Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Form 10-Q/A

(Amendment No. 1)

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

 

¨	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)

Registrant’s telephone number, including area code (508) 755-4000

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate 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  x    No  ¨

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		¨		Accelerated filer		¨
Non-accelerated filer		¨  (do not check if a smaller reporting company)		Smaller reporting company		x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 1, 2012, the registrant has 4,837,973 shares of common stock, par value $.50 per share, outstanding.

 

 

 

---

Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

Explanatory Note

This Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) amends and restates the Quarterly Report on Form 10-Q of Providence and Worcester Railroad Company (the “Company”) for the quarter ended June 30, 2012, as originally filed with the Securities and Exchange Commission (the “SEC”) on August 13, 2012 (the “Original Filing”). This Form 10-Q/A is being filed to restate the Company’s financial statements in Item 1 and related disclosures (including certain amounts and disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2) for the three and six-month periods ended June 30, 2012, as discussed in Note 13 to the financial statements included in Item 1. The Company’s financial statements included in the Original Filing reflected $3.2 million of other income from settlement of the Amtrak Agreement for the quarter ended June 30, 2012. The Company’s financial statements included in the Original Filing also reflected $3.2 million of other income from the settlement of the Amtrak Agreement for the six-month periods ended June 30, 2012. The Company has determined that the Amtrak Agreement should have been presented as a reduction of operating expenses. Additionally, the Company reduced related accounts receivable and deferred revenue recorded in conjunction with the Amtrak Agreement in the amount of $2.4 million. The Company also increased property and equipment $684 thousand as a result of the Amtrak Agreement. As a result, in this Form 10-Q/A, the Company is restating its financial statements and related disclosures to recognize a reduction of both other income and operating expenses for the three and six-month periods ended June 30, 2012 for this item and its balance sheet at June 30, 2012. Such adjustments have no impact on operating income, net income or net cash flows.

In connection with this restatement, the Company also chose to correct classification errors within other income that were immaterial individually and in the aggregate. These classification changes moved income previously included within revenues to other income below operating income for the three and six months ended June 30, 2012 and 2011. Such amounts were $23 thousand and $97 thousand for the three months ended June 30, 2012 and 2011, respectively and $26 thousand and $126 thousand for the six months ended June 30, 2012 and 2011, respectively.

Although this Form 10-Q/A supersedes the Original Filing in its entirety, this Form 10-Q/A only amends and restates Items 1 and 2 solely as a result of, and to reflect the restatement and classification adjustments referred to above, and no other information in the Original Filing is amended hereby. While the foregoing items have been updated, this amended report does not reflect any other events occurring after the Original Filing. In addition, currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, are attached to this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively.

 

2

---

Table of Contents

Index to Quarterly Report on Form 10-Q

 

Part I – Financial Information
Item 1 –Financial Statements (Unaudited):
Condensed Balance Sheets – June 30, 2012 and December 31, 2011		4
Condensed Statements of Operations – Three and Six Months Ended June 30, 2012 and 2011		5
Condensed Statements of Cash Flows – Six Months Ended June 30, 2012 and 2011		6
Notes to Condensed Financial Statements		7-13
Item  2 –Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-19
Item 4 –Controls and Procedures		19
Part II – Other Information:
Item 5 –Other Information		20
Item 6 -Exhibits		20
Signatures		21

 

3

---

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1 - Financial Statements

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED BALANCE SHEETS (Unaudited)

(Dollars in Thousands Except Per Share Amounts)

 

		JUNE 30, 2012				DECEMBER 31, 2011
ASSETS
Current Assets:
Cash and cash equivalents		$	4,043			$	3,943
Accounts receivable, net of allowance for doubtful accounts of $115 in 2012 and 2011			3,469				3,570
Materials and supplies			689				842
Prepaid expenses and other current assets			—				412
Deferred income taxes			291				291
Total Current Assets			8,492				9,058
Property and Equipment, net			86,029				84,676
Land Held for Development			12,457				12,457
Total Assets		$	106,978			$	106,191
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of long term debt		$	123			$	120
Accounts payable			3,938				4,046
Current portion of deferred grant and other revenue			330				111
Accrued expenses			1,741				2,327
Total Current Liabilities			6,132				6,604
Long term debt, net of current portion			3,759				3,821
Deferred Income Taxes			11,723				12,290
Deferred Grant Income and Other Revenue			10,433				10,487
Shareholders’ Equity:
Preferred stock, 10% noncumulative, $50 par value; authorized, issued and outstanding 640 shares in 2012 and 2011			32				32
Common stock, $.50 par value; authorized 15,000,000 shares; issued and outstanding 4,837,973 shares in 2012 and 4,833,012 shares in 2011			2,419				2,417
Additional paid-in capital			37,402				37,271
Retained earnings			35,078				33,269
Total Shareholders’ Equity			74,931				72,989
Total Liabilities and Shareholders’ Equity		$	106,978			$	106,191

The accompanying notes are an integral part of the condensed financial statements.

 

4

---

Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in Thousands except Per Share Amounts)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Operating Revenues		$	8,354			$	7,960			$	15,133			$	14,978
Operating Expenses:
Maintenance of way and structures			(1,241	)			182				200				2,017
Maintenance of equipment			945				993				1,841				2,023
Transportation			2,557				2,753				5,106				5,384
General and administrative			1,141				1,323				2,362				2,636
Depreciation			834				788				1,662				1,575
Taxes, other than income taxes			841				565				1,514				1,148
Car hire, net			257				365				492				590
Employee retirement plans			54				65				108				123
Track usage fees			(134	)			183				114				386
Total Operating Expenses			5,254				7,217				13,399				15,882
Operating Income (Loss) before Interest and Income Taxes			3,100				743				1,734				(904	)
Other income			23				97				26				126
Interest expense			(53	)			(7	)			(106	)			(15	)
Income (Loss) from operations before Income Taxes			3,070				833				1,654				(793	)
Income Tax Provision (Benefit)			(29	)			5				(545	)			465
Net Income (Loss)			3,099				828				2,199				(1,258	)
Preferred Stock Dividends			—				—				3				3
Net Income (Loss) Attributable to Common Shareholders		$	3,099			$	828			$	2,196			$	(1,261	)
Income (Loss) Per Common Share:
Basic		$	.64			$	.17			$	.45			$	(.26	)
Diluted		$	.63			$	.17			$	.44			$	(.26	)
Weighted-Average Common Shares Outstanding:
For basic			4,833,640				4,818,415				4,833,640				4,818,415
For diluted			4,905,461				4,891,443				4,904,371				4,818,415

The accompanying notes are an integral part of the condensed financial statements.

 

5

---

Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in Thousands)

 

		Six Months Ended June 30,
		2012				2011
Cash Flows from Operating Activities:
Net income (loss)		$	2,199			$	(1,258	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation			1,662				1,575
Non-cash component of Amtrak Agreement			(1,108	)			—
Amortization of deferred grant income			(280	)			(132	)
Proceeds from deferred grant and other income			199				—
Deferred income taxes benefit			(567	)			447
Proceeds from sale of property			(181	)			—
Share-based compensation			65				102
Increase (decrease) in cash from:
Accounts receivable			101				(1,025	)
Materials and supplies			153				17
Prepaid expenses and other current assets			412				370
Accounts payable and accrued expenses			(870	)			1,008
Net cash flows from operating activities			1,785				1,104
Cash flows from Investing Activities:
Purchase of property and equipment			(1,730	)			(5,014	)
Proceeds from sale of property and equipment			181				—
Proceeds from note receivable			—				44
Net cash flows used in investing activities			(1,549	)			(4,970	)
Cash Flows from Financing Activities:
Borrowings under long term debt			—				4,000
Repayments of long term debt			(59	)			—
Proceeds from deferred grant and other income			245				—
Dividends paid			(390	)			(389	)
Issuance of common shares for stock options exercised and employee stock purchases			68				69
Net cash flows (used in) from financing activities			(136	)			3,680
Increase (Decrease) in Cash and Cash Equivalents			100				(186	)
Cash and Cash Equivalents, Beginning of Period			3,943				1,517
Cash and Cash Equivalents, End of Period		$	4,043			$	1,331
Supplemental Disclosures:
Cash paid during year for interest		$	107			$	52
Cash paid for income taxes		$	70			$	—
Property and equipment included in accounts payable and accrued expenses		$	421			$	387

The accompanying notes are an integral part of the condensed financial statements.

 

6

---

Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Dollars in Thousands Except Per Share Amounts)

 

Basis of Presentation

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 June 30, 2012, the results of operations for the three and six months ended June 30, 2012 and 2011 and cash flows for the six months ended June 30, 2012 and 2011 in accordance with accounting principles generally accepted in the United States. The accompanying condensed balance sheet as of December 31, 2011, has been derived from audited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. These interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission. Results for interim periods may not necessarily be indicative of the results to be expected for the full year.

 

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.	Changes in Shareholders’ Equity:

 

		Preferred Stock				Common Stock				Additional Paid-in Capital				Retained Earnings				Total Shareholders’ Equity
Balance December 31, 2011		$	32			$	2,417			$	37,271			$	33,269			$	72,989
Issuance of 4,961 common shares for employee stock purchases, stock options exercised and employee stock awards							2				66								68
Share-based compensation, options granted											65								65
Dividends:
Preferred stock, $5.00 per share															(3	)			(3	)
Common stock, $.08 per share															(387	)			(387	)
Net income for the period															2,199				2,199
Balance June 30, 2012		$	32			$	2,419			$	37,402			$	35,078			$	74,931

 

4.

Debt:

Revolving Line of Credit

The Company has a revolving line of credit facility in the amount of $5,000 from a commercial bank expiring on June 25, 2013. Borrowings under this line of credit are unsecured, due on demand and bear interest at either the bank’s 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 as to the incurrence of additional indebtedness, as well as the sale or encumbrance of its assets. At June 30, 2012, no amounts were outstanding.

 

7

---

Table of Contents

Long term debt

In December 2010, the Company borrowed $4,000 from the same commercial bank, in order to finance the rehabilitation of the Willimantic Branch. The loan of up to $4,000 required payments of interest only for the first six months and accruing at the bank’s prime rate. After the six month period, the loan converted to a 10 year 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% at the date of conversion). This rate will reset based upon the same conversion factors after 5 years (Federal Home Loan Bank of Boston 5/20 rate plus 3%). The Company has the right to prepay all or any part thereof out of internally-generated funds without penalty. The Company is subject to financial and non-financial covenants, including maintenance of minimum net worth and minimum debt service coverage. As of June 30, 2012, the outstanding principal balance was $3,883.

The carrying value of the Company’s debt facilities approximated its fair value at June 30, 2012 which was estimated using current borrowing rates available to the Company.

 

5.	Other Income:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Interest		$	6			$	4			$	9			$	7
Other			17				93				17				119
		$	23			$	97			$	26			$	126

 

6.	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 Company’s outstanding convertible preferred stock and stock options except where such items would be antidilutive.

A reconciliation of weighted-average shares used for the basic computation and that used for the diluted computation is as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Weighted-average shares for basic			4,833,640				4,818,415				4,833,640				4,818,415
Dilutive effect of convertible preferred stock and stock options			71,821				73,028				70,731				—
Weighted-average shares for diluted			4,905,461				4,891,443				4,904,371				4,818,415

Options to purchase 65,508 shares of common stock were outstanding at June 30, 2012. Options to purchase 58,617 shares of common stock were outstanding at June 30, 2011. For the three month periods ended June 30, 2012 and 2011, 7,821 and 9,028 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 price of the Company’s common stock.

 

8

---

Table of Contents

For the six month period ended June 30, 2012, 6,731 of outstanding options to purchase common shares were included in the computation of diluted 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 price of the Company’s common stock.

Preferred Stock convertible into 64,000 shares of common stock at the rate of 100 shares of common stock for each one share of Preferred Stock was outstanding for the three and six-month periods ended June 30, 2012 and 2011. For the three month periods ended June 30, 2012 and 2011 and for the six month period ended June 30, 2012, 64,000 shares of the Company’s common stock were included in the diluted EPS. For the six month period ended June 30, 2011, the 64,000 shares of the Company’s common stock were not included as the effect would be antidilutive.

 

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 expenses. The authorizing federal legislation for track maintenance credits was not renewed by Congress upon its expiration on December 31, 2011. No amounts were received during the three and six months ended June 30, 2012 for track maintenance credits.

 

8.	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 condensed 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 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.

 

9

---

Table of Contents

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 to settle this suit in March 2006.

 

9.	Amtrak Agreement

On April 4, 2012, Providence and Worcester Railroad Company (the “Company”) and National Railroad Passenger Corporation (“Amtrak”) entered into the 2012 Settlement and Amendment Agreement (the “2012 Agreement”) which settles certain disputes between the parties and amends, in part, both an Agreement dated January 3, 1978 (the “1978 Agreement”) and an Agreement dated July 9, 1979 by and between Amtrak and the Company. Under the 1978 Agreement, Amtrak obtained the right to remove certain Company trackage subject to the requirement of providing replacement facilities.

Under the 2012 Agreement, Amtrak’s obligations to P&W for outstanding track capacity are satisfied in full by, among other things, Amtrak (1) granting the Company a license for railroad operations to certain Amtrak trackage located in Cranston, RI (the “Cranston Yard Trackage”) ($179), (2) delivering to the Company track materials ($684), (3) granting the Company a credit against mileage charges payable to Amtrak by the Company for freight traffic utilizing the Northeast Corridor ($2,571), and (4) cash and relief of certain outstanding obligations the Company owed to Amtrak ($2,143), with the foregoing items having an agreed aggregate value of $5,578. The 2012 Agreement also relieves Amtrak of any future obligation (a) to maintain the Cranston Yard Trackage, and (b) to replace P&W track capacity modified or eliminated by Amtrak provided that no such modification or elimination may unreasonably interfere with the continuity of tracks being used for P&W’s freight service. The 2012 Agreement also contains provisions allocating the risk of use of the Cranston Yard Trackage, establishing procedures for contesting Amtrak invoices for maintenance of NEC freight sidings along the Northeast Corridor, permitting the Company to bill Amtrak for non-routine services requested by Amtrak and provided by the Company and permitting Amtrak to deduct from its cash payment to the Company the amount of certain uncontested invoices.

The Company recorded such amounts as recoveries of related operating expenses. The Company recorded recoveries of $3,006 during the second quarter of 2012, offsetting Maintenance of Way expense. As the related operating expenses relative to the mileage credit have not yet been incurred, the Company did not recognize offsetting recoveries during the second quarter of 2012. The company will recognize the expense offset relative to Track Usage Fees as the expenses are incurred. As such, the Company did not record any related assets or liabilities relative to the mileage credit. The Company has recorded the following offsets to Track Usage expense and has the following track mileage credit remaining:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Mileage credit available		$	2,571			$	—			$	2,571			$	—
Utilized			147				—				147				—
Mileage credit remaining		$	2,424			$	—			$	2,424			$	—

 

10

---

Table of Contents

10.	Provision for Income Taxes (Benefit):

The income tax benefit for the three and six months of 2012 is equal to (1%) and (33%) of the pre-tax income, respectively. This effective rate reflects the federal income tax rate adjusted by the effect of non deductible expenses and state taxes. The estimated annual rate (35.5%) does not agree with expected amounts due to changes in the valuation allowance the Company had previously established against its deferred tax assets. During the second quarter the Company reversed $1.2 million of previously reserved deferred tax assets based upon the Company’s analysis of the Company’s reversal pattern of taxable temporary differences.

 

11.	Related Party Transaction:

Robert Eder, who owns a majority of the Company’s Preferred Shares, with his wife, also controls Capital Properties, Inc. (“CPI”) and its subsidiaries. Pursuant to an agreement between the Company and Getty Oil Company (Eastern Operations), Inc. dated August 6, 1975, the Company has the right to relocate any portion of two pipelines located within the Company’s right of way in East Providence, Rhode Island. The Company and CPI have supported an extension of Waterfront Drive, so-called, in East Providence, which road is being constructed on the Company’s right of way. The State of Rhode Island’s plans for Waterfront Drive’s extension required a relocation of a portion of the pipelines which the Company has the right to relocate. The Rhode Island Department of Transportation (“RIDOT”) entered into an agreement with the Company to reimburse the Company for expenses incurred by us in relocating the pipelines up to a maximum of $159. In May 2011, CPI’s subsidiary, Capital Terminal Company (“CTC”), entered into an agreement with the Company to act as the Company’s agent to select, direct and supervise all subcontractors subject to the Company’s approval. All invoices from contractors to CTC are submitted to the Company for approval along with a check from CTC in the amount of the invoice. The Company pays the invoice out of the funds provided by CTC. The Company is then obligated to submit the invoices to RIDOT for reimbursement under its agreement with RIDOT. When the Company receives reimbursement from RIDOT, it is obligated to pay that amount to CTC. Any shortfall in RIDOT’s reimbursement is borne by CTC. The Company has received invoices to date of $219, which have been paid by the Company to the subcontractors out of funds received from CTC. CTC, through subcontractors, completed the pipeline relocation during 2011. During March 2012, the Company received $152 from RIDOT and remitted $152 to CTC. At June 30, 2012, the remaining receivable in the amount of $67 from RIDOT, and the corresponding accounts payable to CTC, in the same amount, have been reflected in the Company’s Condensed Balance Sheets. The Company has requested RIDOT to approve change orders to increase the amount payable to $219. The Company is obligated to CTC only to the extent it receives payment from RIDOT.

 

11

---

Table of Contents

12.	Subsequent event and dividends:

The Company has reached agreement in principle with an unrelated person (the “Grantee”) to convey to the Grantee a permanent easement along a portion of its right of way in exchange for a payment by the Grantee of $2,650. The Company is awaiting receipt from the Grantee of a draft of the proposed permanent easement. There can be no assurance that the Company and the Grantee will reach agreement on the terms of the easement.

On July 25, 2012, the Company declared a dividend of $.04 per share on its outstanding common stock payable August 22, 2012 to shareholders of record as of August 8, 2012.

 

13.	Restatement

For the three and six-month periods ended June 30, 2012, the Company recorded $3.2 million, of other income from the Amtrak Agreement within revenues. The Company has determined that the other income should have been presented as a reduction of operating expenses. As a result, the Company is restating its financial statements and related disclosures to recognize a reduction of both revenue and operating expenses for the three and six-month periods ended June 30, 2012 for this item. Additionally, the Company reduced related accounts receivable and deferred revenue recorded in conjunction with the Amtrak Agreement in the amount of $2.4 million. As a result, in this Form 10-Q/A, the Company is restating its financial statements and related disclosures to recognize a reduction of both other income and operating expenses for the three and six-month periods ended June 30, 2012 for this item and its balance sheet at June 30, 2012. Such adjustments have no impact on operating income, net income or net cash flows.

In connection with this restatement, the Company also chose to correct classification errors within other income that were immaterial individually and in the aggregate. These other classification errors moved income previously included within revenues to other income below operating income for the three and six months ended June 30, 2012 and 2011. Such amounts were $23 thousand and $97 thousand for the three months ended June 30, 2012 and 2011, respectively and $26 thousand and $126 thousand for the six months ended June 30, 2012 and 2011, respectively.

The tables below present the effects of the restatement on the balance sheets (in thousands):

 

		June 30, 2012
		Previously Reported				Adjustments				Restated
Accounts receivable		$	4,029			$	(560	)		$	3,469
Total current assets			9,052				(560	)			8,492
Accounts receivable, less current portion			2,549				(2,549	)			—
Property and Equipment, net			85,344				685				86,029
Total assets			109,402				(2,424	)			106,978
Current portion of deferred grant and other revenue			890				(560	)			330
Total current liabilities			6,692				(560	)			6,132
Deferred Grant Income and Other Revenue			12,297				(1,864	)			10,433
Total liabilities and equity			109,402				(2,424	)			106,978

 

12

---

Table of Contents

The tables below present the effects of the restatement on the statements of operations (in thousands):

 

		For the three months ended June 30, 2012												For the six months ended June 30, 2012
		Previously Reported				Adjustments				Restated				Previously Reported				Adjustments				Restated
Revenue
Operating Revenues		$	8,214			$	140			$	8,354			$	14,873			$	260			$	15,133
Other Income			3,316				(3,316	)			—				3,439				(3,439	)			—
Total revenues			11,530				(3,176	)			8,354				18,312				(3,179	)			15,133
Operating Expenses
Maintenance of Way			1,765				(3,006	)			(1,241	)			3,206				(3,006	)			200
Maintenance of Equipment			945				—				945				1,841				—				1,841
Transportation			2,557				—				2,557				5,106				—				5,106
General and Administrative			1,141				—				1,141				2,362				—				2,362
Depreciation			834				—				834				1,662				—				1,662
Taxes, other than income taxes			841				—				841				1,514				—				1,514
Car Hire, net			257				—				257				492				—				492
Employee retirement plans			54				—				54				108				—				108
Track usage			13				(147	)			(134	)			261				(147	)			114
Total Operating Expenses			8,407				(3,153	)			5,254				16,552				(3,153	)			13,399
Operating Income (Loss) before Interest Expense, Other Income and Income Taxes			3,123				(23	)			3,100				1,760				(26	)			1,734
Other Income			—				23				23				—				26				26
Interest Expense			53				—				53				106				—				106
Income (Loss) before Income Taxes			3,070				—				3,070				1,654				—				1,654
Income Tax Provision (Benefit)			(29	)			—				(29	)			(545	)			—				(545	)
Net Income			3,099				—				3,099				2,199				—				2,199

There were no changes to the statement of operations for the three or six months ended June 30, 2011 related to the restatement.

The tables below present the effects of the restatement on the statements of cash flows (in thousands):

 

		For the six months ended June 30, 2012
		Previously Reported				Adjustments				Restated
Cash flows from operating activities:
Net income		$	2,199			$	—			$	2,199
Adjustment to reconcile net income to net cash provided by operating activities:
Non-cash component of Amtrak Agreement			—				(1,108	)			(1,108	)
Accounts receivable			(762	)			863				101
Accounts payable and accrued expenses			(1,115	)			245				(870	)

There were no changes to the statement of cash flows for the six months ended June 30, 2011.

*                     *                     *

 

13

---

Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

ITEM 2- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MDA”) which are not historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company’s present expectations or beliefs concerning future events. The Company cautions, however, that actual results could differ materially from those indicated in MDA. The following discussion should be read in conjunction with the Condensed Financial Statements and applicable notes to the Condensed Financial Statements, Item 1. The Company does not undertake the obligation to update forward-looking statements in response to new information, future events or otherwise.

Critical Accounting Policies

The Securities and Exchange Commission (“SEC”) defines critical accounting policies as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company’s significant accounting policies are described in Note 1 of the Notes to Financial Statements in its Annual Report on Form 10-K. 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, 2011 during the first six months of 2012.

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.

 

14

---

Table of Contents

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 relationships with Class I railroads and other carriers;

 

•

legislative and regulatory developments by the Surface Transportation Board, Railroad Retirement Board or the Federal Railroad Administration;

 

•

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; and

 

•

our dependence upon our key customers, executives and other key employees and our ability to renegotiate our union contracts.

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 Company’s operating revenues, exclusive of rental operating revenues, by category in dollars and as a percentage of operating revenues:

 

		Three Months Ended June 30,																Six Months Ended June 30,
		2012								2011								2012								2011
		(In thousands, except percentages)
Freight Revenues:
Conventional carloads		$	6,975				84.9	%		$	7,202				92.6	%		$	13,084				88.0	%		$	13,339				91.2	%
Containers			311				3.8				212				2.7				570				3.8				391				2.7
Other freight related			156				1.9				167				2.2				263				1.8				334				2.3
Other Operating Revenues			772				9.4				193				2.5				956				6.4				560				3.8
Total		$	8,214				100.0	%		$	7,774				100.0	%		$	14,873				100.0	%		$	14,624				100.0	%

 

15

---

Table of Contents

The following table sets forth a comparison of the Company’s operating expenses expressed in dollars and as a percentage of operating revenues, exclusive of rental operating revenues:

 

		Three Months Ended June 30,																Six Months Ended June 30,
		2012								2011								2012								2011
		(In thousands, except percentages)
Salaries, wages, payroll taxes and employee benefits		$	4,081				49.7	%		$	3,918				50.4	%		$	8,197				55.1	%		$	7,897				54.0	%
Casualties and insurance			84				1.0				120				1.5				390				2.6				310				2.1
Depreciation			834				10.2				787				10.1				1,662				11.2				1,575				10.8
Diesel fuel			849				10.3				1,114				14.3				1,632				11.0				2,116				14.5
Car hire, net			257				3.1				365				4.7				492				3.3				590				4.0
Purchased services, including legal and professional fees			697				8.5				858				11.1				1,133				7.6				1,477				10.1
Repair and maintenance of equipment			322				3.9				93				1.2				757				5.1				696				4.8
Track and signal materials			857				10.4				145				1.9				1,190				8.0				427				2.9
Track usage fees			13				0.2				182				2.3				261				1.8				386				2.6
Other materials and supplies			388				4.7				292				3.8				708				4.8				607				4.2
Other			728				8.9				460				5.9				1,225				8.2				1,052				7.2
Total			9,110				110.9				8,334				107.2				17,647				118.7				17,133				117.2
Less capitalized and recovered costs, including amounts relating to the Amtrak Agreement			3,856				46.9				1,117				14.4				4,248				28.6				1,251				8.6
Total		$	5,254				64.0	%		$	7,217				92.8	%		$	13,399				90.1	%		$	15,882				108.6	%

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Operating Revenues:

Operating revenues increased $249 thousand, or 1.7%, to $14.9 million in the six months ended June 30, 2012 from $14.6 million in 2011. This increase is the result of a $179 thousand (45.7%) increase in container freight revenues, a $396 thousand (70.7%) increase in other operating revenues, offset by a $255 thousand (1.9%) decrease in conventional freight revenues, and a $71 thousand (21.3%) decrease in other freight-related revenues.

The decrease in conventional freight revenues results from a 4.9% increase in the average revenue received per conventional carloading, offset by a (7.0%) reduction in traffic volume. The Company’s conventional carloadings decreased by 1,150 to 15,296 in the first six months of 2012 from 16,446 in 2011.

 

16

---

Table of Contents

The number of shipments of most commodities handled by the Company was substantially constant with decreases in coal and ethanol shipments contributing the majority of the decrease during the first six months of 2012. The decrease in coal shipments during the first six months of 2012 were due to a power plant customer being offline during a substantial portion of the period. Ethanol shipments were impacted by the weather conditions affecting the Midwestern corn crop. 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 38.0% increase in traffic volume and an 8.0% increase in the average revenue received per container. Container traffic volume increased by 2,149 containers to 7,808 containers in the first six months of 2012 from 5,659 containers in 2011 as a result of the terminal operator located on the Company’s line obtaining an additional customer. This increase in traffic, along with improved economic conditions, contributed to the increase in the average revenue received per container.

The small decrease in other freight-related revenues results from a decrease in miscellaneous revenue.

The increase in other operating revenues reflects an increase in maintenance department billings for services rendered to freight customers and other outside parties.

Operating Expenses:

Operating expenses for the six-month period ended June 30, 2012 were $16.6 million before the Amtrak Agreement offsetting $3 million of Maintenance of Way costs. Additionally, the Amtrak Agreement offset $147 thousand of track usage fees. The Amtrak Agreement amounts are included as recovered costs in the above table of the Company’s operating expenses as a percentage of operating income. Exclusive of the Amtrak Agreement credits, operating expenses increased by $670 thousand, or 4.2%, to $16.6 million from $15.9 million in 2011. Increased operating costs were due primarily to increases in maintenance charges and maintenance of way expenses and other expenses, and increases in property tax amounts assessed to the Company as a result of a City wide re-valuation done in the City of Worcester. These increases were offset in part by decreases in diesel fuel consumption and professional fees. During 2011, the Company received amounts on account of assignment of tax maintenance credits ($869 thousand). During 2012, no amounts for tax maintenance credits were recognized.

As noted above, the Company’s track usage fees were reduced by $147 thousand as a result of the utilization of a portion of the available mileage credit received pursuant to the Amtrak Agreement. The Company has $2.424 million of credit remaining to offset future mileage charges for use of Amtrak’s Northeast Corridor.

Provision for Income Taxes (Benefit):

The income tax benefit for the first six months of 2012 is equal to (33%) of the pre-tax income. This effective rate reflects the federal income tax rate adjusted by the effect of non deductible expenses and state taxes. The estimated annual rate does not agree with expected amounts due to changes in the valuation allowance the Company had previously established against its deferred tax assets. During the second quarter the Company reversed $1.2 million of previously reserved deferred tax assets based upon the Company’s analysis of the Company’s reversal pattern of taxable temporary differences.

 

17

---

Table of Contents

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Operating Revenues:

Operating revenues increased $440 thousand, or 5.7%, to $8.2 million in the second quarter of 2012 from $7.8 million in the second quarter of 2011. This increase is the result of a $579 thousand (300%) increase in other operating revenue, and a $99 thousand (46.7%) increase in container freight revenues, offset by a $227 thousand (3.2%) decrease in conventional freight revenues, and an $11 thousand (6.6%) decrease in other freight-related revenues.

The decrease in conventional freight revenues is attributable to an 8.7% decrease in traffic volume, offset by a 5.8% increase in average revenue per carloading. The Company’s conventional carloads decreased by 817 to 8,605 in the second quarter of 2012 from 9,420 in 2011. The reasons for the decrease in conventional traffic volume and increase in average revenue per carloading are as previously discussed for the six months ended June 30, 2012.

The increase in container freight revenues is the result of a 35.5% increase in traffic volume and an 8.0% increase in the average revenue received per container. Container traffic volume increased by 1,109 containers to 4,234 in the second quarter of 2012 from 3,125 in the second quarter of 2011. Reasons for the increases in traffic volume and in the average revenue received per container during the second quarter are as previously discussed.

Other operating revenues increased due to an increase of State projects performed by the Company’s maintenance of way personnel.

Operating Expenses:

Operating expenses for the three-month period ended June 30, 2012 were $8.4 million before the Amtrak Agreement offsetting $3 million to Maintenance of Way costs. Additionally, the Amtrak Agreement offset $147 thousand of Track usage fees. The Amtrak Agreement amounts are included as recovered costs in the above table of the Company’s operating expenses as a percentage of operating income. Exclusive of the Amtrak Agreement credits, operating expense increased by $1.2 million, or 16.7%, to $8.4 million from $7.2 million in 2011. The principal reasons for this overall increase were recovered costs of $869 thousand on account of assignment of tax maintenance credits received in 2011 not received in 2012. These increases were offset, in part, by a decrease in the amount of diesel fuel consumed and purchased services utilized.

As noted above, the Company’s track usage fees were reduced by $147 thousand as a result of the utilization of a portion of the available mileage credit received under the Amtrak Agreement. The Company has $2.424 million of credit remaining to offset future mileage charges for use of Amtrak’s Northeast Corridor.

Provision for Income Taxes:

The income tax provision for the second quarter of 2012 is equal to approximately (1%) of pre-tax income. This effective tax rate represents the federal income tax rate increased by the impact of state income taxes and non-deductible expenses. The estimated annual rate does not agree to expected amounts due to changes in the valuation allowance the Company had previously established against its deferred tax assets ($1.2 million) based upon the Company’s analysis of the Company’s reversal pattern of taxable temporary differences.

 

18

---

Table of Contents

Liquidity and Capital Resources

During the six months ended June 30, 2012, the Company generated $1.8 million of cash from operating activities, and the Company used $1.5 million in investing activities and $136 thousand in financing activities.

On July 25, 2012, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on August 22, 2012. The declaration of future dividends and the amount thereof will depend on the Company’s future earnings, financial factors and other events.

The Company has a revolving line of credit facility in the amount of $5 million from a commercial bank expiring on June 25, 2013. At June 30, 2012, no amounts were outstanding.

Item 4 - Controls and Procedures

Our management with the participation of our 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 Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

There was no significant change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting. The Company continues to enhance its internal controls over financial reporting, primarily by evaluating and enhancing process and control documentation. Management discusses with and discloses these matters to the Audit Committee of the Board of Directors and the Company’s auditors.

 

19

---

Table of Contents

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 Chief 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 the Sarbanes-Oxley Act of 2002.
101†		The following financial information from the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2012, filed with the Securities and Exchange Commission on November 14, 2012, formatted in eXtensible Business Reporting Language:

 

(i)

Balance Sheets as of June 30, 2012 and December 31, 2011

 

(ii)

Statements of Operations for the Three and Six Months ended June 30, 2012 and 2011

 

(iii)

Statements of Cash Flows for the Six Months ended June 30, 2012 and 2011

 

(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.

 

20

---

Table of Contents

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.

 

 

 

DATED: November 14, 2012

 

21