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 June 30, 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 August 1, 1999, the registrant has 4,274,603 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 - June 30, 1999 and December 31,
1998 3
Statements of Income - Three
and Six Months Ended June
30, 1999 and 1998 4
Statements of Cash Flows -
Six Months Ended June 30,
1999 and 1998 5
Notes to Financial
Statements 6-8
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-13
Item 3 -Quantitative and Qualitative Disclosures About Market Risk13
Part II - Other Information:
Item 4Submission of Matters to a Vote of
Security Holders 14
Item 6Exhibits and Reports on Form
8-K 14
Signatures 15
<PAGE>
Item 1. Financial Statements
- -----------------------------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
ASSETS
JUNE 30, DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Current Assets:
Cash and equivalents ................................ $ 3,572 $ 7,294
Accounts receivable, net of allowance for
doubtful accounts of $125 in 1999 and 1998 ......... 3,159 2,806
Materials and supplies .............................. 2,108 1,810
Prepaid expenses and other .......................... 356 568
Deferred income taxes ............................... 62 55
------- -------
Total Current Assets ............................... 9,257 12,533
Property and Equipment, net .......................... 73,741 71,895
Goodwill, net ........................................ 206 166
------- -------
Total Assets ......................................... $83,204 $84,594
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 2,164 $ 4,046
Accrued expenses .................................... 493 709
------- -------
Total Current Liabilities .......................... 2,657 4,755
------- -------
Profit-Sharing Plan Contribution ..................... 109 425
------- -------
Deferred Grant Income ................................ 6,968 6,928
------- -------
Deferred Income Taxes ................................ 8,879 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
4,274,045 shares in 1999 and 4,228,131
shares in 1998 ..................................... 2,137 2,114
Additional paid-in capital .......................... 28,466 27,955
Retained earnings ................................... 33,956 33,608
------- -------
Total Shareholders' Equity ......................... 64,591 63,709
------- -------
Total Liabilities and Shareholders' Equity ........... $83,204 $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 June 30Six Months Ended June 30
1999 1998 1999 1998
------ ------ ------ -----
<S> <C> <C> <C> <C>
Operating Revenues - Freight
and Non-Freight ....................... $5,507 $5,909 $10,433 $10,892
------ ------ ------ ------
Operating Expenses:
Maintenance of way and
structures ........................... 804 743 1,524 1,541
Maintenance of equipment .............. 559 515 1,100 1,023
Transportation ........................ 1,414 1,388 2,689 2,604
General and administrative ............ 990 1,245 1,893 2,064
Depreciation .......................... 600 542 1,164 1,070
Taxes, other than income
taxes ................................ 579 559 1,199 1,140
Car hire, net ......................... 95 130 262 285
------ ------ ------ -----
Total Operating Expenses ............. 5,041 5,122 9,831 9,727
------ ------ ------ -----
Income from Operations ............... 466 787 602 1,165
Other Income ......................... 153 2,410 422 2,596
Interest Expense ..................... -- (113) -- (463)
------ ------ ------ -----
Income before Income Taxes and
Extraordinary Item .................. 619 3,084 1,024 3,298
Provision for Income Taxes ........... 230 1,096 375 1,174
------ ------ ------ -----
Income before extraordinary
item ................................ 389 1,988 649 2,124
Extraordinary Loss from Early
Extinguishment of Debt in
1998, Net of Income Tax
Benefit of $94 ...................... -- 170 -- 170
------ ------ ------ -----
Net Income ........................... 389 1,818 649 1,954
Preferred Stock Dividends ............ -- -- 3 3
------ ------ ------ -----
Net Income Available to Common
Shareholders ..................... $ 389 $1,818 $ 646 $ 1,951
====== ====== ======= =======
Basic Income Per Common Share:
Income before Extraordinary
Item ............................ $ .09 $ .58 $ .15 $ .73
Extraordinary Item ............... -- (.05) -- (.06)
====== ====== ======= ========
Net Income ....................... $ .09 $ .53 $ .15 $ .67
====== ====== ======= ========
Diluted Income Per Common
Share:
Income before Extraordinary
Item ............................ $ .09 $ .56 $ .15 $ .71
Extraordinary Item ............... -- (.05) -- (.05)
====== ====== ======= ========
Net Income ....................... $ .09 $ .51 $ .15 $ .66
====== ====== ======= ========
</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>
Six Months Ended June 30
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 649 $ 1,954
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization ....................... 1,206 1,070
Amortization of deferred grant income ............... (83) (78)
Profit-sharing plan contribution to be
funded with common stock ........................... 69 337
Gain from sales and disposals of properties
and equipment ...................................... (70) (2,330)
Deferred income taxes ............................... 95 40
Increase (decrease) in cash from:
Accounts receivable ................................ (407) (148)
Materials and supplies ............................. (298) 44
Prepaid expenses and other ......................... 212 43
Accounts payable and accrued expenses .............. (265) 304
------- -------
Net cash flows provided by operating
activities .......................................... 1,108 1,236
------- -------
Cash flows from Investing Activities:
Purchase of property and equipment ................... (4,837) (3,614)
Proceeds from sale and condemnation of
property and equipment .............................. 85 2,729
Proceeds from deferred grant income .................. 162 192
------- -------
Net cash flows used for investing activities ......... (4,590) (693)
------- -------
Cash Flows from Financing Activities:
Net payments under line of credit .................... -- (1,350)
Payments of long-term debt ........................... -- (10,491)
Dividends paid ....................................... (301) (174)
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 ........................... 61 163
------- -------
Net cash flows provided by (used for)
financing activities ................................. (240) 686
------- -------
Increase (Decrease) in Cash and Equivalents ........... (3,722) 1,229
Cash and Equivalents, Beginning of Period ............. 7,294 519
------- -------
Cash and Equivalents, End of Period ................... $ 3,572 $ 1,748
======= =======
Supplemental disclosures:
Cash paid during the period for:
Interest ........................................... $ -- $ 449
======== =======
Income taxes ....................................... $ 86 $ 422
======== =======
</TABLE>
Non-cash transactions are described in Note 2.
The accompanying notes are an integral part of the
financial statements.
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
SIX MONTHS ENDED JUNE 30, 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 June 30, 1999 and
the results of operations and cash flows for the interim periods ended June
30, 1999 and 1998. Results for interim periods may not necessarily be
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 7,319
common shares for
stock options
exercised, employee
stock purchases and
other .................... 3 64 67
Issuance of 31,095
common shares to
fund the Company's
1998 profit sharing
plan contribution ........ 16 369 385
Issuance of 7,500
additional common
shares for the
Company's 1998
acquisition of Conn
Central .................. 4 78 82
Dividends:
Preferred stock,
$5.00 per share .......... (3) (3)
Common stock, $.07
per share ................ (298) (298)
Net income for the
period ................... 649 649
------- ------- ------- --------- -----------
Balance June 30, 1999 ..... $ 32 $ 2,137 $28,466 $ 33,956 $ 64,591
======= ======= ======= ========= ===========
</TABLE>
During the six months ended June 30, 1998 the Company issued 22,156 shares
of its common stock with an aggregate fair market value of $337 to fund its
1997 profit sharing plan contribution and issued 23,614 shares of its
common stock with an aggregate fair market value of $383 for the
acquisition of Conn Central (see Note 8).
3. South Quay Property:
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 by the Company on formerly
tide-flowed land 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), direct 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 June 1999
the Company filed an action in Superior Court in the State of Rhode Island
to confirm its free simple absolute title to the 12 acre site.
<PAGE>
4. Other Income:
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Gain from sales of
properties, equipment
and easements, net ............ $ 7 $2,270 $ 70 $2,330
Rentals ........................ 103 97 251 210
Interest ....................... 43 43 101 56
------ ------ ------ ------
$ 153 $2,410 $ 422 $2,596
====== ====== ====== ======
</TABLE>
Gain from sales of properties and easements for 1998 includes $2,043
received from the sale of fiber optics cable licenses.
5. 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>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares
for basic ..................... 4,256,878 3,455,813 4,243,539 2,894,624
Dilutive effect of
convertible preferred
stock, options and
warrants ...................... 77,066 83,121 84,133 80,864
--------- --------- --------- ---------
Weighted average shares
for diluted ................... 4,333,944 3,538,934 4,327,672 2,975,488
========= ========= ========= =========
</TABLE>
Options and warrants to purchase 182,710 and 190,890 shares of common stock
were outstanding for the three and six month periods ended June 30, 1999,
respectively, and options and warrants to purchase 108,040 shares of common
stock were outstanding for the three and six month periods ended June 30,
1998 but were not included in the computation of diluted earnings per share
because their effect would be antidilutive.
6. Dividends:
On July 28, 1999, the Company declared a dividend of $.04 per share on its
outstanding Common Stock payable August 26, 1999 to shareholders of record
August 12, 1999.
7. 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,
<PAGE>
Bestfoods obtained a judgement in its favor from its insurance carrier for
over $18,000 (which amount includes approximately $5,000 of prejudgement
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.
In 1999 the Company entered into a contract in the amount of $1,773 for the
expansion of its equipment maintenance facilities in Worcester,
Massachusetts. Approximately $100 has been expended on this project through
June 30, 1999. The Company expects that this project will be substantially
completed by the end of the year.
8. Acquisition of Connecticut Central Railroad Company:
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. 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. 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
$82. This goodwill is being amortized over the remaining life of the
goodwill recorded in connection with the April 1998 acquisition.
9. Subsequent Events:
In July and August 1999 the Company realized $2,232 of gain from the sales
of fiber optic cable licenses and permanent easements.
<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 June 30 Six Months Ended June 30
---------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- -------------- --------------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Freight Revenues:
Conventional
carloads ...... $4,550 82.6% $5,141 87.0% $ 8,560 82.1% $ 9,250 84.9%
Containers ..... 536 9.7 511 8.7 1,046 10.0 931 8.6
Non-Freight
Operating
Revenues:
Transportation
services ...... 98 1.8 138 2.3 238 2.3 320 2.9
Other .......... 323 5.9 119 2.0 589 5.6 391 3.6
------ ------ ------ ------ ------- ------ ------- -----
Total ........ $5,507 100.0% $5,909 100.0% $10,433 100.0% $10,892 100.0%
====== ====== ====== ====== ======= ====== ======= ======
</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 June 30 Six Months Ended June 30
---------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- -------------- --------------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages,
payroll taxes
and employee
benefits ....... $3,092 56.1% $3,253 55.1% $ 6,019 57.7% $ 5,911 54.3%
Casualties and
insurance ...... 173 3.1 191 3.2 330 3.2% 396 3.6
Depreciation and
amortization ... 625 11.4 542 9.2 1,206 11.5 1,070 9.8
Diesel fuel ..... 192 3.5 178 3.0 307 2.9 307 2.8
Car hire, net ... 95 1.7 130 2.2 262 2.5 285 2.6
Purchased
services,
including legal
and professional
fees ........... 612 11.1 578 9.8 1,036 9.9 931 8.5
Repair and
maintenance of
equipment ...... 263 4.8 243 4.1 532 5.1 496 4.6
Track and signal
materials ...... 470 8.5 234 4.0 873 8.4 477 4.4
Other materials
and supplies ... 232 4.2 275 4.6 564 5.4 553 5.1
Other ........... 346 6.3 381 6.4 749 7.2 759 7.0
------ ------ ------ ------ ------- ------ ------- -----
Total .......... 6,100 110.7 6,005 101.6 11,878 113.8 11,185 102.7
Less capitalized
and recovered
costs ......... 1,059 19.2 883 14.9 2,047 19.6 1,458 13.4
------ ------ ------ ------ ------- ------ ------- -----
Total ........ $5,041 91.5% $5,122 86.7% $ 9,831 94.2% $ 9,727 89.3%
====== ====== ====== ====== ======= ====== ======= ======
</TABLE>
<PAGE>
Six Months Ended June 30,1999 Compared to Six Months Ended June 30,1998
Operating Revenues:
Operating revenues decreased $459,000, or 4.2%, to $10.4 million in the six
months ended June 30, 1999 from $10.9 million in 1998. This decrease is the net
result of a $690,000 (7.5%) decrease in conventional freight revenues partially
offset by a $115,000 (12.4%) increase in net-container freight revenues and a
$116,000 (16.3%) increase in non-freight operating revenues.
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 1.4%. The Company's conventional
freight carloadings decreased by 1,262, or 8.7% to 13,217 carloadings in the
first six months of 1999 from 14,479 carloadings in 1998.
On June 1, 1999 the rail lines and operations of Consolidated Rail Corporation
("Conrail"), with which the Company interchanges the majority of its rail
freight traffic, were split between CSX Corporation and Norfolk Southern
Railroad. The Company estimates that delays and other service problems
attributable to this split up accounted for a traffic reduction for the Company
of more than 250 carloadings and nearly $200,000 of freight revenues. While some
of this lost revenue may ultimately be realized by the Company, most of it was
diverted to truck, etc. and thereby permanently lost. The Company does not
believe that this represents a permanent reduction in traffic volume. The
problems associated with the split-up of Conrail appear to be steadily improving
subsequent to June 30, 1999.
A decline in volume of construction aggregates handled (approximately 1,000
carloadings and $300,000 of freight revenues) accounts for much of the remaining
reduction in conventional freight revenue. Bad weather experienced in March 1999
resulted in a "late start" to the construction aggregate shipping season in 1999
compared with 1998. In addition shipments of this commodity have been slow to
rise to comparable 1998 levels continuing a trend which began in the second half
of 1998. The Company is optimistic that carloadings of construction aggregates
will rise to and perhaps exceed 1998 levels during the remainder of the year.
The increase in container freight revenues is the result of an increase in
container traffic volume. Total intermodal containers handled increased by
2,924, or 12.4% to 26,520 containers in the first six months of 1999 from 23,596
containers in 1998.
The increase in non-freight operating revenues for the six month period is due
to increased maintenance department billings partially offset by a decrease in
demurrage revenues. Such revenues can vary from period to period depending upon
customer needs.
Operating Expenses:
Operating expenses increased $104,000, or 1.1%, to $9.8 million in the six
months ended June 30, 1999 from $9.7 million in 1998. Operating expenses as a
percentage of operating revenues ("operating ratio") increased to 94.2% in the
six months ended June 30, 1999 from 89.3% in 1998. The small increase in
operating expenses is indicative of the relatively fixed nature of most of these
expenses which also accounts for the increased operating ratio. Such expenses do
not increase or decrease proportionately with fluctuations in operating
revenues.
Other Income:
Other income decreased $2.2 million to $422,000 in the six months ended June 30,
1999 from $2.6 million in 1998. This decrease is due to a reduction in net gains
<PAGE>
realized from the sale of properties and easements, principally $2.0 million
derived from the sale of fiber optics cable licenses in 1998. While the Company
has historically realized substantial amounts of income of this nature, the
amount of such income can vary significantly from period to period.
Interest Expense:
The Company had no interest expense in the first six months of 1999 compared
with $463,000 of interest expense in 1998. This decrease is the result of the
Company utilizing a portion of the net proceeds of its 1998 public stock
offerings and other income to pay off all of its long and short-term debt.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Operating Revenues:
Operating revenues decreased $402,000, or 6.8%, to $5.5 million in the second
quarter of 1999 from $5.9 million in the second quarter of 1998. This decrease
is the net result of a $591,000 (11.5%) decrease in conventional freight
revenues partially offset by a $25,000 (4.9%) increase in net container freight
revenues and a $164,000 (63.8%) increase in non-freight operating revenues.
The decrease in conventional freight revenues for the quarter is attributable to
a decrease in conventional traffic volume and to a 1.5% decrease in the average
revenue received per conventional carloading. The Company's carloadings of
conventional freight decreased by 909, or 10.1%, to 8,052 carloadings in the
second quarter of 1999 from 8,961 carloadings in the second quarter of 1998.
Operating problems relating to the split-up of Conrail on June 1, 1999 and a
continued decline in construction aggregate traffic, as previously discussed,
accounted for a substantial portion of this reduction.
The increase in container freight revenues for the quarter is primarily due to
an increase in container traffic volume. Total intermodal containers handled
increased by 511, or 3.9%, to 13,538 containers in the second quarter of 1999
from 13,027 containers in the second quarter in 1998.
The increase in non-freight operating revenues for the quarter is due to
increased maintenance department billings partially offset by a decrease in
demurrage revenues. Such revenues can vary from period to period depending upon
customer needs.
Operating Expenses:
Operating expenses decreased $81,000, or 1.6%, to $5.0 million in the second
quarter of 1999 from $5.1 million in the second quarter of 1998. The Company's
operating ratio, however, increased to 91.5% in the second quarter of 1999 from
86.7% in the second quarter of 1998. The small decrease in operating expenses is
indicative of their relatively fixed nature which also accounts for the
increased operating ratio. Such expenses do not increase or decrease
proportionately with fluctuations in operating revenues.
Interest Expense:
The Company had no interest expense in the second quarter of 1999 compared with
$113,000 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.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
During the first six months of 1999 the Company expended approximately $3.6
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.
The Company has entered into a contract for the expansion of its equipment
maintenance facilities in Worcester, Massachusetts in the amount of $1.8
million. Approximately $100,000 has been expended on this project through June
30, 1999. The Company anticipates that this project will be substantially
complete by the end of the year. Proceeds from the Company's 1998 public stock
offerings will be utilized to fund this construction project.
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 has 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. Railinc with whom the majority of these
railroads interface electronically, began utilizing its newly upgraded Year 2000
compliant software for electronic date interchange on July 12, 1999. The Company
has modified all of its related programs and is now fully compatible with the
upgraded Railinc systems.
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.
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", subsequently amended in June 1999 and
effective for fiscal years beginning after June 15, 2000. 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, 2001,
as required.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------------------
Cash and Cash Equivalents
As of June 30, 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 June 30, 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 4.Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders was held on April 28, 1999. Of the
4,230,140 shares of common stock entitled to vote, 3,561,792 shares were
present, in person or by proxy. Of the 653 shares of preferred stock
entitled to vote, 556 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:
Richard W. Anderson, Robert J. Easton and Robert H. Eder were elected
Common Stock Directors. Mr. Anderson received 3,554,291 affirmative votes
and 7,501 negative votes, and Mr. Eder received 3,554,391 affirmative votes
and 7,401 negative votes of common shares. Mr. Easton was nominated by
management to serve as a Common Director in place of Mr. William J. LeDoux
who was unavailable to serve due to his sudden death which occurred
following the issuance of the 1999 Proxy. Mr. Easton received 3,554,191
affirmative votes and 7,601 negative votes of common shares.
Frank W. Barrett, John H. Cronin, J. Joseph Garrahy, Orville R. Harrold,
John J. Healy and Charles M. McCollam, Jr. were elected Preferred Stock
Directors. Each director received 556 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 1999. The
resolution received 3,555,047 affirmative votes and 2,615 negative votes of
common shares with 4,130 common shares abstaining. The resolution received
556 affirmative votes and no negative votes of preferred shares.
Item 6.Exhibits and Reports on Form 8-K
--------------------------------
(b) A report on Form 8-K was filed on April 30, 1999 reporting the
following events:
o By press release dated April 23, 1999 the Registrant advised the
general public of a decision of the Rhode Island Supreme Court
confirming the Registrant's fee simple absolute title to the
approximate 35 acre waterfront property located in East Providence,
Rhode Island and known as the South Quay.
o By press release dated April 28, 1999 the Registrant advised the
general public of the action of its Board of Directors increasing
the quarterly dividend on its outstanding Common Stock from $.03 to
$.04 per share.
<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: August 12, 1999
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