16
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 June 30, 1998
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 I.R.S. Employer Identification No.
incorporation or organization)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of August 1, 1998, the registrant has 3,472,936 shares of
common stock, par value $.50 per share, outstanding.
<PAGE>
Item 1. Financial Statements
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997
_________ __________
<S> <C> <C>
Current Assets:
Cash and equivalents $ 1,748 $ 519
Accounts receivable, net of allowance for
doubtful accounts of $125 in 1998 and 1997 2,302 2,345
Materials and supplies 2,042 2,086
Prepaid expenses and other 124 167
Deferred income taxes 123 204
________ _________
Total Current Assets 6,339 5,321
Property and Equipment, net 68,173 65,891
Goodwill (Note 6) 207
________ _________
Total Assets $ 74,719 $ 71,212
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Notes 2,
4 and 11) $ 188 $ 931
Notes payable, bank (Note 3) 1,350
Accounts payable 2,110 2,083
Accrued expenses 600 901
Income taxes 635 _____
30
_________ _________
Total Current Liabilities 3,533 5,295
_________ _________
Long-Term Debt, Less Current Portion
(Notes 2, 4 and 11) 799 11,916
_________ _________
Profit-Sharing Plan Contribution 337 337
_________ _________
Deferred Grant Income 6,867 6,945
_________ _________
Deferred Income Taxes 8,640 8,681
_________ _________
Commitments and Contingent Liabilities
(Note 9)
Shareholders' Equity (Notes 2 and 6):
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
647 shares in 1998 and 653 shares in 1997 32 33
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
3,472,829 shares in 1998 and 2,221,933
shares in 1997 1,737 1,111
Additional paid-in capital 20,765 6,665
Retained earnings 32,009 30,229
_________ _________
Total Shareholders' Equity 54,543 38,038
_________ _________
Total Liabilities and Shareholders' Equity $ 74,719 $ 71,212
========= =========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
_________ ________ _________ _________
<S> <C> <C> <C> <C>
Operating Revenues - Freight
and Non-Freight $ 5,909 $ 5,596 $ 10,892 $ 10,278
________ ________ ________ ________
Operating Expenses:
Maintenance of way and
structures 743 888 1,541 1,629
Maintenance of equipment 515 488 1,023 940
Transportation 1,388 1,228 2,604 2,377
General and administrative 1,245 963 2,064 1,798
Depreciation 542 501 1,070 999
Taxes, other than income
taxes 559 549 1,140 1,119
Car hire, net 130 156 285 318
________ ________ ________ ________
Total Operating Expenses 5,122 4,773 9,727 9,180
________ ________ ________ ________
Income from Operations 787 823 1,165 1,098
Other Income (Note 5) 2,410 250 2,596 415
Interest Expense (113) (346) (463) (681)
_________ _________ _________ _________
Income before Income taxes and
extraordinary item 3,084 727 3,298 832
Provision for Income Taxes 1,096 268 1,174 310
________ ________ ________ ________
Income before extraordinary
item 1,988 459 2,124 522
Extraordinary loss from early
extinguishment of debt, net
of income tax benefit of $94
(Note 4) 170 170
________ ________ ________ ________
Net income 1,818 459 1,954 522
Preferred Stock Dividends 3 3
________ ________ ________ ________
Net Income Available to Common
Shareholders $ 1,818 $ 459 $ 1,951 $ 519
======== ======== ======== ========
Basic Income Per Common Share
(Note 7):
Income before
extraordinary item $ .58 $ .21 .73 .24
Extraordinary item (.05) (.06)
________ _________ ________ ________
Net income $ .53 $ .21 $ .67 $ .24
======== ========= ======== ========
Diluted Income Per Common
Share (Note 7):
Income before
extraordinary item $ .56 $ .19 $ .71 $ .23
Extraordinary item (.05) (.05)
_________ _________ _________ ________
Net income $ .51 $ .19 $ .66 $ .23
======== ========= ======== ========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
<S> <C> <C>
__________ __________
Cash flows from operating activities:
Net income $ 1,954 $ 522
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation 1,070 999
Amortization of deferred grant income (78) (72)
Gains from sale, condemnation and disposal
of properties and equipment (2,330) (150)
Deferred income taxes 40 135
Increase (decrease) in cash from:
Accounts receivable (148) 159
Materials and supplies 44 (377)
Prepaid expenses and other 43 31
Accounts payable and accrued expenses 641 631
_________ _________
Net cash flows from operating activities 1,236 1,878
_________ _________
Cash flows from Investing Activities:
Purchase of property and equipment (3,614) (2,573)
Proceeds from sale and condemnation of
property and equipment 2,729 184
Proceeds from deferred grant income 192 329
_________ _________
Net cash flows used by investing activities (693) (2,060)
_________ _________
Cash Flows from Financing Activities:
Net payments under line of credit (1,350) (85)
Payments of long-term debt (10,491) (353)
Dividends paid (174) (136)
Proceeds from long-term debt 654
Net proceeds from public offering of
1,000,000 shares of common stock 12,538
Issuance of common shares for stock options
exercised, employee stock purchases and
acquisition of subsidiary 163 32
_________ _________
Net cash flows from financing activities 686 112
_________ _________
Increase (Decrease) in Cash and Equivalents 1,229 (70)
Cash and Equivalents, Beginning of Period 519 686
_________ _________
Cash and Equivalents, End of Period $ 1,748 $ 616
========= =========
Supplemental disclosures:
Cash paid during the period for:
Interest $ 449 $ 672
========= =========
Income taxes $ 422 $ 78
========= =========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in Thousands Except Per Share Amounts)
1. In the opinion of management, the accompanying interim
financial statements contain all adjustments (consisting
solely of normal recurring adjustments) necessary to present
fairly the financial position as of June 30, 1998 and the
results of operations and cash flows for the interim periods
ended June 30, 1998 and 1997. Results for interim periods
may not be necessarily indicative of the results to be
expected for the year. These interim financial statements
should be read in conjunction with the Company's 1997 Annual
Report on Form 10-K for the year ended December 31, 1997
filed with the Securities and Exchange Commission.
2. Changes in Shareholders' Equity:
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-in Retained Shareholders
Stock Stock Capital Earnings Equity
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
Balance December 31,
1997 $ 33 $ 1,111 $ 6,665 $ 30,229 $ 38,038
Issuance of 4,526
common shares for
stock options
exercised, employee
stock purchases and
other 2 45 47
Issuance of 1,000,000
common shares for an
underwritten public
stock offering (net
of expenses) 500 12,038 12,538
Issuance of 200,000
common shares for
stock purchase
warrants exercised 100 1,320 1,420
Issuance of 22,156
common shares to
fund the Company's
1997 profit sharing
plan contribution 11 326 337
Issuance of 23,614
shares for the
acquisition of Conn
Central 12 371 383
Conversion of 6
preferred shares
into 600 common
shares (1) 1
Dividends:
Preferred stock,
$5.00 per share (3) (3)
Common stock, $.03
per share (171) (171)
Net income for the
period 1,954 1,954
_______ _______ _______ _______ _______
Balance June 30 1998 $ 32 $ 1,737 $ 20,765 $ 32,009 $54,543
====== ======= ======== ======== =======
</TABLE>
In February 1998 the Company filed a registration statement
with the Securities and Exchange Commission for an
underwritten secondary public offering of Common Stock (the
"Common Stock Offering"). In March 1998, the Company
completed the Common Stock Offering and issued 1,000,000
shares of Common Stock at $14.25 per share. Net proceeds of
the Common Stock Offering were approximately $12.5 million.
A substantial portion of these funds were utilized to retire
short and long-term debt as discussed in Note 4. The
Company intends to utilize the balance of the Common Stock
Offering proceeds to acquire rail cars and expand its
Worcester maintenance facility.
In March 1998 Massachusetts Capital Resource Company
("MCRC") exercised its warrants to acquire 200,000 newly
issued shares of the Company's Common Stock for $7.10 per
share. Proceeds to the Company consisted of a $1.4 million
reduction in the outstanding principal balance of its 10%
subordinated long-term note payable to MCRC.
<PAGE>
3. Notes Payable, Bank:
In June 1998 the Company's principal bank renewed the
Company's revolving line of credit and increased the maximum
borrowings under the line from $1,750 to $2,000. In
addition, loans outstanding under the renewed line are
unsecured and bear interest at either the prime rate or one
and one half percent over either the one or three month
London Interbank Offered Rates. There were no loans
outstanding under the line at June 30, 1998.
4. Long-Term Debt:
The Company utilized a substantial portion of the proceeds
from its Common Stock Offering (Note 2) and from the sale of
fiber optics licenses (Note 5) to retire all of its short
term borrowings ($1,575) and to prepay $10,228 of its
outstanding long-term debt. Prepayment penalties of $264
were incurred on early extinguishment of a substantial
portion of the debt, which penalties have been reported as
an extraordinary item on the accompanying statement of
income. As of June 30, 1998 the Company's remaining long-
term debt consists of a 10% subordinated note payable to
MCRC in the total amount of $987 (Note 11).
<PAGE>
<TABLE>
<CAPTION>
5. Other Income:
Three Months Ended Six Months Ended
June 30 June 30
_________________ _________________
1998 1997 1998 1997
________ ________ ________ ________
<S> <C> <C> <C> <C>
Gain from sales of
properties and
easements, net $ 2,270 $ 131 $ 2,330 $ 150
Rentals 97 117 210 260
Interest 43 2 56 5
________ ________ ________ ________
$ 2,410 $ 250 $ 2,596 $ 415
======== ======== ======== ========
</TABLE>
Gain from sales of properties and easements for 1998
includes $2,043 received from the sale of fiber optics cable
licenses.
6. Acquisition of Connecticut Central Railroad Company:
On April 21, 1998 the Company acquired all of the
outstanding common stock of Connecticut Central Railroad
Company ("Conn Central") for 20,000 shares of newly issued
common stock of the Company. The Company issued an
additional 3,614 shares of its common stock to retire $50 of
debt owed by Conn Central to two of its former shareholders.
The total fair market value of the shares issued was $383,
which exceeded the fair market value of the net assets
acquired by $207, which amount is reported as goodwill on
the accompanying balance sheet. The company intends to
amortize this goodwill over a period of three years,
beginning in the third quarter of 1998. Conn Central's
former shareholders will receive an additional 7,500 shares
of the Company's common stock in April 1999 if certain
financial and other conditions are met. Issuance of such
shares will give rise to additional goodwill. Conn Central
was a shortline railroad which had operating rights over
approximately 28 miles of track in central Connecticut
connecting to the Company's Middletown Secondary line. Conn
Central's operations were merged into those of the Company
at the time of acquisition.
7. Income Per Share:
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings per Share," which establishes
standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or
potential common stock. Prior to 1997, the Company computed
income per common share using the methods outlined in
Accounting Principles Board Opinion No. 15, "Earnings per
Share," and its interpretations. The Company adopted SFAS
No. 128 in 1997 and restated its earnings per share.
Previously reported income per common share for the three
and six months ended June 30, 1997 did not differ materially
from that computed using SFAS 128.
<PAGE>
Basic income per common share is computed using the weighted
average number of common shares outstanding during each
year. Diluted income per common share reflects the effect
of the Company's outstanding convertible preferred stock,
options and warrants except where such items would be
antidilutive.
A reconciliation of net income available to common
shareholders for the computation of diluted income per share
is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
______________________ ____________________
1998 1997 1998 1997
________ ________ _________ ________
<S> <C> <C> <C> <C>
Net income available to
common shareholders $ 1,818 $ 459 $ 1,951 $ 519
Interest expense impact
(net of tax) on assumed
conversion of debt to
exercise warrants 22 44
________ ________ ________ _________
Net income available to
common shareholders
assuming dilution $ 1,818 $ 481 $1,951 $ 563
======== ======== ======== ========
</TABLE>
A reconciliation of weighted average shares used for the
basic computation and that used for the diluted computation
is as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
______________________ __________________
1998 1997 1998 1997
________ ________ ________ _________
<S> <C> <C> <C> <C>
Weighted average shares-
basic 3,455,813 2,208,087 2,894,624 2,198,766
Dilutive effect of
convertible preferred
stock, options and
warrants 83,121 275,617 80,864 275,552
________ ________ ________ _________
Weighted average shares-
diluted 3,538,934 2,483,704 2,975,488 2,474,318
========= ========= ========= =========
</TABLE>
8. Dividends:
On July 29, 1998, the Company declared a dividend of $.03
per share on its outstanding Common Stock payable August 27,
1998 to shareholders of record August 13, 1998.
9. Commitments and Contingent Liabilities
The Company is a defendant in certain lawsuits relating to
casualty losses, many of which are covered by insurance
subject to a deductible. The Company believes that adequate
provision has been made in the financial statements for any
expected liabilities which may result from disposition of
such lawsuits.
While it is possible that some of the foregoing matters may
be settled at a cost greater than that provided for, it is
the opinion of management based upon the advice of counsel
that the ultimate liability, if any, will not be material to
the Company's financial statements.
<PAGE>
In 1995 the Company entered into a settlement agreement with
Bestfoods (formerly CPC International, Inc.) resolving an
environmental claim against the Company, arising out of a
1974 rail car incident. Pursuant to the settlement
agreement, the Company paid Bestfoods $990 in stock and
cash. The Company and Bestfoods agreed that in the event
Bestfoods recovered proceeds from its insurance carrier for
the costs of remediation of the involved site, the Company
would be entitled to 10% of Bestfoods' net recovery after
deduction of litigation expenses. In 1997, Bestfoods
obtained a judgement in its favor from its insurance carrier
for over $18 million (which amount includes approximately $5
million of prejudgment interest) as well as an order that
obligates the insurance carrier to reimburse Bestfoods for
future remediation expenses. The insurance carrier's appeal
of this judgment was unsuccessful and it has now paid the
$18 million judgement to Bestfoods. Negotiations continue
between Bestfoods and the insurance carrier concerning the
payment of future expenses, the potential recovery of
litigation expenses and the resolution of a lawsuit filed by
the insurance carrier against Bestfoods and the Company (for
which Bestfoods is both defending and indemnifying the
Company). The insurance policy has limits of $25 million
(Note 11).
10. New Accounting Pronouncements:
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, ''Disclosures about
Segments of an Enterprise and Related Information.'' SFAS
130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial
statements. SFAS 131 establishes standards for the way that
public business enterprises report information about
operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports. It
also establishes standards for related disclosures about
products and services, geographic areas and major customers.
Both standards were adopted by the Company during 1998 and
have not had material effects on its financial position and
results of operations.
11. Subsequent events:
In July 1998, Bestfoods paid $1 million to the Company as an
interim payment of the Company's 10% recovery pending final
resolution of amounts to be paid to Bestfoods by its
insurance carrier (Note 9).
In July 1998 the Company utilized a portion of these funds
to prepay an additional $500 of principal of its
subordinated long-term note payable to MCRC thereby reducing
the unpaid principal balance of this note to $495. The
Company incurred a prepayment penalty of $40 on this
transaction.
<PAGE>
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.
Results of Operations
The following table sets forth the Company's operating revenues
by category in dollars and as a percentage of operating revenues:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
__________________________ _________________________
1998 1997 1998 1997
____________ ___________ _____________ ____________
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Freight Revenues:
Conventional
carloads $5,113 86.5% $4,781 85.4% $9,222 84.7% $8,748 85.1%
Containers 511 8.7 383 6.9 931 8.5 750 7.3
Non-Freight
Operating
Revenues:
Transportation
services 166 2.8 179 3.2 348 3.2 322 3.1
Other 119 2.0 253 4.5 391 3.6 458 4.5
_____ _____ _____ _____ ______ _____ ______ _____
Total $5,909 100.0% $5,596 100.0% $10,892 100.0% $10,278 100.0%
===== ===== ===== ===== ====== ===== ====== =====
</TABLE>
The following table sets forth a comparison of the Company's
operating expenses expressed in dollars and as a percentage of
operating revenues:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
____________________________ _________________________
1998 1997 1998 1997
_____________ ____________ ____________ ______________
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages,
payroll taxes
and employee
benefits $3,253 55.1% $2,781 49.7% $5,911 54.3% $5,309 51.6%
Casualties and
insurance 191 3.2 141 2.5 396 3.6% 284 2.8
Depreciation 542 9.2 501 9.0 1,070 9.8 999 9.7
Diesel fuel 178 3.0 182 3.3 307 2.8 324 3.2
Car hire, net 130 2.2 156 2.8 285 2.6 318 3.1
Purchased
services,
including legal
and professional
fees 578 9.8 473 8.4 931 8.5 788 7.7
Repair and
maintenance of
equipment 243 4.1 249 4.4 496 4.6 506 4.9
Track and signal
materials 234 4.0 583 10.4 477 4.4 801 7.8
Other materials
and supplies 275 4.6 244 4.4 553 5.1 454 4.4
Other 381 6.4 345 6.2 759 7.0 710 6.9
_____ _____ _____ _____ ______ _____ ______ _____
Total 6,005 101.6 5,655 101.1 11,185 102.7 10,493 102.1
Less capitalized
and recovered
costs 883 14.9 882 15.8 1,458 13.4 1,313 12.8
_____ ____ _____ ____ _____ ____ _____ ____
Total $5,122 86.7% $4,773 85.3% $9,727 89.3% $9,180 89.3%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
<PAGE>
Six Months Ended June 30,1998 Compared to Six Months Ended June
30,1997
Operating Revenues:
Operating revenues increased $614,000, or 5.0%, to $10.9 million
in the six month ended June 30, 1998 from $10.3 million in 1997.
This increase was comprised of a $474,000 (5.4%) increase in
conventional freight revenues and a $181,000 (24.1%) increase in
net container freight revenues, partially offset by a $41,000
(5.3%) decrease in non-freight operating revenues.
The increases in conventional and container freight revenues were
primarily the result of increases in traffic volume. The
Company's conventional freight carloadings increased by 770, or
5.6% , to 14,431 carloadings in the six months ended June 30,
1998 from 13,661 carloadings in 1997. Total intermodal
containers handled increased by 3,784, or 19.1%, to 23,596
containers in the six months ended June 30, 1998 from 19,812
containers in 1997. The average revenue per conventional
carloading was virtually unchanged between six month periods.
The average net revenue received per intermodal container
increased by 4.2% between six month periods due primarily to rate
adjustments attributable to changes in certain railroad industry
cost indices.
The Company experienced increases in conventional carload ship-
ments by many of its freight customers due to the continued
strong economy as well as the Company's marketing efforts. In
addition approximately 200 conventional carloadings were
attributable to customers of Connecticut Central Railroad Company
("Conn Central") which was acquired by the Company in April
1998. The increase in intermodal container volumes is attrib-
utable to an increase in Asian imports, a shift in vessel
routings due to operational difficulties at the Panama Canal,
and the Company's success in marketing its intermodal services.
The $41,000 decrease in non-freight operating revenues was the
net result of decreases in maintenance department billings
offset, to a degree, by net increases in demurrage and other
transportation revenues. Such revenues can vary from period to
period depending upon customer needs.
Operating Expenses:
Operating expenses increased $547,000, or 6.0%, to $9.7 million
in the six months ended June 30, 1998 from $9.2 million in 1997.
Operating expenses as a percentage of operating revenues
("operating ratio") was 89.3% in both six month periods. Profit
sharing expense, included in General and Administrative Expense,
for the six months ended June 30, 1998 was $337,000, an increase
of $244,000 from 1997 when profit sharing expense was $93,000.
The increase in profit sharing expense results primarily from the
substantial increase in Other Income realized in 1998. When the
increase in profit sharing expense is excluded the operating
ratio for 1998 is reduced to 87.1%. This decrease from 1997 is
indicative of the relatively fixed nature of many of the
Company's operating expenses.
Other Income:
Other income increased $2.2 million to $2.6 million in the six
months ended June 30, 1998 from $415,000 in 1997. This increase
is due to an increase in the gain from sales of properties and
easements, principally $2.0 million derived from the sale of
fiber optics cable licenses.
Interest Expense:
Interest expense decreased $218,000 or 32.0% to $463,000 in the
six months ended June 30, 1998 from $681,000 in 1997. This
decrease is the result of the Company's paying off all of its
short-term debt and a substantial portion of its long-term debt,
primarily during the second quarter of 1998.
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended
June 30, 1997
Operating Revenues:
Operating revenues increased $313,000, or 5.6%, to $5.9 million
in the second quarter of 1998 from $5.6 million in the second
quarter of 1997. This increase was comprised of a $332,000
(6.9%) increase in conventional freight revenues and a $128,000
(33.4%) increase in net container freight revenues, partially
offset by a $147,000 (34.0%) decrease in non-freight operating
revenues.
The increases in conventional and container freight revenues were
primarily the result of increases in traffic volume. The
Company's conventional freight carloadings increased by 411, or
4.8% , to 8,905 carloadings in the second quarter of 1998 from
8,494 in the second quarter of 1997. Total intermodal
containers handled increased by 2,719, or 26.4%, to 13,027
containers in the second quarter of 1998 from 10,308 containers
in the second quarter of 1997. Average revenue per conventional
carloading increased by 2.0% between quarters as a result of
selected rate increases and a change in the mix of commodities.
The average net revenues received per intermodal container
increased by 5.6% between quarters, primarily due to rate
adjustments attributable to changes in certain railroad industry
cost indices.
The Company experienced increases in conventional carload
shipments by many of its freight customers due to the continued
strong economy and its marketing efforts. Approximately 200
conventional carloadings were derived from customers of Conn
Central which was acquired by the Company in April 1998. The
increase in intermodal container volumes is attributable to an
increase in Asian imports, a shift in vessel routings due to
operational difficulties at the Panama Canal, and the Company's
success in marketing its intermodal services.
The $147,000 decrease in non-freight operating revenues results
primarily from decreases in Maintenance of Way and other
departmental billings. Such revenues can vary from period to
period depending upon customer needs.
Operating Expenses:
Operating expenses increased $349,000, or 7.3%, to $5.1 million
in the second quarter of 1998 from $4.8 million in the second
quarter of 1997. The operating ratio increased to 86.7% in the
second quarter of 1998 from 85.3% in the second quarter of 1997.
Profit sharing expense for the second quarter of 1998 was
$313,000, an increase of $220,000 from the second quarter of 1997
when profit sharing expense was $93,000. The increase in profit
sharing expense results primarily from the substantial increase
in Other Income realized in the second quarter of 1998. When the
increase in profit sharing expense is excluded the operating
ratio for the second quarter of 1998 is reduced to 83.0%. This
decrease from the second quarter of 1997 is indicative of the
relatively fixed nature of many of the Company's operating
expenses.
Other Income:
Other income increased $2.2 million to $2.4 million in the second
quarter of 1998 from $250,000 in the second quarter of 1997.
This increase is due to an increase in the gain from sales of
properties and easements, principally $2.0 million derived from
the sale of fiber optics cable licenses.
Interest Expense:
Interest expense decreased $233,000, or 67.3%, to $113,000 in the
second quarter of 1998 from $346,000 in the second quarter of
1997. This decrease is the result of the Company's paying off
all of its short-term debt and a substantial portion of its long-
term debt, primarily during the second quarter of 1998.
<PAGE>
Liquidity and Capital Resources
The Company completed a secondary public offering of 1,000,000
newly issued shares of its common stock in March 1998 and
received net proceeds of approximately $12.5 million.
Approximately $10.8 million of the proceeds were utilized to
retire long and short-term debt, including $152,000 of prepayment
penalties. The Company intends to utilize the remainder of the
offering proceeds for additions to its property and equipment.
The Company generated $2.7 million during the six months ended
June 30, 1998 from the sales of property and easements,
principally sales of fiber optics cable licenses. Approximately
$1.5 million of these funds were utilized to retire additional
long-term debt principal, including $112,000 of prepayment
penalties. As a result of its debt retirement, the Company's
future cash requirements for debt principal and interest payments
have been substantially reduced. As a further result of debt
retirement, the Company's assets, including receivables, real
estate, traffic, locomotives and rolling stock, and maintenance
equipment are no longer encumbered by any liens, mortgages or
security interest.
The Company acquired all of the outstanding common stock of
Connecticut Central Railroad Company ("Conn Central") on April
21, 1998. While management is not able to predict the total
impact of this acquisition upon future operations, approximately
200 carloadings and freight revenues of approximately $140,000
were generated from former Conn. Central rail freight customers
during the period from April 21 through June 30, 1998. In
addition, management intends to pursue growth opportunities on
the acquired lines.
In June 1998 the Company's principal bank renewed the Company's
revolving line of credit and increased the maximum borrowings
allowed to $2.0 million. In addition borrowings under the line
are now unsecured and bear interest at either the prime rate or
one and one half per cent over either the one or three month
London Interbank Offered Rates. As a result of this the
Company's short term borrowing capacity has been increased by
$250,000. The Company had no advances against the line of credit
during the second quarter of 1998.
In July 1998 the Company received $1.0 million from Bestfoods as
an interim payment of the Company's 10% recovery due from
Bestfoods relating to Bestfoods' recovery from its insurance
carrier. The Company utilized $540,000 of these funds to retire
additional long-term debt principal, including a prepayment
penalty of $40,000. After this payment the Company's total
outstanding long term debt principal has been reduced to
approximately $495,000.
In management's opinion cash generated from operations during the
remainder of 1998 will be sufficient to enable the Company to
meet its operating expenses, capital expenditure and remaining
debt service requirements.
Seasonality
Historically, the Company's operating revenues are lowest for the
first quarter due to the absence of aggregate shipments during a
portion of this period and to winter weather conditions.
Year 2000 Compliance
The Company operates a mainframe computer with a PC network and
employs three in-house programmers who write and maintain a
substantial portion of the Company's software programs. The
Company utilizes Electronic Data Interchange and Interline
Settlement Systems through Railinc for the interchange of rail
cars and revenue allocations with other railroads. The Company
has compatible back up mainframe systems at both its Worcester,
Massachusetts and Plainfield, Connecticut facilities.
Preparations for the year 2000 have been underway for six years
and changes to the Company's programs are substantially complete.
Due to the short periodic cycle of rail car movements, the
exchange of data covers time periods where "Year 2000" compliance
is not a major factor and should not adversely affect the
Company's business. The Company does rely on waybills and car
supply and revenue data generated by other railroads in the
interchange of rail cars. The failure of these railroads to
supply accurate data could disrupt the Company's operations.
Railinc has informed the Company that it is currently addressing
the Year 2000 issue and the Company believes that its programs
can be readily modified to accommodate any resulting changes
which may be required.
<PAGE>
PART II - Other Information
Item 2.Changes in Securities and Use of Proceeds
(d)Use of Proceeds - The Company sold 1,000,000 shares
of the Company's Common Stock, par value $.50 per
share, on March 24, 1998, pursuant to a Registration
Statement on Form S-1 (File No. 333-46433), which was
declared effective by the Securities and Exchange
Commission on March 19, 1998. The Managing
underwriter of the offering was Advest, Inc.. The
aggregate gross proceeds of the offering were
$14,250,000. The Company's total expenses in
connection with the offering were $1,712,000, of
which $998,000 was for underwriting discounts and
commissions and $714,000 was for other expenses paid
to persons other than directors or officers of the
Company, persons owning more than 10 percent of any
class of equity securities of the Company, or
affiliates of the Company. The Company's net
proceeds from the offering were $12,538,000. From
March 24, 1998 through June 30, 1998 the Company used
$8,980,000 of the net proceeds to prepay the
outstanding principal balance on a substantial
portion of its long-term debt, including $152,000 of
prepayment penalties, and $1,839,000 to retire short-
term obligations, including all of its outstanding
notes payable to Fleet Bank. Included in the long-
term debt retired by the Company was its 10% note
payable to Capital Properties, Inc. in the amount of
$3,935,000 upon which no prepayment penalty was
incurred. Capital Properties, Inc. has a common
controlling shareholder with the Company. As of
June 30, 1998 the Company had approximately
$1,719,000 of proceeds remaining from the offering,
substantially all of which were invested in short-
term, interest-bearing, investment-grade securities,
including money market instruments.
Item 4.Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on April 29,
1998. Of the 2,222,830 shares of common stock entitles
to vote, 1,731,332 shares were present, in person or by
proxy. Of the 653 shares of preferred stock entitled to
vote, 500 shares were present, in person or by proxy.
All directors of the Company are elected on an annual
basis and the following were so elected at this Annual
Meeting:
Frank W. Barrett, Robert H. Eder, William J. LeDoux, and
Charles M. McCollam, Jr. were elected Common Stock
Directors. Each director received 1,728,265 affirmative
votes and 3,067 negative votes of common shares.
Phillip D. Brown, John H. Cronin, Robert J. Easton,
J. Joseph Garrahy, Orville R. Harrold and John J. Healy
were elected Preferred Stock Directors. Each director
received 500 affirmative votes and no negative votes of
preferred shares.
A resolution was presented for the appointment of
Deloitte & Touche LLP as independent auditors of the
accounts of the Company for 1998. The resolution
received 1,727,996 affirmative votes and 1,852 negative
votes of common shares with 1,484 common shares
abstaining. The resolution received 500 affirmative
votes and no negative votes of preferred shares.
Item 6.Exhibits and Reports on Form 8-K
(b)No reports on Form 8-K were filed during the quarter
ended June 30, 1998.
<PAGE>
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/ Orville R. Harold
______________________________
Orville R. Harrold, President
By: /S/ Robert J. Easton
_____________________________
Robert J. Easton
Treasurer and Principal
Financial Officer
DATED: August 12, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1748
<SECURITIES> 0
<RECEIVABLES> 2427
<ALLOWANCES> 125
<INVENTORY> 2042
<CURRENT-ASSETS> 6339
<PP&E> 94699
<DEPRECIATION> 26526
<TOTAL-ASSETS> 74719
<CURRENT-LIABILITIES> 3533
<BONDS> 799
0
32
<COMMON> 1737
<OTHER-SE> 52774
<TOTAL-LIABILITY-AND-EQUITY> 74719
<SALES> 0
<TOTAL-REVENUES> 13488
<CGS> 0
<TOTAL-COSTS> 9727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 463
<INCOME-PRETAX> 3298
<INCOME-TAX> 1174
<INCOME-CONTINUING> 2124
<DISCONTINUED> 0
<EXTRAORDINARY> 170
<CHANGES> 0
<NET-INCOME> 1954
<EPS-PRIMARY> .67
<EPS-DILUTED> .66
</TABLE>
