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Table of Contents

 

 

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, 2014

 

¨ 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   ¨    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 November 1, 2014, the registrant had 4,858,262 shares of common stock, par value $.50 per share, outstanding.

 

 

 


Table of Contents

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, 2014 (Unaudited) and December 31, 2013

     3   

Condensed Statements of Operations – Three and Nine Months Ended September 30,  2014 and 2013 (Unaudited)

     4   

Condensed Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013 (Unaudited)

     5   

Notes to Condensed Financial Statements (Unaudited)

     6-9   

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

     10-14   

Item 4 – Controls and Procedures

     14-15   

Part II – Other Information:

  

Item 5 – Other Information

     16   

Item 6 – Exhibits

     16   

Signatures

     17   


Table of Contents

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,  
     2014      2013  

ASSETS

     

Current Assets:

     

Cash and cash equivalents

   $ 2,162       $ 2,614   

Accounts receivable, net of allowance for doubtful accounts of $160 in 2014 and 2013

     6,833         5.727   

Materials and supplies

     1,019         1,308   

Prepaid expenses and other current assets

     855         508   

Deferred income taxes

     353         353   
  

 

 

    

 

 

 

Total Current Assets

     11,222         10,510   

Property and Equipment, net

     85,721         85,571   

Land Held for Development

     12,457         12,457   
  

 

 

    

 

 

 

Total Assets

   $ 109,400       $ 108,538   
  

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current Liabilities:

     

Accounts payable

   $ 4,137       $ 3,745   

Current portion of deferred grant and other income

     324         239   

Accrued expenses

     1,838         1,677   
  

 

 

    

 

 

 

Total Current Liabilities

     6,299         5,661   
  

 

 

    

 

 

 

Deferred Income Taxes

     13,931         13,638   
  

 

 

    

 

 

 

Deferred Grant and Other Revenue

     12,369         12,477   
  

 

 

    

 

 

 

Shareholders’ Equity:

     

Preferred stock, 10% noncumulative, $50 par value; authorized, issued and outstanding 640 shares in 2014 and 2013

     32         32   

Common stock, $.50 par value; authorized 15,000,000 shares; issued and outstanding 4,858,262 shares in 2014 and 4,850,014 shares in 2013

     2,429         2,425   

Additional paid-in capital

     37,855         37,635   

Retained earnings

     36,485         36,670   
  

 

 

    

 

 

 

Total Shareholders’ Equity

     76,801         76,762   
  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 109,400       $ 108,538   
  

 

 

    

 

 

 

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

 

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Table of Contents

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,  
     2014      2013      2014      2013  

Operating Revenues

   $ 8,967       $ 8,809       $ 24,992       $ 24,578   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Expenses:

           

Maintenance of way and structures

     1,597         1,324         4,274         4,162   

Maintenance of equipment

     989         1,023         2,949         3,041   

Transportation

     2,841         2,818         7,960         7,942   

General and administrative

     1,038         1,235         3,700         3,615   

Depreciation

     894         870         2,682         2,587   

Taxes, other than income taxes

     668         635         2,024         2,320   

Car hire, net

     290         276         743         735   

Employee retirement plans

     57         56         171         167   

Track usage fees

     79         30         194         152   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Operating Expenses

     8,453         8,267         24,697         24,721   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Income (loss) before Interest and Income Taxes

     514         542         295         (143

Other income

     441         125         568         144   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations prior to income taxes

     955         667         863         1   

Provision for Income Taxes

     502         74         462         21   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income (Loss)

     453         593         401         (20
  

 

 

    

 

 

    

 

 

    

 

 

 

Preferred Stock Dividends

     —           —           3         3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income (Loss) Attributable to Common Shareholders.

   $ 453       $ 593       $ 398       $ (23
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income (Loss) Per Common Share

           

Basic

   $ .09       $ .12       $ .08       $ —     

Diluted

   $ .09       $ .12       $ .08       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-Average Common Shares Outstanding:

           

For basic

     4,857,083         4,845,524         4,853,985         4,843,828   

For diluted

     4,931,235         4,923,897         4,929,059         4,843,828   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

4


Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

     Nine Months Ended September 30,  
     2014     2013  

Cash Flows from Operating Activities:

    

Net income (loss)

   $ 401      $ (20

Adjustments to reconcile the net income (loss) to cash flows from operating activities:

    

Depreciation

     2,682        2,587   

Gain on sale of equipment

     (538     —     

Amortization of deferred grant and other income

     (724     (614

Proceeds from deferred grant and other income

     701        1,285   

Deferred income tax benefit

     293        (246

Share-based compensation

     114        78   

Increase (decrease) in cash from:

    

Accounts receivable

     (1,106     1,138   

Materials and supplies

     289        (332

Prepaid expenses and other current assets

     (347     (253

Accounts payable and accrued expenses

     553        (211
  

 

 

   

 

 

 

Net cash flows from operating activities

     2,318        3,412   
  

 

 

   

 

 

 

Cash flows from Investing Activities:

    

Purchase of property and equipment

     (3,246     (2,998

Proceeds from sale of property, equipment and easements

     952        —     
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (2,294     (2,998
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Dividends paid

     (586     (586

Proceeds from deferred grant and other income

     —          339   

Issuance of common shares for stock options exercised and employee stock purchases

     110        73   
  

 

 

   

 

 

 

Net cash flows used financing activities

     (476     (174
  

 

 

   

 

 

 

Increase (decrease) in Cash and Cash Equivalents

     (452     240   

Cash and Cash Equivalents, Beginning of Period

     2,614        951   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 2,162      $ 1,191   
  

 

 

   

 

 

 

Supplemental Disclosures:

    

Cash paid for income taxes

   $ 139      $ 420   

Property and equipment included in accounts payable

   $ 304      $ 450   

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

 

5


Table of Contents

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, 2014 and 2013 and cash flows for the nine months ended September 30, 2014 and 2013 in accordance with accounting principles generally accepted in the United States. The accompanying condensed balance sheet as of December 31, 2013 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, 2013 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:

 

                   Additional            Total  
     Preferred      Common      Paid-in      Retained     Shareholders’  
     Stock      Stock      Capital      Earnings     Equity  

Balance December 31, 2013

   $ 32       $ 2,425       $ 37,635       $ 36,670      $ 76,762   

Issuance of 8,248 common shares for stock options exercised, employee stock purchases and employee stock awards

        4         106           110   

Share-based compensation, options granted

           114           114   

Dividends:

             

Preferred stock, $5.00 per share

              (3     (3

Common stock, $.12 per share

              (583     (583

Net income for the period

              401        401   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance September 30, 2014

   $ 32       $ 2,429       $ 37,855       $ 36,485      $ 76,801   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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, 2015. 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

 

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Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

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

(Dollars in Thousands Except Per Share Amounts)

 

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, 2014 and December 31, 2013, no amounts were outstanding.

 

5. 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      Nine Months Ended  
     September 30,      September 30,  
     2014      2013      2014      2013  

Weighted-average shares for basic

     4,857,083         4,845,524         4,853,985         4,843,828   

Dilutive effect of convertible preferred stock and stock options

     74,152         78,373         75,074         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average shares for diluted

     4,931,235         4,923,897         4,929,059         4,843,828   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options to purchase 60,838 and 68,974 shares of common stock were outstanding at September 30, 2014 and 2013, respectively. For the three month periods ended September 30, 2014 and 2013, 10,152 and 14,373 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, 2014, 11,074 of outstanding options to purchase common stock were included in the computation of diluted earnings per share (EPS). For the nine month period ended September 30, 2013, 10,746 of outstanding options to purchase common stock were not included in the diluted earnings per share (EPS) as the effect would antidilutive.

Preferred Stock is convertible into common stock at the rate of 100 shares of common stock for each one share of Preferred Stock outstanding for the three and nine-month periods ended September 30, 2014 and 2013. For the three month periods ended September 30, 2014 and 2013, and for the nine month period ended September 30, 2014, the 64,000 shares of the Company’s common stock were included. For the nine month period ended September 30, 2013, the 64,000 shares of the Company’s common stock were not included as the effect would be antidilutive.

 

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.

 

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Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

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

(Dollars in Thousands Except Per Share Amounts)

 

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. At this point, two other parties have already committed via a consent order with EPA to pay for the Remedial Investigation/Feasibility Study (“RI/FS”) phase of the clean-up at the Site, which will take approximately two or more years to complete. After that, EPA will likely seek to negotiate the cost of the Remedial Design and implementation of the remedy at the Site with the PRPs it has identified via these Notice Letters (which presently includes over sixty parties, and is likely to increase after EPA completes its investigation of the identity of PRPs). On December 15, 2003, the EPA issued a second “Notice of Potential Liability” letter to the Company regarding the Site. EPA again identified the Company as a PRP, this time because EPA “believes that [the Company] accepted hazardous substance for transport to disposal or treatment facilities and selected the site for disposal.” The Company responded again to EPA stating that it is interested in cooperating with EPA but that it does not believe it has engaged in any activities that caused contamination at the Site. The Company believes that none of its activities caused contamination at the Site, and will contest this claim by EPA and therefore no liability has been accrued for this matter.

In connection with the EPA claim described above, the two parties who have committed to conduct the RI/FS at the Site filed a complaint in the U.S. District Court of Rhode Island against the Company, in an action entitled CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al (consolidated with Unilever Bestfoods v. American Steel & Aluminum Corp. et al), C.A. No. 01-496/L, on December 18, 2002. The Company was one of about sixty parties named by Plaintiffs, in this suit, to recover response costs incurred in investigating and responding to the releases of hazardous substances at the Site. Plaintiffs alleged that the Company is liable under 42 U.S.C. § 961(a)(3) of CERCLA as an “arranger” or “generator” of waste that ended up at the Site. The Company entered into a Generator Cooperation Agreement with other defendants to allocate costs in responding to this suit, and to share technical costs and information in evaluating the Plaintiffs’ claims. Although the Company does not believe it generated any waste that ended up at this Site, or that its activities caused contamination at the Site, the Company paid $45 thousand to settle this suit in March 2006.

 

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 will recognize the expense offset relative to Track Usage Fees

 

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Table of Contents

PROVIDENCE AND WORCESTER RAILROAD COMPANY

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

(Dollars in Thousands Except Per Share Amounts)

 

as the expenses are 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 and has the following track mileage credit remaining:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2014      2013      2014      2013  

Mileage credit available

   $ 905       $ 1,689       $ 1,200       $ 1,994   

Utilized

     199         282         494         587   
  

 

 

    

 

 

    

 

 

    

 

 

 

Mileage credit remaining

   $ 706       $ 1,407       $ 706       $ 1,407   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

8. Open-Top Hoppers

In June, 2014, the Company acquired from GATX Corporation 75 open-top hoppers, which were previously under lease. The Company acquired these open-top hoppers for $1,500.

Subsequent to the acquisition of the 75 open-top hoppers, 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.

 

9. Subsequent event and dividends:

On October 29, 2014, the Company declared a dividend of $.04 per share on its outstanding common stock payable November 26, 2014 to shareholders of record as of November 12, 2014.

 

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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, 2013 and during the first nine months of 2014.

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.

 

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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;

 

    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 of $197 and $157 during the three months ended September 30, 2014 and 2013, respectively, and $535 and $487 during the nine months ended September 30, 2014 and 2013, respectively, by category in dollars and as a percentage of operating revenues:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2014     2013     2014     2013  
     (In thousands, except percentages)  

Freight Revenues:

             

Conventional carloads

   $ 8,054         91.8   $ 7,874         91.0   $ 22,017         90.0   $ 22,010         91.4

Containers

     401         4.6        374         4.3        1,150         4.7        1,019         4.2   

Other freight related

     117         1.3        254         2.9        443         1.8        550         2.3   

Other Operating Revenues

     198         2.3        150         1.8        847         3.5        512         2.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 8,770         100.0   $ 8,652         100.0   $ 24,457         100.0   $ 24,091         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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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,  
     2014     2013     2014     2013  
     (In thousands, except percentages)  

Salaries, wages, payroll taxes and employee benefits

   $ 3,981         45.4   $ 4,234         48.9   $ 11,807         48.3   $ 12,390         51.4

Casualties and insurance

     446         5.1        231         2.7        1,148         4.7        770         3.2   

Depreciation

     894         10.2        870         10.1        2,682         11.0        2,587         10.7   

Diesel fuel

     849         9.7        950         11.0        2,316         9.5        2,556         10.6   

Car hire, net

     290         3.3        276         3.2        743         3.0        736         3.1   

Purchased services, including legal and professional fees

     753         8.6        693         8.0        2,304         9.4        1,593         6.6   

Repair and maintenance of equipment

     468         5.3        428         4.9        1,412         5.8        1,433         5.9   

Track and signal materials

     489         5.6        183         2.1        1,102         4.5        1,154         4.8   

Track usage fees

     285         3.2        312         3.6        716         2.9        739         3.1   

Other materials and supplies

     351         4.0        365         4.2        1,132         4.6        1,115         4.6   

Other

     456         5.2        467         5.4        1,900         7.8        1,948         8.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

     9,262         105.6        9,009         104.1        27,262         111.5        27,021         112.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Less capitalized and recovered costs, including amounts relating to the Amtrak Agreement

     809         9.2        742         8.6        2,565         10.5        2,300         9.5   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 8,453         96.4   $ 8,267         95.5   $ 24,697         101.0   $ 24,721         102.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Operating Revenues:

Operating revenues increased $400 thousand, or 1.7%, to $24.5 million in the nine months ended September 30, 2014 from $24.1 million in 2013. This increase is the result of a $130 thousand (12.7%) increase in container freight revenues and a $336 thousand (65.8%) increase in other operating revenues, offset by a $107 thousand (19.5%) decrease in other freight related revenues. Conventional freight revenues were consistent with the same period of prior year.

Conventional freight revenues had a 1.7% increase in the average revenue received per conventional carload, which was offset by a 1.6% decrease in traffic volume. The Company’s conventional carloads decreased by 414 to 25,292 in the nine-month period ended September 30, 2014 from 25,706 in 2013.

The number of shipments of construction materials and chemicals, including ethanol, handled by the Company decreased during the first nine months of 2014. The decrease was offset in part by increase in shipments of metal and forest commodities. The increase in the average revenue received per conventional carload 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 13.0% increase in traffic volume and a 0.4% increase in the average revenue received per container. Container traffic volume increased 1,850 to 16,064 in the first nine months of 2014 from 14,214 containers in 2013. This increase in traffic results from improved economic conditions while the increase in average revenue received per container is primarily due to a shift in the mix of containers.

 

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The decrease in other freight-related revenues is due to less demurrage and other freight-related services while the increase in other operating revenues results from increased 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, 2014 were $24.7 million, even with the same period of prior year. Changes in operating expenses for the nine month period ended September 30, 2014, were attributable mainly to decreases in payroll related expense ($583 thousand) and diesel fuel ($239 thousand). These decreases were offset by increases in casualty and insurance related expense ($379 thousand), depreciation expense ($95 thousand), and purchased services ($771 thousand). The increase in purchased services, partially offset by the decrease in track and signal materials expense for reimbursable projects, was attributable to projects performed by the Company’s Maintenance of Way department for various state agencies. The increase in recovered costs also relates to these same projects.

The Company utilized $494 and $587 thousand of the track usage fee offsets obtained via the Amtrak Agreement for the nine-month period ended September 30, 2014 and 2013, respectively. The Company has $706 thousand of credit remaining to offset future mileage charges for the use of Amtrak’s Northeast Corridor.

Provision for Income Taxes (Benefit):

The income tax (benefit) for the nine months ended September 30, 2014 and 2013 is equal to 54% and 2100% 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 statutory rate due to changes in the valuation allowance the Company had previously established against its deferred tax assets based upon the Company’s analysis of the Company’s reversal pattern of taxable temporary differences.

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Operating Revenues:

Operating revenues increased $0.1 million, or 1.1%, to $8.8 million in the third quarter of 2014 from $8.7 million in the third quarter of 2013. The increase is the result of a $180 thousand (2.3%) increase in conventional freight revenues, a $27 thousand (7.2%) increase in container freight revenues, and a $48 thousand (32.0%) increase in other operating revenues, offset by a $137 thousand (53.9%) decrease in other freight related revenue.

The increase in conventional freight revenues results from a 1.3% decrease in conventional traffic volume, offset by a 4.3% increase in the average revenue received per conventional carload. Conventional carloads decreased by 125 to 9,675 in the third quarter of 2014 from 9,800 in the third quarter of 2013. The reason for the decrease in conventional traffic is primarily due to decreased construction material shipments, which is partially offset by increases in shipments of auto, metal, and forest commodities. The increase in the average revenue received per conventional carload is due to a shift in the mix of commodities, as well as some rate changes.

The increase in container freight revenues for the quarter is the result of a 7.8% increase in traffic volume and a 0.6% increase in the average revenue received per container. Container traffic volume increased

 

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by 406 to 5,617 in the third quarter of 2014 from 5,211 in the third quarter of 2013. Reasons for the increase in traffic volume and the average revenue received per container during the third quarter are the same as for the nine-months period ended September 30, 2014, as previously discussed.

Reasons for the increase in other freight-related revenues and decrease in other operating revenues are also the same as for the nine-month period ended September 30, 2014, as previously discussed.

Operating Expenses:

Operating expenses for the three-month period ended September 30, 2014 increased by $200 thousand, or 2.4%, to $8.5 million from $8.3 million for the three-month period ended September 30, 2014. The increase is attributable mainly to increases in casualty and insurance related expense ($215 thousand) and track and signal material purchases ($306 thousand), which were offset in part by decreases in payroll related expense ($253 thousand) and diesel fuel ($102 thousand). The increase in track and signal materials expense was attributable to projects performed by the Company’s Maintenance of Way department for various state agencies. The increase in recovered costs also relates to these same projects.

The Company utilized $199 and $282 thousand of the track usage fee offsets obtained via the Amtrak Agreement in the third quarter of 2014 and 2013, respectively. The Company has $706 thousand 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 third quarter of 2014 and 2013 is equal to 53% and 11% of pre-tax income (loss). This effective rate reflects the federal income and state tax rates increased by the effect of an increase in the valuation allowance against tax credit carryovers that are reserved based upon the reversal pattern of the Company’s deferred tax assets and liabilities.

Liquidity and Capital Resources

During the nine months ended September 30, 2014, the Company generated $2.3 million of cash from operating activities and used $2.3 million in investing activities and $476 thousand in financing activities.

On October 29, 2014, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on November 26, 2014. 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, 2015. At September 30, 2014, 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.

 

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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.

 

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PART II – Other Information

 

Item 5. Other information

None.

 

Item 6. Exhibits

 

(31.1)    Rule 13a-14(a) Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)    Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)    Certifications of Chairman of the Board and Chief Executive Officer and Treasurer and Principal Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32.1)    Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

101 The following financial information from the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2014, filed with the Securities and Exchange Commission on November 12, 2014, formatted in eXtensible Business Reporting Language:

 

  (i) Balance Sheets as of September 30, 2014 and December 31, 2013;

 

  (ii) Statements of Operations for the Three and Nine Months ended September 30, 2014 and 2013;

 

  (iii) Statements of Cash Flows for the Nine Months ended September 30, 2014 and 2013; 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, 2014

 

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