Providence & Worcester Railroad (PWX) 10-Q 2015 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 endedJune 30, 2015

¨ 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

(Former name, former address and former fiscal year, if changed since last report)

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 website, 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 fields).    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” inRule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (do not check if a smaller reporting company)	Smaller reporting company	x

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, 2015, the registrant has 4,861,715 shares of common stock, par value $.50 per share, outstanding.

Index to Quarterly Report on Form 10-Q

Part I – Financial Information
Item 1 – Financial Statements (Unaudited):
Condensed Balance Sheets – June 30, 2015 (Unaudited) and December 31, 2014	3
Condensed Statements of Operations – Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)	4
Condensed Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014 (Unaudited)	5
Notes to Condensed Financial Statements (Unaudited)	6-9
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-14
Item 4 – Controls and Procedures	14-15
Part II – Other Information:
Item 5 Other Information	16
Item 6 Exhibits	16
Signatures	17

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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)

	JUNE 30, 2015		DECEMBER 31, 2014
ASSETS
Current Assets:
Cash and cash equivalents	$	7,361	$	6,414
Accounts receivable, net of allowance for doubtful accounts of $160 in 2015 and 2014, respectively		4,298		5,007
Materials and supplies		1,158		1,067
Prepaid expenses and other current assets		162		634
Deferred income taxes		399		399
Total Current Assets		13,378		13,521
Property and Equipment, net		85,780		85,955
Land Held for Development		12,457		12,457
Total Assets	$	111,615	$	111,933
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	3,677	$	3,872
Current portion of deferred grant and other revenue		411		230
Accrued expenses		2,059		1,810
Total Current Liabilities		6,147		5,912
Deferred Income Taxes		13,611		13,623
Deferred Grant and Other Income		12,779		12,986
Shareholders’ Equity:
Preferred stock, 10% noncumulative, $50 par value; authorized, issued and outstanding 640 shares in 2015 and 2014		32		32
Common stock, $.50 par value; authorized 15,000,000 shares; issued and outstanding 4,861,715 shares in 2015 and 4,859,871 shares in 2014		2,431		2,430
Additional paid-in capital		38,018		37,891
Retained earnings		38,597		39,059
Total Shareholders’ Equity		79,078		79,412
Total Liabilities and Shareholders’ Equity	$	111,615	$	111,933

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 June 30,				Six Months Ended June 30,
	2015		2014		2015			2014
Operating Revenues	$	9,516	$	9,511	$	16,777		$	16,025
Operating Expenses:
Maintenance of way and structures		1,229		1,325		2,762			2,677
Maintenance of equipment		945		1,049		1,707			1,961
Transportation		2,659		2,647		5,451			5,118
General and administrative		1,108		1,422		2,489			2,660
Depreciation		880		888		1,757			1,788
Taxes, other than income taxes		830		700		1,563			1,356
Car hire, net		525		226		908			453
Employee retirement plans		56		57		113			114
Track usage fees		179		87		219			116
Total Operating Expenses		8,411		8,401		16,969			16,243
Operating Income (Loss) before Interest and Income Taxes		1,105		1,110		(192	)		(218	)
Other income		103		117		110			127
Income (Loss) from operations before Income Taxes		1,208		1,227		(82	)		(91	)
Income Tax Provision (Benefit)		435		602		(12	)		(39	)
Net Income (Loss)		773		625		(70	)		(52	)
Preferred Stock Dividends		—		—		3			3
Net Income (Loss) Attributable to Common Shareholders	$	773	$	625	$	(73	)	$	(55	)
Income (Loss) Per Common Share:
Basic	$	.16	$	.13	$	(.01	)	$	(.01	)
Diluted	$	.16	$	.13	$	(.01	)	$	(.01	)
Weighted-Average Common Shares Outstanding:
For basic		4,860,863		4,853,088		4,860,374			4,852,469
For diluted		4,935,190		4,928,643		4,860,374			4,852,469

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)

	Six Months Ended June 30,
	2015			2014
Cash Flows from Operating Activities:
Net loss	$	(70	)	$	(52	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation		1,757			1,788
Amortization of deferred grant income		(471	)		(486	)
Allowance for doubtful accounts		—			115
Proceeds from deferred grant and other revenue		445			445
Deferred income taxes benefit		(12	)		(39	)
Share-based compensation		96			114
Increase (decrease) in cash from:
Accounts receivable		709			(524	)
Materials and supplies		(91	)		91
Prepaid expenses and other current assets		472			360
Accounts payable and accrued expenses		(400	)		(508	)
Net cash flows from operating activities		2,435			1,304
Cash flows from Investing Activities:
Purchase of property and equipment		(1,128	)		(2,494	)
Proceeds from sale of property and equipment		—			250
Net cash flows used in investing activities		(1,128	)		(2,244	)
Cash Flows from Financing Activities:
Dividends paid		(392	)		(392	)
Issuance of common shares for stock options exercised and employee stock purchases		32			77
Net cash flows used in financing activities		(360	)		(315	)
Increase (decrease) in Cash and Cash Equivalents		947			(1,255	)
Cash and Cash Equivalents, Beginning of Period		6,414			2,614
Cash and Cash Equivalents, End of Period	$	7,361		$	1,359
Supplemental Disclosures:
Cash paid for income taxes	$	448		$	97
Property and equipment included in accounts payable	$	570		$	119

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

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Dollars in Thousands Except Per Share Amounts)

1. In the opinion of management, the accompanying interim condensed financial statements of 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, 2015, the results of operations for the three and six months ended June 30, 2015 and 2014 and cash flows for the six months ended June 30, 2015 and 2014 in accordance with accounting principles generally accepted in the United States. The accompanying condensed balance sheet as of December 31, 2014, 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, 2014 filed with the Securities and Exchange Commission. Results for interim periods may not necessarily be indicative of the results to be expected for the full year.

2. Recent Accounting Pronouncements:

In May 2014, the FASB issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers(“ASU 2014-09”), which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. ASU 2014-09 anticipates companies using more judgment and estimates than under the current guidance. ASU 2014-09 permits the use of retrospective application to period presented or a cumulative effect transition adjustment. On July 9, 2015, the FASB approved a one year deferral of the effective date of ASU 2014-09. The Company is currently evaluating the impact and method of implementing this new guidance on its financial statements and related disclosures.

3. Changes in Shareholders’ Equity:

	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Total Shareholders’ Equity
Balance December 31, 2014	$	32	$	2,430	$	37,891	$	39,059		$	79,412
Issuance of 1,844 common shares for employee stock purchases, stock options exercised and employee stock awards				1		31					32
Share-based compensation, options granted						96					96
Dividends:
Preferred stock, $5.00 per share								(3	)		(3	)
Common stock, $.08 per share								(389	)		(389	)
Net loss for the period								(70	)		(70	)
Balance June 30, 2015	$	32	$	2,431	$	38,018	$	38,597		$	79,078

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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, 2017. 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. The Company 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, 2015 and December 31, 2014, no amounts were outstanding.

The Company entered into a loan agreement with its commercial bank for $5,000 for the rehabilitation of four and the replacement of one main line bridges. The loan requires interest only for twelve months whereupon it converts to a ten year term loan with payments based upon a twenty year amortization. The loan will bear interest at 4.11% per annum for the life of the loan. The loan is unsecured and is subject to certain financial and non-financial covenants. The Company anticipates initial drawdowns during the third quarter of 2015.

5. 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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Weighted-average common shares for basic		4,860,863		4,853,088		4,859,990		4,852,469
Dilutive effect of convertible preferred stock and stock options		74,327		75,555		—		—
Weighted-average common shares for diluted		4,935,190		4,928,643		4,859,990		4,852,469

Options to purchase 67,063 and 65,191 shares of common stock were outstanding at June 30, 2015 and 2014, respectively. For the three month periods ended June 30, 2015 and 2014, 10,327 and 11,555 of outstanding options to purchase common shares were included in the computation of diluted earnings per share (EPS). For the six month period ended June 30, 2015 and 2014, no outstanding options were included as the effect would be antidilutive.

Shares of preferred stock convertible into 64,000 shares of common stock were outstanding for the three and six-month periods ended June 30, 2015 and 2014. For the three month periods ended June 30, 2015 and 2014, the 64,000 shares were included in the calculation of diluted earnings per share. For the six month period ended June 30, 2015 and 2014, the 64,000 shares were not included in the calculation of diluted earnings per share as the effect would be antidilutive.

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At its annual shareholders meeting April 29, 2015 the shareholders approved the 2015 Equity Incentive Plan. Any future options grant will be made only pursuant to the 2015 Plan.

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 (the “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 demanded payment of past costs (identified in the letter as $762 thousand) 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 resolve their potential liability at the Site. The Company 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. 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 has not yet been completed. 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 (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 its interest 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.

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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 at the date of the settlement. The Company has recorded the following offsets to Track Usage expense:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Mileage credit available, beginning	$	288	$	1,115	$	418	$	1,200
Utilized		288		210		418		295
Mileage credit available, ending	$	—	$	905	$	—	$	905

No credits remained outstanding as of June 30, 2015.

8. Open-Top Hoppers

In June, 2014, the Company acquired from GATX Corporation 75 open-top hoppers, which were previously under lease. The Company acquired these open-top hoppers for $1,500.

9. Subsequent event and dividend:

On July 29, 2015, the Company declared a dividend of $.04 per share on its outstanding common stock payable August 26, 2015 to shareholders of record as of August 12, 2015.

In July, 2015, the Company acquired two (2) SD70M-2 locomotives for $1,610.

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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, 2014 and during the first six months of 2015.

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;

• 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

In May 2014, the FASB issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers(“ASU 2014-09”), which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. ASU 2014-09 anticipates companies using more judgment and estimates than under the current guidance. On July 9, 2015, the FASB approved a one year deferral of the effective date of ASU 2014-09. ASU 2014-09 permits the use of retrospective application to period presented or a cumulative effect transition adjustment. The Company is currently evaluating the impact and method of implementing this new guidance on its financial statements and related disclosures.

Results of Operations

The following table sets forth the Company’s operating revenues, exclusive of rental operating revenues of $175 and $178 during the three months ended June 30, 2015 and 2014, respectively, and $346 and $338 during the six months ended June 30, 2015 and 2014, respectively, by category in dollars and as a percentage of operating revenues:

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
	(In thousands, except percentages)
Freight Revenues:
Conventional carloads	$	8,497	91.0	%	$	8,414	90.1	%	$	14,981	91.2	%	$	13,963	89.0	%
Containers		318	3.4			393	4.2			619	3.8			748	4.8
Other freight related		233	2.5			157	1.7			413	2.5			326	2.1
Other Operating Revenues		293	3.1			369	4.0			419	2.5			650	4.1
Total	$	9,341	100.0	%	$	9,333	100.0	%	$	16,432	100.0	%	$	15,687	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,
	2015				2014				2015				2014
	(In thousands, except percentages)
Salaries, wages, payroll taxes and employee benefits	$	3,954	42.4	%	$	3,857	41.3	%	$	8,039	48.9	%	$	7,826	49.9	%
Casualties and insurance		371	4.0			266	2.9			899	5.5			702	4.5
Depreciation		880	9.4			888	9.5			1,757	10.7			1,788	11.4
Diesel fuel		833	8.9			869	9.3			1,575	9.6			1,467	9.4
Car hire, net		525	5.6			226	2.4			908	5.5			453	2.9
Purchased services, including legal and professional fees		630	6.7			1,018	10.9			1,172	7.1			1,551	9.9
Repair and maintenance of equipment		339	3.6			511	5.5			543	3.3			944	6.0
Track and signal materials		189	2.0			254	2.7			416	2.5			613	3.9
Track usage fees		467	5.0			299	3.2			637	3.9			431	2.7
Other materials and supplies		430	4.6			477	5.1			816	5.0			780	5.0
Other		704	7.6			832	8.9			1,505	9.1			1,444	9.2
Total		9,322	99.8			9,497	101.7			18,267	111.1			17,999	114.8
Less capitalized and recovered costs, including amounts relating to the Amtrak Agreement		911	9.7			1,096	11.7			1,298	7.9			1,756	11.2
Total	$	8,411	90.1	%	$	8,401	90.0	%	$	16,969	103.2	%	$	16,243	103.6	%

Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014

Operating Revenues:

Operating revenues increased $700 thousand, or 4.5%, to $16.4 million in the six months ended June 30, 2015 from $15.7 million in 2014. This increase is the result of a $1.0 million (7.3%) increase in revenue from conventional carloads and an $86 thousand (26.3%) increase in other freight related revenue, offset by a $129 thousand (17.2%) decrease in container freight revenues and a $231 thousand (35.5%) decrease in other operating revenues.

The increase in conventional freight revenues results from a 14.1% increase in traffic volume, offset by a 5.9% decrease in the average revenue received per conventional carload, The Company’s conventional carload increased by 2,199 to 17,816 in the first six months of 2015 from 15,617 in 2014.

The number of shipments of most commodities handled by the Company increased. The majority of the increase was attributable to shipments of automobiles, chemicals (including ethanol), and metal and construction products. This increase was offset, in part, by decreases in shipments of other commodities. The decrease in the average revenue received per conventional carload is due to a shift of the mix of commodities, the origin of the shipments, decrease in fuel surcharge revenue, as well as some rate changes.

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The decrease in container freight revenues is mainly the result of a 15.9% decrease in traffic volume. Container traffic volume decreased by 1,661 containers to 8,786 containers in the first six months of 2015 from 10,447 containers in 2014 as a result of more international freight being transloaded at the west coast ports to domestic containers.

The increase in other freight-related revenues results from an increase in miscellaneous operating revenue while the decrease in other operating revenues reflects a decrease 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, 2015 increased by $730 thousand, or 4.5%, to $16.97 million from $16.24 million in 2014. The increase is attributable mainly to increases in payroll related expense ($213 thousand), casualty related expense ($197 thousand), car hire expense ($455 thousand) and track usage fees ($206 thousand). These increases were offset in part by decreases in purchased services ($380 thousand), repair and maintenance expense ($401 thousand), and track and signal materials expense ($197 thousand). The decrease in purchased services and track and signal materials expense was attributable to less works performed by the Company’s Maintenance of Way department for various state agencies. The decrease in recovered costs relates to the same reason.

Provision for Income Taxes (Benefit):

The income tax benefit for the first six months of 2015 and 2014 is equal to (15%) and (43%) of the pre-tax loss, resulting principally from the amounts of pre-tax loss for the periods ended.

Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014

Operating Revenues:

Operating revenues in the second quarter of 2015 was $9.3 million, consistent with the second quarter of 2014.

The Company’s conventional carloads increased by 952 (9.7%) to 10,780 in the second quarter of 2015 from 9,828 in 2014. The majority of the increase was attributable to shipments of automobiles and metal and construction products. This increase was offset in part by a decrease in the shipments of chemicals (including ethanol). The 7.9% decrease in the average revenue received per conventional carload is due to a shift of the mix of commodities, decrease in fuel surcharge revenue, as well as some rate changes.

The decrease in container freight revenues is mainly the result of an 18.2% decrease in traffic volume. Container traffic volume decreased by 997 containers to 4,475 containers in the second quarter of 2015 from 5,472 containers in 2014. The reason for the decrease is as previously discussed for the six months ended June 30, 2015.

The increase in other freight-related revenues results from an increase in miscellaneous operating revenue while the decrease in other operating revenues reflects a decrease in maintenance department billings for services rendered to freight customers and other outside parties.

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Operating Expenses:

Operating expenses for the second quarter of 2015 increased by $10 thousand to $8.41 million from $8.40 million in the second quarter of 2014. The increase is attributable mainly to increases in payroll related expense ($97 thousand), casualty related expense ($105 thousand), car hire expense ($299 thousand), and track usage fees ($168 thousand). These increases were offset in part by decreases in purchased services ($388 thousand), repairs and maintenance expense ($173 thousand), and other expenses ($128 thousand) due to less bad debt expense related to the plant closure of a customer. The decrease in purchased services and track and signal materials expense was attributable to less work performed by the Company’s Maintenance of Way department for various state agencies. The decrease in recovered costs relates to the same reason.

Provision for Income Taxes:

The income tax provision for the three month period ended June 30, 2015 and 2014 is equal to approximately 36% and 49% respectively of pre-tax income. The income tax rate for 2015 represents the effective tax benefit which the Company expects. The income tax rate for 2014 represents the effective tax benefit after giving effect for a decrease in the Company’s valuation allowance against its deferred tax assets.

Liquidity and Capital Resources

During the six months ended June 30, 2015, the Company generated $2.4 million of cash from operating activities, and the Company used $1.1 million in investing activities and $360 thousand in financing activities.

On July 29, 2015, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on August 26, 2015. 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. At June 30, 2015, no amounts were outstanding. The Company entered into a term loan agreement with its commercial bank for $5 million. The Company anticipates initial drawdowns during the third quarter of 2015.

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 Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

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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

None.

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 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.
101	The following financial information from the Company’s Quarterly Report on Form10-Q for the Quarter Ended June 30, 2015, filed with the Securities and Exchange Commission on August 12, 2015, formatted in eXtensible Business Reporting Language:
	(i)	Balance Sheets as of June 30, 2015 and December 31, 2014
	(ii)	Statements of Operations for the Three and Six Months ended June 30, 2015 and 2014
	(iii)	Statements of Cash Flows for the Six Months ended June 30, 2015 and 2014
	(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 Chief Financial Officer

DATED: August 12, 2015

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