Providence & Worcester Railroad (PWX) 10-Q 2014 Q1 Quarterly report

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 endedMarch 31, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number0-16704

PROVIDENCE AND WORCESTER RAILROAD COMPANY

(Exact name of registrant as specified in its charter)

Rhode Island	05-0344399
(State or other jurisdiction of incorporation or organization)	I.R.S. Employer Identification No.
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    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 “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (do not check if a smaller reporting company)	Smaller reporting company	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 May 6, 2014, the registrant has 4,853,380 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 – March 31, 2014 (Unaudited) and December 31, 2013	3
Condensed Statements of Operations – Three Months Ended March 31, 2014 and 2013 (Unaudited)	4
Condensed Statements of Cash Flows – Three Months Ended March 31, 2014 and 2013 (Unaudited)	5
Notes to Condensed Financial Statements (Unaudited)	6-9
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-13
Item 4 – Controls and Procedures	13
Part II – Other Information:
Item 5 Other Information	14
Item 6 Exhibits	14
Signatures	15

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Part I – Financial Information

Item 1. Financial Statements

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED BALANCE SHEETS (Unaudited)

(Dollars in Thousands Except Per Share Amounts)

	MARCH 31, 2014		DECEMBER 31, 2013
ASSETS
Current Assets:
Cash and cash equivalents	$	2,848	$	2,614
Accounts receivable, net of allowance for doubtful accounts of $160 in 2014 and 2013, respectively		4,402		5,727
Materials and supplies		1,269		1,308
Prepaid expenses and other current assets		259		508
Deferred income taxes		353		353
Total Current Assets		9,131		10,510
Property and Equipment, net		84,885		85,571
Land Held for Development		12,457		12,457
Total Assets	$	106,473	$	108,538
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,740	$	3,745
Current portion of deferred grant and other revenue		434		239
Accrued expenses		1,932		1,677
Total Current Liabilities		5,106		5,661
Deferred Income Taxes		12,997		13,638
Deferred Grant and Other Income		12,337		12,477
Shareholders’ Equity:
Preferred stock, 10% noncumulative, $50 par value; authorized, issued and outstanding 640 shares in 2014 and 2013		32		32
Common stock, $.50 par value; authorized 15,000,000 shares; issued and outstanding 4,852,762 shares in 2014 and 4,850,014 shares in 2013		2,426		2,425
Additional paid-in capital		37,779		37,635
Retained earnings		35,796		36,670
Total Shareholders’ Equity		76,033		76,762
Total Liabilities and Shareholders’ Equity	$	106,473	$	108,538

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

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in Thousands Except Per Share Amounts)

	Three Months Ended March 31,
	2014			2013
Operating Revenue	$	6,514		$	6,992
Operating Expenses:
Maintenance of way and structures		1,352			1,526
Maintenance of equipment		912			1,019
Transportation		2,471			2,510
General and administrative		1,238			1,270
Depreciation		900			856
Taxes, other than income taxes		657			964
Car hire, net		226			239
Employee retirement plans		57			55
Track usage fees		29			42
Total Operating Expenses		7,842			8,481
Loss from Operations		(1,328	)		(1,489	)
Other income, net		10			6
Loss from operations prior to income taxes		(1,318	)		(1,483	)
Provision from Income Tax (Benefit)		(641	)		(392	)
Net Loss		(677	)		(1,091	)
Preferred Stock Dividends		3			3
Net Loss Available to Common Shareholders	$	(680	)	$	(1,094	)
Basic and Diluted Loss Per Common Share	$	(.14	)	$	(.23	)
Weighted-Average Common Shares Outstanding
For basic		4,850,938			4,842,416
For diluted		4,850,938			4,842,416

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

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in Thousands)

	Three Months Ended March 31,
	2014			2013
Cash Flows from Operating Activities:
Net loss	$	(677	)	$	(1,091	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation		900			856
Amortization of deferred grant income		(140	)		(187	)
Deferred grant and other income		195			1,256
Deferred income taxes provision (benefit)		(641	)		(392	)
Share-based compensation		114			80
Increase (decrease) in cash from:
Accounts receivable		1,325			1,539
Materials and supplies		39			(32	)
Prepaid expenses and other		249			221
Accounts payable and accrued expenses		(689	)		(134	)
Net cash flows provided by operating activities		675			2,116
Cash flows from Investing Activities:
Purchase of property and equipment		(275	)		(853	)
Proceeds from the sale of property		—			—
Net cash flows used in investing activities		(275	)		(853	)
Cash Flows from Financing Activities:
Dividends paid		(197	)		(197	)
Issuance of common shares for stock options exercised and employee stock purchases		31			20
Net cash flows used in financing activities		(166	)		(177	)
Increase in Cash and Cash Equivalents		234			1,086
Cash and Cash Equivalents, Beginning of Period		2,614			951
Cash and Cash Equivalents, End of Period	$	2,848		$	2,037
Supplemental Disclosures:
Property and equipment included in accounts payable	$	61		$	157
Cash paid for income taxes	$	55		$	420

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

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS (Unaudited)

THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Dollars in Thousands Except Per Share Amounts)

1. In the opinion of management, the accompanying interim condensed financial statements of the Providence and Worcester Railroad Company (the “Company”) contain all adjustments (consisting solely of normal and recurring adjustments) necessary to present fairly the financial position as of March 31, 2014 and the results of operations and cash flows for the three months ended March 31, 2014 and 2013 in accordance with accounting principles generally accepted in the United States. The accompanying condensed balance sheet as of December 31, 2013, has been derived from audited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. 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, 2013 filed with the Securities and Exchange Commission. Results for interim periods may not be necessarily indicative of the results to be expected for the full year.

2. 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.

3. Changes in Shareholders’ Equity:

	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Total Shareholders’ Equity
Balance December 31, 2013	$	32	$	2,425	$	37,635	$	36,670		$	76,762
Issuance of 2,748 common shares for employee stock purchases, stock options exercised and employee stock awards				1		30					31
Share-based compensation, options granted						114					114
Dividends
Preferred stock, $5.00 per share								(3	)		(3	)
Common stock, $.04 per share								(194	)		(194	)
Net loss for the period								(677	)		(677	)
Balance March 31, 2014	$	32	$	2,426	$	37,779	$	35,796		$	76,033

4. Debt

The Company has a revolving line of credit facility in the amount of $5,000 from a commercial bank expiring on June 25, 2015. 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 March 31, 2014 and December 31, 2013, no amounts were outstanding.

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

5. Loss per Common Share:

Loss per common share is computed using the weighted average number of common shares outstanding during each quarter. Diluted income (loss) per common share reflects the effect of the Company’s outstanding convertible preferred stock (using the if-converted method) and options (using the treasury stock method), except where such items would be anti-dilutive.

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

	2014								2013
	Net Loss			Shares		Per Share Amount			Net Loss			Shares		Per Share Amount
Basic Earnings per Share
Net Loss available to Common Shareholders	$	(680	)						$	(1,094	)
Basic loss per share	$	(680	)		4,851	$	(.14	)	$	(1,094	)		4,842	$	(.23	)
Diluted Earnings per Share
Net Loss available to Common Shareholders	$	(680	)						$	(1,094	)
Effect of Dilutive Securities					—								—
Diluted loss per Share	$	(680	)		4,851	$	(.14	)	$	(1,094	)		4,842	$	(.23	)

Options to purchase 67,695 and 70,348 shares of common stock were outstanding at March 31, 2014 and 2013, respectively. No outstanding options were included in the computation of diluted (loss) earnings per common share for 2014 and 2013 as the effect would be antidilutive. Shares of preferred stock convertible into 64,000 shares of common stock were outstanding at March 31, 2014 and 2013. These shares were not included in the computation of diluted (loss) earnings per common share for 2014 and 2013 because of the anti-dilutive effect.

6. Commitments and Contingent Liabilities:

The Company is a defendant in certain lawsuits relating to casualty losses, many of which are covered by insurance subject to a deductible. The Company believes that adequate provision has been made in the condensed 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) and future costs associated with the response actions taken to address the contamination at the

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

Site, and requests PRPs to indicate their willingness to participate and resolve 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 entitledCCL 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 to settle this suit in March 2006.

7. Amtrak Agreement

On April 4, 2012, the Company and National Railroad Passenger Corporation (“Amtrak”) entered into the 2012 Settlement and Amendment Agreement (the “2012 Agreement”) which settles certain disputes between the parties and amends, in part, both an Agreement dated January 3, 1978 (the “1978 Agreement”) and an Agreement dated July 9, 1979 by and between Amtrak and the Company. Under the 1978 Agreement, Amtrak obtained the right to remove certain Company trackage subject to the requirement of providing replacement facilities.

Pursuant to the Agreement, the Company received a credit for mileage travelled along the Northeast Corridor. The Company will recognize the expense offset relative to Track Usage Fees as the expenses are incurred. As such, the Company did not record any related assets or liabilities relative to the mileage credit. The Company has recorded the following offsets to Track Usage expense and has the following track mileage credit remaining:

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

	Three Months Ended March 31,
	2014		2013
Mileage credit available, beginning	$	1,219	$	1,994
Operating rights offset		104		104
Mileage credit remaining, ending	$	1,115	$	1,890

8. Related Party Transaction:

Robert Eder, who owns a majority of the Company’s Preferred Shares, with his wife, also controls Capital Properties, Inc. (“CPI”) and its subsidiaries. Pursuant to an agreement between the Company and Getty Oil Company (Eastern Operations), Inc. dated August 6, 1975, the Company has the right to relocate any portion of two pipelines located within the Company’s right of way, in East Providence, Rhode Island. The Company and CPI have supported an extension of Waterfront Drive in East Providence along the Company’s right of way which was completed in the fall of 2012. The State of Rhode Island’s plans for Waterfront Drive’s extension required a relocation of a portion of the pipelines which the Company has the right to relocate. The Rhode Island Department of Transportation (“RIDOT”) entered into an agreement with the Company to reimburse the Company for expenses incurred by us in relocating the pipelines up to a maximum of $159. In May, 2011 CPI’s subsidiary, Capital Terminal Company (“CTC”), entered into an agreement with the Company to act as the Company’s agent to select, direct and supervise all subcontractors subject to the Company’s approval. All invoices from contractors to CTC are submitted to the Company for approval along with a check from CTC in the amount of the invoice. The Company pays the invoice out of the funds provided by CTC. The Company is then obligated to submit the invoices to RIDOT for reimbursement under its agreement with RIDOT. When the Company receives reimbursement from RIDOT, it is obligated to pay that amount to CTC. Any shortfall in RIDOT’s reimbursement is borne by CTC. At March 31, 2014 and December 31, 2013, respectively, the remaining receivable in the amount of $22 from RIDOT, and the corresponding accounts payable to CTC have been reflected in the Company’s Condensed Balance Sheets.

In May 2012 the Company and CPI entered into a License Agreement licensing to CPI track facilities which may be installed in connection with a railcar-loading/unloading facility up the Company’s right-of-way in East Providence, Rhode Island. The License Agreement continues through December 31, 2015, and may be extended for additional three-year periods unless cancelled by CPI upon 30-days written notice prior to termination.

9. Subsequent Events:

On April 30, 2014, the Company declared a dividend of $.04 per share on its outstanding Common Stock payable May 28, 2014 to shareholders of record on May 14, 2014.

In April 2014, the Company extended its existing locomotive Lease Agreement with GATX. The Company and GATX extended the Lease Agreement for a thirty-six month term, which commences after the expiration of the existing lease. Additionally, the Company and GATX added one additional SD-60 unit, for a total of three SD-60 locomotives, to the new Agreement. The total annual rental for the three locomotives will be approximately $228.

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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. The following discussion should be read in conjunction with the Condensed Financial Statements and applicable notes to the Condensed Financial Statements, Item 1.

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 onForm 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, 2013 and during the first three months of 2014.

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.

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;

• 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.

10

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 revenues of $160 and $128 for the first three months in 2014 and 2013, respectively, by category in dollars and as a percentage of operating revenues:

	Three Months Ended March 31,
	2014				2013
	(In thousands, except percentages)
Freight Revenues:
Conventional carloads	$	5,549	87.3	%	$	6,284	91.5	%
Containers		355	5.6			351	5.1
Other freight related		169	2.7			86	1.3
Other operating revenues		281	4.4			143	2.1
Total	$	6,354	100.0	%	$	6,864	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, exclusive of rental revenues:

	Three Months Ended March 31,
	2014				2013
	(In thousands, except percentages)
Salaries, wages, payroll taxes and employee benefits	$	3,968	62.4	%	$	4,072	59.3	%
Casualties and insurance		436	6.9			284	4.1
Depreciation		900	14.2			856	12.5
Diesel fuel		598	9.4			787	11.5
Car hire, net		226	3.6			239	3.5
Purchased services, including legal and professional fees		533	8.4			374	5.4
Repair and maintenance of equipment		433	6.8			538	7.8
Track and signal materials		359	5.6			209	3.0
Track usage fees		133	2.1			146	2.1
Other materials and supplies		303	4.8			352	5.1
Other		612	9.6			919	13.4
Total		8,501	133.8			8,776	127.7
Less capitalized and recovered costs, including amounts relating to the Amtrak Agreement		659	10.4			295	4.3
Total	$	7,842	123.4	%	$	8,481	123.4	%

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Operating Revenues:

Operating revenues decreased $480 thousand, or 6.9%, to $6.51 million in the first quarter of 2014 from $6.99 million in the first quarter of 2013.

The decrease in conventional freight revenues is attributable to a 13.4% decrease in traffic volume, offset by a slight increase in the average revenue received per conventional carload. The Company’s conventional carloads decreased by 872 to 5,654 in the first quarter of 2014 from 6,526 in 2013.

Shipments of most commodities decreased in the first quarter of 2014, as compared to the first quarter of 2013. The decrease in the Company’s ethanol and plastic business was a result of increasing transit times caused by severe weather across the national network. Coal business was impacted by the changing power purchase patterns of the New England power market with more generation switching to natural gas alternatives. The increase in the average revenue received per conventional carload is due mainly to rate changes.

The increase in container freight revenues is the result of a 3.6% increase in traffic volume, offset by a 1.3% decrease in the average revenue received per container. Container traffic volume increased by 174 containers to 4,975 in the first quarter of 2014 from 4,801 in 2013.

The increase in other freight-related revenues is the result of the increases in switching income and fees charged for special train services, offset by a slight decrease in demurrage revenue.

The increase in other operating revenues mainly reflects an increase in billings for flagging services performed by the Company.

Operating Expenses:

Operating expenses for the first quarter of 2014 decreased by $640 thousand, or 7.5%, to $7.84 million from $8.48 million in the first quarter of 2013. The decrease is attributable mainly to decreases in payroll related expense ($104 thousand), diesel fuel ($189 thousand), repairs and maintenance expense ($150 thousand), and other ($307 thousand). These decreases were offset in part by increases in utility expense ($60 thousand) due to severe cold weather, casualty expense ($150 thousand), and depreciation expense ($45 thousand). Increases in purchased services and track and signal material purchases ($300 thousand) were related to reimbursable projects performed by the Company’s Maintenance of Way department for various state agencies. The increase in recovered costs relates to these same projects.

Income Tax Benefit:

The income tax benefit for the first quarter of 2014 and 2013 is approximately (49%) and (26%) of the pre-tax loss, respectively. The income tax rate for 2014 represents the effective tax benefit which the Company expects to realize after giving effect for a decrease in the Company’s valuation allowance against its deferred tax assets.

Liquidity and Capital Resources

During the first quarter of 2014, the Company generated $675 thousand of cash from operating activities, used $275 thousand in investing activities and $166 thousand in financing activities.

12

On April 30, 2014, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on May 28, 2014. 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, 2015. At March 31, 2014, no amounts were outstanding.

Seasonality

Historically, the Company’s operating revenues are lowest for the first quarter due to the reduction in construction aggregate shipments during a portion of this period and to winter weather conditions.

Item 4. Controls and Procedures

Our management with the participation of our Chief Executive Officer and 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 March 31, 2014. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2014, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

There was no significant change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting. The Company continues to enhance its internal controls over financial reporting, primarily by evaluating and enhancing process and control documentation. Management discusses with and discloses these matters to the Audit Committee of the Board of Directors and the Company’s auditors.

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PART II – Other Information

Item 5. Other Information

(a) Reports on Form 8-K were appropriately filed during the quarter ended March 31, 2014.

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 Treasurer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of Chairman of the Board and Chief Executive Officer and Treasurer and Principal 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.
101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2014, filed with the Securities and Exchange Commission on May 13, 2014, formatted in eXtensible Business Reporting Language:
	(i)     Balance Sheets as of March 31, 2014 and December 31, 2013;
	(ii)    Statements of Operations for the Three Months ended March 31, 2014 and 2013;
	(iii)  Statements of Cash Flows for the Three Months ended March 31, 2014 and 2013; and
	(iv)   Notes to Financial Statements.

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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/ Daniel T. Noreck
	Daniel T. Noreck
	Treasurer and Principal Financial Officer

DATED: May 13, 2014

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