Providence & Worcester Railroad 10Q 2010 Q2 Quarterly report

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, 2010

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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer x

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 1, 2010, the registrant has 4,818,317 shares of common stock, par value $.50 per share, outstanding.

PROVIDENCE AND WORCESTER RAILROAD COMPANY

Index to Quarterly Report on Form 10-Q

Part I – Financial Information

Item 1 –Financial Statements (Unaudited):

Condensed Balance Sheets – June 30, 2010 and December 31, 2009 (unaudited)	3

Condensed Statements of Operations – Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)	4

Condensed Statements of Cash Flows – Six Months Ended June 30, 2010 and 2009 (Unaudited)	5

Notes to Condensed Financial Statements (Unaudited)	6-9

Item 2 –Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-15

Item 3 –Quantitative and Qualitative Disclosures about Market Risk	15

Item 4T –Controls and Procedures	16

Part II – Other Information:

Item 5 –Reports on Form 8-Q	17

Item 6 Exhibits	17


Signatures	18

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED BALANCE SHEETS

(Dollars in Thousands Except Per Share Amounts)

(Unaudited)

ASSETS
	JUNE 30,		DECEMBER 31,
	2010		2009
Current Assets:
Cash and cash equivalents	$	224	$	157
Accounts receivable, net of allowance for doubtful accounts of $70 in 2010 and 2009		5,153		2,862
Materials and supplies		539		602
Prepaid expenses and other current assets		14		343
Deferred income taxes		278		322
Total Current Assets		6,208		4,286
Property and Equipment, net		80,459		81,114
Land Held for Development		12,457		12,457
Total Assets	$	99,124	$	97,857

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:
Borrowings under line of credit	$	1,000	$	—
Accounts payable		3,197		3,317
Accrued expenses		2,961		1,523
Total Current Liabilities		7,158		4,840
Deferred Income Taxes		11,377		11,659
Deferred Grant Income		7,982		8,111
Other		41		—
Shareholders’ Equity:
Preferred stock, 10% noncumulative, $50 par value; authorized, issued and outstanding 640 shares in 2010 and 2009		32		32
Common stock, $.50 par value; authorized 15,000,000 shares; issued and outstanding 4,818,297 shares in 2010 and 4,812,613 shares in 2009		2,409		2,406
Additional paid-in capital		37,007		36,879
Retained earnings		33,118		33,930
Total Shareholders’ Equity		72,566		73,247
Total Liabilities and Shareholders’ Equity	$	99,124	$	97,857

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

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF OPERATIONS

(Dollars in Thousands except Per Share Amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010			2009

Revenues:
Operating Revenues	$	7,607	$	6,111	$	13,777		$	11,052
Other Income		282		1,189		410			1,334
Total Revenues		7,889		7,300		14,187			12,386

Operating Expenses:
Maintenance of way and structures		1,428		909		2,670			2,166
Maintenance of equipment		732		817		1,561			1,870
Transportation		2,293		2,099		4,478			4,069
General and administrative		1,296		1,183		2,620			2,389
Depreciation		776		772		1,552			1,507
Taxes, other than income taxes		622		609		1,230			1,196
Car hire, net		200		153		374			304
Employee retirement plans		56		61		113			122
Track usage fees		131		130		251			258

Total Operating Expenses		7,534		6,733		14,849			13,881

Income (Loss) before Income Taxes		355		567		(662	)		(1,495	)
Income Tax Provision (Benefit)		106		245		(238	)		(435	)

Net Income (Loss)		249		322		(424	)		(1,060	)

Preferred Stock Dividends		—		—		3			3

Net Income (Loss) Attributable to Common Shareholders	$	249	$	322	$	(427	)	$	(1,063	)

Basic and Diluted Income (Loss) Per Common Share	$	.05	$	.07	$	(.09	)	$	(.22	)

Weighted-Average Common Shares Outstanding:
For basic		4,816,484		4,805,754		4,815,252			4,804,389
For diluted		4,923,213		4,875,021		4,815,252			4,804,389

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

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Six Months Ended June 30,
	2010			2009
Cash Flows from Operating Activities:
Net loss	$	(424	)	$	(1,060	)
Adjustments to reconcile net loss to net cash flows from (used in) operating activities:
Depreciation		1,553			1,507
Amortization of deferred grant income		(130	)		(128	)
Gains from sale and disposal of property, equipment and easements, net		—			(66	)
Deferred income taxes benefit		(238	)		(435	)
Share-based compensation		94			81
Increase (decrease) in cash from:
Accounts receivable		(2,291	)		1,881
Materials and supplies		63			71
Prepaid expenses and other current assets		329			420
Accounts payable and accrued expenses		1,360			181
Net cash flows from operating activities		316			2,452

Cash flows from Investing Activities:
Purchase of property and equipment		(897	)		(1,606	)
Proceeds from sale of property, equipment and easements		—			66
Net cash flows (used in) investing activities		(897	)		(1,540	)

Cash Flows from Financing Activities:
Borrowings under line of credit		1,000			—
Dividends paid		(388	)		(389	)
Issuance of common shares for stock options exercised and employee stock purchases		36			38
Net cash flows from (used in) financing activities		648			(351	)

Increase (Decrease) in Cash and Cash Equivalents		67			561
Cash and Cash Equivalents, Beginning of Period		157			876
Cash and Cash Equivalents, End of Period	$	224		$	1,437
Supplemental Disclosures:
Cash paid during year for interest	$	32		$	—
Cash paid (received) during year for income taxes, net	$	—		$	—

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

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS (Unaudited)

SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Dollars in Thousands Except Per Share Amounts)

In the opinion of management, the accompanying interim financial statements of the Providence and Worcester Railroad Company (the “Company”) contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2010 and the results of operations and cash flows for the six months ended June 30, 2010 and 2009. Results for interim periods may not be necessarily indicative of the results to be expected for the full year. These interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission.

2.	Recent Accounting Pronouncements:

In January 2010, the FASB issued new guidance to enhance disclosure requirements related to fair value measurements by requiring certain new disclosures and clarifying certain existing disclosures. This new guidance requires disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 recurring fair value measurements and the reasons for the transfers. In addition, the new guidance requires additional information related to activities in the reconciliation of Level 3 fair value measurements. The new guidance also expands the disclosures related to the disaggregation of assets and liabilities and information about inputs and valuation techniques. The new guidance related to Level 1 and Level 2 fair value measurements is effective for interim and annual reporting per iods beginning after December 15, 2009 and the new guidance related to Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010 and interim periods during those fiscal years. Effective January 1, 2010, the Company adopted the new guidance related to Level 1 and Level 2 fair value measurements. The Company’s adoption of the new guidance did not have a material impact on its condensed financial statements and related notes.

There were no accounting standards adopted during the three months ended June 30, 2010 that had a material impact on our condensed consolidated financial statements. Other new pronouncements issued but not effective until after June 30, 2010 are not expected to have a significant effect on our condensed consolidated financial position or results of operations.

3.	Changes in Shareholders’ Equity:

					Additional					Total
	Preferred		Common		Paid-in		Retained			Shareholders’
	Stock		Stock		Capital		Earnings			Equity
Balance December 31, 2009	$	32	$	2,406	$	36,879	$	33,930		$	73,247
Issuance of 5,684 common shares for employee stock purchases, stock options exercised and employee stock awards				3		58					61
Share-based compensation, options granted						70					70
Dividends:
Preferred stock, $5.00 per share								(3	)		(3	)
Common stock, $.04 per share								(385	)		(385	)
Net loss for the period								(424	)		(424	)
Balance June 30, 2010	$	32	$	2,409	$	37,007	$	33,118		$	72,566

4.	Revolving Line of Credit:

In June 2009 the Company obtained a revolving line of credit facility in the amount of $5 million from a commercial bank expiring on June 25, 2011. Borrowings under this line of credit are unsecured, due on demand and bear interest at either the bank's prime rate or one and three-quarters percent over the thirty, sixty or ninety day London Interbank Offered Rate ("LIBOR") with a LIBOR floor of one and one-quarter percent. The Company pays no commitment fee on this line of credit and has no compensating balance requirements. It is subject to financial and non-financial covenants including maintenance of a minimum net worth and restrictions as to the incurrence of additional indebtedness, as well as the sale or encumbrance of its assets. At June 30, 2010, $1 million was outstanding under this line of credit. The carrying value of the Company’s Revolving Credit Facility approximated its fair value at June 30, 2010.

5.	Other Income:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010			2009
Gains from sale and disposal of property, equipment and easements, net	$	—	$	55	$	(43	)	$	66
Rentals		187		184		348			317
Interest		—		—		—			1
Other		95		950		105			950
	$	282	$	1,189	$	410		$	1,334

6.	Income (Loss) per Common Share:

Basic income (loss) per common share is computed using the weighted-average number of common shares outstanding during each period. Diluted income (loss) per common share reflects the effect of the Company’s outstanding convertible preferred stock and stock options except where such items would be antidilutive.

A reconciliation of weighted-average shares used for the basic computation and that used for the diluted computation is as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2010	2009	2010	2009

Weighted-average shares for basic	4,816,484	4,805,754	4,815,252	4,804,389
Dilutive effect of convertible preferred stock and stock options	70,234	69,267	—	—

Weighted-average shares for diluted	4,923,213	4,875,021	4,815,252	4,804,389

Preferred Stock convertible into 64,000 shares of common stock at the rate of 100 shares of common stock for each one share of Preferred Stock was outstanding for the six-month periods ended June 30, 2010 and 2009. In addition, options to purchase 55,952 and 51,960 shares of common stock were outstanding for the six-month periods ended June 30, 2010 and 2009, respectively. These common stock equivalents were not included in the computation of the diluted loss per share for these six-month periods because their effect would be antidilutive.

Options to purchase 51,310 shares of common stock were outstanding for the three-month period ended June 30, 2010.

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.

On January 29, 2002, the Company received a “Notice of Potential Liability” from the United States Environmental Protection Agency (“EPA”) regarding an existing Superfund Site that includes the J.M. Mills Landfill in Cumberland, Rhode Island. EPA sends these “Notice” letters to potentially responsible parties (“PRPs”) under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). EPA identified the Company as a PRP based on its status as an owner and/or operator because its railroad property traverses the Site. Via these Notice letters, EPA makes a demand for payment of past costs (identified in the letter as $762,000) and future costs associated with the response actions taken to address the contamination at the Site, and requests PRPs to indicate their willingness to participate and re solve their potential liability at the Site. The Company has responded to EPA by stating that it does not believe it has any liability for this Site, but that it is interested in cooperating with EPA to address issues concerning liability at the Site. At this point, two other parties have already committed via a consent order with EPA to pay for the Remedial Investigation/Feasibility Study (“RI/FS”) phase of the clean-up at the Site, which will take approximately two or more years to complete. After that, EPA will likely seek to negotiate the cost of the Remedial Design and implementation of the remedy at the Site with the PRPs it has identified via these Notice letters (which presently includes over sixty parties, and is likely to increase after EPA completes its investigation of the identity of PRPs). On December 15, 2003, the EPA issued a second “Notice of Potential Liability” letter to the Company regarding the Site. EPA again identified the Company as a PRP, this time because EPA “believes that [the Company] accepted hazardous substance for transport to disposal or treatment facilities and selected the site for disposal.” The Company responded again to EPA stating that it is interested in cooperating with EPA but that it does not believe it has engaged in any activities that caused contamination at the Site. The Company believes that none of its activities caused contamination at the Site, and will contest this claim by EPA and, therefore, no liability has been accrued for this matter.

In connection with the EPA claim described above, the two parties who have committed to conduct the RI/FS at the Site filed a complaint in the U.S. District Court of Rhode Island against the Company, in an action entitled CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al (consolidated with Unilever Bestfoods v. American Steel & Aluminum Corp. et al), C.A. No. 01-496/L, on December 18, 2002. The Company was one of about sixty parties named by Plaintiffs, in this suit, to recover response costs incurred in investigating and responding to the releases of hazardous substances at the Site. Plaintiffs alleged that the Company is liable under 42 U.S.C. § 961(a)(3) of CERCLA as an “arranger” or “generator” of waste that ended up at the Site. The Company entered into a Generator Cooperation Agreement with other defendants to allocate costs in responding to this suit, and to share technical costs and information in evaluating the Plaintiffs’ claims. Although the Company does not believe it generated any waste that ended up at this Site, or that its activities caused contamination at the Site, the Company paid $45,000 to settle this suit in March 2006.

8.	Dividends:

On July 28, 2010, the Company declared a dividend of $.04 per share on its outstanding common stock payable August 23, 2010 to shareholders of record as of August 9, 2010.

* * *

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.

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, 2009.

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 sp eak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties.

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

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

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

·	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;

·	our dependence upon our key executives and other key employees.

Recent Accounting Pronouncements

In January 2010, the FASB issued new guidance to enhance disclosure requirements related to fair value measurements by requiring certain new disclosures and clarifying certain existing disclosures. This new guidance requires disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 recurring fair value measurements and the reasons for the transfers. In addition, the new guidance requires additional information related to activities in the reconciliation of Level 3 fair value measurements. The new guidance also expands the disclosures related to the disaggregation of assets and liabilities and information about inputs and valuation techniques. The new guidance related to Level 1 and Level 2 fair value measurements is effective for interim and annual reporting periods beginning after December 15, 2009 and the new guidance related to Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010 and interim periods during those fiscal years. Effective January 1, 2010, the Company adopted the new guidance related to Level 1 and Level 2 fair value measurements. The Company’s adoption of the new guidance did not have a material impact on its condensed financial statements and related notes.

Results of Operations

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

	Three Months Ended June 30,								Six Months Ended June 30,
	2010				2009				2010				2009
	(In thousands, except percentages)
Freight Revenues:
Conventional carloads	$	6,844	90.0	%	$	5,685	93.0	%	$	12,492	90.7	%	$	10,087	91.3	%
Containers		157	2.1			171	2.8			307	2.2			426	3.9
Other freight related		245	3.2			128	2.1			377	2.7			315	2.8
Other Operating Revenues		361	4.7			127	2.1			601	4.4			224	2.0
Total	$	7,607	100.0	%	$	6,111	100.0	%	$	13,777	100.0	%	$	11,052	100.0	%

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

	Three Months Ended June 30,								Six Months Ended June 30,
	2010				2009				2010				2009
	(In thousands, except percentages)
Salaries, wages, payroll taxes and employee benefits	$	3,787	48.9	%	$	3,892	63.7	%	$	7,663	55.6	%	$	7,744	70.1	%
Casualties and insurance		255	3.4			315	5.2			592	4.3			536	4.8
Depreciation		776	10.2			772	12.6			1,551	11.3			1,507	13.6
Diesel fuel		715	9.4			457	7.5			1,271	9.2			884	8.0
Car hire, net		200	2.6			153	2.5			374	2.7			304	2.8
Purchased services, including legal and professional fees		647	8.5			566	9.3			1,159	8.4			1,051	9.5
Repair and maintenance of equipment		356	4.7			394	6.4			572	4.2			966	8.7
Track and signal materials		564	7.4			364	6.0			731	5.3			646	5.9
Track usage fees		131	1.7			130	2.1			251	1.8			258	2.3
Other materials and supplies		148	2.9			211	3.5			347	2.5			501	4.5
Other		460	6.0			425	6.9			1,003	7.3			923	8.4

Total		8,039	105.7			7,679	125.7			15,514	112.6			15,320	138.6
Less capitalized and recovered costs		505	6.6			945	15.5			665	4.8			1,439	13.0
Total	$	7,534	99.1	%	$	6,733	110.2	%	$	14,849	107.8	%	$	13,881	125.6	%

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Operating Revenues:

Operating revenues increased $2.7 million, or 24.7%, to $13.8 million in the six months ended June 30, 2010 from $11.1 million in 2009. This increase is the result of a $2.4 million (23.8%) increase in conventional freight revenues, a $62,000 (19.7%) increase in other freight-related revenues, and a $377,000 (168.3%) increase in other operating revenues, offset by a $119,000 (27.9%) decrease in container freight revenues.

The increase in conventional freight revenues results from a 36.5% increase in traffic volume, offset by a (9.5%) reduction in the average revenue received per conventional carloading. The Company’s conventional carloadings increased by 4,678 to 17,498 in the first six months of 2010 from 12,820 in 2009.

The number of shipments of most commodities handled by the Company increased during the first six months of 2010. This was driven by a modest recovery amongst base customers as well as new accounts, such as plastics transfer and distribution. Particular strength was seen in the shipments of ethanol, up 1,580 carloads and construction aggregates, up 778 carloads, destined primarily for the New York Metropolitan and Long Island markets. Automobile shipments increased during the period with a third manufacturer using the Company’s services as well as an increase in volume with an existing manufacturer. Coal shipments during the period were flat with the first six months of 2010.

The decrease in container freight revenues is the result of a 21.5% decline in traffic volume and an 8.9% decrease in the average revenue received per container. Container traffic volume decreased by 1,306 containers to 4,763 containers in the first six months of 2010 from 6,069 containers in 2009. This decline in traffic volume continues a trend which began in 2007 in which cross country container traffic to the East Coast has been shifted from rail to all water routes. Current economic conditions have further added to this decline in traffic. The increase in the average revenue received per container is attributable to a change in the mix of traffic toward higher rated containers as well as contractual rate adjustments based upon railroad industry cost indices.

The small increase in other freight-related revenues results from an increase in miscellaneous revenue.

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

Other Income:

Other income decreased from $1.3 million in the first six months of 2009 to $410,000 in 2010. Other income for the period ended June 30, 2009 included $950,000 received for the settlement of certain legal proceedings and the granting of a permanent easement.

Operating Expenses:

Operating expenses for the first six months of 2010 increased by $968,000, or 6.3%, to $14.8 million from $13.9 million in 2009. Increases in the cost of diesel fuel due to higher prices of petroleum products as well as increased usage due to the increased traffic volume accounted for $387,000 of this increase. Increased operating costs were also due to an increase in maintenance charges and maintenance of way expenses as compared with the same period in 2009.

Provision for Income Taxes (Benefit):

The income tax benefit for the first six months of 2010 is equal to 35.95% of the pre-tax loss. This effective rate reflects the federal income tax rate adjusted by the effect of non deductible expenses and state taxes.

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

Operating Revenues:

Operating revenues increased $1.5 million, or 24.5%, to $7.6 million in the second quarter of 2010 from $6.1 million in the second quarter of 2009. This increase is the result of a $1.2 million (20.39%) increase in conventional freight revenues, a $117,000 (91.4%) increase in other freight-related revenues, and a $234,000 (184.3%) increase in other operating revenues, offset by a $13,971 (8.2%) decrease in container freight revenues.

The increase in conventional freight revenues is attributable to 25.4% increase in traffic volume, offset by a 8.3% decrease in the average revenue received per conventional carloading. The Company’s conventional carloadings increased by 2,047 to 10,110 in the second quarter of 2010 from 8,063 in 2009. The reasons for the increase in conventional traffic volume and decrease in average revenue per carloading are as previously discussed for the six months ended June 30, 2010.

The decrease in container freight revenues is the result of a 2% decline in traffic volume and a 10.5% decrease in the average revenue received per container. Container traffic volume decreased by 47 containers to 2,449 in the second quarter of 2010 from 2,402 in the second quarter of 2009. The reasons for the decrease in traffic volume and the average revenue received per container during the second quarter are as previously discussed.

The number of shipments of most commodities handled by the Company for the three month period, ended June 30, 2010, increased. This was the result of an overall improvement in economic conditions, coupled with particular strength in the shipment of ethanol, specifically export product destined for the European Union and construction aggregates for the New York Metropolitan and Long Island Markets. Additional infrastructure investments by one of the Company’s aggregate shippers combined with enhanced operational coordination between the Company and the destination rail carrier enabled an overall increase in shipments.

Other Income:

Other income decreased from $1.2 million in the second quarter of 2009 to $282,000 in the second quarter of 2010, primarily due to June 2009 other income included $950,000 received for the settlement of certain legal proceedings and the granting of a permanent easement.

Operating Expenses:

Operating expenses for the second quarter of 2010 increased by $801,000, or 10.59%, to $7.5 million from $6.7 million in the second quarter of 2009. The principal reasons for this overall increase were higher diesel fuel costs, in the amount of $258,000, increased traffic volume, higher maintenance charges and maintenance of way expenses as previously discussed.

Provision for Income Taxes:

The income tax provision for the second quarter of 2010 is equal to approximately 35.5% 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.

Liquidity and Capital Resources

During the six months ended June 30, 2010, the Company generated $316,000 of cash from operating activities. Changes in working capital decreased cash flow from operating activities by $514,000. During the six month period ending June 30 2010, accounts receivable increased by approximately $2.7 million. Of this increase, $2.3 million relates to monies due to the Company from its insurance carrier with respect to claims arising out of two derailments that occurred during the period. Of the $1.4 million increase in accrued expenses for the same period, $1.3 million relate to costs incurred by the Company relating to the derailments. The Company is insured for the derailments and total costs incurred to date equal $2.5 million, of which the Company expects to be reimbursed $2.3 million by its insurance carrier. Durin g the first six months of 2009, the Company generated $2.5 million of cash from operating activities.

During the first six months of 2010 and 2009, the Company’s cash flows used in investing activities were $897,000 and $1.5 million, respectively. For 2010 and 2009, primary drivers of cash used in investing activities were capital expenditures.

During the first six months of 2010, the Company’s cash flows from financing activities were $648,000. For 2010, the primary drivers of cash flows from financing activities were $1.0 million for borrowings under line of credit and payment of dividends of $388,000. During the first six months of 2009, the Company’s cash flows used in financing activities were $351,000. For 2009, the primary driver of cash flows used in financing activities was payment of dividends of $351,000.

The Company has a $5.0 million dollar revolving line of credit with its principal bank that is due to expire on June 25, 2011, of which $4 million is still available as of June 30, 2010. If for some reason the Company should not be successful in renewing or replacing this credit line, management believes that cash generated from operations during the remainder of the year will be sufficient to fund its operations, capital additions and dividend requirements.

Seasonality

Historically, the Company’s operating revenues are lower for the first half of the year due to the absence of construction aggregate shipments during a portion of this period and to winter weather conditions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Cash and Equivalents

As of June 30, 2010, 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 three- quarters percent over the thirty, sixty or ninety day London Interbank Offered Rates (“LIBOR”) with a LIBOR floor of one and one-quarter percent. The Company pays no commitment fee on this line, and has no compensating balance requirements. The Company had borrowings of $1.0 million outstanding pursuant to the revolving line of credit agreement at June 30, 2010. The Company believes that the effect, if any, of reasonably possible near-term changes in interest rates on t he Company’s financial position, results of operations, and cash flows should not be material.

Item 4T. Controls and Procedures

Our management with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in rule 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) as of June 30, 2010. Based on this evaluation, Chief Executive Officer and Interim Chief Financial Officer concluded that, as of June 30, 2010, our disclosure controls and procedures were effective in ensuring that information to be disclosed by us in the reports that we file or submit under Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and that information required to be disclosed by us in the reports that we file or subm it under the Securities and Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We continually seek ways to improve the effectiveness and efficiency of our internal controls over the financial reporting, resulting in frequent process refinement. However, there have been no changes in our internal control over financial reporting that occurred during our last fiscal period to which this Quarterly Report on Form 10Q for the quarter ended June 30, 2010 relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – Other Information

Item 5.

Reports on Form 8-K

On April 29, 2010 the Company filed an 8-K reporting on the results of the annual meeting.

Item 6.

Exhibits

31.1

Rule 13a-14(a) Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Rule 13a-14(a) Certification of Interim Treasurer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certifications of Chairman of the Board and Chief Executive Officer and Interim Treasurer and Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PROVIDENCE AND WORCESTER

RAILROAD COMPANY

	By: /s/ Robert H. Eder
	_____________________________________
	Robert H. Eder
	Chairman of the Board and Chief Executive Officer

	By: /s/ Jade Y. Tsang
	_____________________________________
	Jade Y. Tsang
	Interim Treasurer and Chief Financial Officer

DATED: August 13, 2010

EXHIBIT 31.1

Providence and Worcester Railroad Company

Certification Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, ROBERT H. EDER, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Providence and Worcester Railroad Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE: August 13, 2010

	By: /s/ Robert H. Eder
	_____________________________________
	Robert H. Eder
	Chairman of the Board and Chief Executive Officer

EXHIBIT 31.2

Providence and Worcester Railroad Company

Certification Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, JADE Y. TSANG, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Providence and Worcester Railroad Company;

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE: August 13, 2010

	By: /s/ Jade Y. Tsang
	_____________________________________
	Jade Y. Tsang
	Interim Treasurer and Chief Financial Officer

EXHIBIT 32

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Providence and Worcester Railroad Company (the Company) on form 10-Q for the quarterly period ended June 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert H. Eder, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By: /s/ Robert H. Eder
	_____________________________________
	Robert H. Eder
	Chairman of the Board and Chief Executive Officer
	August 13, 2010

EXHIBIT 32.1

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Providence and Worcester Railroad Company (the Company) on form 10-Q for the quarterly period ended June 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Jade Y. Tsang, Interim Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By: /s/ Jade Y. Tsang
	_____________________________________
	Jade Y. Tsang
	Interim Treasurer and Chief Financial Officer
	August 13, 2010

Positive
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Uncertain
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Legalese
Litigous
Readability	8th grade Avg

Providence & Worcester Railroad (PWX) Inactive 10-Q2010 Q2 Quarterly report

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