Attached files
file | filename |
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EX-32 - EX-32 - PROVIDENCE & WORCESTER RAILROAD CO/RI/ | b87835exv32.htm |
EX-32.1 - EX-32.1 - PROVIDENCE & WORCESTER RAILROAD CO/RI/ | b87835exv32w1.htm |
EX-31.2 - EX-31.2 - PROVIDENCE & WORCESTER RAILROAD CO/RI/ | b87835exv31w2.htm |
EX-31.1 - EX-31.1 - PROVIDENCE & WORCESTER RAILROAD CO/RI/ | b87835exv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - PROVIDENCE & WORCESTER RAILROAD CO/RI/ | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
o | 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
(Exact name of registrant as specified in its charter)
Rhode Island | 05-0344399 | |
(State or other jurisdiction of incorporation or organization) |
I.R.S. Employer Identification No. |
75 Hammond Street, Worcester, Massachusetts | 01610 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (508) 755-4000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such fields). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
As of November 9, 2011, the registrant had 4,830,503 shares of common stock, par value $.50 per
share, outstanding.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Index to Quarterly Report on Form 10-Q
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Part I Financial Information
Item 1. Financial Statements
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CONDENSED BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 515 | $ | 1,517 | ||||
Receivables: |
||||||||
Trade receivable, net of allowance for doubtful
accounts of $55 in 2011 and 2010 |
3,638 | 2,849 | ||||||
Note receivable, less allowance of $60 in 2011 and 2010 |
309 | 37 | ||||||
Materials and supplies |
634 | 552 | ||||||
Prepaid expenses and other current assets |
600 | 382 | ||||||
Deferred income taxes |
240 | 240 | ||||||
Total Current Assets |
5,936 | 5,577 | ||||||
Note receivable, less current portion |
| 347 | ||||||
Property and Equipment, net |
84,309 | 79,595 | ||||||
Land Held for Development |
12,457 | 12,457 | ||||||
Total Assets |
$ | 102,702 | $ | 97,976 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Borrowings under line of credit |
$ | 400 | $ | 900 | ||||
Current portion of long term debt |
118 | | ||||||
Accounts payable |
3,941 | 3,029 | ||||||
Accrued expenses |
1,551 | 1,751 | ||||||
Total Current Liabilities |
6,010 | 5,680 | ||||||
Long term debt, net of current portion |
3,852 | | ||||||
Deferred Income Taxes |
12,391 | 11,596 | ||||||
Deferred Grant Income |
7,865 | 8,063 | ||||||
Other |
39 | 40 | ||||||
Commitments and Contingent Liabilities |
||||||||
Shareholders Equity: |
||||||||
Preferred stock, 10% noncumulative, $50 par value;
authorized, issued and outstanding 640 shares in 2011
and 2010 |
32 | 32 | ||||||
Common stock, $.50 par value; authorized 15,000,000
shares; issued and outstanding 4,830,503 shares in
2011 and 4,822,650 shares in 2010 |
2,415 | 2,411 | ||||||
Additional paid-in capital |
37,247 | 37,045 | ||||||
Retained earnings |
32,851 | 33,109 | ||||||
Total Shareholders Equity |
72,545 | 72,597 | ||||||
Total Liabilities and Shareholders Equity |
$ | 102,702 | $ | 97,976 | ||||
The accompanying notes are an integral part of the financial statements.
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Operating Revenues |
$ | 8,321 | $ | 7,467 | $ | 22,945 | $ | 21,244 | ||||||||
Other Income |
1,380 | 286 | 1,860 | 697 | ||||||||||||
Total Revenues |
9,701 | 7,753 | 24,805 | 21,941 | ||||||||||||
Operating Expenses: |
||||||||||||||||
Maintenance of way and structures |
999 | 1,017 | 3,016 | 3,688 | ||||||||||||
Maintenance of equipment |
921 | 865 | 2,944 | 2,426 | ||||||||||||
Transportation |
2,671 | 2,141 | 8,054 | 6,618 | ||||||||||||
General and administrative |
1,216 | 1,471 | 3,850 | 4,062 | ||||||||||||
Depreciation |
817 | 776 | 2,392 | 2,328 | ||||||||||||
Taxes, other than income taxes |
606 | 577 | 1,755 | 1,807 | ||||||||||||
Car hire, net |
230 | 238 | 820 | 612 | ||||||||||||
Employee retirement plans |
59 | 60 | 182 | 173 | ||||||||||||
Track usage fees |
200 | 198 | 585 | 449 | ||||||||||||
Total Operating Expenses |
7,719 | 7,343 | 23,598 | 22,163 | ||||||||||||
Operating income (Loss) before Income Taxes |
1,982 | 410 | 1,207 | (222 | ) | |||||||||||
Interest expense |
40 | 9 | 56 | 38 | ||||||||||||
Income (loss) from operations prior to
income taxes |
1,942 | 401 | 1,151 | (260 | ) | |||||||||||
Provision for Income Taxes (Benefit) |
360 | 171 | 825 | (67 | ) | |||||||||||
Net Income (Loss) |
1,582 | 230 | 326 | (193 | ) | |||||||||||
Preferred Stock Dividends |
| | 3 | 3 | ||||||||||||
Net Income (Loss) Available to Common
Shareholders. |
$ | 1,582 | $ | 230 | $ | 323 | $ | (196 | ) | |||||||
Basic and Diluted Income (Loss) Per Common
Share |
$ | .32 | $ | .05 | $ | .07 | $ | (.04 | ) | |||||||
Weighted-Average Common Shares Outstanding: |
||||||||||||||||
For basic |
4,828,286 | 4,818,312 | 4,826,126 | 4,816,276 | ||||||||||||
For diluted |
4,897,901 | 4,888,517 | 4,898,442 | 4,816,276 | ||||||||||||
The accompanying notes are an integral part of the financial statements.
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income (loss) |
$ | 326 | $ | (193 | ) | |||
Adjustments to reconcile the net income (loss) to cash flows
from operating activities: |
||||||||
Depreciation |
2,392 | 2,328 | ||||||
Amortization of deferred grant income |
(198 | ) | (194 | ) | ||||
(Gains) losses from sale and disposal of property,
equipment and easements |
(1,921 | ) | 350 | |||||
Note receivable |
| (486 | ) | |||||
Deferred income tax benefit |
807 | (98 | ) | |||||
Share-based compensation |
113 | 94 | ||||||
Increase (decrease) in cash from: |
||||||||
Trade receivable |
(789 | ) | (542 | ) | ||||
Materials and supplies |
(82 | ) | 177 | |||||
Prepaid expenses and other |
(218 | ) | (208 | ) | ||||
Accounts payable and accrued expenses |
308 | 539 | ||||||
Net cash flows from operating activities |
738 | 1,767 | ||||||
Cash flows from Investing Activities: |
||||||||
Purchase of property and equipment |
(6,715 | ) | (1,732 | ) | ||||
Proceeds from note receivable |
75 | 10 | ||||||
Proceeds from sale of property, equipment and easements |
1,921 | 350 | ||||||
Net cash flows used in investing activities |
(4,719 | ) | (1,372 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Borrowings (payments) under line of credit |
(500 | ) | 1,000 | |||||
Proceeds from long term debt |
4,000 | | ||||||
Repayments of long term debt |
(30 | ) | | |||||
Dividends paid |
(584 | ) | (582 | ) | ||||
Issuance of common shares for stock options exercised
and employee stock purchases |
93 | 52 | ||||||
Net cash flows from financing activities |
2,979 | 470 | ||||||
Increase (decrease) in Cash and Cash Equivalents |
(1,002 | ) | 865 | |||||
Cash and Cash Equivalents, Beginning of Period |
1,517 | 157 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 515 | $ | 1,022 | ||||
Supplemental Disclosures: |
||||||||
Cash paid for interest |
$ | 104 | $ | 37 | ||||
Property and equipment included in accounts payable
and accrued expenses |
$ | 391 | $ | | ||||
The accompanying notes are an integral part of the financial statements.
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
(Dollars in Thousands Except Per Share Amounts)
1. | In the opinion of management, the accompanying interim financial statements of Providence and Worcester Railroad Company (the Company) contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2011, the results of operations for the three and nine months ended September 30, 2011 and 2010 and cash flows for the nine months ended September 30, 2011 and 2010. Results for interim periods may not be necessarily indicative of the results to be expected for the full year. These interim financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission. |
Certain amounts in the 2010 financial statements have been reclassified to conform with the current presentation. |
2. | Recent Accounting Pronouncements: | |
The Company reviews new accounting standards as issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any standards that it believes merit further discussion. The Company expects none of the recent accounting pronouncements will have a significant impact on its financial statements. |
3. | Note Receivable and Subsequent Event: | |
In conjunction with a settlement agreement with an existing customer, the Company accepted an unsecured promissory note in the face amount of $486 thousand, whereby the Company receives monthly installments of $10 thousand including interest at 3.91% through January 2015, the maturity date. In October 2011, the customer and the Company agreed to settle the remaining amounts outstanding for $300 thousand. The Company received payment of $300 thousand in October 2011, and executed a release concurrently. |
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited)(Continued)
(Dollars in Thousands Except Per Share Amounts)
(Dollars in Thousands Except Per Share Amounts)
4. | Changes in Shareholders Equity: |
Additional | Total | |||||||||||||||||||
Preferred | Common | Paid-in | Retained | Shareholders | ||||||||||||||||
Stock | Stock | Capital | Earnings | Equity | ||||||||||||||||
Balance December 31, 2010 |
$ | 32 | $ | 2,411 | $ | 37,045 | $ | 33,109 | $ | 72,597 | ||||||||||
Issuance of 7,082 common shares
for stock options exercised,
employee stock purchases and
employee stock awards |
4 | 100 | 104 | |||||||||||||||||
Share-based compensation,
options granted |
102 | 102 | ||||||||||||||||||
Dividends: |
||||||||||||||||||||
Preferred stock, $5.00 per share |
(3 | ) | (3 | ) | ||||||||||||||||
Common stock, $.12 per share |
(581 | ) | (581 | ) | ||||||||||||||||
Net income for the period |
326 | 326 | ||||||||||||||||||
Balance September 30, 2011 |
$ | 32 | $ | 2,415 | $ | 37,247 | $ | 32,851 | $ | 72,545 | ||||||||||
5. | Debt: |
Revolving Line of Credit |
In June 2011, the Company extended its revolving line of credit facility in the amount of $5 million from a commercial bank. The line of credit facility matures on June 25, 2013. Borrowings under this line of credit are unsecured, due on demand and bear interest at either the banks prime rate or one and three-quarters percent over the thirty, sixty or ninety day London Interbank Offered Rate (LIBOR) with a LIBOR floor of one and one-quarter percent. The Company pays no commitment fee on this line of credit and has no compensating balance requirements. It is subject to financial and non-financial covenants including maintenance of a minimum net worth and restrictions on the incurrence of additional indebtedness, as well as the sale or encumbrance of its assets. At September 30, 2011, $400 thousand was outstanding under this line of credit. |
Long term debt |
In December 2010, the Company entered into an unsecured loan agreement with the same commercial bank as the revolving line of credit in order to borrow up to $4 million for rehabilitation of the Willimantic Branch (Construction Loan). The Construction Loan requires payments of interest only for the first six months accruing at the banks prime rate. After the initial six month period, the Construction Loan converted to a 10 year term loan with a 20 year amortization period and bears interest at the Federal Home Loan Bank of Boston 5/20 rate plus 3% (5.18% as of the conversion date). The Company has the right to prepay the balance or any part thereof out of internally-generated funds without penalty. No amounts were outstanding as of December 31, 2010. The outstanding balance of the Construction Loan converted to a term loan under the terms stated above during June 2011 and the first payment on the term loan was made during July 2011. The Construction Loan is subject to financial and non-financial covenants, including maintenance of minimum net worth and minimum debt service coverage. |
The carrying value of the Companys debt facilities approximated its fair value at September 30, 2011 which was estimated using current borrowing rates available to the Company. |
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited)(Continued)
(Dollars in Thousands Except Per Share Amounts)
(Dollars in Thousands Except Per Share Amounts)
6. | Other Income: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Gains (losses) from sale and
disposal of property,
equipment and easements, net |
$ | | $ | (350 | ) | $ | 1 | $ | (350 | ) | ||||||
Proceeds from legal settlement |
1,242 | | 1,242 | | ||||||||||||
Rentals |
77 | 147 | 431 | 497 | ||||||||||||
Interest |
5 | | 12 | 1 | ||||||||||||
Other |
56 | 489 | 174 | 549 | ||||||||||||
$ | 1,380 | $ | 286 | $ | 1,860 | $ | 697 | |||||||||
The Company received $1.2 million in July 2011 for settlement of certain legal proceedings and the grant of a permanent easement. |
7. | Track Maintenance Agreement: |
In the second quarter of 2011, the Company entered into a track maintenance agreement with an unrelated third party customer (Shipper). The Shipper paid for qualifying railroad track maintenance expenditures during 2011 in consideration of the assignment of railroad track miles which permits the Shipper to claim certain federal tax credits pursuant to Internal Revenue Code Section 45G. During 2011, the Company received $869 thousand, net of related expenses and credits, which offsets maintenance of way expenses. Since the authorizing federal legislation for 2010 track maintenance credits was not renewed by Congress until December 2010, no amounts were received during the three and nine months ended September 30, 2010 for 2010 track maintenance credits. |
8. | Income (Loss) per Common Share: |
Basic income (loss) per common share is computed using the weighted-average number of common shares outstanding during each period. Diluted income (loss) per common share reflects the effect of the Companys outstanding convertible preferred stock and stock options except where such items would be antidilutive. |
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited)(Continued)
(Dollars in Thousands Except Per Share Amounts)
(Dollars in Thousands Except Per Share Amounts)
A reconciliation of weighted-average shares used for the basic computation and that used for the diluted computation is as follows: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted-average shares for basic |
4,828,286 | 4,818,312 | 4,826,126 | 4,816,276 | ||||||||||||
Dilutive effect of convertible
preferred stock and stock options |
69,615 | 70,205 | 72,316 | | ||||||||||||
Weighted-average shares for diluted |
4,897,901 | 4,888,517 | 4,898,442 | 4,816,276 | ||||||||||||
Options to purchase 59,244 shares of common stock were outstanding for the three and nine-month periods ended September 30, 2011. Options to purchase 55,952 shares of common stock were outstanding for the three and nine-month periods ended September 30, 2010. For the three month periods ended September 30, 2011 and 2010, 5,615 and 6,205 of outstanding options to purchase common shares were included in the computation of diluted earnings per share (EPS). The remaining outstanding options to purchase common stock were not included in the computation of diluted EPS because the options exercise price was greater than the average market prices of the Companys common stock. | ||
For the nine month period ended September 30, 2011, 8,316 of outstanding options to purchase common shares were included in the computation of diluted earnings per share (EPS). The remaining outstanding options to purchase common stock were not included in the computation of diluted EPS because the options exercise price was greater than the average market prices of the Companys common stock. The options, which expire at various times, were still outstanding at September 30, 2011. | ||
Preferred stock convertible into 64,000 shares of common stock was outstanding for the three and nine-month periods ended September 30, 2011 and 2010. For the three month periods ended September 30, 2011 and 2010 and for the nine month period ended September 30, 2011, 64,000 shares of the Companys common stock were included in the diluted EPS. For the nine month period ended September 30, 2010, the 64,000 shares of the Companys common stock were not included as the effect would be anitdilutive. |
9. | Commitments and Contingent Liabilities: |
The Company is a defendant in certain lawsuits relating to casualty losses, many of which are covered by insurance subject to a deductible. The Company believes that adequate provision has been made in the financial statements for any expected liabilities which may result from disposition of such lawsuits. | ||
On January 29, 2002, the Company received a Notice of Potential Liability from the United States Environmental Protection Agency (EPA) regarding an existing Superfund Site (the 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 |
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited) (Continued)
(Dollars in Thousands Except Per Share Amounts)
(Dollars in Thousands Except Per Share Amounts)
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 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). 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. 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. | ||
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 was one of about sixty parties named by Plaintiffs, in this suit, to recover response costs incurred in investigating and responding to the releases of hazardous substances at the Site. Plaintiffs alleged that the Company is liable under 42 U.S.C. § 961(a)(3) of CERCLA as an arranger or generator of waste that ended up at the Site. The Company 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 paid $45 thousand to settle this suit in March 2006. |
10. | Dividends: |
On October 26, 2011, the Company declared a dividend of $.04 per share on its outstanding Common Stock payable November 23, 2011 to shareholders of record on November 9, 2011. |
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
ITEM 2- | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The statements contained in Managements 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 Companys 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 managements 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 Companys significant accounting policies are described in Note 1 of the Notes to Financial
Statements in its Annual Report on Form 10-K. Not all of these significant accounting policies
require management to make difficult, subjective or complex judgments or estimates. We continue to
monitor our accounting policies to ensure proper application of current rules and regulations.
There have been no significant changes to these policies as discussed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2010.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, including, without
limitations, statements concerning the conditions in our industry and our operations, economic
performance and financial condition, including, in particular, statements relating to our business
and strategy. The words may, might, should, estimate, project, plan, anticipate,
expect, intend, outlook, believe, and other similar expressions are intended to identify
forward-looking statements and information although not all forward-looking statements include
these identifying words. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. These forward-looking statements are based on
estimates and assumptions by our management that, although we believe to be reasonable, are
inherently uncertain and subject to a number of risks and uncertainties.
In particular, our business might be affected by uncertainties affecting the railroad and
transportation industry generally as well as the following, among other factors:
| general economic, financial and political conditions, including downturns affecting the railroad industry and credit markets; | ||
| our ability to comply with financial and non-financial covenants contained in our revolving line of credit and long term debt; | ||
| limitations and restrictions on the operation of our business contained in the documents governing our indebtedness; | ||
| increases in transportation costs, including fuel prices, which in some instances may not be passed on to customers; | ||
| competitive pressures, including changes in competitors pricing; | ||
| our ability to generate cash flows to invest in the operation of our business; | ||
| our dependence upon our key customers, executives and other key employees and our ability to renegotiate our union contracts. |
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Recent Accounting Pronouncements
The Company reviews new accounting standards as issued. Although some of these accounting
standards may be applicable to the Company, the Company has not identified any standards that it
believes merit further discussion. The Company expects none of the recent accounting
pronouncements will have a significant impact on its financial statements.
Results of Operations
The following table sets forth the Companys operating revenues by category in dollars and as a
percentage of operating revenues:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||||||||||||||
Freight Revenues: |
||||||||||||||||||||||||||||||||
Conventional carloads |
$ | 7,791 | 93.6 | % | $ | 7,133 | 95.5 | % | $ | 21,130 | 92.1 | % | $ | 19,624 | 92.4 | % | ||||||||||||||||
Containers |
179 | 2.2 | 208 | 2.8 | 570 | 2.5 | 515 | 2.4 | ||||||||||||||||||||||||
Other freight related |
152 | 1.8 | 54 | 0.7 | 485 | 2.1 | 431 | 2.0 | ||||||||||||||||||||||||
Other Operating
Revenues |
199 | 2.4 | 72 | 1.0 | 760 | 3.3 | 674 | 3.2 | ||||||||||||||||||||||||
Total |
$ | 8,321 | 100.0 | % | $ | 7,467 | 100.0 | % | $ | 22,945 | 100.0 | % | $ | 21,244 | 100.0 | % | ||||||||||||||||
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The following table sets forth a comparison of the Companys operating expenses expressed in
dollars and as a percentage of operating revenues:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||||||||||||||
Salaries, wages,
payroll taxes and
employee benefits |
$ | 4,097 | 49.2 | % | $ | 4,147 | 55.5 | % | $ | 11,994 | 52.3 | % | $ | 11,811 | 55.6 | % | ||||||||||||||||
Casualties and
insurance |
214 | 2.6 | 119 | 1.6 | 524 | 2.3 | 710 | 3.3 | ||||||||||||||||||||||||
Depreciation |
817 | 9.8 | 776 | 10.4 | 2,392 | 10.4 | 2,328 | 11.0 | ||||||||||||||||||||||||
Diesel fuel |
911 | 10.9 | 626 | 8.4 | 3,026 | 13.2 | 1,896 | 8.9 | ||||||||||||||||||||||||
Car hire, net |
230 | 2.8 | 238 | 3.2 | 820 | 3.6 | 612 | 2.9 | ||||||||||||||||||||||||
Purchased services,
including legal and
professional fees |
860 | 10.3 | 792 | 10.6 | 2,336 | 10.2 | 1,951 | 9.2 | ||||||||||||||||||||||||
Repair and
maintenance of
equipment |
204 | 2.5 | 276 | 3.7 | 899 | 3.9 | 848 | 4.0 | ||||||||||||||||||||||||
Track and signal
materials |
798 | 9.6 | 353 | 4.7 | 1,225 | 5.3 | 1,084 | 5.1 | ||||||||||||||||||||||||
Track usage fees |
200 | 2.4 | 198 | 2.6 | 585 | 2.5 | 449 | 2.1 | ||||||||||||||||||||||||
Other materials and
supplies |
289 | 3.5 | 288 | 3.9 | 895 | 3.9 | 634 | 3.0 | ||||||||||||||||||||||||
Other |
492 | 5.9 | 429 | 5.7 | 1,546 | 6.7 | 1,404 | 6.6 | ||||||||||||||||||||||||
Total |
9,112 | 109.5 | 8,242 | 110.3 | 26,242 | 114.3 | 23,727 | 111.7 | ||||||||||||||||||||||||
Less capitalized
and recovered costs |
1,393 | 16.7 | 899 | 12.0 | 2,644 | 11.5 | 1,564 | 7.4 | ||||||||||||||||||||||||
Total |
$ | 7,719 | 92.8 | % | $ | 7,343 | 98.3 | % | $ | 23,598 | 102.8 | % | $ | 22,163 | 104.3 | % | ||||||||||||||||
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010
Operating Revenues:
Operating revenues increased $1.7 million, or 8%, to $22.9 million in the nine months ended
September 30, 2011 from $21.2 million in 2010. This increase is the result of a $1.5 million
(7.7%) increase in conventional freight revenues, a $55,000 (10.7%) increase in container freight
revenues, a $54,000 (12.5%) increase in other freight-related revenues, and an $86,000 (12.8%)
increase in other operating revenues.
The increase in conventional freight revenues results from a 1.4% rise in traffic volume and a 6.3%
increase in the average revenue received per conventional carloading. The Companys conventional
carloadings increased by 357 to 26,395 in the nine-month period ended September 30, 2011 from
26,038 in 2010.
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The number of shipments of most commodities handled by the Company was relatively constant
except for increases in automobile shipments during the first nine months of 2011. There was a decrease
in coal shipments due to a power plant customer being offline during a substantial portion of the
period. The increase in the average revenue received per conventional carloading is due to a shift
in the mix of commodities, as well as some rate changes.
The increase in container freight revenues is the result of a 4.7% increase in traffic volume and a
4.9% increase in the average revenue received per container. Container traffic volume increased by
373 to 8,251 in the first nine months of 2011 from 7,878 containers in 2010. This increase in
traffic, along with improved economic conditions, contributed to the increase in the average
revenue received per container.
The increase in other freight-related revenues and other operating revenues result primarily from
overall increase in the number of shipments handled by the Company.
Other Income:
Other income increased
by $1,163 million to $1.86 million in the nine-month period ended September 30,
2011 from $697,000 in 2010. The settlement of certain legal proceedings and the granting of a
permanent easement for $1.2 million account for the increase.
Operating Expenses:
Operating expenses for the nine-month period ended September 30, 2011 increased by
$1.4 million, or
6.5%, to $23.6 million from $22.2 million in 2010. The increase was mainly caused by higher diesel
fuel prices and usage ($1.1 million), maintenance of way costs which were offset by tax maintenance credits ($869
thousand) and scrap recoveries ($500 thousand), repair parts for
maintenance of equipment ($350 thousand), car hire
expenses ($208 thousand), and track usage fees ($136 thousand), which were all associated with changes in the traffic mix, volume
and routing.
Interest Expense
Interest expense increased due to the long term debt the Company incurred in order to complete
improvements to the Companys Willimantic Branch.
Provision for Income Tax Benefit/Expense:
The income tax benefit for the nine months ended September 30, 2011 is equal to 72% of the
Companys pre-tax income. This effective rate reflects the
federal income tax rate increased by the
effect of non-deductible expenses and by the allowance against tax credit carryovers that
are reserved based upon the reversal pattern of the Companys deferred tax assets and liabilities.
Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010
Operating Revenues:
Operating revenues increased $854,000, or 11.4%, to $8.3 million in the third quarter of 2011 from
$7.5 million in the third quarter of 2010. The increase is the result of a $658,000 (9.2%)
increase in conventional freight revenues, a $98,000 (181.5%) increase in other freight related
revenue, and a $127,000 (176%) increase in other operating revenues, offset by a $29,000 (13.9%) decrease
in container freight revenues.
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The increase in conventional freight revenues is attributable to a 13.5% increase in the average
revenue received per conventional carloading, offset by a 2.8% decrease in conventional traffic
volume.
Conventional carloading decreased by 283 to 9,949 in the third quarter of 2011 from 9,773 in the
third quarter of 2010. The reasons for the increase in average revenue received per carloading and
the decrease in conventional traffic volume are the same as for the nine-month period ended
September 30, 2011, as previously discussed.
The decrease in container freight revenues for the quarter is the result of a 16.8% decrease
traffic volume and a 65.5% decrease in the average revenue received per container. Container
traffic volume decreased by 523 to 2,592 in the third quarter of 2011 from 3,115 in the third
quarter of 2010. The reason for the decrease in container traffic volume is a shift in the traffic
pattern to utilize water-based routes.
The reason for the increase in other freight-related revenues is the same as for the nine-month
period ended September 30, 2011, as previously discussed.
Other Income:
Other income increased by $1.1 million to $1.4 million in the third quarter of 2011 from $286,000
in the third quarter 2010. The settlement of certain legal proceedings and the granting of a
permanent easement for $1.2 million account for the increase.
Operating Expenses:
Operating
expenses for the third quarter of 2011
increased by $376 thousand, or 5.1%, to $7.7 million
from $7.3 million in the third quarter of 2010. The principal reasons for this overall increase in
costs were associated with the rise of traffic volume as previously discussed for the nine-month
period ended September 30, 2011.
Interest Expense
Interest expense increased due to the long term debt the Company incurred in order to complete
improvements along the Companys Willimantic Branch.
Provision for Income Tax Benefit/Expense:
The income tax provision for the third quarter of 2011 is equal to 19% of pre-tax income for
reasons discussed for the nine-month period ended September 30, 2011.
Liquidity and Capital Resources
During the nine months ended September 30, 2011, the Company generated $738,000 of cash from
operating activities. The Company utilized cash of approximately $4.7 million, the majority of
which related to the improvement of the Willimantic Branch. The Company funded the majority of
this capital improvement project with its $4 million long term debt obligation and from operating
cash flows.
The long term debt requires monthly payments of principal and interest of approximately $30
thousand.
On October 26, 2011, the Company declared a quarterly dividend of approximately $193 thousand ($.04
per common share) to be paid on November 23, 2011. The declaration of future dividends and the
amount thereof will depend on the Companys future earnings, financial factors and other events.
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The Company assigned, in the second quarter of 2011, its federal income tax credit under Internal
Revenue Code Section 45G to a qualified shipper under substantially similar terms and conditions as
it
has done in prior years. Net cash proceeds were $869 thousand. The Company expects to assign the
remainder of its credits during the fourth quarter of 2011.
The Companys $5 million revolving line of credit expires June 25, 2013. As of September 30, 2011,
$4.6 million remained available.
During October 2011, the Company received $300,000 in full settlement of the outstanding note
receivable obligation due to the Company. Concurrent with receipt of the funds accepted in
satisfaction of the note receivable, the Company released the customer from its obligations under
the promissory note.
Seasonality
Historically, the Companys operating revenues are lowest for the first quarter due to the absence
of construction aggregate shipments during a portion of this period and due to winter weather
conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Cash and Equivalents
As of September 30, 2011, the Company is exposed to market risks which primarily include changes in
U.S. interest rates and the purchase price of diesel fuel.
The Companys revolving line of credit agreement provides for borrowings which bear interest at
variable rates based on either prime rate or one and three- quarters percent over the thirty, sixty
or ninety day London Interbank Offered Rates (LIBOR) with a LIBOR floor of one and one-quarter
percent. The Company pays no commitment fee on this line, and has no compensating balance
requirements. The Companys Construction Loan provides a 10 year loan with a 20 year amortization
period bearing interest at 5.18%. The Company has the right to prepay the balance or any part
thereof out of internally-generated funds without penalty. The Company had no borrowings
outstanding pursuant to the Construction Loan at December 31, 2010. The Company believes that the
effect, if any, of reasonably possible near-term changes in interest rates on the Companys
financial position, results of operations, and cash flows should not be material.
The Company purchases in excess of one million gallons of diesel fuel each year to operate its
locomotives. Fuel prices and supplies are influenced significantly by political and economic
circumstances. Fuel shortages or price volatility could continue to increase our fuel costs and
adversely affect our results of operations.
Inflation
In recent
years, with the exception of the cost for diesel fuel, inflation has not had a significant impact on the Companys operations.
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Item 4. Controls and Procedures
Management with the participation of the Companys Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in rule
13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) as of September 30, 2011.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that,
as of September 30, 2011, our disclosure controls and procedures were not effective at the
reasonable assurance level due to the material weakness described below.
As discussed in Part II, Item 9 Controls and Procedures of our Annual Report on Form 10-K for the
year ended December 31, 2010, we identified a material weakness in our internal control over
financial reporting because we did not maintain effective controls over the accounting for income
taxes, including the determination and reporting of deferred income taxes and the related income
tax provision. Specifically, we did not have adequate personnel and other resources to enable us
to (i) properly consider and apply U.S. generally accepted accounting principles providing guidance
over accounting for income taxes, and (ii) review and monitor the accuracy and completeness of the
components of the income tax provision calculations and the related deferred taxes. In addition,
until remediated, this material weakness could result in a misstatement described above that would
result in a material misstatement to our interim or annual financial statements and disclosures
that would not be prevented or detected.
As of September 30, 2011, we have not yet completely remediated the material weakness in our
internal control over financial reporting with respect to our processes to accurately report our
income tax provision as discussed above. Since the material weakness has been identified, we have
undertaken an evaluation of our available resources deployed for the accounting for income taxes
and have identified necessary changes to our processes and our allocation of resources as required.
Other than as described in this Item 4, there have been no significant changes in our internal
control over financial reporting identified in connection with the evaluation of such internal
control that occurred during our last fiscal quarter, which have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
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PART II Other Information
Item 5. | Other information | |
None. |
Item 6. | Exhibits |
(31.1)
|
Rule 13a-14(a) Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
(31.2)
|
Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
(32)
|
Certifications of Chairman of the Board and Chief Executive Officer and Treasurer and Principal Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
(32.1)
|
Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | |
101
|
The following financial information from the Companys Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2011, filed with the Securities and Exchange Commission on August 12, 2011, formatted in eXtensible Business Reporting Language: | |
(i)
|
Balance Sheets as of September 30, 2011 and December 31, 2010; | |
(ii)
|
Statements of Operations for the Three and Nine Months ended September 30, 2011 and 2010; | |
(iii)
|
Statements of Cash Flows for the Nine Months ended September 30, 2011 and 2010; and | |
(iv)
|
Notes to Financial Statements. |
| This exhibit will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C.78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that the Company specifically incorporates it by reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROVIDENCE AND WORCESTER RAILROAD COMPANY |
||||
By: | /s/ Robert H. Eder | |||
Robert H. Eder | ||||
Chairman of the Board and Chief Executive Officer | ||||
By: | /s/ Daniel T. Noreck | |||
Daniel T. Noreck | ||||
Treasurer and Chief Financial Officer | ||||
DATED:
November 14, 2011
19