Company.
In 2001, the Company completed overhead clearances between Worcester and the
South Quay, which enables operation of double stack trains (having a height of
nineteen feet, two inches) and multi-level automobile cars.
The property is located a half mile from I-195. In 1999, the Rhode Island
Department of Transportation entered into a contract for engineering services to
undertake roadway improvements to provide direct vehicular access from the
interstate highway system to the South Quay. The project is anticipated to be
substantially complete by 2005.
The City of East Providence has created a large waterfront redevelopment area
with a zoning overlay that would encourage development of offices, hotels,
restaurants, shops, marinas, apartments and other "clean" employment. The
Company has been cooperating with the City of East Providence in these efforts.
In addition, the City is moving forward with the plan, described above, that
will provide a direct connection from I-195 to the South Quay.
Selected Quarterly Financial Data
Historically the Company has experienced lower operating revenues in the first
quarter of the year. The following table sets forth selected financial data for
each quarter of 2004 and 2003. The information for each of these quarters is
unaudited but includes all normal recurring adjustments that the Company
considers necessary for a fair presentation. These results, however, are not
necessarily indicative of results for any future period.
II - 8
Year Ended December 31, 2004
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts)
Operating Revenues .................... $ 5,067 $ 6,493 $ 7,036 $ 6,347
Other income .......................... 121 142 1,169 115
------- ------- ------- -------
Total revenues ........................ 5,188 6,635 8,205 6,462
Operating expenses .................... 5,875 6,293 6,193 6,441
------- ------- ------- -------
Income (loss) before income taxes
(benefits) ........................... (687) 342 2,012 21
Provision for income taxes
(benefits) ........................... (225) 120 715 40
------- ------- ------- -------
Net income (loss) ..................... $ (462) $ 222 $ 1,297 $ (19)
------- ------- ------- -------
Basic income (loss) per common
share ................................ $ (.10) $ .05 $ .29 $ --
------- ------- ------- -------
Diluted income (loss) per common
share ................................ $ (.10) $ .05 $ .28 $ --
------- ------- ------- -------
Year Ended December 31, 2003
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts)
Operating Revenues .................... $ 4,859 $ 6,256 $ 6,674 $ 6,172
Other income .......................... 153 109 253 146
------- ------- ------- -------
Total revenues ........................ 5,012 6,365 6,927 6,318
Operating expenses .................... 5,768 5,776 5,858 6,152
------- ------- ------- -------
Income (loss) before income taxes
(benefits) ........................... (756) 589 1,069 166
Provision for income taxes
(benefits) ........................... (250) 200 375 75
------- ------- ------- -------
Net income (loss) ..................... $ (506) $ 389 $ 694 $ 91
------- ------- ------- -------
Basic income (loss) per common
share ................................ $ (.11) $ .09 $ .16 $ .02
------- ------- ------- -------
Diluted income (loss) per common
share ................................ $ (.11) $ .09 $ .15 $ .02
------- ------- ------- -------
Inflation
In recent years, inflation has not had a significant impact on the Company's
operations.
Seasonality
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during this period and to
winter weather conditions.
II - 9
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 123R, "Share-Based Payment", or
SFAS No. 123R. This Statement is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation", and supersedes Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and its related
implementation guidance. SFAS No. 123R focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. The Statement requires entities to recognize stock compensation
expense for awards of equity instruments to employees based on the grant-date
fair value of those awards (with limited exceptions). SFAS No. 123R is effective
for the first interim or annual reporting period that begins after June 15,
2005. The pro forma disclosures previously permitted under SFAS No. 123 will no
longer be an alternative to financial statement recognition. See "Stock-Based
Compensation" in note 1 to the financial statements included in Item 8 herein
for the pro forma net income and net income and net income per share for the
years ending December 31, 2004, 2003 and 2002, presenting results if we used a
fair-value-based method similar to the methods required under SFAS No. 123R to
measure compensation expense for employee stock incentive awards. Although we
have not yet determined whether the adoption of SFAS No. 123R will result in
amounts that are similar to the current pro forma disclosures under SFAS No.
123, we are evaluating the requirements under SFAS No. 123R and do not expect
the adoption to have a significant adverse impact on our statements of income
and net income per share.
On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of Accounting Principles Board ("APB") Opinion No. 29".
SFAS 153 addresses the measurement of exchanges of nonmonetary assets and
redefines the scope of transactions that should be measured based on the fair
value of the assets exchanged. SFAS 153 is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company
does not believe adoption of SFAS 153 will have a material effect on its
financial position, results of operations or cash flows.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Cash and Equivalents
As of December 31, 2004, the Company is exposed to market risks which primarily
include changes in U.S. interest rates.
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's revolving line of credit agreement provides for
borrowings which bear interest at variable rates based on either prime rate or
one and one half percent over either the one or three month London Interbank
Offered Rates. The Company had no borrowings outstanding pursuant to the
revolving line of credit agreement at December 31, 2004. 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.
II - 10
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting
Firm................................................ II-12
Balance Sheets as of December 31, 2004 and 2003...... II-13
Statements of Income for the Years Ended December 31,
2004, 2003 and 2002................................. II-14
Statements of Shareholders' Equity for the Years Ended
December 31, 2004, 2003 and 2002.................... II-15
Statements of Cash Flows for the Years Ended
December 31, 2004, 2003 and 2002.................... II-16
Notes to Financial Statements........................ II-17
II - 11
Report of Independent Registered Public Accounting Firm
- -------------------------------------------------------
To the Board of Directors and Shareholders of
Providence and Worcester Railroad Company
Worcester, Massachusetts
We have audited the accompanying balance sheets of Providence and Worcester
Railroad Company as of December 31, 2004 and 2003, and the related statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2004. Our audits also included the financial statement
schedule listed in the Index at Item 15(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness on the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Providence and Worcester Railroad Company as
of December 31, 2004 and 2003, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 25, 2005
II - 12
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
December 31,
2004 2003
------- -------
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 1,735 $ 1,232
Accounts receivable, net of allowance for
doubtful accounts of $125 in 2004 and 2003 ......... 3,564 3,820
Materials and supplies .............................. 1,889 1,771
Prepaid expenses and other current assets............ 239 239
Deferred income taxes ............................... 212 191
------- -------
Total Current Assets ............................... 7,639 7,253
Property and Equipment, net .......................... 71,874 71,408
Land Held for Development ............................ 11,958 11,958
------- -------
Total Assets ......................................... $91,471 $90,619
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 1,679 $ 2,019
Accrued expenses .................................... 1,284 1,378
------- -------
Total Current Liabilities .......................... 2,963 3,397
------- -------
Profit-Sharing Plan Contribution ..................... 188 119
------- -------
Deferred Income Taxes ................................ 11,129 10,258
------- -------
Deferred Grant Income ................................ 7,963 8,154
------- -------
Commitments and Contingencies (Note 9)
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding 645
shares in 2004 and 2003 ............................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,481,007 shares in 2004 and 4,457,494 shares
in 2003 ............................................ 2,241 2,229
Additional paid-in capital .......................... 29,914 29,709
Retained earnings ................................... 37,041 36,721
------- -------
Total Shareholders' Equity ......................... 69,228 68,691
------- -------
Total Liabilities and Shareholders' Equity ........... $91,471 $90,619
======= =======
The accompanying notes are an integral part of the financial statements.
II - 13
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
Years Ended December 31,
2004 2003 2002
-------- -------- --------
Revenues:
Operating Revenues ........................... $24,943 $23,961 $22,868
Other Income ................................. 1,547 661 877
-------- -------- --------
Total Revenues ............................. 26,490 24,622 23,745
-------- -------- --------
Expenses:
Operating:
Maintenance of way and structures ........... 3,404 3,639 3,279
Maintenance of equipment .................... 2,627 2,421 2,166
Transportation .............................. 7,335 6,701 6,532
General and administrative .................. 4,205 3,876 3,925
Depreciation ................................ 2,764 2,754 2,734
Taxes, other than income taxes .............. 2,209 2,258 2,253
Car hire, net ............................... 954 753 874
Employee retirement plans ................... 405 340 220
Track usage fees ............................ 899 812 1,715
-------- -------- --------
Total Operating Expenses ................... 24,802 23,554 23,698
-------- -------- --------
Income before Income Taxes .................... 1,688 1,068 47
Provision for Income Taxes .................... 650 400 25
-------- -------- --------
Net Income .................................... 1,038 668 22
Preferred Stock Dividends ..................... 3 3 3
-------- -------- --------
Net Income Available to Common Shareholders ... $ 1,035 $ 665 $ 19
======= ======= =======
Basic and Diluted Income Per Common Share ..... $ .23 $ .15 $ --
======= ======= =======
The accompanying notes are an integral part of the financial statements.
II - 14
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands Except Per Share Amounts)
Years Ended December 31, 2004, 2003 and 2002
Additional Share-
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance, January 1, 2002..... $ 32 $ 2,206 $29,376 $37,459 $69,073
Issuance of 16,205 common
shares to fund the Company's
2001 profit sharing plan
contribution ............... 8 143 151
Issuance of 15,937 common
shares for stock options
exercised, employee stock
purchases, and other ....... 8 100 108
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.16 per share (710) (710)
Net income for the year ..... 22 22
------- ------- ------- ------- -------
Balance, December 31, 2002... 32 2,222 29,619 36,768 68,641
Issuance of 14,114 common
shares for stock options
exercised, employee stock
purchases, and other ....... 7 90 97
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.16 per share (712) (712)
Net income for the year ..... 668 668
------- ------- ------- ------- -------
Balance, December 31, 2003... 32 2,229 29,709 36,721 68,691
Issuance of 12,628 common
shares to fund the Company's
2003 profit sharing plan
contribution ............... 6 113 119
Issuance of 10,885 common
shares for stock options
exercised, employee stock
purchases, and other ....... 6 92 98
Dividends paid:
Preferred stock, $5.00 per
share ..................... (3) (3)
Common stock, $.16 per share (715) (715)
Net income for the year...... 1,038 1,038
------- ------- ------- ------- -------
Balance, December 31, 2004... $ 32 $ 2,241 $29,914 $37,041 $69,228
======= ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements.
II - 15
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
2004 2003 2002
------- ------- -------
Cash Flows from Operating
Activities:
Net income ................................. $ 1,038 $ 668 $ 22
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation ............................. 2,764 2,754 2,734
Amortization of deferred grant income .... (229) (224) (216)
Profit-sharing plan contribution to be
funded with common stock ............... 188 119 --
Gains from sale, condemnation and
disposal of property, equipment and
easements, net ......................... (1,081) (206) (337)
Deferred income taxes .................... 850 295 325
Other, net ............................... 7 32 38
Increase (decrease) in cash and
equivalents from:
Accounts receivable .................... 118 (559) 506
Materials and supplies ................. (118) (137) (200)
Prepaid expenses and other ............. -- 297 (43)
Accounts payable and accrued expenses .. (396) (604) 1,511
------- ------- -------
Net cash flows from operating activities ... 3,141 2,435 4,340
------- ------- -------
Cash Flows from Investing Activities:
Purchase of property and equipment ......... (3,659) (4,127) (5,378)
Proceeds from sale and condemnation of
property, equipment and easements ......... 1,488 237 444
Proceeds from deferred grant income ........ 156 427 289
------- ------- -------
Net cash flows used in investing activities (2,015) (3,463) (4,645)
------- ------- -------
Cash Flows from Financing Activities:
Dividends paid ............................. (718) (715) (713)
Issuance of common shares for stock options
exercised and employee stock purchases .... 95 87 102
------- ------- -------
Net cash flows used in financing activities. (623) (628) (611)
------- ------- -------
Increase (Decrease) in Cash and Equivalents.. 503 (1,656) (916)
Cash and Equivalents, Beginning of Year ..... 1,232 2,888 3,804
------- ------- -------
Cash and Equivalents, End of Year ........... $ 1,735 $ 1,232 $ 2,888
======= ======= =======
Supplemental Disclosures:
Cash paid during year for income taxes ..... $ -- $ 35 $ --
======= ======= =======
The accompanying notes are an integral part of the financial statements.
II - 16
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollars in Thousands Except Per Share Amounts)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
-----------------------
Providence and Worcester Railroad Company (the "Company") is an interstate
freight carrier conducting railroad operations in Massachusetts, Rhode
Island, Connecticut and New York. Through its connecting carriers, it
services customers located throughout North America.
One customer accounted for 12.6%, 13.3% and 15.7% of the Company's
operating revenues in 2004, 2003 and 2002, respectively.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents for purposes of
classification in the balance sheets and statements of cash flows. Cash
equivalents are stated at cost, which approximates fair market value.
Materials and Supplies
----------------------
Materials and supplies, which consist of items for the improvement and
maintenance of track structure and equipment, are stated at cost,
determined on a first-in, first-out basis, and are charged to expense or
added to the cost of property and equipment when used.
Property and Equipment
----------------------
Property and equipment, including land held for development, is stated at
historical cost (including self-construction costs). Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments
are capitalized while routine maintenance and repairs, which do not improve
or extend asset lives, are charged to expense when incurred. Gains or
losses on sales or other dispositions are credited or charged to income.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
Track structure 20 to 67 years
Buildings and other structures 33 to 45 years
Equipment 4 to 25 years
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. When factors indicate that assets should be evaluated
for possible impairment, the Company uses an estimate of the related
undiscounted future cash flows over the remaining lives of the assets in
determining whether the carrying amounts of the assets are recoverable. If
an impairment exists it is measured by comparing the carrying value to the
fair value.
Deferred Grant Income
---------------------
The Company has availed itself of various federal and state programs
administered by the states of Connecticut, Massachusetts and Rhode Island
for reimbursement of expenditures for capital improvements. In order to
receive reimbursement, the Company must submit requests for the projects,
including cost estimates. The Company receives from 70% to 100% of the
costs of such projects, which have included bridges, track structure and
public improvements. To the extent that such grant proceeds are used to
fund capital improvements to bridges and track structure, they are recorded
as deferred grant income and amortized into operating revenues on a
straight-line basis over the estimated useful lives of the related
improvements ($229 in 2004, $224 in 2003 and $216 in 2002).
Grant proceeds utilized to finance public improvements, such as grade
crossings and signals, are recorded as a direct offset to the cost of the
improvements, which are not capitalized.
II - 17
Although the Company cannot predict the extent and length of future grant
programs, it intends to continue filing requests for such grants when they
are available.
Revenue Recognition
-------------------
Freight revenues are recorded at the time delivery is made to the customer
or the connecting carrier.
Other freight related revenues and other operating revenues are recorded at
the time the services are rendered to the customer.
Gain or loss from sale, condemnation and disposal of property and equipment
and easements is recorded at the time the transaction is consummated and
collectibility is assured.
Income Taxes
------------
Deferred income taxes are recorded based on the differences between the
financial statement and tax basis of assets and liabilities. Such deferred
income taxes are also adjusted to reflect changes in the U.S. tax laws when
enacted and changes in state tax rates.
Income per Common Share
-----------------------
Basic income per common share is computed using the weighted average number
of common shares outstanding during each year. Diluted income per common
share reflects the effect of the Company's outstanding convertible
preferred stock, options and warrants (using the treasury stock method),
except where such items would be antidilutive.
A reconciliation of weighted average shares used for the basic computation
and that used for the diluted computation is as follows:
Years Ended December 31,
2004 2003 2002
--------- --------- ---------
Weighted average shares for basic ...... 4,470,332 4,448,627 4,428,522
Dilutive effect of convertible preferred
stock and options ..................... 77,278 67,050 68,692
--------- --------- ---------
Weighted average shares for diluted .... 4,547,610 4,515,677 4,497,214
========= ========= =========
Options and warrants to purchase 11,110, 18,517 and 188,103 shares of
common stock were outstanding during 2004, 2003 and 2002, respectively, but
were not included in the computation of diluted earnings per common share
because their effect would be antidilutive. The Company had outstanding
warrants to purchase 175,000 shares of its common stock, all of which
expired unexercised during 2003.
Use of Estimates
----------------
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates. The Company's principal
estimates include the allowance for doubtful accounts, useful lives of
properties, accrued liabilities including health insurance claims and legal
and other contingencies, and income taxes.
o The Company has a self funded medical plan with stop-loss insurance
which covers all of its full time employees. Medical claims are paid
from a claims fund which the Company contributes to monthly. The
estimated liability for unpaid claims incurred is adjusted at the end
of each reporting period based upon historical experience modified by
actual claim payments made through the date the financial statements
are issued.
II - 18
o Liabilities for casualty claims, legal judgments and other loss
contingencies are recorded when it is probable that an asset has been
impaired or a liability has been incurred and the amount of the loss
can be reasonably estimated. The Company does not accrue estimated
legal fees for appeals of legal judgments since we do not believe that
such costs meet the definition of a liability and thus are accruable
only at such time as legal services have been provided.
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
Compensation", the Company's net income and net income per share would have
been reported as follows:
Years Ended December 31,
2004 2003 2002
------- ------- -------
Net income (loss) available to common shareholders:
As reported ............................. $ 1,035 $ 665 $ 19
Less impact of stock option expense,
net of tax effects ..................... 40 38 30
------- ------- -------
Pro forma ............................... $ 995 $ 627 $ (11)
======= ======= =======
Basic income (loss) per share:
As reported ............................. $ .23 $ .15 $ --
Less impact of stock option expense,
net of tax effects ..................... .01 .01 --
------- ------- -------
Pro forma ............................... $ .22 $ .14 $ --
======= ======= =======
Diluted income (loss) per share:
As reported ............................. $ .23 $ .15 $ --
Less impact of stock option expense,
net of tax effects ..................... .01 .01 --
------- ------- -------
Pro forma ............................... $ .22 $ .14 $ --
======= ======= =======
The fair value of options on their grant date is measured using the
Black/Scholes option pricing model. The estimated weighted average fair
value of options granted during 2004, 2003 and 2002 were $5.24, $4.49, and
$4.35, respectively. Key assumptions used to apply this pricing model are
as follows:
2004 2003 2002
--------- --------- ---------
Average risk-free interest rate 3.90% 3.62% 4.97%
Expected life of option grants 7.0 years 7.0 years 7.0 years
Expected volatility of underlying stock 70% 73% 76%
Expected dividend payment rate, as
a percentage of the share price
on the date of grant 1.80% 2.06% 2.37%
The option pricing model used was designed to value readily tradable stock
options with relatively short lives and no vesting restrictions. In
addition, option valuation models require the input of highly subjective
assumptions including the expected price volatility. Because the options
granted to employees are not tradable and have contractual lives of ten
years and changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the models do not
necessarily provide a reliable measure of fair value of the options issued
under the Company's stock plan.
II - 19
Comprehensive Income
--------------------
Comprehensive Income equals net income for 2004, 2003 and 2002.
Segment Reporting
-----------------
The Company organizes itself as one segment reporting to the chief
operating decision maker. Products and services consist primarily of
interstate freight rail services. These include the movement of freight in
both conventional freight cars and in intermodal containers on flat cars
over the Company's rail lines, as well as freight related services such as
switching, weighing and special trains and other services rendered to
freight customers and other outside parties by the Company's Maintenance of
Way, Communications & Signals and Maintenance of Equipment Departments.
Recently Issued Financial Accounting Standards
----------------------------------------------
In December 2004, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment", or SFAS No. 123R. This Statement is a revision of SFAS No. 123,
"Accounting for Stock-Based Compensation", and supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and its related implementation guidance. SFAS No. 123R focuses
primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. The Statement
requires entities to recognize stock compensation expense for awards of
equity instruments to employees based on the grant-date fair value of those
awards (with limited exceptions). SFAS No. 123R is effective for the first
interim or annual reporting period that begins after June 15, 2005. The pro
forma disclosures previously permitted under SFAS No. 123 will no longer be
an alternative to financial statement recognition. See "Stock-Based
Compensation" in note 1 to the financial statements included in Item 8
herein for the pro forma net income and net income and net income per share
for the years ending December 31, 2004, 2003 and 2002, presenting results
if we used a fair-value-based method similar to the methods required under
SFAS No. 123R to measure compensation expense for employee stock incentive
awards. Although we have not yet determined whether the adoption of SFAS
No. 123R will result in amounts that are similar to the current pro forma
disclosures under SFAS No. 123, we are evaluating the requirements under
SFAS No. 123R and do not expect the adoption to have a significant adverse
impact on our statements of income and net income per share.
On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets, an amendment of Accounting Principles Board ("APB")
Opinion No. 29". SFAS 153 addresses the measurement of exchanges of
nonmonetary assets and redefines the scope of transactions that should be
measured based on the fair value of the assets exchanged. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The Company does not believe adoption of
SFAS 153 will have a material effect on its financial position, results of
operations or cash flows.
II - 20
2. Property and Equipment
Property and equipment consists of the following:
December 31,
2004 2003
------- -------
Land and improvements .................... $10,609 $10,552
Track structure .......................... 67,368 65,493
Buildings and other structures ........... 7,916 7,837
Equipment ................................ 25,577 25,578
------- -------
111,470 109,460
Less accumulated depreciation ............ 39,596 38,052
------- -------
Total property and equipment, net ........ $71,874 $71,408
======= =======
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 permits for the property, both of which have been
extended to 2009, allow for construction of a dock along the west face of
the South Quay. The property is adjacent to a 12 acre site also owned by
the Company.
In 2001, the Company completed overhead clearances between Worcester and
the South Quay, which enables operation of double stack trains (having a
height of nineteen feet, two inches) and multi-level automobile cars.
The property is located a half mile from I-195. In 1999, the Rhode Island
Department of Transportation entered into a contract for engineering
services to undertake roadway improvements to provide direct vehicular
access from the interstate highway system to the South Quay. The project is
anticipated to be substantially complete by 2005.
The City of East Providence has created a large waterfront redevelopment
area with a zoning overlay that would encourage development of offices,
hotels, restaurants, shops, marinas, apartments and other "clean"
employment. The Company has been cooperating with the City of East
Providence in these efforts. In addition, the City is moving forward with
the plan, described above, that will provide a direct connection from I-195
to the South Quay.
4. Revolving Line of Credit
The Company has a revolving line of credit with its principal bank in the
amount of $3,000 expiring May 31, 2005. Borrowings under this line of
credit are unsecured, due on demand and bear interest at either the bank's
prime rate or one and one half percent over either the one or three month
London Interbank Offered Rates. The Company pays no commitment fee on this
line and has no compensating balance requirements. There were no loans
outstanding under the line at any time during 2004 or 2003.
II - 21
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
2004 2003
------- -------
Simplified employee pension plan
contributions ........................ $ 210 $ 204
Health insurance plan claims ......... 150 330
Casualty loss claims ................. 473 433
Other ................................ 451 411
------- -------
1,284 1,378
======= =======
6. Other Income
Other income consists of the following: Years Ended December 31,
2004 2003 2002
------ ------ ------
Gains from sale, condemnation and
disposal of property, equipment and
easements, net .................... $1,081 $ 206 $ 337
Rentals and license fees under
various operating leases .......... 454 443 490
Interest ............................. 12 12 50
------ ------ ------
$1,547 $ 661 $ 877
====== ====== ======
Gains from sale, condemnation and disposal of property, equipment and
easements for 2004 includes a $948,000 gain realized on the disposal of a
portion of a branch line which the Commonwealth of Massachusetts acquired
by eminent domain.
7. 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 income for
2002 includes $935 of track usage fees and $165 of siding maintenance costs
which relate to years prior to 2002.
8. Income Taxes
The provision for income taxes consists of the following:
Years Ended December 31,
2004 2003 2002
------ ------ ------
Current:
Federal .......................... $ (210) $ 105 $ (300)
State ............................ 10 -- --
------ ------ ------
(200) 105 (300)
Deferred, Federal and State ....... 850 295 325
------ ------ ------
$ 650 $ 400 $ 25
====== ====== ======
II - 22
The following summarizes the estimated tax effect of temporary differences
that are included in the net deferred income tax provision:
Years Ended December 31,
2004 2003 2002
----- ----- -----
Depreciation ........................... $ 462 $ 431 $ 382
Deferred grant income .................. 68 (62) (32)
Gains from sale, condemnation and
disposal of property and equipment..... 348 (8) (15)
Accrued casualty and other claims ...... (14) (74) (56)
Other .................................. (14) 8 46
----- ----- -----
$ 850 $ 295 $ 325
===== ===== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of significant items comprising the Company's net deferred income
tax liability as of December 31, 2004 and 2003 are as follows:
December 31,
2004 2003
------- -------
Deferred income tax liabilities:
Differences between book and tax basis of
property and equipment ....................... $13,956 $13,146
Other ......................................... -- 14
------- -------
13,956 13,160
------- -------
Deferred income tax assets:
Deferred grant income ......................... 2,827 2,895
Accrued casualty and other claims ............. 168 154
Allowance for doubtful accounts and other 44 44
------- -------
3,039 3,093
------- -------
Net deferred income tax liability .............. $10,917 $10,067
======= =======
A reconciliation of the U.S. federal statutory rate to the effective tax
rate is as follows:
Years Ended December 31,
2004 2003 2002
---- ---- ----
Federal statutory rate ....................... 34% 34% 34%
Depreciation of properties acquired from
bankrupt railroads having a tax basis
in excess of cost ........................... (2) (6) (48)
Non deductible expenses, etc ................. 7 9 67
---- ---- ----
Effective tax rate ........................... 39% 37% 53%
==== ==== ====
II - 23
9. Commitments and Contingencies
The Company is a defendant in certain lawsuits relating to casualty losses,
many of which are covered by insurance subject to a deductible. The Company
believes that adequate provision has been made in the financial statements
for any expected liabilities which may result from disposition of such
lawsuits.
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 and therefore no liability has been accrued for this matter.
On December 15, 2003, the EPA issued a second "Notice of Potential
Liability" letter to the Company regarding the Site. EPA again identified
the Company as a PRP, this time because EPA "believes that [the Company]
accepted hazardous substance for transport to disposal or treatment
facilities and selected the site for disposal." The Company responded again
to EPA stating that it is interested in cooperating with EPA but that it
does not believe it has engaged in any activities that caused contamination
at the Site.
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. ss. 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. Although the Company does not believe it generated
any waste that ended up at this Site, or that its activities caused
contamination at the Site, the Company has agreed to settle this suit for
$45 and has accrued a liability for this amount as of December 31, 2004. A
settlement agreement has not yet been finalized.
During May of 2004 a decision was rendered in the case of George W. O'Leary
v. Providence and Worcester Railroad Company, et al., C.A. No. 99-560. The
jury found the Company liable for compensatory and punitive damages which,
along with accrued interest amounted to approximately $330. The Company
appealed this judgment to the Rhode Island Supreme Court and subsequently
paid $208 in full settlement of this judgment.
The Company has entered into a contract in the amount of $218 to construct
a building for its Communications and Signals Department on land which it
owns in Plainfield Connecticut. As of December 31, 2004 construction costs
of $44 have been incurred. It is expected that this construction will be
completed in 2005.
II - 24
10. Employee Benefit Plans
Stock Option Plan
-----------------
The Company has a non-qualified stock option plan ("SOP") covering all
management personnel having a minimum of one year of service with the
Company and who are not holders of a majority of either its outstanding
common stock or its outstanding preferred stock. In addition, the Company's
outside directors are eligible to participate in the SOP. The SOP has
authorized 50,000 common shares or 5% of the shares of common stock
outstanding, whichever is greater (224,050 shares at December 31, 2004).
Options granted under the SOP, which are fully vested when granted, are
exercisable over a ten year period at the market price for the Company's
common stock as of the date the options are granted.
Changes in stock options outstanding are as follows:
Weighted Average
----------------
Number Exercise Fair
of shares Price Value
------ ------ ------
Outstanding at January 1, 2002 .... 46,751 $ 9.50
Granted ........................... 8,200 6.75 $ 4.35
Exercised ......................... (3,431) 7.17
Expired ........................... (2,761) 6.88
------ ------ ------
Outstanding and exercisable at
December 31, 2002................. 48,759 9.35
Granted ........................... 8,270 7.75 $ 4.49
Exercised ......................... (2,344) 7.21
Expired ........................... (3,379) 7.34
------ ------ ------
Outstanding and exercisable at
December 31, 2003................. 51,306 9.32
Granted ........................... 8,340 8.89 $ 5.24
Exercised ......................... (3,242) 8.04
Expired ........................... (10,181) 8.68
------ ------ ------
Outstanding and exercisable at
December 31, 2004................. 46,223 $ 9.47
====== ====== ======
The following table sets forth information regarding options at December
31, 2004:
Weighted Average
Range of Number ----------------
Number Exercise Currently Exercise Remaining
of Options Prices Exercisable Price Life (in years)
--------- ---------- ---------- ---------- -----------
35,113 $6.75 - 8.89 35,113 $7.63 6
11,110 12.38 - 18.38 11,110 15.29 5
Defined Contribution Retirement Plans
-------------------------------------
The Company has a deferred profit-sharing plan ("Plan") which covers all of
its employees who are members of its collective bargaining units.
Contributions to the Plan are required in years in which the Company has
income from "railroad operations" as defined in the Plan. Contributions are
to be equal to at least 10% but not more than 15% of the greater of income
before income taxes or income from railroad operations subject to a maximum
contribution of $3.5 per eligible employee. Contributions to the Plan may
be made in cash or in shares of the Company's common stock valued at the
closing market price on the day contributed. Contributions accrued under
this Plan amounted to $188 in 2004 and $119 in 2003. No contributions were
accrued in 2002 since the Company had negative income from operations. The
Company made its 2003 contribution and intends to make its 2004
contribution in newly issued shares of its common stock.
II - 25
The Company also has a Simplified Employee Pension Plan ("SEPP") which
covers substantially all employees who are not members of one of its
collective bargaining units. Contributions to the SEPP are discretionary
and are determined annually as a percentage of each covered employee's
compensation up to the maximum amount allowable by law. Contributions
accrued under the SEPP amounted to $203 in 2004, $204 in 2003 and $203 in
2002 which, in each year, was less than the maximum amount allowable by
law.
Employee Stock Purchase Plan
----------------------------
The Company has an Employee Stock Purchase Plan ("ESPP") under which
eligible employees may purchase registered shares of common stock at 85% of
the market price for such shares. An aggregate of 200,000 shares of common
stock are authorized for issuance under the ESPP which was established in
1997. Any shares purchased under the ESPP are subject to a two year
lock-up. ESPP purchases amounted to 7,439 shares in 2004, 10,665 shares in
2003 and 11,831 shares in 2002.
11. Preferred Stock
The Company's $50 par value preferred stock is convertible into 100 shares
of common stock at the option of the shareholder. The noncumulative stock
dividend is fixed by the Company's Charter at an annual rate of $5.00 per
share, out of funds legally available for the payment of dividends.
The holders of preferred stock and holders of common stock are entitled to
one vote per share, voting as separate classes, upon matters voted on by
shareholders. The holders of common stock elect one third of the Board of
Directors; the voters of preferred stock elect the remainder of the Board.
II - 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
Item 9A. 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 year covered by this annual 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 year that has
materially affected, or is reasonably likely to affect, the Company's internal
control over financial reporting.
Item 9B. Other Information
- --------------------------
None.
II - 27
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
For information with respect to the directors of the Company, see Pages 3
through 6 of the Company's definitive proxy statement for the 2004 annual
meeting of its shareholders, which pages are incorporated herein by reference.
The following are the executive officers of the Company:
Date of First
Name Age Position Election to Office
- ---- --- -------- ------------------
Robert H. Eder 72 Chairman 1980
Orville R. Harrold 72 President 1980
P. Scott Conti 47 Vice President 1999
Robert J. Easton 61 Treasurer 1988
Mary A. Tanona 47 Secretary 2000
All officers hold their respective offices until their successors are duly
elected and qualified. Mr. Conti served as Engineering Manager and then Chief
Engineer of the Company from 1988 until his election as Vice President in 1999.
Ms. Tanona joined the Company as Assistant General Counsel and Assistant
Secretary beginning in 1999. Prior to joining the Company she was Associate
General Counsel of Arbor National Commercial Mortgage Corporation in Boston.
The Company has adopted a written code of ethics that applies to all of its
employees including its Chief Executive Officer and its Chief Financial Officer.
A copy of the Company's code of ethics, entitled "Business Conduct Policy," is
available on the Company's website at http://www.pwrr.com, and/ or may be
obtained without charge by contacting:
Investor Relations
Attention: Wendy Lavely
Providence and Worcester Railroad Company
75 Hammond Street
Worcester, Massachusetts 01610
(800) 447-2003
Internet Address: http://www.pwrr.com; wlavely@pwrr.com
Item 11. Executive Compensation
- -------------------------------
See pages 6 through 9 of the Company's definitive proxy statement for the 2005
annual meeting of its shareholders, which pages are incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
- ---------------------------------------------------------------------------
Related Stockholder Matters
- ---------------------------
See pages 11 and 12 of the Company's definitive proxy statement for the 2005
annual meeting of its shareholders, which pages are incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Not Applicable
Item 14. Principal Accountant Fees and Services
- -----------------------------------------------
See pages 13 and 14 of the Company's definitive proxy statement for the 2005
annual meeting of its shareholders which pages are incorporated herein by
reference.
III - 1
Item 15. Exhibits and Financial Statement Schedules
- ---------------------------------------------------
(a) (1) All financial statements:
An index of financial statements is included in Item 8, page II- 11 of
this annual report
(2) Financial Statement schedule:
Schedule II Valuation and Qualifying AccountsPage III-4
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or the notes thereto.
(3) Listing of Exhibits.
(10A)Material Contracts (incorporated by reference to Exhibit 10 to
the registration statement of the Registrant on Form 10, to the
Non-Qualified Stock Option Plan and Employee Stock Purchase Plan
of the Registrant on Forms S-8 and to the registration statements
of the Registrant on Form S-1).
(23) Consent of Independent Registered Public Accounting Firm
(31) Certifications Pursuant to Section 302 of The Sarbanes-Oxley Act of
2002
(32) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Not applicable.
(c) Exhibits (annexed).
Financial Statement Schedule. See item (a) (2.) above
III - 2
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
/s/ Robert H. Eder
------------------
By Robert H. Eder
Chief Executive Officer
Dated: March 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert H. Eder
________________________ Chief Executive March 28, 2005
Robert H. Eder Officer
and Chairman
(Principal
Executive Officer)
/s/ Orville R. Harrold
________________________ President and March 28, 2005
Orville R. Harrold Director
(Chief Operating
Officer)
/s/ Robert J. Easton
________________________ Treasurer March 28, 2005
Robert J. Easton (Principal financial
officer and principal
accounting officer)
/s/ Richard W. Anderson
________________________ Director March 28, 2005
Richard W. Anderson
/s/ Frank W. Barrett
________________________ Director March 28, 2005
Frank W. Barrett
/s/ J. Joseph Garrahy
________________________ Director March 28, 2005
J. Joseph Garrahy
III - 3
SCHEDULE II
PROVIDENCE AND WORCESTER RAILROAD COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
(IN THOUSAND DOLLARS)
Column A Column B Column C Additions Column D Column E
-------- -------- ------------------ -------- --------
(1) (2)
Balance Charged to Charged to Balance
at costs and other at end
Description beginning expenses accounts Deductions of
of period describe (A) period
Allowance for doubtful
accounts:
Year ended
December 31, 2004..... $125 $ 8 $ 8 $125
==== ==== ==== ====
Year ended
December 31, 2003..... $125 $125
==== ====
Year ended
December 31, 2002..... $125 $125
==== ====
- ---------
(A) Bad debts written off.
III - 4
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement Nos.
333-65937, 333-65949, and 333-21617 of Providence and Worcester Railroad Company
on Form S-8 of our report dated March 25, 2005 relating to the financial
statements and financial statement schedule of Providence & Worcester Railroad
Company, appearing in this Annual Report on Form 10-K of Providence and
Worcester Railroad Company for the year ended December 31, 2004.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 25, 2005
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 annual report on Form 10-K 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 annual 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: March 28, 2005
/s/ Robert H. Eder
By:
______________________________
Robert H. Eder
Chairman of the Board
and Chief Executive Officer
EXHIBIT 31.2
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT J. EASTON certify that:
1. I have reviewed this annual report on Form 10-K 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 annual 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: March 28, 2005
/s/ Robert J. Easton
By:
______________________________
Robert J. Easton
Treasurer and Principal
Financial Officer
EXHIBIT 32
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 Annual Report of Providence and Worcester Railroad
Company (the Company) on form 10-K for the year ended December 31, 2004, 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
March 28, 2005
In connection with the Annual Report of Providence and Worcester Railroad
Company (the Company) on form 10-K for the year ended December 31, 2004, 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
March 28, 2005