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EX-32 - EX-32 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex32_9.htm
EX-31.1 - EX-31.1 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex311_7.htm
EX-31.2 - EX-31.2 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex312_8.htm
EX-32.1 - EX-32.1 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex321_10.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

Form 10-Q

 

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

For the quarterly period ended September 30, 2015

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)

 

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 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 x 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

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o 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 November 1, 2015, the registrant had 4,862,733 shares of common stock, par value $.50 per share, outstanding.

 

 

 

 

 


 

PROVIDENCE AND WORCESTER RAILROAD COMPANY

Index to Quarterly Report on Form 10-Q

 

Part I – Financial Information

 

 

 

 

 

Item 1 –Financial Statements (Unaudited):

 

 

 

 

 

Condensed Balance Sheets – September 30, 2015 (Unaudited) and December 31, 2014

 

3

 

 

 

Condensed Statements of Operations – Three and Nine Months Ended September 30, 2015 and 2014
   (Unaudited)

 

4

 

 

 

Condensed Statements of Cash Flows – Nine Months Ended September 30, 2015 and 2014 (Unaudited)

 

5

 

 

 

Notes to Condensed Financial Statements (Unaudited)

 

6-8

 

 

 

Item 2 –Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

9-12

 

 

 

Item 4 –Controls and Procedures

 

12

 

 

 

Part II – Other Information:

 

 

 

 

 

Item 5 –Other Information

 

13

 

 

 

Item 6 –Exhibits

 

13

 

 

 

Signatures

 

14

 

 

 

 


 

Part I – Financial Information

Item 1.  Financial Statements

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED BALANCE SHEETS

(Dollars in Thousands Except Per Share Amounts)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,452

 

 

$

6,414

 

Accounts receivable, net of allowance for doubtful accounts of $160 in 2015

   and 2014

 

 

5,164

 

 

 

5,007

 

Materials and supplies

 

 

1,385

 

 

 

1,067

 

Prepaid expenses and other current assets

 

 

938

 

 

 

634

 

Deferred income taxes

 

 

399

 

 

 

399

 

Total Current Assets

 

$

12,338

 

 

$

13,521

 

Property and Equipment, net

 

 

88,080

 

 

 

85,955

 

Land Held for Development

 

 

12,457

 

 

 

12,457

 

Total Assets

 

$

112,875

 

 

$

111,933

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,952

 

 

$

3,872

 

Current portion of deferred grant and other income

 

 

319

 

 

 

230

 

Accrued expenses

 

 

1,755

 

 

 

1,810

 

Total Current Liabilities

 

$

7,026

 

 

$

5,912

 

Deferred Income Taxes

 

 

13,851

 

 

 

13,623

 

Deferred Grant and Other Revenue

 

 

12,638

 

 

 

12,986

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock, 10% noncumulative, $50 par value; authorized, issued and

   outstanding 640 shares in 2015 and 2014

 

 

32

 

 

 

32

 

Common stock, $.50 par value; authorized 15,000,000 shares; issued and

   outstanding 4,862,693 shares in 2015 and 4,859,871 shares in 2014

 

 

2,431

 

 

 

2,430

 

Additional paid-in capital

 

 

38,034

 

 

 

37,891

 

Retained earnings

 

 

38,863

 

 

 

39,059

 

Total Shareholders’ Equity

 

 

79,360

 

 

 

79,412

 

Total Liabilities and Shareholders’ Equity

 

$

112,875

 

 

$

111,933

 

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

3


 

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in Thousands Except Per Share Amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

 

$

9,449

 

 

$

8,967

 

 

$

26,227

 

 

$

24,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maintenance of way and structures

 

 

1,243

 

 

 

1,597

 

 

 

4,004

 

 

 

4,274

 

Maintenance of equipment

 

 

977

 

 

 

989

 

 

 

2,684

 

 

 

2,949

 

Transportation

 

 

2,731

 

 

 

2,841

 

 

 

8,182

 

 

 

7,960

 

General and administrative

 

 

1,190

 

 

 

1,038

 

 

 

3,680

 

 

 

3,700

 

Depreciation

 

 

892

 

 

 

894

 

 

 

2,648

 

 

 

2,682

 

Taxes, other than income taxes

 

 

787

 

 

 

668

 

 

 

2,351

 

 

 

2,024

 

Car hire, net

 

 

440

 

 

 

290

 

 

 

1,348

 

 

 

743

 

Employee retirement plans

 

 

56

 

 

 

57

 

 

 

170

 

 

 

171

 

Track usage fees

 

 

442

 

 

 

79

 

 

 

661

 

 

 

194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

8,758

 

 

 

8,453

 

 

 

25,728

 

 

 

24,697

 

Operating Income before Interest and Income Taxes

 

 

691

 

 

 

514

 

 

 

499

 

 

 

295

 

Other income

 

 

23

 

 

 

441

 

 

 

133

 

 

 

568

 

Income from operations prior to income taxes

 

 

714

 

 

 

955

 

 

 

632

 

 

 

863

 

Provision for Income Taxes

 

 

252

 

 

 

502

 

 

 

241

 

 

 

462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

462

 

 

 

453

 

 

 

391

 

 

 

401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Dividends

 

 

 

 

 

 

 

 

3

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to Common Shareholders

 

$

462

 

 

$

453

 

 

$

388

 

 

$

398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

.10

 

 

$

.09

 

 

$

.08

 

 

$

.08

 

Diluted

 

$

.09

 

 

$

.09

 

 

$

.08

 

 

$

.08

 

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For basic

 

 

4,861,697

 

 

 

4,857,083

 

 

 

4,860,820

 

 

 

4,853,985

 

For diluted

 

 

4,932,782

 

 

 

4,931,235

 

 

 

4,934,247

 

 

 

4,929,059

 

 

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

4


 

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

391

 

 

$

401

 

Adjustments to reconcile the net income to cash flows from operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,648

 

 

 

2,682

 

Gain on sale of equipment

 

 

-

 

 

 

(538

)

Amortization of deferred grant and other income

 

 

(612

)

 

 

(724

)

Proceeds from deferred grant and other income

 

 

353

 

 

 

701

 

Provision for deferred income taxes

 

 

228

 

 

 

293

 

Share-based compensation

 

 

96

 

 

 

114

 

Increase (decrease) in cash from:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(157

)

 

 

(1,106

)

Materials and supplies

 

 

(318

)

 

 

289

 

Prepaid expenses and other current assets

 

 

(304

)

 

 

(347

)

Accounts payable and accrued expenses

 

 

841

 

 

 

553

 

Net cash flows from operating activities

 

 

3,166

 

 

 

2,318

 

 

 

 

 

 

 

 

 

 

Cash flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(4,589

)

 

 

(3,246

)

Proceeds from sale of property, equipment and easements

 

 

-

 

 

 

952

 

Net cash flows used in investing activities

 

 

(4,589

)

 

 

(2,294

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Dividends paid

 

 

(587

)

 

 

(586

)

Issuance of common shares for stock options exercised and employee stock

   purchases

 

 

48

 

 

 

110

 

Net cash flows used in financing activities

 

 

(539

)

 

 

(476

)

 

 

 

 

 

 

 

 

 

Decrease in Cash and Cash Equivalents

 

 

(1,962

)

 

 

(452

)

Cash and Cash Equivalents, Beginning of Period

 

 

6,414

 

 

 

2,614

 

Cash and Cash Equivalents, End of Period

 

$

4,452

 

 

$

2,162

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

508

 

 

$

139

 

Property and equipment included in accounts payable

 

$

184

 

 

$

304

 

 

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

 

 

 

5


PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

(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, 2014, the results of operations for the three and nine months ended September 30, 2015 and 2014 and cash flows for the nine months ended September 30, 2015 and 2014 in accordance with accounting principles generally accepted in the United States. The accompanying condensed balance sheet as of December 31, 2014 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, 2014 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:

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services.  ASU 2014-09 anticipates companies using more judgment and estimates than under the current guidance. ASU 2014-09 permits the use of retrospective application to period presented or a cumulative effect transition adjustment. On July 9, 2015, the FASB approved a one year deferral of the effective date of ASU 2014-09. The Company is currently evaluating the impact and method of implementing this new guidance on its financial statements and related disclosures.

 

 

3.

Changes in Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Preferred

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Shareholders’

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance December 31, 2014

 

$

32

 

 

$

2,430

 

 

$

37,891

 

 

$

39,059

 

 

$

79,412

 

Issuance of 2,851 common shares for stock options

   exercised, employee stock purchases and employee

   stock awards

 

 

 

 

 

 

1

 

 

 

47

 

 

 

 

 

 

 

48

 

Share-based compensation, options granted

 

 

 

 

 

 

 

 

 

 

96

 

 

 

 

 

 

 

96

 

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $5.00 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Common stock, $.12 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(584

)

 

 

(584

)

Net income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

391

 

 

 

391

 

Balance September 30, 2015

 

$

32

 

 

$

2,431

 

 

$

38,034

 

 

$

38,863

 

 

$

79,360

 

 

 

4.

Debt:

The Company has a revolving line of credit facility in the amount of $5,000 from a commercial bank expiring on June 25, 2017. 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 September 30, 2015 and December 31, 2014, no amounts were outstanding.

The Company entered into a loan agreement with its commercial bank for $5,000 for the rehabilitation of four and the replacement of one main line bridges. The loan requires interest only for twelve months (until May 2016), whereupon it converts to a ten year term loan with payments based upon a twenty year amortization. The loan will bear interest at 4.11% per

6


PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

 

annum for the life of the loan. The loan is unsecured and is subject to certain financial and non-financial covenants. In October 2015, the Company drew down $1,000.

 

 

 

5.

Income per Common Share:

Basic income per common share is computed using the weighted-average number of common shares outstanding during each period.  Diluted income per common share reflects the effect of the Company’s outstanding convertible preferred stock 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares for basic

 

 

4,861,697

 

 

 

4,857,083

 

 

 

4,860,820

 

 

 

4,853,985

 

Dilutive effect of convertible preferred stock and stock

   options

 

 

71,085

 

 

 

74,152

 

 

 

73,427

 

 

 

75,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares for diluted

 

 

4,932,782

 

 

 

4,931,235

 

 

 

4,934,247

 

 

 

4,929,059

 

 

Options to purchase 66,330 and 60,838 shares of common stock were outstanding at September 30, 2015 and 2014, respectively. For the three month periods ended September 30, 2015 and 2014, 7,085 and 10,152 of outstanding options to purchase common shares were included, respectively, in the computation of diluted earnings per share (EPS). For the nine month period ended September 30, 2015 and 2014, 9,427 and 11,074 of outstanding options to purchase common stock were included in the computation of diluted earnings per share (EPS).

Shares of preferred stock convertible into 64,000 shares of common stock were outstanding for the three and nine-month periods ended September 30, 2015 and 2014. For the three and nine-month periods ended September 30, 2015 and 2014, the 64,000 shares were included in the calculation of diluted earnings per share.

 

 

6.

Commitments and Contingent Liabilities:

The Company is a defendant in certain lawsuits relating to casualty losses, many of which are covered by insurance subject to a deductible. The Company believes that adequate provision has been made in the financial statements for any expected liabilities which may result from disposition of such lawsuits.

On January 29, 2002, the Company received a “Notice of Potential Liability” from the United States Environmental Protection Agency (“EPA”) regarding an existing Superfund Site (“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 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.

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

7


PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

 

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. This settlement covered investigation costs; not cleanup costs.

The Government has now selected a remedy for the Site and has indicated that it will negotiate with all of the PRPs at the site to take over and or pay for the cleanup. As it did before, the Company responded 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.

 

 

7.

Amtrak Agreement

On April 4, 2012, 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 the Company certain trackage subject to the requirement of providing replacement facilities.

Pursuant to the Agreement, the Company received a credit for mileage travelled along the Northeast Corridor.  The Company recognized the expense offset relative to Track Usage Fees as the expenses were incurred.  As such, the Company did not record any related assets or liabilities relative to the mileage credit at the date of the settlement.  The Company has recorded the following offsets to Track Usage expense:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Mileage credit available

 

$

-

 

 

$

905

 

 

$

418

 

 

$

1,200

 

Utilized

 

 

-

 

 

 

199

 

 

 

418

 

 

 

494

 

Mileage credit remaining

 

$

-

 

 

$

706

 

 

$

-

 

 

$

706

 

 

           No credits remained outstanding as of September 30, 2015.

 

8.

Open-Top Hoppers

 

During 2014, the Company entered into an agreement with an unrelated third party for the disposal of 126 open-top hopper cars (the “cars”). The Agreement called for the cars to be disposed of over a period of time. The disposal was completed by September 30, 2014 and the Company received proceeds of approximately $952 for the disposal of the cars, resulting in a gain of $538, which is included in other income in the Statement of Operations for the nine months ended September 30, 2014.

 

 

9.

Subsequent event and dividends:

On October 28, 2015, the Company declared a dividend of $.04 per share on its outstanding common stock payable November 25, 2015 to shareholders of record as of November 11, 2015.

 

 

 

8


 

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.  

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, 2013 and during the first nine months of 2015.

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 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 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

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in

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exchange for those goods or services.  ASU 2014-09 anticipates companies using more judgment and estimates than under the current guidance. On July 9, 2015, the FASB approved a one year deferral of the effective date of ASU 2014-09. ASU 2014-09 permits the use of retrospective application to period presented or a cumulative effect transition adjustment. The Company is currently evaluating the impact and method of implementing this new guidance on its financial statements and related disclosures.

Results of Operations

The following table sets forth the Company’s operating revenues, exclusive of rental operating revenues of $188 and $197 during the three months ended September 30, 2015 and 2014, respectively, and $534 and $535 during the nine months ended September 30, 2015 and 2014, respectively, by category in dollars and as a percentage of operating revenues:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(In thousands, except percentages)

 

Freight Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional carloads

 

$

8,417

 

 

 

90.9

%

 

$

8,054

 

 

 

91.8

%

 

$

23,398

 

 

 

91.1

%

 

$

22,017

 

 

 

90.0

%

Containers

 

 

357

 

 

 

3.9

 

 

 

401

 

 

 

4.6

 

 

 

976

 

 

 

3.8

 

 

 

1,150

 

 

 

4.7

 

Other freight related

 

 

217

 

 

 

2.3

 

 

 

117

 

 

 

1.3

 

 

 

630

 

 

 

2.4

 

 

 

443

 

 

 

1.8

 

Other Operating Revenues

 

 

270

 

 

 

2.9

 

 

 

198

 

 

 

2.3

 

 

 

689

 

 

 

2.7

 

 

 

847

 

 

 

3.5

 

Total

 

$

9,261

 

 

 

100.0

%

 

$

8,770

 

 

 

100.0

%

 

$

25,693

 

 

 

100.0

%

 

$

24,457

 

 

 

100.0

%

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(In thousands, except percentages)

 

Salaries, wages, payroll taxes and employee

   benefits

 

$

4,111

 

 

 

44.4

%

 

$

3,981

 

 

 

45.4

%

 

$

12,149

 

 

 

47.3

%

 

$

11,807

 

 

 

48.3

%

Casualties and insurance

 

 

423

 

 

 

4.6

 

 

 

446

 

 

 

5.1

 

 

 

1,323

 

 

 

5.1

 

 

 

1,148

 

 

 

4.7

 

Depreciation

 

 

891

 

 

 

9.6

 

 

 

894

 

 

 

10.2

 

 

 

2,648

 

 

 

10.3

 

 

 

2,682

 

 

 

11.0

 

Diesel fuel

 

 

702

 

 

 

7.6

 

 

 

849

 

 

 

9.7

 

 

 

2,278

 

 

 

8.9

 

 

 

2,316

 

 

 

9.5

 

Car hire, net

 

 

440

 

 

 

4.8

 

 

 

290

 

 

 

3.3

 

 

 

1,348

 

 

 

5.2

 

 

 

743

 

 

 

3.0

 

Purchased services, including legal and

   professional fees

 

 

824

 

 

 

8.8

 

 

 

753

 

 

 

8.6

 

 

 

1,995

 

 

 

7.8

 

 

 

2,304

 

 

 

9.4

 

Repair and maintenance of equipment

 

 

404

 

 

 

4.4

 

 

 

468

 

 

 

5.3

 

 

 

947

 

 

 

3.7

 

 

 

1,412

 

 

 

5.8

 

Track and signal materials

 

 

453

 

 

 

4.9

 

 

 

489

 

 

 

5.6

 

 

 

869

 

 

 

3.4

 

 

 

1,102

 

 

 

4.5

 

Track usage fees

 

 

442

 

 

 

4.8

 

 

 

285

 

 

 

3.2

 

 

 

1,079

 

 

 

4.2

 

 

 

716

 

 

 

2.9

 

Other materials and supplies

 

 

459

 

 

 

5.0

 

 

 

351

 

 

 

4.0

 

 

 

1,276

 

 

 

5.0

 

 

 

1,132

 

 

 

4.6

 

Other

 

 

612

 

 

 

6.5

 

 

 

456

 

 

 

5.2

 

 

 

2,118

 

 

 

8.2

 

 

 

1,900

 

 

 

7.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

9,761

 

 

 

105.4

 

 

 

9,262

 

 

 

105.6

 

 

 

28,030

 

 

 

109.1

 

 

 

27,262

 

 

 

111.5

 

Less capitalized and recovered costs,

   including amounts relating to the Amtrak

   Agreement

 

 

1,003

 

 

 

10.8

 

 

 

809

 

 

 

9.2

 

 

 

2,302

 

 

 

9.0

 

 

 

2,565

 

 

 

10.5

 

Total

 

$

8,758

 

 

 

94.6

%

 

$

8,453

 

 

 

96.4

%

 

$

25,728

 

 

 

100.1

%

 

$

24,697

 

 

 

101.0

%

 

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Operating Revenues:

Operating revenues increased $1.2 million, or 4.9%, to $25.7 million in the nine months ended September 30, 2015 from $24.5 million in 2014.  This increase is the result of a $1.4 million (6.3%) increase in conventional freight revenues and a $187 thousand (42.2%) increase in other freight related revenues, offset by a $174 thousand (15.1%) decrease in container freight revenues and a $158 thousand (18.7%) decrease in other operating revenues.

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The increase in conventional freight revenues results from a 12.6% increase in traffic volume, offset by a 5.6% decrease in the average revenue received per conventional carload, The Company’s conventional carload increased by 3,183 to 28,475 in the first nine months of 2015 from 25,292 in 2014.

The number of shipments of most commodities handled by the Company increased. The majority of the increase was attributable to shipments of automobiles, chemicals (including ethanol), and metal and construction products. This increase was offset, in part, by decreases in shipments of other commodities. The decrease in the average revenue received per conventional carload is due to a shift of the mix of commodities, the origin of the shipments, and decrease in fuel surcharge revenue.

The decrease in container freight revenues is mainly the result of a 13.4% decrease in traffic volume. Container traffic volume decreased by 2,147 containers to 13,917 containers in the first nine months of 2015 from 16,064 containers in 2014 as a result of more international freight being transloaded at the west coast ports to domestic containers, as well as some rate changes.

The increase in other freight-related revenues results from an increase in revenue from demurrage, switching, and other freight-related services while the decrease in other operating revenues reflects a decrease in maintenance department billings for services rendered to freight customers and other outside parties.

Operating Expenses:

Operating expenses for the nine-month period ended September 30, 2015 increased by $1.0 million, or 4.0%, to $25.7 million from $24.7 million for the nine-month period ended September 30, 2014. Increases in operating expenses for the nine month period ended September 30, 2015 were attributable mainly to increases in payroll related expense ($342 thousand), casualty and insurance related expense ($175 thousand), car hire expense ($605 thousand), track usage fees ($363 thousand), other materials and supplies ($144 thousand), and other expense ($218 thousand), offset by decreases in purchased services ($309 thousand), repairs and maintenance fees ($465 thousand), and track and signal materials expense ($233 thousand). The decreases in purchased services and track and signal materials expense was partly attributable to projects performed by the Company’s Maintenance of Way department for various state agencies. The decrease in recovered costs relates to these same projects.

Provision for Income Taxes (Benefit):

The income tax for the nine months ended September 30, 2015 and 2014 is equal to 38% and 54%, respectively, of the pre-tax income. The income tax rate for 2015 represents the effective tax rate which the Company expects plus an adjustment for an increase in the Company’s valuation allowance. The income tax rate for 2014 represents the effective tax benefit after giving effect for a decrease in the Company’s valuation allowance against its deferred tax assets.

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Operating Revenues:

Operating revenues increased $0.5 million, or 5.7%, to $9.3 million in the third quarter of 2015 from $8.8 million in the third quarter of 2014. The increase is the result of a $363 thousand (4.5%) increase in conventional freight revenues, a $100 thousand (85.5%) increase in other freight related revenue, and a $72 thousand (36.4%) increase in other operating revenues, offset by a $44 thousand (11.0%) decrease in container freight revenues.

The increase in conventional freight revenues results from a 10.2% increase in traffic volume, offset by a 5.1% decrease in the average revenue received per conventional carload, The Company’s conventional carload increased by 984 to 10,659 in the third quarter of 2015 from 9,675 in the third quarter of 2014.

The decrease in container freight revenues is mainly the result of an 8.7% decrease in traffic volume. Container traffic volume decreased by 486 containers to 5,131 containers in the third quarter of 2015 from 5,617 in the third quarter of 2014 as a result of more international freight being transloaded at the west coast ports to domestic containers, as well as some rate changes.

The increase in other freight-related revenues results from an increase in revenue from demurrage, switching, and other freight-related services while the increase in other operating revenues reflects an increase in maintenance department billings for services rendered to freight customers and other outside parties.

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Operating Expenses:

Operating expenses for the three-month period ended September 30, 2015 increased by $300 thousand, or 3.5%, to $8.8 million from $8.5 million for the three-month period ended September 30, 2014. Increases in operating expenses for the three month period ended September 30, 2015 were attributable mainly to increases in payroll related expense ($130 thousand), car hire expense ($150 thousand), track usage fees ($157 thousand), and other expense ($156 thousand), offset by decreases in diesel fuel expense ($147 thousand), repairs and maintenance expense ($64 thousand), and track and signal materials expense ($36 thousand). The increase in recovered costs was attributable to projects performed by the Company’s Maintenance of Way department for various state agencies.

Provision for Income Taxes:

The income tax provision for the third quarter of 2015 and 2014 is equal to 35% and 53%, respectively, of pre-tax income. The income tax rate for 2015 represents the effective tax rate which the Company expects without a change. The income tax rate for 2014 represents the effective tax benefit after giving effect for a decrease in the Company’s valuation allowance against its deferred tax assets.

Liquidity and Capital Resources

During the nine months ended September 30, 2015, the Company generated $3.2 million of cash from operating activities and used $4.6 million in investing activities and $539 thousand in financing activities.

On October 28, 2015, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on November 25, 2015.  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, 2017. At September 30, 2015, no amounts were outstanding.

In October, the Company drew down $1.0 million on its term loan facility, leaving $4.0 million to be drawn down.

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.

 

12


 

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 Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2015, filed with the Securities and Exchange Commission on November 12, 2015, formatted in eXtensible Business Reporting Language:

 

(i)

Balance Sheets as of September 30, 2015 and December 31, 2014;

 

(ii)

Statements of Operations for the Three and Nine Months ended September 30, 2015 and 2014;

 

(iii)

Statements of Cash Flows for the Nine Months ended September 30, 2015 and 2014; and

 

(iv)

Notes to Financial Statements.

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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 12, 2015

 

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