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PWX > SEC Filings for PWX > Form 10-Q/A on 14-Nov-2012All Recent SEC Filings

Show all filings for PROVIDENCE & WORCESTER RAILROAD CO/RI/

Form 10-Q/A for PROVIDENCE & WORCESTER RAILROAD CO/RI/


14-Nov-2012

Quarterly Report


ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MDA") which are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions, however, that actual results could differ materially from those indicated in MDA. The following discussion should be read in conjunction with the Condensed Financial Statements and applicable notes to the Condensed Financial Statements, Item 1. The Company does not undertake the obligation to update forward-looking statements in response to new information, future events or otherwise.

Critical Accounting Policies

The Securities and Exchange Commission ("SEC") defines critical accounting policies as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company's significant accounting policies are described in Note 1 of the Notes to Financial Statements in its Annual Report on Form 10-K. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 during the first six months of 2012.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, including, without limitations, statements concerning the conditions in our industry and our operations, economic performance and financial condition, including, in particular, statements relating to our business and strategy. The words "may," "might," "should," "estimate," "project," "plan," "anticipate," "expect," "intend," "outlook," "believe," and other similar expressions are intended to identify forward-looking statements and information although not all forward-looking statements include these identifying words. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties.


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In particular, our business might be affected by uncertainties affecting the railroad and transportation industry generally as well as the following, among other factors:

general economic, financial and political conditions, including downturns affecting the railroad industry and credit markets;

our relationships with Class I railroads and other carriers;

legislative and regulatory developments by the Surface Transportation Board, Railroad Retirement Board or the Federal Railroad Administration;

our ability to comply with financial and non-financial covenants contained in our revolving line of credit and long-term debt;

limitations and restrictions on the operation of our business contained in the documents governing our indebtedness;

increases in transportation costs, including fuel prices, which in some instances may not be passed on to customers;

competitive pressures, including changes in competitors' pricing;

our ability to generate cash flows to invest in the operation of our business; and

our dependence upon our key customers, executives and other key employees and our ability to renegotiate our union contracts.

Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any standards that it believes merit further discussion. The Company expects none of the recent accounting pronouncements will have a significant impact on its financial statements.

Results of Operations

The following table sets forth the Company's operating revenues, exclusive of
rental operating revenues, by category in dollars and as a percentage of
operating revenues:



                                           Three Months Ended June 30,                         Six Months Ended June 30,
                                          2012                     2011                      2012                      2011
                                                                  (In thousands, except percentages)
Freight Revenues:
Conventional carloads              $ 6,975        84.9 %    $ 7,202        92.6 %    $ 13,084        88.0 %    $ 13,339        91.2 %
Containers                             311         3.8          212         2.7           570         3.8           391         2.7
Other freight related                  156         1.9          167         2.2           263         1.8           334         2.3
Other Operating Revenues               772         9.4          193         2.5           956         6.4           560         3.8

Total                              $ 8,214       100.0 %    $ 7,774       100.0 %    $ 14,873       100.0 %    $ 14,624       100.0 %


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The following table sets forth a comparison of the Company's operating expenses expressed in dollars and as a percentage of operating revenues, exclusive of rental operating revenues:

                                           Three Months Ended June 30,                         Six Months Ended June 30,
                                          2012                     2011                      2012                      2011
                                                                  (In thousands, except percentages)
Salaries, wages, payroll taxes
and employee benefits              $ 4,081        49.7 %    $ 3,918        50.4 %    $  8,197        55.1 %    $  7,897        54.0 %
Casualties and insurance                84         1.0          120         1.5           390         2.6           310         2.1
Depreciation                           834        10.2          787        10.1         1,662        11.2         1,575        10.8
Diesel fuel                            849        10.3        1,114        14.3         1,632        11.0         2,116        14.5
Car hire, net                          257         3.1          365         4.7           492         3.3           590         4.0
Purchased services, including
legal and professional fees            697         8.5          858        11.1         1,133         7.6         1,477        10.1
Repair and maintenance of
equipment                              322         3.9           93         1.2           757         5.1           696         4.8
Track and signal materials             857        10.4          145         1.9         1,190         8.0           427         2.9
Track usage fees                        13         0.2          182         2.3           261         1.8           386         2.6
Other materials and supplies           388         4.7          292         3.8           708         4.8           607         4.2
Other                                  728         8.9          460         5.9         1,225         8.2         1,052         7.2

Total                                9,110       110.9        8,334       107.2        17,647       118.7        17,133       117.2
Less capitalized and recovered
costs, including amounts
relating to the Amtrak Agreement     3,856        46.9        1,117        14.4         4,248        28.6         1,251         8.6

Total                              $ 5,254        64.0 %    $ 7,217        92.8 %    $ 13,399        90.1 %    $ 15,882       108.6 %

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Operating Revenues:

Operating revenues increased $249 thousand, or 1.7%, to $14.9 million in the six months ended June 30, 2012 from $14.6 million in 2011. This increase is the result of a $179 thousand (45.7%) increase in container freight revenues, a $396 thousand (70.7%) increase in other operating revenues, offset by a $255 thousand (1.9%) decrease in conventional freight revenues, and a $71 thousand (21.3%) decrease in other freight-related revenues.

The decrease in conventional freight revenues results from a 4.9% increase in the average revenue received per conventional carloading, offset by a (7.0%) reduction in traffic volume. The Company's conventional carloadings decreased by 1,150 to 15,296 in the first six months of 2012 from 16,446 in 2011.


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The number of shipments of most commodities handled by the Company was substantially constant with decreases in coal and ethanol shipments contributing the majority of the decrease during the first six months of 2012. The decrease in coal shipments during the first six months of 2012 were due to a power plant customer being offline during a substantial portion of the period. Ethanol shipments were impacted by the weather conditions affecting the Midwestern corn crop. The increase in the average revenue received per conventional carloading is due to a shift in the mix of commodities, as well as some rate changes.

The increase in container freight revenues is the result of a 38.0% increase in traffic volume and an 8.0% increase in the average revenue received per container. Container traffic volume increased by 2,149 containers to 7,808 containers in the first six months of 2012 from 5,659 containers in 2011 as a result of the terminal operator located on the Company's line obtaining an additional customer. This increase in traffic, along with improved economic conditions, contributed to the increase in the average revenue received per container.

The small decrease in other freight-related revenues results from a decrease in miscellaneous revenue.

The increase in other operating revenues reflects an increase in maintenance department billings for services rendered to freight customers and other outside parties.

Operating Expenses:

Operating expenses for the six-month period ended June 30, 2012 were $16.6 million before the Amtrak Agreement offsetting $3 million of Maintenance of Way costs. Additionally, the Amtrak Agreement offset $147 thousand of track usage fees. The Amtrak Agreement amounts are included as recovered costs in the above table of the Company's operating expenses as a percentage of operating income. Exclusive of the Amtrak Agreement credits, operating expenses increased by $670 thousand, or 4.2%, to $16.6 million from $15.9 million in 2011. Increased operating costs were due primarily to increases in maintenance charges and maintenance of way expenses and other expenses, and increases in property tax amounts assessed to the Company as a result of a City wide re-valuation done in the City of Worcester. These increases were offset in part by decreases in diesel fuel consumption and professional fees. During 2011, the Company received amounts on account of assignment of tax maintenance credits ($869 thousand). During 2012, no amounts for tax maintenance credits were recognized.

As noted above, the Company's track usage fees were reduced by $147 thousand as a result of the utilization of a portion of the available mileage credit received pursuant to the Amtrak Agreement. The Company has $2.424 million of credit remaining to offset future mileage charges for use of Amtrak's Northeast Corridor.

Provision for Income Taxes (Benefit):

The income tax benefit for the first six months of 2012 is equal to (33%) of the pre-tax income. This effective rate reflects the federal income tax rate adjusted by the effect of non deductible expenses and state taxes. The estimated annual rate does not agree with expected amounts due to changes in the valuation allowance the Company had previously established against its deferred tax assets. During the second quarter the Company reversed $1.2 million of previously reserved deferred tax assets based upon the Company's analysis of the Company's reversal pattern of taxable temporary differences.


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Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Operating Revenues:

Operating revenues increased $440 thousand, or 5.7%, to $8.2 million in the second quarter of 2012 from $7.8 million in the second quarter of 2011. This increase is the result of a $579 thousand (300%) increase in other operating revenue, and a $99 thousand (46.7%) increase in container freight revenues, offset by a $227 thousand (3.2%) decrease in conventional freight revenues, and an $11 thousand (6.6%) decrease in other freight-related revenues.

The decrease in conventional freight revenues is attributable to an 8.7% decrease in traffic volume, offset by a 5.8% increase in average revenue per carloading. The Company's conventional carloads decreased by 817 to 8,605 in the second quarter of 2012 from 9,420 in 2011. The reasons for the decrease in conventional traffic volume and increase in average revenue per carloading are as previously discussed for the six months ended June 30, 2012.

The increase in container freight revenues is the result of a 35.5% increase in traffic volume and an 8.0% increase in the average revenue received per container. Container traffic volume increased by 1,109 containers to 4,234 in the second quarter of 2012 from 3,125 in the second quarter of 2011. Reasons for the increases in traffic volume and in the average revenue received per container during the second quarter are as previously discussed.

Other operating revenues increased due to an increase of State projects performed by the Company's maintenance of way personnel.

Operating Expenses:

Operating expenses for the three-month period ended June 30, 2012 were $8.4 million before the Amtrak Agreement offsetting $3 million to Maintenance of Way costs. Additionally, the Amtrak Agreement offset $147 thousand of Track usage fees. The Amtrak Agreement amounts are included as recovered costs in the above table of the Company's operating expenses as a percentage of operating income. Exclusive of the Amtrak Agreement credits, operating expense increased by $1.2 million, or 16.7%, to $8.4 million from $7.2 million in 2011. The principal reasons for this overall increase were recovered costs of $869 thousand on account of assignment of tax maintenance credits received in 2011 not received in 2012. These increases were offset, in part, by a decrease in the amount of diesel fuel consumed and purchased services utilized.

As noted above, the Company's track usage fees were reduced by $147 thousand as a result of the utilization of a portion of the available mileage credit received under the Amtrak Agreement. The Company has $2.424 million of credit remaining to offset future mileage charges for use of Amtrak's Northeast Corridor.

Provision for Income Taxes:

The income tax provision for the second quarter of 2012 is equal to approximately (1%) of pre-tax income. This effective tax rate represents the federal income tax rate increased by the impact of state income taxes and non-deductible expenses. The estimated annual rate does not agree to expected amounts due to changes in the valuation allowance the Company had previously established against its deferred tax assets ($1.2 million) based upon the Company's analysis of the Company's reversal pattern of taxable temporary differences.


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Liquidity and Capital Resources

During the six months ended June 30, 2012, the Company generated $1.8 million of cash from operating activities, and the Company used $1.5 million in investing activities and $136 thousand in financing activities.

On July 25, 2012, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on August 22, 2012. The declaration of future dividends and the amount thereof will depend on the Company's future earnings, financial factors and other events.

The Company has a revolving line of credit facility in the amount of $5 million from a commercial bank expiring on June 25, 2013. At June 30, 2012, no amounts were outstanding.

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