UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 May 1, 1999, the registrant has 4,239,809 shares of common stock, par
value $.50 per share, outstanding.
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Index
Part I - Financial Information
Item 1 - Financial Statements:
Balance Sheets -
March 31, 1999 and December 31,1998 3
Statements of Income -
Three Months Ended March 31, 1999 and 1998 4
Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 5
Notes to Financial Statements 6-7
Item 2 - Management's Discussion and
Analysis of Financial
Condition and Results of Operations 8-10
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 11
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
Item 1. Financial Statements
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 4,186 $ 7,294
Accounts receivable, net of allowance for
doubtful accounts of $125 in 1999 and 1998 2,877 2,806
Materials and supplies 1,969 1,810
Prepaid expenses and other 471 568
Deferred income taxes 57 55
-------- --------
Total Current Assets 9,560 12,533
Property and Equipment, net 73,183 71,895
Goodwill, net 149 166
-------- --------
Total Assets $82,892 $84,594
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,319 $ 4,046
Accrued expenses 439 709
-------- ---------
Total Current Liabilities 2,758 4,755
-------- ---------
Profit-Sharing Plan Contribution 425 425
-------- ---------
Deferred Grant Income 7,009 6,928
-------- ---------
Deferred Income Taxes 8,829 8,777
-------- ---------
Commitments and Contingent Liabilities
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
647 shares 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,232,179 shares in 1999 and 4,228,131
shares in 1998 2,116 2,114
Additional paid-in capital 27,985 27,955
Retained earnings 33,738 33,608
-------- ---------
Total Shareholders' Equity 63,871 63,709
-------- ---------
Total Liabilities and Shareholders' Equity $82,892 $84,594
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
Three Months Ended March 31
1999 1998
--------- ---------
<S> <C> <C>
Operating Revenues - Freight and Non-Freight $ 4,926 $ 4,983
--------- ---------
Operating Expenses:
Maintenance of way and structures 720 798
Maintenance of equipment 541 508
Transportation 1,275 1,216
General and administrative 903 819
Depreciation 564 528
Taxes, other than income taxes 620 581
Car hire, net 167 155
--------- ---------
Total Operating Expenses 4,790 4,605
--------- ---------
Income from Operations 136 378
Other Income 269 186
Interest Expense -- (350)
--------- ---------
Income before Income Taxes 405 214
--------- ---------
Provision for Income Taxes:
Current 95 33
Deferred 50 45
--------- ---------
Total Provision for Income Taxes 145 78
--------- ---------
Net Income $ 260 $ 136
Preferred Stock Dividends 3 3
--------- ---------
Net Income Available to Common Shareholders $ 257 $ 133
========= =========
Basic Income Per Common Share $ .06 $ .06
========= =========
Diluted Income Per Common Share $ .06 $ .06
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
<TABLE>
Three Months Ended March 31
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 260 $ 136
Adjustments to reconcile net income to net
cash flows from (used by) operating
activities:
Depreciation and amortization 581 528
Amortization of deferred grant income (41) (39)
Gains from sale, condemnation and disposal
of properties, equipment and easements,
net (63) (60)
Deferred income taxes 50 45
Other, net -- 20
Increase (decrease) in cash from:
Accounts receivable (108) (258)
Materials and supplies (159) 138
Prepaid expenses and other 97 15
Accounts payable and accrued expenses (179) (580)
-------- --------
Net cash flows from (used by) operating
activities 438 (55)
-------- --------
Cash flows from Investing Activities:
Purchase of property and equipment (3,670) (895)
Proceeds from sale and condemnation of
property and equipment 78 458
Proceeds from deferred grant income 144 85
-------- --------
Net cash flows used by investing activities (3,448) (352)
-------- --------
Cash Flows from Financing Activities:
Net payments under line of credit -- (1,350)
Payments of long-term debt -- (4,179)
Dividends paid (130) (70)
Proceeds from public offering of 1,000,000
shares of common stock -- 12,590
Issuance of common shares for stock options
exercised and employee stock purchases 32 21
-------- --------
Net cash flows from (used by) financing
activities (98) 7,012
-------- --------
Increase (Decrease) in Cash and Equivalents (3,108) 6,605
Cash and Equivalents, Beginning of Period 7,294 519
-------- ---------
Cash and Equivalents, End of Period $ 4,186 $ 7,124
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest $ -- $ 387
======== ========
Income taxes $ 53 $ 45
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(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 March 31, 1999 and
the results of operations and cash flows for the three months ended March
31, 1999 and 1998. 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 1998
Annual Report on Form 10-K for the year ended December 31, 1998 filed with
the Securities and Exchange Commission.
2. Changes in Shareholders' Equity:
<TABLE>
Additional Total
Preferred Common Paid-in Retained Shareholders'
Stock Stock Capital Earnings Equity
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance December 31,
1998 $ 32 $2,114 $27,955 $ 33,608 $63,709
Issuance of 4,048
common shares for
stock options
exercised and
employee stock
purchases 2 30 32
Dividends:
Preferred stock,
$5.00 per share (3) (3)
Common stock, $.03
per share (127) (127)
Net income for the
period 260 260
------ ------ ------- ------- -------
Balance March 31,
1999 $ 32 $2,116 $27,985 $33,738 $63,871
====== ====== ======= ======= =======
</TABLE>
3. Other Income:
<TABLE>
1999 1998
--------- ---------
<S> <C> <C>
Gains from sale, condemnation and
disposal of properties, equipment
and easements, net $ 63 $ 60
Rentals 148 113
Interest 58 13
-------- --------
$ 269 $ 186
======== ========
</TABLE>
4. Income per Share:
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 weighted average shares used for the basic computation
and that used for the diluted computation is as follows:
<TABLE>
<S> <C> <C>
1999 1998
--------- ---------
Weighted average shares for basic 4,230,052 2,327,198
Dilutive effect of convertible preferred
stock, options and warrants 91,270 84,844
--------- ---------
Weighted average shares for diluted 4,321,322 2,412,042
========= =========
</TABLE>
<PAGE>
5. Dividends:
On April 28, 1999, the Company declared a dividend of $.04 per share on its
outstanding Common Stock payable May 27, 1999 to shareholders of record May
13, 1999.
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.
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 common stock of
the company 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 $18,000 (which amount includes approximately $5,000 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 judgement was unsuccessful and it has now paid the
$18,000 judgement to Bestfoods. In July 1998, Bestfoods paid $1,000 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.
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
$25,000.
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.
7. Subsequent Events:
In April 1999 the Rhode Island Supreme Court issued an opinion confirming
the Company's fee simple absolute title to the 33 acres of waterfront land
("South Quay") located in East Providence, Rhode Island. This confirmation
of the Company's fee simple absolute title permits the Company to explore
all development opportunities for the South Quay, including rail and non
rail related uses. This property was created on formerly tide flowed land
by the Company to capitalize on the growth of intermodal transportation
utilizing the property's rail, water and highway connections. The South
Quay property has good highway access (1/2 mile from I-195), direst rail
access, is adjacent to a 12 acre site also owned by the Company and is
located 1 1/2 miles from downtown Providence, Rhode Island.
In April 1998 the Company acquired all of the outstanding common stock of
Connecticut Central Railroad Company ("Conn Central") for 20,000 newly
issued shares of common stock of the Company. Conn Central's operations
were merged into those of the Company at the time of acquisition. In April
1999 the Company issued an additional 7,500 shares of its common stock to
the former shareholders of Conn Central since certain financial and other
considerations as specified in the purchase and sale agreement were met.
Issuance of these shares gives rise to additional goodwill in the amount of
$83. This goodwill will be amortized over the remaining life of the
goodwill recorded in connection with the April 1998 acquisition
(approximately 24 months).
<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>
Three Months Ended March 31
---------------------------------------
1999 1998
-------------------- ------------------
(In thousands, except percentages)
<S> <C> <C> <C> <C>
Freight Revenues:
Conventional carloads $,4,010 81.4% $4,109 82.5%
Containers 510 10.4 420 8.4
Non-Freight Operating Revenues:
Transportation services 140 2.8 182 3.6
Other 266 5.4 272 5.5
-------- ------- ------- -------
Total $4,926 100.0% $4,983 100.0%
======== ======= ======= =======
</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>
Three Months Ended March 31
----------------------------------------
1999 1998
------------------- -------------------
(In thousands, except percentages)
<S> <C> <C> <C> <C>
Salaries, wages, payroll taxes
and employee benefits $2,927 59.4% $2,658 53.3%
Casualties and insurance 157 3.2 205 4.1
Depreciation and amortization 581 11.8 528 10.6
Diesel fuel 115 2.3 129 2.6
Car hire, net 167 3.4 155 3.1
Purchased services, including
legal and professional fees 424 8.6 353 7.1
Repair and maintenance of
equipment 269 5.5 253 5.1
Track and signal materials 403 8.2 243 4.9
Other materials and supplies 332 6.7 278 5.6
Other 403 8.2 378 7.6
-------- ------ ------- -------
Total 5,778 117.3 5,180 104.0
Less capitalized and
recovered costs 988 20.1 575 11.6
-------- ------ ------- -------
Total $4,790 97.2% $4,605 92.4%
======== ====== ======= =======
</TABLE>
<PAGE>
Operating Revenues:
Operating revenues decreased $57,000, or 1.1%, to $4.9 million in the first
quarter of 1999 from $5.0 million in the first quarter of 1998. This decrease
resulted from a $99,000 (2.4%) decrease in conventional freight revenues and a
$48,000 (10.6%) decrease in non-freight operating revenues offset, in part by a
$90,000 (21.4%) increase in net container freight revenues.
The increase in container freight revenues was the result of an increase in
container traffic volume. Total intermodal containers handled increased by
2,413, or 22.8%, to 12,982 containers in the first quarter of 1999 from 10,569
containers in 1998. The average rate received per intermodal container decreased
by approximately 1.1% due to rate decreases attributable to decreases in certain
railroad industry cost indices and to variations in the mix of containers
handled.
The decrease in conventional freight revenues is attributable to a decrease in
traffic volume partially offset by an increase in the average revenue received
per conventional carloading of approximately 4.2%. The Company's conventional
freight carloadings decreased by 353, or 6.4%, to 5,165 carloadings in the first
quarter of 1999 from 5,518 carloadings in 1998. The decrease in conventional
carloadings during the quarter is substantially attributable to construction
aggregates which declined by 364 carloadings, or 50.6%, to 355 carloadings in
the first quarter of 1999 from 719 carloadings in 1998. Construction aggregates
is a seasonal commodity which is shipped over a period of approximately nine
months each year beginning in March and ending in early December. Cold weather
experienced during the first part of March 1999 delayed the commencement of
construction aggregate shipments compared with 1998 when milder weather allowed
for a comparatively early start to such shipments. The increase in the average
revenue received per carloading is primarily attributable to the lower volume of
construction aggregate carloadings since this commodity commands a relatively
low freight rate.
The $48,000 decrease in non-freight operating revenues was primarily due to
decreases in demurrage and other transportation related revenues. Such revenues
can vary from period to period depending upon customer needs.
Operating Expenses:
Operating expenses increased $185,000, or 4.0%, to $4.8 million in the first
quarter of 1999 from $4.6 million in 1998. Operating expenses as a percentage of
operating revenues ("operating ratio") increased to 97.2% in the first quarter
of 1999 from 92.4% in 1998. The most significant increase in operating expenses
was in salaries, wages, payroll taxes and employee benefits which increased by
$269,000, or 10.1%, to $2.9 million in the first quarter of 1999 from $2.7
million in 1998. This increase results from the fact that the number of
employees on the Company's payroll has increased by approximately 4.0% between
quarters, the average rate of pay has increased due to semi annual cost of
living adjustments and pay rate increases mandated by union contracts and by
higher costs for employee health and welfare benefits. Increased costs of
purchased services and track, signal and other materials and supplies have been
substantially offset by increased capitalized and recovered costs. The Company's
operating expenses are of a relatively fixed nature and do not increase or
decrease proportionately with changes in operating revenues.
Other Income:
Other income increased $83,000, or 44.6%, to $269,000 in the first quarter of
1999 from $186,000 in 1998 as a result of increased rental and interest income.
Gains from the sales of properties and easements remained virtually unchanged
between quarters. Such income can vary significantly from period to period.
Interest Expense:
The Company had no interest expense in the first quarter of 1999 compared with
$350,000 in 1998. This decrease is the result of the Company utilizing a portion
of the proceeds of its 1998 public stock offerings and other income to pay off
all of its long and short-term debt.
Liquidity and Capital Resources
During the first quarter of 1999 the Company expended $3.1 million on rolling
stock and other equipment. Included were expenditures of approximately $2.1
million for forty gondola railcars in January and approximately $820,000 for
three used locomotives in March. The funds for these acquisitions were derived,
primarily, from the Company's 1998 public stock offerings.
<PAGE>
In management's opinion cash generated from operations during the remainder of
1999 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 in Washington, D.C. for the
interchange of rail cars and revenue allocations with other railroads. The
Company has compatible back up mainframe systems at both its Worcester, MA and
Plainfield, CT facilities.
The Company has completed an analysis of its information technology and other
operating systems to determine which may be impacted by "Year 2000" issues.
Based on this analysis, preparation for the Year 2000 have been underway for six
years and changes to the Company's information technology are substantially
complete. The Company's other non-information technology systems have also been
evaluated and no Year 2000 issues have been identified.
Modifications to the Company's information technology programs have been
performed by internal staff with the associated costs incorporated into the
Company's annual operating budgets and, therefore, such costs are not separately
identifiable. No material additional costs are anticipated at this time.
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 ability to operate. The Company relies 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. However, Railinc with whom the majority
of these railroads interface electronically, has informed the Company that it is
currently addressing the Year 2000 issue and expects to be Year 2000 compliant
by mid 1999. The Company believes that any modifications to its programs
resulting from Railinc changes will be minimal and that such changes can be
readily made.
The Company's contingency plan in the event other parties should be unable to
provide Year 2000 compliant electronic data is to revert to paper documentation
from these parties. However, to the extent that customers, connecting carriers
or other entities with which the Company has material relationships do not
adequately address Year 2000 issues, the Company could experience payment delays
and service disruptions which could materially adversely affect its operations.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. The new standard requires that all companies record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. Management is currently assessing the impact of SFAS No.
133 on the financial statements of the Company. The Company will adopt this
accounting standard on January 1, 2000, as required.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Cash and Cash Equivalents
As of March 31, 1999, the Company is exposed to market risks which primarily
include changes in U.S. interest rates.
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's revolving line of credit agreement provides for
borrowings which bear interest at variable rates based on either prime rate or
one and one half percent over either the one or three month London Interbank
Offered Rates. The Company had no borrowings outstanding pursuant to the
revolving line of credit agreement at March 31, 1999. The Company believes that
the effect, if any, of reasonably possible near-term changes in interest rates
on the Company's financial position, results of operations, and cash flows
should not be material.
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter
ended March 31,1999.
<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. Harrold
----------------------------
Orville R. Harrold,President
By: /s/ Robert J. Easton
----------------------------
Robert J. Easton
Treasurer and Principal
Financial Officer
DATED: May 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4186
<SECURITIES> 0
<RECEIVABLES> 3002
<ALLOWANCES> 125
<INVENTORY> 1969
<CURRENT-ASSETS> 9560
<PP&E> 101086
<DEPRECIATION> 27903
<TOTAL-ASSETS> 82892
<CURRENT-LIABILITIES> 2758
<BONDS> 0
0
32
<COMMON> 2116
<OTHER-SE> 61723
<TOTAL-LIABILITY-AND-EQUITY> 82872
<SALES> 0
<TOTAL-REVENUES> 5195
<CGS> 0
<TOTAL-COSTS> 4790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 405
<INCOME-TAX> 145
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<EPS-PRIMARY> .06
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</TABLE>
