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EX-4.1 - EX-4.1 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex41_12.htm
EX-31.1 - EX-31.1 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex311_8.htm
EX-32 - EX-32 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex32_7.htm
EX-32.1 - EX-32.1 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex321_6.htm
EX-31.2 - EX-31.2 - PROVIDENCE & WORCESTER RAILROAD CO/RI/pwx-ex312_9.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 March 31, 2016

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

 

(Former name, former address and former fiscal year, if changed since last report)

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 May 5, 2016, the registrant had 4,865,737 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

PROVIDENCE AND WORCESTER RAILROAD COMPANY

 

CONDENSED BALANCE SHEETS

(Dollars in Thousands Except Per Share Amounts)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,619

 

 

$

6,281

 

Accounts receivable, net of allowance for doubtful accounts of $160 in 2016

   and 2015

 

 

4,167

 

 

 

4,977

 

Materials and supplies

 

 

942

 

 

 

911

 

Prepaid expenses and other current assets

 

 

303

 

 

 

621

 

     Total Current Assets

 

 

11,031

 

 

 

12,790

 

Property and Equipment, net

 

 

88,508

 

 

 

88,910

 

Land Held for Development

 

 

12,457

 

 

 

12,457

 

Total Assets

 

$

111,996

 

 

$

114,157

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,495

 

 

$

4,251

 

Current portion of long-term debt

 

 

20

 

 

 

20

 

Current portion of deferred grant and other income

 

 

447

 

 

 

319

 

Accrued expenses

 

 

1,839

 

 

 

1,653

 

Total Current Liabilities

 

 

5,801

 

 

 

6,243

 

Long-Term Debt, net of current portion

 

 

980

 

 

 

980

 

Deferred Income Taxes

 

 

13,066

 

 

 

13,602

 

Deferred Grant and Other Income

 

 

12,639

 

 

 

12,714

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

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

   outstanding 640 shares in 2016 and 2015

 

 

32

 

 

 

32

 

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

   outstanding 4,865,737 shares in 2016 and 4,862,693 shares in 2015

 

 

2,433

 

 

 

2,432

 

Additional paid-in capital

 

 

38,140

 

 

 

38,050

 

Retained earnings

 

 

38,905

 

 

 

40,104

 

Total Shareholders’ Equity

 

 

79,510

 

 

 

80,618

 

Total Liabilities and Shareholders’ Equity

 

$

111,996

 

 

$

114,157

 

 

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

3


 

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF OPERATIONS

(Dollars in Thousands Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Operating Revenues

 

$

7,223

 

 

$

7,261

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Maintenance of way and structures

 

 

1,543

 

 

 

1,533

 

Maintenance of equipment

 

 

1,097

 

 

 

762

 

Transportation

 

 

2,291

 

 

 

2,792

 

General and administrative

 

 

1,368

 

 

 

1,382

 

Depreciation

 

 

959

 

 

 

876

 

Taxes, other than income taxes

 

 

806

 

 

 

733

 

Car hire, net

 

 

387

 

 

 

383

 

Employee retirement plans

 

 

56

 

 

 

57

 

Track usage fees

 

 

255

 

 

 

40

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

8,762

 

 

 

8,558

 

Loss from operations

 

 

(1,539

)

 

 

(1,297

)

Other income

 

 

9

 

 

 

7

 

Interest expense

 

 

5

 

 

 

 

Loss from operations prior to income taxes

 

 

(1,535

)

 

 

(1,290

)

Provision for income taxes

 

 

(536

)

 

 

(447

)

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(999

)

 

 

(843

)

 

 

 

 

 

 

 

 

 

Preferred Stock Dividends

 

 

3

 

 

 

3

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Shareholders

 

$

(1,002

)

 

$

(846

)

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

Basic

 

$

(.21

)

 

$

(.17

)

Diluted

 

$

(.21

)

 

$

(.17

)

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

For basic

 

 

4,865

 

 

 

4,860

 

For diluted

 

 

4,865

 

 

 

4,860

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net Loss

 

$

(999

)

 

$

(843

)

Adjustments to reconcile the net loss to cash flows from operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

959

 

 

 

876

 

Amortization of deferred grant and other income

 

 

(246

)

 

 

(235

)

Deferred grant and other income

 

 

316

 

 

 

288

 

Deferred income taxes

 

 

(536

)

 

 

(447

)

Share-based compensation

 

 

76

 

 

 

98

 

Increase (decrease) in cash from:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

793

 

 

 

278

 

Materials and supplies

 

 

(31

)

 

 

10

 

Prepaid expenses and other current assets

 

 

318

 

 

 

340

 

Accounts payable and accrued expenses

 

 

(305

)

 

 

444

 

Net cash flows provided by operating activities

 

 

345

 

 

 

809

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(822

)

 

 

(350

)

Net cash flows used in investing activities

 

 

(822

)

 

 

(350

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Dividends paid

 

 

(200

)

 

 

(198

)

Issuance of common shares for stock options exercised and employee stock

   purchases

 

 

15

 

 

 

12

 

Net cash flows used in financing activities

 

 

(185

)

 

 

(186

)

 

 

 

 

 

 

 

 

 

(Decrease) Increase in Cash and Cash Equivalents

 

 

(662

)

 

 

273

 

Cash and Cash Equivalents, Beginning of Period

 

 

6,281

 

 

 

6,414

 

Cash and Cash Equivalents, End of Period

 

$

5,619

 

 

$

6,687

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

310

 

 

$

385

 

Deferred grant income in accounts receivable

 

$

17

 

 

$

-

 

Property and equipment included in accounts payable

 

$

265

 

 

$

217

 

 

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 condensed financial statements of Providence and Worcester Railroad Company (the “Company”) contain all adjustments (consisting solely of normal and recurring adjustments) necessary to present fairly the financial position as of March 31, 2016 and the results of operations and cash flows for the three months ended March 31, 2016 and 2015 in accordance with accounting principles generally accepted in the United States.  The accompanying condensed balance sheet as of December 31, 2015, 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, 2015 filed with the Securities and Exchange Commission.  Results for interim periods may not be necessarily 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. 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.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which, effective for annual and interim reporting periods beginning after December 15, 2016, simplifies the presentation of deferred income taxes, requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Since early application is permitted, the new standard has been applied in the Company’s financial statements as of December 31, 2015. Prior periods were not retrospectively adjusted.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of our pending adoption of the new standard on our financial statements.

 

 

3.

Changes in Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Preferred

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Shareholders’

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance, December 31, 2015

 

$

32

 

 

$

2,432

 

 

$

38,050

 

 

$

40,104

 

 

$

80,618

 

Issuance of 1,049 common shares for stock options exercised, employee stock purchases, and other

 

 

 

 

 

 

1

 

 

 

14

 

 

 

 

 

 

 

15

 

Share based compensation – options granted

 

 

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

 

76

 

Dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Preferred stock, $5.00 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

   Common stock, $.04 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(197

)

 

 

(197

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(999

)

 

 

(999

)

Balance, March 31, 2016

 

$

32

 

 

$

2,433

 

 

$

38,140

 

 

$

38,905

 

 

$

79,510

 

 

6


PROVIDENCE AND WORCESTER RAILROAD COMPANY

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

(Dollars in Thousands Except Per Share Amounts)

 

 

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, 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. The Company 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 March 31, 2016 and December 31, 2015, no amounts were outstanding.

Long-term Debt

The Company entered into a loan agreement with its commercial bank for $5 million in 2014, the majority of which was or will be utilized to rehabilitate four and replace one main line bridges. Once the rehabilitation and replacement are complete, the Company will have the ability to haul freight with a lading of 286,000 pounds on its main line from Worcester, MA to Davisville/Providence RI. As provided in the agreement, the loan requires payments of interest only for twelve months 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 annum for the life of the loan. The loan is unsecured and subjects the Company to certain financial and non-financial covenants, including the maintenance of certain tangible net worth levels. The Company drew down the remaining $4 million in April 2016.

 

 

5.

Net Loss 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:

 

 

2016

 

 

2015

 

 

 

Net

Loss

 

 

Shares

 

 

Per Share

Amount

 

 

Net

Loss

 

 

Shares

 

 

Per Share

Amount

 

Basic Loss per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Shareholders

 

$

(1,002

)

 

 

 

 

 

 

 

 

 

$

(846

)

 

 

 

 

 

 

 

 

Basic Loss per share

 

$

(1,002

)

 

 

4,865

 

 

$

(0.21

)

 

$

(846

)

 

 

4,860

 

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Loss per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common Shareholders

 

$

(1,002

)

 

 

 

 

 

 

 

 

 

$

(846

)

 

 

 

 

 

 

 

 

Effect of Dilutive Securities

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

Diluted Loss per Share

 

$

(1,002

)

 

 

4,865

 

 

$

(0.21

)

 

$

(846

)

 

 

4,860

 

 

$

(0.17

)

 

Options to purchase 114,312 and 67,289 shares of common stock were outstanding at March 31, 2016 and 2015, respectively. No outstanding options were included in the computation of diluted loss per common share for 2016 and 2015 as the effect would be antidilutive. Shares of preferred stock convertible into 64,000 shares of common stock were outstanding at March 31, 2016 and 2015. These shares were not included in the computation of diluted loss per common share for 2016 and 2015 because of the anti-dilutive effect.

 

 

7


PROVIDENCE AND WORCESTER RAILROAD COMPANY

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

(Dollars in Thousands Except Per Share Amounts)

 

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 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.

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. No credits remained outstanding as of March 31, 2016.

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Mileage credit available

 

$

-

 

 

$

418

 

Utilized

 

 

-

 

 

 

130

 

Mileage credit remaining

 

$

-

 

 

$

288

 

 

            

8


PROVIDENCE AND WORCESTER RAILROAD COMPANY

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

(Dollars in Thousands Except Per Share Amounts)

 

8.

Share-Based Compensation: 

 

In April 2015, the Company’s shareholders approved the Providence and Worcester Railroad Company 2015 Equity Incentive Plan (“Plan”), which replaced the Company’s non-qualified stock option plan (“SOP”). In January 2016, 54,000 options and 70,500 restricted stock units (“RSU”) were awarded under the Plan. The option awards vest in accordance with the term of the option awards (mainly time vested over a 5 year period) and the RSU are performance based. Options issued but not exercised under the SOP totaling 114,312 remain outstanding until they are either exercised or expire.

 

 

9.

Subsequent events:

On April 27, 2016, the Company declared a dividend of $.04 per share on its outstanding common stock payable May 25, 2016 to shareholders of record as of May 11, 2016.

In April 2016, the Company drew down $4,000 from an unsecured loan bearing interest at 4.11% per annum for the life of the loan.

 

 

 

9


 

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, 2015 and during the first three months of 2016.

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.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which, effective for annual and interim reporting periods beginning after December 15, 2016, simplifies the presentation of deferred income taxes, requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Since early application is permitted, the new standard has been applied in the Company’s financial statements as of December 31, 2015. Prior periods were not retrospectively adjusted.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of our pending adoption of the new standard on our financial statements.

Results of Operations

The following table sets forth the Company’s operating revenues, exclusive of rental revenues of $174 and $170 for the first three months in 2016 and 2015, respectively, by category in dollars and as a percentage of operating revenues:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

 

 

(In thousands, except percentages)

 

Freight Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional carloads

 

$

6,407

 

 

 

91.9

%

 

$

6,485

 

 

 

91.4

%

Containers

 

 

196

 

 

 

2.8

 

 

 

302

 

 

 

4.3

 

Other freight related

 

 

207

 

 

 

2.9

 

 

 

178

 

 

 

2.5

 

Other Operating Revenues

 

 

239

 

 

 

3.4

 

 

 

126

 

 

 

1.8

 

Total

 

$

7,049

 

 

 

100.0

%

 

$

7,091

 

 

 

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 March 31,

 

 

 

2016

 

 

2015

 

 

 

(In thousands, except percentages)

 

Salaries, wages, payroll taxes and employee

   benefits

 

$

4,195

 

 

 

59.5

%

 

$

4,084

 

 

 

57.6

%

Casualties and insurance

 

 

367

 

 

 

5.2

 

 

 

529

 

 

 

7.5

 

Depreciation

 

 

959

 

 

 

13.6

 

 

 

876

 

 

 

12.4

 

Diesel fuel

 

 

464

 

 

 

6.6

 

 

 

742

 

 

 

10.5

 

Car hire, net

 

 

387

 

 

 

5.5

 

 

 

383

 

 

 

5.4

 

Purchased services, including legal and

   professional fees

 

 

556

 

 

 

7.9

 

 

 

541

 

 

 

7.6

 

Repair and maintenance of equipment

 

 

471

 

 

 

6.7

 

 

 

204

 

 

 

2.9

 

Track and signal materials

 

 

224

 

 

 

3.2

 

 

 

228

 

 

 

3.2

 

Track usage fees

 

 

255

 

 

 

3.6

 

 

 

170

 

 

 

2.4

 

Other materials and supplies

 

 

435

 

 

 

6.2

 

 

 

386

 

 

 

5.4

 

Other

 

 

712

 

 

 

10.1

 

 

 

802

 

 

 

11.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

9,025

 

 

 

128.1

 

 

 

8,945

 

 

 

126.2

 

Less capitalized and recovered costs,

   including amounts relating to the Amtrak

   Agreement

 

 

263

 

 

 

3.7

 

 

 

387

 

 

 

5.5

 

Total

 

$

8,762

 

 

 

124.4

%

 

$

8,558

 

 

 

120.7

%

 

Operating Revenues:

Operating revenues decreased $40 thousand, or 0.6%, to $7.05 million in the first quarter of 2016 from $7.09 million in the first quarter of 2015.  

The decrease in conventional freight revenues is attributable to a 3.6% decrease in the average revenue received per conventional carload, offset in part by a 2.5% increase in traffic volume. The Company’s conventional carloads increased by 174 to 7,210 in the first quarter of 2016 from 7,036 in 2015.

Shipments of most commodities remained constant in the first quarter of 2016, as compared to the first quarter of 2015, except decreases in the Company’s ethanol and automobile business. 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, decrease in fuel surcharge revenue, as well as some rate changes.  

The decrease in container freight revenues is the result of a 35.9% decrease in traffic volume, offset by a 1.0% increase in the average revenue received per container. Container traffic volume decreased by 1,546 containers to 2,765 in the first quarter of 2016 from 4,311 in 2015.  

The increase in other freight-related revenues and in other operating revenues mainly reflects a increase in billings for flagging services performed by the Company.

Operating Expenses:

Operating expenses for the first quarter of 2016 increased by $200 thousand, or 2.3%, to $8.76 million from $8.56 million in the first quarter of 2015. The increase is attributable to increases in payroll related expense ($111 thousand), depreciation expense ($83 thousand), repairs and maintenance expenses ($267 thousand), track usage fees ($85 thousand), and a decrease of mileage credit received from Amtrak ($124 thousand). These increases were offset in part by decreases in casualty expense ($162 thousand), diesel fuel ($278 thousand), and other expenses ($90 thousand).

Provision for Income Taxes (Benefit):

The income tax benefit for the first quarter of 2016 and 2015 is both approximately (35%) of the pre-tax loss. The income tax rate for 2016 represents the effective tax benefit after giving effect for a decrease in the Company’s valuation allowance against its deferred

12


 

tax assets. The income tax rate for 2015 represents the effective tax benefit, absent any changes to the valuation allowance against the Company’s deferred tax assets.

Liquidity and Capital Resources

During the first quarter of 2016, the Company generated $345 thousand of cash from operating activities, used $822 thousand in investing activities and $185 thousand in financing activities.

On April 27, 2016, the Company declared a quarterly dividend of approximately $195 thousand ($.04 per common share) to be paid on May 25, 2016. The declaration of future dividends and the amount thereof will depend on the Company’s future earnings, financial factors and other events

The Company entered into a loan agreement with its commercial bank for $5 million in 2014, the majority of which was or will be utilized to rehabilitate four and replace one main line bridges. Once the rehabilitation and replacement are complete, the Company will have the ability to haul freight with a lading of 286,000 pounds on its main line from Worcester, MA to Davisville/Providence RI. As provided in the agreement, the loan requires payments of interest only for twelve months 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 annum for the life of the loan. The loan is unsecured and subjects the Company to certain financial and non-financial covenants, including the maintenance of certain tangible net worth levels. The Company drew down the remaining $4 million in April 2016.

The Company’s $5 million revolving credit line expires on June 25, 2017.  

Seasonality

Historically, the Company’s operating revenues are lowest for the first quarter due to the reduction in construction aggregate shipments during a portion of this period and to winter weather conditions.

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.

 

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PART II – Other Information

Item 5.

Other information

(a)Reports on Form 8-K were appropriately filed during the quarter ended March 31, 2016.

Item 6.

Exhibits

 

4.1

Notice of long-term debt of the Company that is less than 10% of the assets of the Company

 

(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 March 31, 2016, filed with the Securities and Exchange Commission on May 12, 2016, formatted in eXtensible Business Reporting Language:

 

(i)

Balance Sheets as of March 31, 2016 and December 31, 2015;

 

(ii)

Statements of Operations for the Three Months ended March 31, 2016 and 2015;

 

(iii)

Statements of Cash Flows for the Three Months ended March 31, 2016 and 2015; and

 

(iv)

Notes to Financial Statements.

14


 

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:  May 12, 2016

 

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