Providence & Worcester Railroad 10K 2015 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2015

o	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
incorporation or organization)		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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of each exchange on which registered
Not Applicable		Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $.50 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No R

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those sections.

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 R No o

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 R No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R

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	o	Accelerated filer	o

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No R

As of June 30, 2015, the aggregate market value of the common voting stock held by non-affiliates of the Registrant was $42,788,982 (For this purpose, all directors of the Registrant are considered affiliates.)

As of February 29, 2016, the Registrant had 4,864,688 shares of Common Stock outstanding.

Documents Incorporated by Reference -

Portions of the Registrant’s Definitive Proxy Statement for the 2016 Annual Meeting of Shareholders to be held on April 27, 2016, are incorporated by reference into Part III of this Form 10-K.

Exhibit Index - Page IV-1.

Providence and Worcester Railroad Company

FORM 10-K

For the Fiscal Year Ended December 31, 2015

INDEX


		PAGE NO.

PART I
ITEM 1.	Business	I-1
ITEM 2.	Properties	I-5
ITEM 3.	Legal Proceedings	I-7
ITEM 4.	Mine Safety Disclosures	I-7

PART II
ITEM 5.	Market for Registrant’s Common Stock and Related Stockholder Matters and Issuer Purchases of Equity Securities	II-1
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	II-2
ITEM 8.	Financial Statements and Supplementary Data	II-8
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	II-27
ITEM 9A.	Controls and Procedures	II-27
ITEM 9B.	Other Information	II-28

PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	III-1
ITEM 11.	Executive Compensation	III-1
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	III-1
ITEM 13.	Certain Relationships and Related Transactions and Director Independence	III-2
ITEM 14.	Principal Accounting Fees and Services	III-2

PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	IV-1
	Signatures

Forward-Looking Statements

The statements contained in Item 1 “Business” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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, which represent the Company’s beliefs or expectations concerning future events. The Company cautions that these statements are subject to a number of factors that could lead to actual results differing materially from those described in the forward-looking statements. You should not place undue reliance on any forward-looking statements contained within this report. Factors that could have a material impact on our operations or that could cause actual results to differ materially from our expectations include, but are not limited to: general economic and business conditions, our relationship with Class I railroads and other carriers, legislative and regulatory developments by the Surface Transportation Board (“STB”), Railroad Retirement Board or the Federal Railroad Administration (“FRA”), strikes or other work stoppages, fuel costs or supply constraints, our transportation of hazardous materials, susceptibility to severe weather conditions, acts of terrorism, our ability to obtain rail cars from other providers, competition from other modes of transportation and other rail operators and customer and contract continuation. The Company does not undertake the obligation to update forward-looking statements in response to new information, future events or otherwise.

PART I

Item 1. Business

Providence and Worcester Railroad Company (“P&W” or the “Company”) is a regional freight railroad as defined by the American Association of Railroads (“AAR”) operating in Massachusetts, Rhode Island, Connecticut and New York. The Company is the only interstate freight carrier serving the State of Rhode Island and possesses the exclusive and perpetual right to conduct freight operations over the National Railroad Passenger Corporation’s (“Amtrak”) Northeast Corridor between New Haven, Connecticut and the Massachusetts/Rhode Island border. Since commencing independent operations in 1973, the Company, through a series of acquisitions of connecting lines and trackage rights agreements, has grown from 45 miles of track to its current system of approximately 516 miles. P&W services the largest international double-stack intermodal terminal facility in New England in Worcester, Massachusetts, a strategic location for regional transportation and distribution enterprises.

The Company transports a wide variety of commodities for its customers, including automobiles, construction aggregates, iron and steel products, chemicals and plastics (including ethanol), lumber, scrap metals, plastic resins, cement, coal, construction and demolition debris, and processed foods and edible foodstuffs, such as corn syrup and vegetable oils. The Company’s customers include Exxon Mobil Corporation, Ford Motor Company, Frito-Lay, Inc., Global LLP, International Paper Company, Lehigh Cement, Cargill, Inc., Eversource Energy, Nucor Steel, Rawson Materials, Renewable Products Marketing Group, Subaru of New England, Tilcon Connecticut, Inc. and Toray Plastics (America), Inc. In 2015, P&W transported 38,813 carloads of freight and 17,422 intermodal containers. In addition, the Company generates income through the grants of easements, leases, and licenses to use portions of its property. P&W’s connections to multiple Class I railroads (operating revenues in excess of $475.75 million under the AAR definition), either directly or through connections with other regional and short-line carriers, provide the Company with a competitive advantage by allowing it to offer various pricing and routing alternatives to its customers. In addition, the Company’s commitment to maintaining its track and equipment to high standards enables P&W to provide fast, reliable and efficient service.

Industry Overview

General

Freight railroads are categorized in different classes by the STB and the AAR. As a result of mergers and consolidations, there are only seven Class I railroads in North America today. The Class I railroads account for a majority of North America’s rail freight business.

The freight rail industry underwent revitalization after the passage of the Staggers Rail Act in 1980 (the “Staggers Rail Act”) which deregulated the pricing and types of services provided by railroads. As a result, railroads were able to achieve significant productivity gains and operating cost decreases while gaining pricing flexibility. Accordingly, freight rail service became more competitive with other transportation modes with respect to both quality and price.

One result of revitalization of the industry has been the growth of regional (as defined by the AAR; over 350 miles and annual revenue of at least $20 million or annual revenue of at least $40 million) and short-line railroads, fueled by Class I railroads’ divestiture of certain branch lines in order to focus on their long-haul core systems. Today, based on AAR’s most recent data available, there are more than 550 regional and short-line railroads operating in all of the 48 contiguous states comprising the continental United States plus Alaska. They account for about 31% of all rail track, employ about 10% of all rail workers and generate about 6% of all rail revenue.

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Generally, freight railroads handle two types of traffic: conventional carloads and intermodal containers used in the shipment of goods via more than one mode of transportation, e.g., by ship, rail and truck. By using a hub-and-spoke approach to shipping, multiple containers can be moved by rail to and from an intermodal terminal and then either delivered to their final destinations by truck or transferred to ship for export.

Regional Developments

Over the past decade, a number of development projects within the Company’s service area have been completed. Some have increased port capacity along the extensive coastline of southern New England and improved the intermodal transportation and distribution infrastructure in the region, while others have improved the Company’s connections to Class I carriers serving southern New England. These infrastructure improvements present the Company with multiple opportunities for increased business and routing options, enhancing its customers’ market access.

Quonset/Davisville

The State of Rhode Island with assistance from the federal government is continuing redevelopment efforts on a 1,000 acre portion of the former naval facility at Quonset/Davisville for an active port and industrial park that houses a number of rail-oriented industries and an auto port. Construction of a freight rail improvement project, providing additional track capacity and Phase 1 double-stack clearances on the Northeast Corridor between Quonset/Davisville and Boston Switch, the connection of the Northeast Corridor to the Company’s mainline at Central Falls, RI, was completed in October 2006. The Company is cleared to handle autoracks over all of its Class I (CSX, CN, CP, and NS) connections. The Company handled 4,483 autoracks in 2015 and 3,260 autoracks in 2014.

Port of Providence

Infrastructure improvements undertaken by the Port of Providence and the Company in 2003, including the installation of paving, lighting and “on dock” rail, have accommodated the Company’s movement of products to/from inland markets as well as movements of products to industries located in the Port of Providence.

The Company rehabilitated a substantial portion of its South Providence yard to facilitate handling unit trains of ethanol. This commodity is being transported by rail throughout the country and is a component of the gasoline mix available at gasoline service stations throughout southern New England. The commodity is also being transported via barge out of Providence to coastal terminals and to foreign markets via vessel. During 2015 and 2014, the Company moved 3,106 and 3,228 carloads of ethanol, respectively.

New London and Willimantic Interchanges

Through its New London and Willimantic interchanges with the New England Central Railroad (“NECR”), P&W interchanges traffic with the Canadian National Railway (“CN”) and the Canadian Pacific Railway (“CP”). With the Company’s reactivation of the Willimantic interchange in late 2007 and rehabilitation in 2011, across a route with improved overhead clearances to NECR, the Willimantic Branch became the primary interchange route to NECR.

In February 2012, the Company and NECR entered into a strategic alliance establishing service across the “Great Eastern Route.” The Great Eastern Route furnishes the Company with pricing authority for service with CN, through a haulage arrangement by which NECR provides haulage for the Company between East Alburg, VT and Willimantic, CT on certain contractually-agreed commodities.

In June 2014, the Company, NECR and Vermont Rail Systems (“VRS”) entered into a strategic alliance to expand the Great Eastern Route. The inclusion of the VRS furnishes the Company with pricing authority for service with CP, through a haulage arrangement by which VRS and NECR provide haulage for the Company between Whitehall, NY and Willimantic, CT on certain contractually-agreed commodities.

Railroad Operations

The Company’s rail freight system comprises approximately 516 miles of track. The Company interchanges freight traffic: with CSX Transportation (“CSXT”) at Worcester, Massachusetts and New Haven, Connecticut; with Pan Am Railways at Worcester, Massachusetts; with Pan Am Southern (“PAS”) and Norfolk Southern Railways (“NS”) via PAS at Gardner, Massachusetts; with NECR at New London and Willimantic, Connecticut; with CN via the Great Eastern Route; with CP via the Great Eastern Route; with Connecticut Southern Railroad at Hartford, CT, and with New York and Atlantic Railroad at Fresh Pond Junction on Long Island. Through its connections, P&W links more than 80 communities on its lines. The Company operates four classification yards (areas

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containing tracks used to group freight cars destined for a particular industry or interchange) located in Worcester, Massachusetts, Cumberland, Rhode Island, and Plainfield and New Haven, Connecticut.

The Company is dependent upon the railroads with which it interchanges freight traffic to enable it to properly service its customers at competitive rates. Failure of any of these connecting railroads to provide adequate service at reasonable rates can result in a loss of freight customers and revenues.

By agreement with a private operator, the Company services an intermodal yard in Worcester, an area containing tracks used for the loading and unloading of containers. This yard is U.S. Customs-bonded, and international traffic must be inspected and approved by U.S. Customs officials. The intermodal yard serves primarily as a terminal for the movement of container traffic from Canada, the Far East, Southeast Asia and Europe destined for points in New England. Container ship lines utilize double-stack train service through this terminal. In 2015, 17,422 containers were handled which represented a decrease of 3,292 containers over 2014. P&W continues to work with the terminal operator to develop relationships with steamship lines involved in international intermodal transportation. The Company and certain Class I railroads have entered into separate Intermodal Haulage Agreements with respect to international intermodal containers to and from certain ports.

Customers

The Company serves approximately 150 customers in Massachusetts, Rhode Island, Connecticut and New York. The Company’s ten (10) largest customers account for more than half of its operating revenues. One of the Company’s customers, which mines construction aggregates from two active quarries on the Company’s rail system and ships to locations in Connecticut and New York, accounted for more than 10% of the Company’s freight operating revenues in 2015 and 2014.

Markets

The Company transports a wide variety of commodities for its customers. In recent years, chemicals and plastics (including ethanol), and construction aggregates were the two largest commodity groups transported by the Company, constituting 39% and 21%, respectively, of conventional carload freight revenues in 2015. The following table summarizes the Company’s conventional carload freight revenues by commodity group as a percentage of such revenues:

Commodity	2015			2014
Automobiles		10	%		8	%
Chemicals and plastics (including ethanol)		39			38
Construction aggregates		21			20
Metal products		14			13
Food and agricultural products		5			5
Forest and paper products		8			10
Other		3			6
Total		100	%		100	%

Sales and Marketing

P&W’s sales and marketing staff has substantial experience in pricing and marketing railroad services. The sales and marketing staff focuses on understanding and addressing the raw material requirements and transportation needs of its existing customers and businesses on its lines. The staff grows existing business by maintaining close working relationships with both customers and connecting carriers. The sales and marketing staff strives to generate new business for the Company through (i) targeting companies already located on P&W’s rail lines but not currently using rail services or not using them to their full capacity, (ii) working with state and local development officials, developers and real estate brokers to encourage the development of industry on the Company’s rail lines, including participating with regional development organizations to develop strategies and policies that create economic expansion opportunities for freight rail and (iii) identifying and targeting the non-rail transportation of goods into and out of the region in which the Company operates. Unlike many other regional and short-line railroads which have access only to a single Class I connection, the Company is able to offer its customers various pricing and routing alternatives because of its multiple connections to other carriers.

Safety

An important component of the Company’s operating strategy is conducting safe railroad operations for the benefit and protection of employees, customers and the communities served by its rail lines. Since commencing active operations in 1973, the Company has committed significant resources to track maintenance and believes its rail system is in good condition. The Company

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has an employee training program utilizing classroom instruction and video programs on topics including Northeast Operating Rules Advisory Committee (“NORAC”) Operating Rules, Safety Rules, Rail Security Awareness and Hazardous Materials Awareness plans, as well as manufacturer-provided training materials. The Company and its employees continue to work to prevent injuries while at the same time expanding operations and enhancing efficiencies.

Rail Traffic

Rail traffic is classified as on-line or overhead traffic. On-line traffic is traffic that originates or terminates with shippers located on a railroad’s rights-of-way. Overhead traffic passes from one connecting carrier to another and neither originates nor terminates with shippers located on a railroad’s rights-of-way. Presently, with minor exceptions, P&W is solely an on-line carrier.

Freight rail rates can be in various forms. Generally, customers are given a “through” rate, a single amount encompassing the rail transportation of a commodity from point of origin to point of destination, regardless of the number of carriers which handle the car. Rates are developed by the carriers based on the commodity, volume, distance and competitive market considerations. The entire freight bill is paid either to the originating carrier (“prepaid”) or to the destination carrier (“collect”) and divided among all carriers which handle the move. The basis for the division varies and can be based on factors (or revenue requirements) independently established by each carrier which comprise the through rate, or on a percentage basis established by division agreements among the carriers. A carrier such as P&W, which actually places the car at the customer’s location and attends to the customer’s daily switching requirements, typically receives a share of revenue greater than an amount based simply on mileage hauled.

Employees

As of December 31, 2015, the Company had 138 full-time employees, 109 of whom are represented by three railroad labor organizations that are national in scope. The Company’s non-management employees have been represented by the same unions since the Company commenced independent operations in 1973.

The Company’s initial agreement with the United Transportation Union (“UTU”), now known as Sheet Metal, Air, Rail and Transportation Workers (“SMART”), covering trainmen was unusual in the railroad industry since it provided the Company with discretion in determining crew sizes, eliminated craft distinctions and provided a guaranteed annual wage for a maximum number of hours worked. The Company’s collective bargaining agreements have been in effect since February 1973 for trainmen, since May 1974 for clerical employees and dispatchers and since June 1974 for maintenance employees. These contracts do not expire but are subject to renegotiation after the agreed-upon moratoria. The Company signed eight year agreements with the SMART/UTU (trainmen) in October 2005, the Transportation Communications International Union (“TCU”) (clerical) in August 2006 and the Brotherhood of Railroad Signalmen (“BRS”) (maintenance) in July 2007, retroactive to prior periods. The Company considers its employee and labor relations to be good. The Company’s moratoria period with TCU extends to 2020. The Company is in contract negotiations with SMART/UTU and BRS.

Competition

The Company is the only rail carrier serving businesses located on-line. The Company competes with other carriers, however, in the siting of new rail-oriented businesses in the region. Certain rail competitors, including CSXT, are substantially larger and better capitalized than the Company. The Company also competes with other modes of transportation, particularly long-haul trucking companies, for the transportation of commodities, and ocean-going vessels for the transportation of containers. Any improvement in the cost or quality of these alternate modes of transportation including, for example, legislation granting material increases in truck size or allowable weight, could increase competition and may materially adversely affect the Company’s business and results of operations. As a means of competing, P&W strives to offer greater convenience and better service than competing rail carriers and at costs lower than some competing non-rail carriers. The Company also competes by participating in efforts to attract new industry to its service area.

The Company believes that its ability to grow depends, in part, upon its ability to acquire additional connecting rail lines. In making acquisitions, P&W competes with other short-line and regional rail operators, some of which are larger and have greater financial resources than the Company.

Governmental Regulation

The Company is subject to governmental regulation by the STB, the FRA, the Transportation Security Administration (the “TSA”) and other federal, state and local regulatory authorities with respect to certain rates and railroad operations, as well as a variety of health, safety, labor, environmental and other matters, all of which could potentially affect the Company’s competitive position and profitability. Additionally, the Company may be required to obtain STB approval prior to its acquisition of any new railroad properties. Management believes that the regulatory freedoms granted by the Staggers Rail Act have been beneficial to the

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Company by affording it flexibility to adjust prices and operations to respond to market forces and industry changes. However, various interests, and certain members of the United States Congress (which has jurisdiction over federal regulation of railroads), have from time to time expressed their intention to support legislation that would eliminate or reduce significant freedoms granted by the Staggers Rail Act.

Environmental Matters

The Company’s railroad operations and real estate ownership are subject to extensive federal, state and local environmental laws and regulations concerning, among other things, emissions to the air, discharges to waters and the handling, storage, transportation and disposal of waste and other materials. The Company handles, stores, transports and disposes of petroleum and other hazardous substances and waste. The Company also transports hazardous substances for third parties and arranges for the disposal of hazardous waste generated by the Company. The Company believes that it is in compliance with applicable environmental laws and regulations.

Internet Address and SEC Reports

The Company maintains a website with the address www.pwrr.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”). We also include on our website our corporate governance guidelines, announcements concerning quarterly dividends required by NASDAQ Stock Market, LLC (“NASDAQ”), required eXtensible Business Reporting Language (“XBRL”) files and the charters for each of the major committees of our board of directors. In addition, we intend to disclose on our website any amendments to, or waivers from, our Business Conduct Policy that are required to be publicly disclosed pursuant to rules of the SEC.

Item 2. Properties

Track

P&W’s rail system extends over approximately 516 miles of track, of which it owns approximately 163 miles. The Company has the right to use the remaining 353 miles pursuant to perpetual easements and trackage rights agreements (long and short-term). Under certain of these agreements, the Company pays fees based on usage.

Virtually all of the mainline tracks on which the Company operates are in FRA class 3 condition. The Company intends to maintain the mainline tracks which it owns in such condition.

Of the approximately 516 miles that comprise the Company’s system, 306 miles, or 58.5%, are located in Connecticut, 95 miles, or 19%, are located in Massachusetts, 87 miles, or 17%, are located in Rhode Island and 28 miles, or 5.5%, are located in New York.

Rail Facilities

P&W owns land and a building with approximately 69,500 square feet of floor space in Worcester, Massachusetts. The building houses the Company’s executive and administrative offices and some of the Company’s storage space. Approximately 4,735 square feet is leased to an outside tenant. In addition, the Company owns various maintenance buildings and other structures related to its railroad operations.

The Company owns and operates three principal classification yards located in Worcester, Massachusetts, Cumberland, Rhode Island and Plainfield, Connecticut and also operates a classification yard in New Haven, Connecticut. In addition, the Company has maintenance facilities in Putnam and Plainfield, Connecticut and in Worcester, Massachusetts. P&W believes that its executive and administrative office facilities, classification yards and maintenance facilities are adequate to support its current level of operations and future growth.

Other Properties

The Company owns a total of approximately 150 acres of real estate located along its principal railroad lines, including classification yards in the greater Worcester, Massachusetts area. Additionally, the Company owns or has the right to use a total of approximately 130 acres of real estate located along the principal railroad lines from downtown Providence through Pawtucket, Rhode Island. Of this acreage, P&W owns approximately eight acres in Pawtucket and has a perpetual easement for railroad purposes over the remaining 122 acres.

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The Company has invested approximately $12 million in the development of the South Quay in East Providence, Rhode Island which has resulted in the creation of approximately 33 acres of waterfront land, located adjacent to a 12 acre site, also owned by the Company.

P&W actively manages its real estate assets in order to maximize revenues. The income from property management is derived from sales and leasing of properties and tracks and grants of permanent and temporary easements to government agencies, utility companies and other parties for the installation of overhead or underground cables, pipelines and transmission wires as well as recreational uses such as bike paths.

Rolling Stock

The following schedule sets forth the rolling stock owned and leased by the Company as of December 31, 2015:

Description	Owned		Leased
Locomotive		27		5
Automobile Carrying Railcars		—		276
Gondola, including High-sided Gondolas		5		60
Open-Top Hopper		85		—
Flat Car		5		—
Ballast Car		28		—
Passenger Equipment		7		—
Caboose		2		—
Total		159		341

The 27 diesel electric locomotives, which include nine pre-owned 3,900 horsepower GE B39‑8 locomotives acquired in 2002 and 2003, four pre-owned GE B40-8 locomotives acquired in 2004 and 2005, three pre-owned GE B40-8W locomotives acquired in 2010 and two SD70M-2 in 2015, are used on a daily basis, are maintained to a high standard, comply with all FRA and AAR rules and regulations and are adequate for the needs of the Company’s freight operations. The Company leases three SD-60 locomotives from GATX Corporation. The initial lease for two SD-60 locomotives commenced in 2011 and expired during 2014. The Company extended the lease prior to its expiration and added a third SD-60 locomotive to the lease. The extended lease expires October 2017. Additionally in May 2014, the Company and an unrelated third party entered into a lease agreement for two SD40-2 locomotives. The lease expires in May 2018.

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

The gondolas are considered modern rail cars and are used in track maintenance and by certain P&W customers. The flat and ballast cars are used in track maintenance and, very occasionally, by certain P&W customers. The open-top hopper cars are used to support the Company’s limestone and other traffic. Other rail freight customers use their own freight cars or obtain such equipment from other sources. The passenger equipment and cabooses are not utilized in P&W’s rail freight operations but are used on an occasional basis for Company functions, excursions and paid charter trips.

In January 2008, simultaneous with the purchase by GATX Corporation of 239,523 shares of common stock of the Company for the purchase price of $5,509,029 ($23.00/share), the Company and GATX entered into various agreements including an Exclusive Railcar Supply Agreement (the “ERSA”) for a term of five (5) years to renew automatically for successive one-year periods unless earlier terminated by either party. Under the ERSA, provided that market-competitive terms are furnished, GATX became the exclusive supplier of substantially all of P&W’s railcar needs. Under other agreements between the parties entered into at the same time, the Company acquired 137 open-top hopper cars (during 2014, the Company disposed of 127 of the previously acquired open-top hopper cars), leased 72 mill gondolas (reduced to 52 during 2012), and leased 200 bi-level automobile carrying railcars. In addition, the Company leases an additional 76 tri-level automobile carrying railcars. In June 2014, the Company acquired from GATX 75 open-top hoppers, which were previously under lease on a per trip lease/storage arrangement. In 2014, the Company amended and extended a lease for three six-axle EMD SD-60’s for approximately $233 thousand per annum through October 2017. In 2014, the Company extended a lease/storage arrangement with GATX for 8 high-sided gondolas, pursuant to which the Company pays GATX for its sporadic use on a per trip basis only.

Equipment

P&W has a digital touch control (DTX) dispatching system at its Worcester operations center permitting two-way radio contact with every train crew and maintenance vehicle on its lines. In 2013, the Company completed its acquisition of a new dispatching system. The new system provides the Company with a fully supported computer based manual block dispatching system that meets

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all NORAC requirements, including protocol redundancy to enhance dispatching efficiency and safety. The Company maintains a computer facility in Worcester with offsite back-up to assure the Company’s ability to operate in the event of disruption of service in Worcester. The Company also has automatic train defect detectors at strategic locations which inspect passing trains and audibly communicate the results to train crews and dispatchers in order to protect against equipment failure en route.

The Company maintains a fleet of track maintenance equipment and aggressively pursues available opportunities to work with federal and state agencies for the rehabilitation of bridges, grade crossings and track. Certain of the Company’s locomotives, which operate on the Northeast Corridor, are equipped with cab signal technology, automatic civil speed enforcement systems and positive train control.

The Company, at its Worcester Engine House, has a fifty-ton drop table to facilitate the efficient exchange of wheels on locomotives and railcars by lowering the wheels beneath the level of the Engine House floor and across to an adjacent track where exchange with a second wheel set is made. The Company has performed repair and servicing for other railroads and the Massachusetts Bay Transportation Authority.

Item 3. Legal Proceedings

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 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 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.

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 to settle this suit in March 2006. This settlement covered investigation costs; not cleanup costs.

The Government has now selected a remedy for the Site and has indicated that it will negotiate with all of the PRPs at the site to take over and or pay for the cleanup. As it did before, the Company responded 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 addition to the litigation concerning the Superfund Site, the Company is a defendant in certain lawsuits related to its operations. The Company believes it has made adequate provisions for any expected liability that may result from the disposition of pending litigation. Litigation is subject to inherent uncertainty, however, and an unfavorable outcome on any matter could materially adversely affect the Company’s business.

Item 4. Mine Safety Disclosures

Not applicable.

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Part II

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters and Issuer Purchases of Equity Securities

The Common Stock is quoted on the NASDAQ under the trading symbol “PWX”. The following table sets forth, for the periods indicated, the high and low sale prices per share for the Common Stock as reported on the NASDAQ. The Preferred Stock is not quoted on a market and is non-cumulative and the dividend is limited to $5 per share per annum and is convertible to 100 shares of Common Stock. Also included are dividends paid per share of Preferred Stock and Common Stock during these quarterly periods.

	Common Stock
	Trading Prices				Dividends Paid
	High		Low		Preferred		Common
2014
First Quarter	$	19.95	$	17.00	$	5.00	$	0.04
Second Quarter		19.45		17.30	–0–			0.04
Third Quarter		18.50		17.04	–0–			0.04
Fourth Quarter		20.00		16.70	–0–			0.04

2015
First Quarter	$	19.64	$	17.60	$	5.00	$	0.04
Second Quarter		18.97		17.25	–0–			0.04
Third Quarter		17.75		15.20	–0–			0.04
Fourth Quarter		16.25		13.05	–0–			0.04

As of February 29, 2016, there were approximately 540 holders of record of the Company’s common stock and 8 holders of record of the Company’s Preferred Stock.

The declaration of cash dividends on both the preferred and the common stock is made at the discretion of the Board of Directors based on the Company’s earnings, financial condition, capital requirements and other relevant factors and restrictions.

II-1

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in connection with the Company’s audited financial statements and notes thereto included elsewhere in this annual report.

Critical Accounting Policies and Estimates

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. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The following critical accounting policies are a subset of the Company’s significant accounting policies described in Note 1 of the Notes to Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates.

Property and Equipment

The Company’s rail operations are highly capital intensive. Property and equipment, including land held for development, is stated at historical cost (including self-construction costs). Self-construction costs for track structure include material costs for ties, rail, other track materials and ballast; the cost of direct and supervisory labor, including railroad retirement taxes and employee benefits; costs for track machinery and equipment (including depreciation) and various other overhead costs. Major renewals or betterments are capitalized while routine maintenance and repairs that do not improve or extend asset lives are charged to expense when incurred. Costs are capitalized to the extent that they are incurred in connection with the replacement of track structure pursuant to a program of rehabilitation which results in significant future economic benefit or with the construction of new track structure. A program of rehabilitation or construction of new track structure generally includes ballast, rail and other track material and ties. Costs for routine maintenance are expensed. Routine maintenance items include the sporadic replacement of ties, replacement of track structure damaged in a derailment, washout or other cause or event and the costs of general upkeep of track structure to keep it in good operating condition. Costs are capitalized or expensed depending on the facts and circumstances of each specific project. The total amount of the costs to be capitalized is based on the per unit cost for each category of expenditure (ties, rail and other track material and ballast) and the number of equivalent units installed. Costs are developed using costs incurred for materials, direct labor and overhead.

Property and equipment are carried at cost and are depreciated over their useful lives. Items included in track structures with similar physical characteristics, use, date of installation and expected life are grouped together into separate asset classes and depreciated by the estimated useful life for the asset class group. Gains or losses, if any, on sales or other dispositions of property are credited or charged to other income.

The conclusions and ongoing evaluations of our estimated useful lives may result in future material changes in the Company’s maintenance and capital spending, as well as revisions to the useful lives of property and equipment which may affect depreciation rates and expenses.

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When circumstances indicate that assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted future cash flows over the remaining lives of the assets in determining whether the carrying amounts of the assets are recoverable. If an impairment exists, the impairment is measured by comparing the carrying value to the fair value. No impairments were recognized in the two years presented.

II-2

Income Taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating losses and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the dates of enactment. Valuation allowances are established when it is estimated that it is more likely than not that the deferred tax asset will not be realized.

Overview

The Company is a freight railroad operating in Massachusetts, Rhode Island, Connecticut and New York.

The Company generates operating revenues primarily from the movement of freight in both conventional freight cars and in intermodal containers on flat cars over its rail lines. Freight revenues are estimated and recorded at the time shipments move onto the Company’s track. Modest freight-related operating revenues are derived from demurrage, switching, weighing, special train and other transportation services. Other operating revenues are derived from services rendered to freight customers and other outside parties by the Company’s Maintenance of Way and Maintenance of Equipment departments. Operating revenues also include amortization of deferred grant income and rental income.

The Company’s operating expenses consist of salaries and wages and related payroll taxes and employee benefits, depreciation, insurance and casualty claim expense, diesel fuel, car hire, property taxes, materials and supplies, purchased services, track usage fees and other expenses. Many of the Company’s operating expenses are of a relatively fixed nature and do not increase or decrease proportionately with increases or decreases in operating revenues unless the Company’s management were to take specific actions to restructure the Company’s operations.

When comparing the Company’s results of operations from one year to another, the following factors should be taken into consideration. First, the Company has historically experienced fluctuations in operating revenues and expenses due to unpredictable events such as one‑time freight moves and customer plant expansions and shutdowns. Second, the Company’s freight volumes are susceptible to increases and decreases due to changes in international, national and regional economic conditions. Third, the volume of capitalized track or recollectible projects performed by the Company’s Maintenance of Way department can vary significantly from year to year, thereby impacting total operating expenses. Fourth, diesel fuel comprises a significant portion of the Company’s operating costs. As fuel prices increase the Company attempts to recover these costs through surcharges and increased fees; however, the Company’s profitability can be impacted by increases or decreases in fuel prices.

The Company also generates other income through sales of properties, grants of easements and licenses. Other income or loss from the sale, condemnation, disposal of property and equipment and grants of easements and rights to use portions of its property is recorded at the time the transaction is consummated and collectability is assured. Other income varies significantly from year to year.

One of the Company’s customers, which mines construction aggregates from two active quarries on the Company’s rail system and ships to destinations in Connecticut and New York, accounted for more than 10% of the Company’s freight operating revenues in 2015 and 2014. The Company does not believe that the customer will cease to be a rail shipper in the foreseeable future. The Company does not control the quantities this company ships by rail.

Results of Operations

The following table sets forth the Company’s operating revenues, exclusive of rental revenues of $717 thousand and $715 thousand in 2015 and 2014, respectively, by category in dollars and as a percentage of operating revenues:

	Years Ended December 31,
	2015				2014
	'(In thousands, except percentages)
Freight Revenues:
Conventional carloads	$	31,759	90.5	%	$	30,205	89.9	%
Containers		1,217	3.5			1,479	4.4
Other freight related		977	2.8			830	2.5
Other Operating Revenues		1,127	3.2			1,089	3.2
Total	$	35,080	100.0	%	$	33,603	100.0	%

II-3

The following table sets forth conventional carload freight revenues by commodity group in dollars and as a percentage of such revenues:

	Years Ended December 31,
	2015				2014
	(in thousands, except percentages)
Automobiles	$	3,016	9.5	%	$	2,310	7.6	%
Chemicals and plastics (including ethanol)		12,330	38.8			11,404	37.8
Construction aggregates		6,613	20.8			6,195	20.5
Metal products		4,539	14.3			3,838	12.7
Food and agricultural products		1,716	5.4			1,705	5.6
Forest and paper products		2,424	7.7			2,979	9.9
Other		1,121	3.5			1,774	5.9
Total	$	31,759	100.0	%	$	30,205	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:

	Years Ended December 31,
	2015				2014
	(In thousands, except percentages)
Salaries, wages, payroll taxes and employee benefits	$	16,212	46.2	%	$	15,863	47.2	%
Casualties and insurance		1,569	4.5			1,401	4.2
Depreciation		3,689	10.5			3,456	10.3
Diesel fuel		2,945	8.4			3,236	9.6
Car hire, net		1,671	4.8			1,098	3.3
Purchased services, including legal and professional fees		2,831	8.1			3,163	9.4
Repair and maintenance of equipment		1,581	4.5			1,852	5.5
Track and signal materials		1,045	3.0			1,224	3.6
Track usage fees		1,563	4.4			1,180	3.5
Other materials and supplies		1,899	5.4			1,564	4.7
Other		2,695	7.7			2,616	7.8

Total		37,700	107.5			36,653	109.1
Less capitalized and recovered costs, including amounts relating to the Amtrak Agreement¹		4,489	12.8			5,496	16.4
Total	$	33,211	94.7	%	$	31,157	92.7	%

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Operating Revenues, exclusive of rental revenues, increased $1.5 million, or 4.5%, to $35.1 million in 2015 from $33.6 million in 2014. This increase is the net result of a $1.6 million (5.1%) increase in conventional freight revenues, a $147 thousand (17.7%) increase in other freight-related revenues, a $38 thousand (3.5%) increase in other operating revenues, and a $262 thousand (17.7%) decrease in container freight revenues.

The increase in conventional freight revenues is attributable to a 10.3% increase in traffic volume, offset by a 4.6% decrease in the average revenue received per carload. In 2015, the Company’s conventional carloads increased by 3,617 to 38,813 from 35,196 in 2014. Shipments of automobiles and metal products during the year ended December 31, 2015 increased by approximately 1.9% and 1.6%, respectively, to 9.5% and 14.3%, respectively, of total conventional carload freight revenue from 7.6% and 12.7%, respectively, from 2014 while shipments of other commodities remained constant over prior year levels. 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, and decrease in fuel surcharge revenue.

II-4

The decrease in container freight revenues is mainly the result of a 15.9% decreased traffic volume. Container volume decreased by 3,292 containers to 17,422 in 2015 from 20,714 in 2014. The decrease in container traffic is primarily 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 revenue from demurrage, switching, and other freight-related services while the increase in other operating revenues reflects an increase in maintenance department billings for services rendered to freight customers and other outside parties.

Other Income

Other income decreased by $431 thousand to $75 thousand in 2015 from $506 thousand in 2014. The decrease is attributable to gains from the sale and disposal of property and equipment in 2014.

Operating Expenses

Operating expenses increased by $2.0 million, or 6.4%, to $33.2 million in 2015 from $31.2 million in 2014. The increase in operating expenses in 2015 was attributable mainly to increases in payroll related expense ($349 thousand), casualties and insurance expense ($168 thousand), depreciation expense ($233 thousand), car hire expense ($573 thousand), track usage fees ($383 thousand), and other materials and supplies ($335 thousand). These increases were partially offset by decreases in diesel fuel ($291 thousand), purchased services ($332 thousand), repairs and maintenance of equipment ($271 thousand), and track and signal materials expense ($179 thousand). The decrease in purchased services and in track and signal materials expense were attributable to projects performed by the Company’s Maintenance of Way department for various state agencies. The decrease in recovered costs also relates to these same projects.

The Company utilized $418 and $801 thousand of the track usage fee offsets obtained via the Amtrak Agreement in 2015 and 2014, respectively. No credits remained outstanding as of December 31, 2015.

Provision for Income Taxes

The Company’s income tax provision for 2015 was $831 thousand. This amount approximates the Company’s expected tax rate plus a decrease in the Company’s valuation allowance against its deferred tax assets of $216 thousand (8% of the total effective tax rate). The Company’s income tax provision for 2014 was $496 thousand. This amount approximates the Company’s expected tax rate plus a decrease in the Company’s valuation allowance against its deferred tax assets of $852 thousand (23% of the total effective tax rate).

Liquidity and Capital Resources

During 2015 and 2014, the Company generated $4.7 million and $7.5 million, respectively, of cash from operating activities.

During 2015, the Company’s cash flows used in investing activities were $6.3 million. The Company’s expenditures for track structure replacement net of grants for the past two years were:

	Net Expenditures for Track Structure Replacements
December 31,	(In Thousands)
2015	$	2,635
2014	$	2,473

Substantially the entire mainline track owned by the Company meets FRA Class 3 standards, and the Company intends to continue to maintain this track at this level. The Company expended $2.6 million and $2.5 million for additions and improvements to its track structure in 2015 and 2014, respectively. The Company expects that on average it will continue to spend between $2 million and $3 million per year for capitalized track improvements adjusted annually for inflation. Improvements to the Company’s track structure are made, for the most part, by the Company’s Maintenance of Way Department personnel. The Company expended an additional $1.7 million during 2015 to rehabilitate four bridges. The Company anticipates spending an additional $1.5 million to replace one bridge during the spring of 2016. Once the rehabilitation and replacement are complete, the Company will have the ability to haul freight with a lading of 286,000 pounds on its main line from Worcester, MA to Davisville/Providence RI. Additionally, the Company anticipates constructing additional track within Cedar Hill yard, New Haven, CT for $750 thousand. By April 2016, the Company anticipates drawing down the remaining $4 million under its term loan agreement.

II-5

The Company’s revolving credit line expires June 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 and has no compensating balance requirements. The Company had no amounts outstanding under the line of credit as of December 31, 2015.

During 2015, the Company generated $1.5 million of cash from financing activities. For 2015, the primary components of cash flows from financing activities were $1.2 million proceeds from deferred grant and other income, $1.0 million drawdown of long term debt, partially offset by $781 thousand for the payment of dividends.

In 2015, the Company paid dividends in the amount of $5 per share, aggregating $3.2 thousand, on its outstanding noncumulative preferred stock and $0.16 per share, aggregating $778 thousand, on its outstanding common stock. In January 2016, the Company declared a preferred stock dividend of $5 per share ($3.2 thousand) and a $.04 dividend per common share ($193 thousand). Continued payment of such dividends is contingent upon the Company’s continuing to have the necessary financial resources.

Diesel fuel comprises a significant portion of the Company’s operating costs. The Company’s profitability can be adversely impacted by fluctuation in fuel prices. Volatility in energy prices could have an effect on a variety of items including, but not limited to: the economy; demand for transportation services; business related to the energy sector, including crude and natural gas; fuel prices; and fuel surcharges. Any of these items could have a significant impact on our financial position, results of operations, or liquidity in a particular year or quarter.

Contractual Obligations and Commitments

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.

Pursuant to permits issued by the United States Department of the Army Corps of Engineers and the Rhode Island Coastal Resources Management Council, the Company created 33 acres of waterfront land in East Providence, Rhode Island (“South Quay”) investing nearly $12 million in its development. The permits for the property, which have been extended to December 2019 and December 2016, respectively, also allow for construction of a dock along the west face of the South Quay. The property is adjacent to a 12 acre site, also owned by the Company.

II-6

The property is located one-half mile from Interstate 195. In 2006, the Rhode Island Department of Transportation (“RIDOT”) awarded a contract to construct Waterfront Drive, which provides direct vehicular access from the interstate highway system to the South Quay, which project was completed in 2007. In fall 2012, the extension of Waterfront Drive northward toward an industrial area, where the Company owns two additional waterfront parcels comprising 11 acres, creating direct access to such property, was completed. RIDOT is presently in the initial stages of designing improvements to access Waterfront Drive from Interstate 195 West.

The City of East Providence has created a waterfront redevelopment area with a zoning overlay to encourage development of offices, hotels, restaurants, shops, marinas, apartments and other “clean” employment. The Company has been cooperating with the City of East Providence in these efforts.

II-7

Item 8. Financial Statements and Supplementary Data

PROVIDENCE AND WORCESTER RAILROAD COMPANY

INDEX TO FINANCIAL STATEMENTS


	Page

Report of Independent Registered Public Accounting Firm	II-9

Balance Sheets as of December 31, 2015 and 2014	II-10

Statements of Income for the Years Ended December 31, 2015 and 2014	II-11

Statements of Shareholders’ Equity for the Years Ended December 31, 2015 and 2014	II-12

Statements of Cash Flows for the Years Ended December 31, 2015 and 2014	II-13

Notes to Financial Statements	II-14

II-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Providence and Worcester Railroad Company

Worcester, Massachusetts

We have audited the accompanying balance sheets of Providence and Worcester Railroad Company (the “Company”) as of December 31, 2015 and 2014, and the related statements of income, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Providence and Worcester Railroad Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ Stowe & Degon LLC

Westborough, Massachusetts

March 21, 2016

II-9

PROVIDENCE AND WORCESTER RAILROAD COMPANY

BALANCE SHEETS

(Dollars in Thousands Except Per Share Amounts)

	December 31,		December 31,
	2015		2014
ASSETS
Current Assets:
Cash and cash equivalents	$	6,281	$	6,414
Accounts receivable, net of allowance for doubtful accounts of $160 in 2015 and 2014		4,977		5,007
Materials and supplies		911		1,067
Prepaid expenses and other current assets		621		634
Deferred income taxes		—		399
Total Current Assets		12,790		13,521
Property and Equipment, net		88,910		85,955
Land Held for Development		12,457		12,457
Total Assets	$	114,157	$	111,933

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	4,251	$	3,872
Current portion of long-term debt		20		—
Current portion of deferred grant and other income		319		230
Accrued expenses		1,653		1,810
Total Current Liabilities		6,243		5,912
Long-Term Debt, net of current portion		980		—
Deferred Income Taxes		13,602		13,623
Deferred Grant and Other Revenue		12,714		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 4,862,693 shares in 2015 and 4,859,871 shares in 2014		2,432		2,430
Additional paid-in capital		38,050		37,891
Retained earnings		40,104		39,059
Total Shareholders’ Equity		80,618		79,412
Total Liabilities and Shareholders’ Equity	$	114,157	$	111,933

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

II-10

PROVIDENCE AND WORCESTER RAILROAD COMPANY

STATEMENTS OF INCOME

(Dollars in Thousands Except Per Share Amounts)

	Years Ended
	December 31,
	2015		2014

Operating Revenues	$	35,797	$	34,318

Operating Expenses:
Maintenance of way and structures		3,749		3,424
Maintenance of equipment		4,038		3,975
Transportation		10,684		10,871
General and administrative		5,016		4,984
Depreciation		3,689		3,456
Taxes, other than income taxes		2,994		2,744
Car hire, net		1,671		1,098
Employee retirement plans		225		227
Track usage fees		1,145		378

Total Operating Expenses		33,211		31,157
Operating Income before Interest and Income Taxes		2,586		3,161
Other income		75		506
Interest Expense		4		—
Income from operations prior to income taxes		2,657		3,667
Provision for Income Taxes		831		496

Net Income		1,826		3,171

Preferred Stock Dividends		3		3

Net Income Attributable to Common Shareholders	$	1,823	$	3,168

Net Income Per Common Share
Basic	$	.38	$	.65
Diluted	$	.37	$	.64
Weighted-Average Common Shares Outstanding:
For basic		4,861		4,855
For diluted		4,933		4,930

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

II-11

PROVIDENCE AND WORCESTER RAILROAD COMPANY

STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in Thousands Except Per Share Amounts)

	Years Ended December 31, 2015 and 2014
					Additional					Total
	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings			Shareholders’ Equity
Balance January 1, 2014	$	32	$	2,425	$	37,635	$	36,670		$	76,762
Issuance of 9,857 common shares for stock options exercised, employee stock purchases, and other				5		142					147
Share based compensation – options granted						114					114
Dividends paid:
Preferred stock, $5.00 per share								(3	)		(3	)
Common stock, $.16 per share								(779	)		(779	)
Net income								3,171			3,171
Balance, December 31, 2014	$	32	$	2,430	$	37,891	$	39,059		$	79,412
Issuance of 4,817 common shares for stock options exercised, employee stock purchases, and other				2		74					76
Share based compensation – options granted						85					85
Dividends paid:
Preferred stock, $5.00 per share								(3	)		(3	)
Common stock, $.16 per share								(778	)		(778	)
Net income								1,826			1,826
Balance, December 31, 2015	$	32	$	2,432	$	38,050	$	40,104		$	80,618

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

II-12

PROVIDENCE AND WORCESTER RAILROAD COMPANY

STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	Years Ended December 31,
	2015			2014
Cash Flows from Operating Activities:
Net income	$	1,826		$	3,171
Adjustments to reconcile the net income to cash flows from operating activities:
Depreciation		3,689			3,456
Amortization of deferred grant and other income		(659	)		(632	)
Gain on sale of equipment		(42	)		(498	)
Deferred grant and other income		—			52
Deferred income taxes		378			(61	)
Share-based compensation		85			114
Increase (decrease) in cash from:
Accounts receivable		(692	)		1,552
Materials and supplies		156			241
Prepaid expenses and other current assets		13			(126	)
Accounts payable and accrued expenses		(35	)		260
Net cash flows from operating activities		4,719			7,529

Cash flows from Investing Activities:
Purchase of property and equipment		(6,360	)		(4,624	)
Proceeds from sale of property, equipment and easements		15			1,282
Net cash flows used in investing activities		(6,345	)		(3,342	)

Cash Flows from Financing Activities:
Proceeds from long-term debt		1,000			—
Dividends paid		(781	)		(782	)
Issuance of common shares for stock options exercised and employee stock purchases		76			147
Proceeds from deferred grant income		1,198			248
Net cash flows from (used in) financing activities		1,493			(387	)

(Decrease) increase in Cash and Cash Equivalents		(133	)		3,800
Cash and Cash Equivalents, Beginning of Period		6,414			2,614
Cash and Cash Equivalents, End of Period	$	6,281		$	6,414

Supplemental Disclosures:
Cash paid for income taxes	$	533		$	306
Deferred grant income in accounts receivable	$	110		$	832
Property and equipment included in accounts payable	$	257		$	—

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

II-13

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

1.	Description of Business and Summary of Significant Accounting Policies

Description of Business

Providence and Worcester Railroad Company (“P&W” or the “Company”) is an interstate freight carrier conducting railroad operations in Massachusetts, Rhode Island, Connecticut and New York. Through its connecting carriers, it services customers located throughout North America. The Company services the largest international double-stack intermodal terminal facility in New England. P&W’s connections to multiple Class I railroads, either directly or through connections with regional and short-line carriers, provide the Company with a competitive advantage by allowing it to offer various pricing and routing alternatives to its customers.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents for purposes of classification in the balance sheets and statements of cash flows. Cash equivalents are stated at cost, which approximates fair market value.

Accounts Receivables and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount. The Company’s allowance for doubtful accounts is determined based upon historical write-offs and known customer information. The allowance for doubtful accounts represents the Company’s best estimate of the amount of probable loss on its existing accounts receivable. Account balances are charged off against the allowance for doubtful accounts when the Company determines the receivable will not be recovered.

Materials and Supplies

Materials and supplies, which consist of diesel fuel and items for the improvement and maintenance of track structure and equipment, are stated at cost, determined on a first-in, first-out basis, and are charged to expense or added to the cost of property and equipment when used.

Property and Equipment

Property and equipment, including land held for development, is stated at historical cost (including self-construction costs). Acquired railroad property is recorded at the purchased cost. Self-construction costs for track structure include material costs for ties, rail, other track materials and ballast; the cost of direct and supervisory labor, including railroad retirement taxes and employee benefits; costs for track machinery and equipment (including depreciation) and various other overhead costs. Major renewals or betterments are capitalized while routine maintenance and repairs, which do not improve or extend asset lives, are charged to expense when incurred. Costs are capitalized to the extent that they are incurred in connection with the replacement of track structure pursuant to a program of rehabilitation which results in significant future economic benefit or the construction of new track structure. A program of rehabilitation or construction of new track structure generally includes ballast, rail and other track material and ties. Costs for routine maintenance are expensed. Routine maintenance items include the sporadic replacement of ties, replacement of track structure damaged in a derailment, washout or other cause or event and the costs of general upkeep of track structure to keep it in good operating condition. Costs are capitalized or expensed depending on the facts and circumstances of each specific project. The total amount of the costs to be capitalized is based on the per unit cost for each category of expenditure (ties, rail and other track material and ballast) and the number of equivalent units installed. Costs are developed using costs incurred for materials, direct labor and overhead.

Property and equipment are carried at cost and are depreciated over their useful lives. Items included in track structures with similar physical characteristics, use, year of installation and expected life are grouped into separate asset classes and depreciated over the estimated useful life of the asset class group.

II-14

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows:

Track structure:
Ties	40 years
Rail and other track material	67 years
Ballast	67 years
Bridges and trestles	67 years
Other	33 years
Buildings and other structures	33 to 45 years
Equipment, including rolling stock	4 to 25 years

The Company reviews property and equipment retirements each year in order to determine whether or not the estimated useful lives are reasonable. Since, in most instances, assets retired have been fully or substantially depreciated, the Company has not found it necessary, historically, to make any significant adjustments to their estimated useful lives. Retirements of track structure are recorded by removing the historical cost and related accumulated depreciation of the equivalent amount of its oldest track structures in the related asset class group. Gains or losses, if any, on sales or other dispositions are credited or charged to other income. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When circumstances indicate that assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted future cash flows over the remaining lives of the assets in determining whether the carrying amounts of the assets are recoverable. If impairment exists it is measured by comparing the carrying value to the fair value. No impairments were recognized in the years presented.

Fair Value

The Company believes that the fair values of its financial instruments, including cash, receivables and payables, approximate their respective book values because of their short-term nature. Upon review of current market conditions and other factors, the Company believes that the fair value of the long term debt approximates its book value. The fair values described herein were determined using significant other observable inputs (Level 2) as defined by GAAP.

Deferred Grant and other revenue

The Company has availed itself of various federal and state programs administered by the states of Connecticut, Massachusetts and Rhode Island for reimbursement of expenditures for capital improvements. In order to receive reimbursement, the Company must submit requests for the projects, including cost estimates. The Company receives from 65% to 100% of the costs of such projects, which have included bridges, track structure and public improvements. To the extent that such grant proceeds are used to fund capital improvements to bridges and track structure, they are recorded as deferred grant income ($399 in 2015 and $1,080 in 2014) and amortized into operating revenues on a straight-line basis over the estimated useful lives of the related improvements.

Grant proceeds utilized to finance public improvements, such as grade crossings and signals, are recorded as a direct offset to the cost of the improvements, which are not capitalized.

Revenue Recognition and Concentration of Credit Risk

Freight revenues are estimated and recorded at the time shipments move onto the Company’s tracks or the connecting carrier’s tracks. Due to the short time of delivery to customers or the connecting carriers, freight revenues recognized at the time shipments move onto the Company’s tracks is not materially different from the revenue recognition of freight revenues as shipments progress. Freight revenues are recorded net of any unloading allowances or other fees.

Other freight-related and operating revenues are recorded at the time services are rendered to the customer.

Gain or loss from sale, condemnation and disposal of property and equipment and easements is recorded at the time the transaction is consummated and collectability is assured.

The Company’s ten (10) largest customers account for more than half of its operating revenues. One of the Company’s customers, which mines construction aggregates from two active quarries on the Company’s rail system and ships to locations in

II-15

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

Connecticut and New York, accounted for more than 10% of the Company’s freight operating revenues in 2015 and 2014. The Company does not believe that these customers will cease to be rail shippers in the foreseeable future; however, the Company does not control the quantities these companies will ship by rail.

Income Taxes

Deferred taxes are provided on a liability method, whereby deferred tax assets are recognized for deductible temporary differences, operating losses and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the dates of enactment. Valuation allowances are established when it is estimated that it is more likely than not that the deferred tax asset will not be realized.

Certain provisions of ASC 740 Income Taxes prescribe a recognition threshold and the measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in the tax return, and provide guidance on reporting for uncertain tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not accrued any interest or penalties.

Income per Common Share

Basic income per common share is computed using the weighted average number of common shares outstanding during each year. Diluted income per common share reflects the effect of the Company’s outstanding convertible preferred stock (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:

	2015						2014
	Net Income		Shares		Per Share Amount		Net Income		Shares		Per Share Amount
Basic Earnings per Share
Net Income available to Common Shareholders	$	1,823					$	3,168
Basic Earnings per share	$	1,823		4,861	$	0.38	$	3,168		4,855	$	0.65

Diluted Earnings per Share
Net Income available to Common Shareholders	$	1,823					$	3,168
Preferred stock dividends		3						3
Effect of Dilutive Securities				72						75
Diluted Earnings per Share	$	1,826		4,933	$	0.37	$	3,171		4,930	$	0.64

Options to purchase 65,437 and 63,285 shares of common stock were outstanding at December 31, 2015 and 2014, respectively. Certain options were not included in the calculation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common stock and would be anti-dilutive. For 2015 and 2014, 8,133 and 11,445 shares, respectively, relating to the options were included in the calculation of diluted earnings per share. Shares of preferred stock convertible into 64,000 shares of common stock were outstanding during 2015 and 2014. For 2015 and 2014, these were included in the calculation of diluted earnings per share.

Use of Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

II-16

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

Liabilities for casualty claims, legal judgments and other loss contingencies are recorded when it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. It is the position of the Company not to accrue estimated legal fees for appeals of legal judgments since such costs do not meet the definition of a liability and thus are accruable only at such time as legal services have been provided.

Comprehensive Income

Comprehensive Income equals net income for 2015 and 2014.

Segment Reporting

The Company organizes itself as one segment reporting to the chief operating decision maker. Products and services consist primarily of interstate freight rail services. These include the movement of freight in both conventional freight cars and in intermodal containers on flat cars over the Company’s rail lines, as well as freight-related services such as switching, weighing and special trains and other services rendered to freight customers and other outside parties by the Company’s Maintenance of Way and Maintenance of Equipment Departments.

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.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which, effective for annual and interim reporting periods beginning after December 15, 2016, simplifies the presentation of deferred income taxes, requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Since early application is permitted, the new standard has been applied in the Company’s financial statements as of December 31, 2015. Prior periods were not retrospectively adjusted.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The Company is currently evaluating the impact of our pending adoption of the new standard on our financial statements.

2.	Share-Based Compensation

In April 2015, the Company’s shareholders approved the Providence and Worcester Railroad Company 2015 Equity Incentive Plan (“Plan”), which replaced the Company’s non-qualified stock option plan (“SOP”). The awards below were issued under the SOP. No awards were made under the Plan during 2015. In January 2016, 54,000 options and 70,500 restricted stock units (“RSU”) were awarded under the Plan. The option awards vest in accordance with the term of the option awards (mainly time vested over a 5 year period) and the RSU are performance based. Options issued but not exercised under the SOP totaling 43,931 remains outstanding until they are either exercised or expire.

The Company had a SOP covering all management personnel who have a minimum of one year of service with the Company and who are not holders of a majority of either its outstanding common stock or its outstanding preferred stock. In addition, the

II-17

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

Company’s outside directors are eligible to participate in the SOP. Options granted under the SOP, which are fully vested when granted, are exercisable over a ten year period at the closing market price for the Company’s common stock on the last business day of the year prior to the date the options are granted. The Company issues new common stock to satisfy stock options exercised.

The Company recognizes compensation expense for new stock option grants at fair value on the grant date, less estimated forfeitures. Stock-based employee compensation expense, net of income taxes, in the amounts of $85 and $73, has been charged against income in 2015 and 2014, respectively, for stock options granted. The Company’s policy is to estimate the fair market value of each option granted on the date of grant, the first business day in January of each year, using the Black-Scholes option pricing model, and to record the compensation expense in the year in which the grant was made. Management’s estimates requires the use of assumptions that are highly subjective including items such as the expected life of the option grants, the expected stock price volatility and the expected dividend payment rate. The expected life is based upon historical experience and is estimated for each grant. The expected volatility is based upon a combination of historical and implied volatility. The expected dividend rate is based upon historical yields. The risk free rate is based upon on a zero-coupon U.S. Treasury rate at the time of grant with maturity dates that coincide with the expected life of the options.

Key assumptions used to apply the Black-Scholes option pricing model are set forth below:

	2015			2014
Average risk-free interest rate		1.64	%		1.17	%
Expected life of option grants	5.0 years			5.0 years
Expected volatility of underlying stock		72.55	%		99.00	%
Expected dividend payment rate, as a percentage of the share price on the date of grant		0.89	%		0.82	%
Weighted average grant date fair value	$	10.20		$	13.80

The following table summarizes the stock option activity under the Company’s plan:

				Weighted Average
	Number			Exercise		Fair
	Of Options			Price		Value
Outstanding and exercisable at December 31, 2013		67,082		$	14.26
Granted		8,240			19.55	$	13.80
Exercised		(6,709	)		12.72
Expired		(5,328	)		14.37
Outstanding and exercisable at December 31, 2014		63,285		$	15.12
Granted		8,300			18.06	$	10.20
Exercised		(1,119	)		14.11
Expired		(5,029	)		14.43
Outstanding and exercisable at December 31, 2015		65,437		$	15.55

The total intrinsic value of options exercised for the years ended December 31, 2015 and 2014 totaled approximately $1 and $38, respectively, and cash proceeds from the exercise of stock options totaled approximately $16 and $85 for the years ended December 31, 2015 and 2014, respectively. The income tax benefits realized from the exercise of stock options were not material for the periods presented.

The aggregate intrinsic value of the stock options outstanding, based on the closing stock price of the Company’s common stock as of December 31, 2015 and 2014, totaled approximately $45 and $208, respectively. The weighted average of the remaining life was five years at December 31, 2015 and 2014.

Common Stock Awards

The Company has awarded certain of its employee’s common stock under stock award plans. During the years ended December 31, 2015 and 2014, the Company awarded 40 and 50 shares, respectively. The compensation expense recorded for these awards was de minimus for 2015 and 2014. Common stock awarded under such stock award plans vests immediately.

II-18

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

3.	Property and Equipment

Property and equipment consists of the following:

As of December 31, 2015	Cost		Accumulated Depreciation			Net Book Value
Property:
Land and land improvements	$	11,474	$	—		$	11,474
Buildings and other structures		8,417		(4,227	)		4,190
Track structures:
Rail and other track material		31,219		(8,110	)		23,109
Ballast		5,935		(1,912	)		4,023
Ties		51,605		(26,285	)		25,320
Bridges & Trestles		10,709		(3,004	)		7,705
Other		1,361		(971	)		390
Total property		120,720		(44,509	)		76,211
Equipment:
Office		453		(420	)		33
Locomotives		14,473		(8,749	)		5,724
Rail cars		2,707		(996	)		1,711
Vehicles		2,930		(2,198	)		732
Signals and crossing		1,180		(747	)		433
Track		2,557		(1,532	)		1,025
Other		4,555		(3,692	)		863
Total equipment		28,855		(18,334	)		10,521
Construction-in-process		2,178	—				2,178
Total Property and Equipment	$	151,753	$	(62,843	)	$	88,910

As of December 31, 2014	Cost		Accumulated Depreciation			Net Book Value
Property:
Land and land improvements	$	11,474	$	—		$	11,474
Buildings and other structures		8,376		(4,081	)		4,295
Track structures:
Rail and other track material		31,107		(7,614	)		23,493
Ballast		5,922		(1,814	)		4,108
Ties		51,297		(25,392	)		25,905
Bridges & Trestles		8,996		(2,802	)		6,194
Other		1,361		(953	)		408
Total property		118,533		(42,656	)		75,877
Equipment:
Office		459		(411	)		48
Locomotives		12,262		(8,152	)		4,110
Rail cars		2,707		(895	)		1,812
Vehicles		2,952		(2,271	)		681
Signals and crossing		1,111		(673	)		438
Track		2,349		(1,502	)		847
Other		4,690		(3,756	)		934
Total equipment		26,530		(17,660	)		8,870
Construction-in-process		1,208	—				1,208
Total Property and Equipment	$	146,271	$	(60,316	)	$	85,955

II-19

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

Construction-in-process consisted primarily of costs associated with track and building upgrades.

4.	Land Held for Development and Related Party Transaction

Pursuant to permits issued by the United States Department of the Army Corps of Engineers and the Rhode Island Coastal Resources Management Council, the Company created 33 acres of waterfront land in East Providence, Rhode Island (“South Quay”). The permits for the property, which have been extended to December 2019 and December 2015, respectively, also allow for construction of a dock along the west face of the South Quay. The property is adjacent to a 12 acre site, also owned by the Company. The Company has invested approximately $12,000 in the development of the South Quay, which has resulted in the creation of approximately 33 acres of waterfront land.

The property is located one half-mile from Interstate 195 (“I-195”). In 2006, the Rhode Island Department of Transportation (“RIDOT”) awarded a contract for roadway improvements to provide direct vehicular access from the interstate highway system to the South Quay, which project was completed in 2007. In fall 2012, the extension of Waterfront Drive northward toward an industrial area, in which the Company owns two additional waterfront parcels comprising 11 acres, creating direct access to such property, was completed. RIDOT is in the initial stages of designing improvements to access Waterfront Drive from I-195 West.

The City of East Providence has created a waterfront redevelopment area with a zoning overlay that would encourage development of offices, hotels, restaurants, shops, marinas, apartments and other “clean” employment. The Company has been cooperating with the City of East Providence in these efforts.

Robert Eder, who owns a majority of the Company’s Preferred Shares, with his wife, also controls Capital Properties, Inc. (“CPI”) and its subsidiaries.

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 on the Company’s right-of-way in East Providence, Rhode Island. The License Agreement continues through December 31, 2018, and is extended for additional three-year periods unless cancelled by CPI upon 30-days written notice prior to termination.

Debt

Revolving Line of Credit

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 December 31, 2015 and 2014, no amounts were outstanding under the line of credit.

Long-term Debt

The Company entered into a loan agreement with its commercial bank for $5 million in 2014, the majority of which will be utilized to rehabilitate four and replace one main line bridges. Once the rehabilitation and replacement are complete, the Company will have the ability to haul freight with a lading of 286,000 pounds on its main line from Worcester, MA to Davisville/Providence RI. As provided in the agreement, the loan requires payments of 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 subjects the Company to certain financial and non-financial covenants, including the maintenance of certain tangible net worth levels. In October 2015, the Company drew down $1,000, leaving $4,000 to be drawn down by April 2016. Based upon amounts the Company currently has outstanding, the maturities of long-term debt are as follows:

II-20

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

2016	$	20
2017	$	34
2018	$	35
2019	$	37
2020	$	38

The Company is in compliance with its related debt covenants as of December 31, 2015

6.	Accrued Expenses

Accrued expenses consist of the following:

	December 31,
	2015		2014
Salaries and wages	$	722	$	688
Payroll taxes		194		182
Simplified employee pension plan contributions		208		209
Legal and professional fees		232		157
Casualty loss claims		165		407
Other		132		167
	$	1,653	$	1,810

7.	Other Income

Other income consists of the following:

	Years Ended December 31,
	2015		2014
Gains and losses from sale, disposal and retirement of property, equipment and easements, net	$	42	$	498
Interest and other		33		8
	$	75	$	506

Higher other income in 2014 was attributable to disposal of property and equipment.

8.	Railroad Track Maintenance Credits:

During the fourth quarter of 2015 and 2014, the Company entered into an agreement with an unrelated third-party shipping customer. Under the agreement, the customer agreed to pay for certain qualified railroad track maintenance expenditures, including capital additions to the Company's track structure during 2015 and 2014. In return, the Company agreed to assign railroad track miles to the shipping customer which would enable that customer to claim certain track maintenance credits pursuant to section 45G of the Internal Revenue Code of 1986. $1,800 was realized as a result of the agreements for each of the years ended December 31, 2015 and 2014. The Railroad Track Maintenance Credits were accounted for as a reduction of Operating Expenses - Maintenance of Way and Structures in the Statement of Operations.

9.	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 settled certain disputes between the parties and amended, 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 had the right to remove certain Company trackage subject to the requirement of providing replacement facilities.

II-21

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

Under the 2012 Agreement, Amtrak’s obligations to the Company for outstanding track capacity are satisfied in full by, among other things, Amtrak (1) granting the Company a license for railroad operations to certain Amtrak trackage located in Cranston, RI (the “Cranston Yard Trackage”) ($179), (2) delivering to the Company track materials ($684), (3) granting the Company a credit against mileage charges payable to Amtrak by the Company for freight traffic utilizing the Northeast Corridor ($2,571), and (4) cash and relief of certain outstanding obligations the Company owed to Amtrak ($2,143), with the foregoing items having an agreed aggregate value of $5,577. The 2012 Agreement also relieves Amtrak of any future obligation (a) to maintain the Cranston Yard Trackage, and (b) to replace P&W track capacity modified or eliminated by Amtrak provided that no such modification or elimination may unreasonably interfere with the continuity of tracks being used for P&W’s freight service. The 2012 Agreement also contains provisions allocating the risk of use of the Cranston Yard Trackage, establishing procedures for contesting Amtrak invoices for maintenance along the Northeast Corridor, permitting the Company to bill Amtrak for non-routine services requested by Amtrak and provided by the Company, and permitting Amtrak to deduct from its cash payment to the Company the amount of certain uncontested invoices.

Pursuant to the Agreement, the Company received a credit for mileage to be 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 and no credits remained outstanding as of December 31, 2015:

	Years Ended December 31,
	2015		2014
Mileage credit available	$	418	$	1,219
Utilized		418		801
Mileage credit remaining	$	—	$	418

10.	Income Taxes

The provision for income taxes consists of the following:

	Years Ended December 31,
	2015		2014
Current:
Federal	$	309	$	415
State		144		142
		453		557
Deferred:
Federal		360		(46	)
State		18		(15	)
		378		(61	)
	$	831	$	496

II-22

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

The following summarizes the estimated tax effect of temporary differences that are included in the net deferred income tax provision:

	Years Ended December 31,
	2015			2014
Depreciation	$	222		$	213
Deferred grant income		65			(339	)
Track maintenance credit		216			1,123
Accrued casualty and other claims		87			19
Accrued compensated time off and related payroll taxes		16			(17	)
Share based compensation		(30	)		(41	)
Other		18			(167	)
Change in valuation allowance		(216	)		(852	)
	$	378		$	(61	)

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effect of significant items comprising the Company’s net deferred income tax liability as of December 31, 2015 and 2014 are as follows:

	December 31,
	2015			2014
Deferred income tax liabilities - Differences between book and tax basis of property and equipment	$	19,013		$	18,802
Deferred income tax assets:
Deferred grant income		4,649			4,714
Track maintenance credit carry forwards		1,240			1,456
Alternative minimum tax carry forwards		75			75
Accrued casualty and other claims		59			146
Accrued compensated time off and related payroll taxes		245			261
Share based compensation		311			281
Allowance for doubtful accounts and other		72			101
		6,651			7,034
Valuation allowance		(1,240	)		(1,456	)
Net deferred income tax liability	$	13,602		$	13,224

During 2005 through 2008, the Company generated Railroad Track Maintenance Credits in the cumulative amount of $4,491. These credits may be utilized, subject to certain limitations, to offset the Company’s current federal income tax liability. Any credits not utilized in the year earned may be carried forward to offset future income tax liabilities for a period of 20 years. The Company maintains a valuation allowance on its deferred tax assets when, based upon available evidence such as the reversal of taxable temporary differences and projected future taxable income, it is more likely than not that a portion of its deferred tax assets will not be realized. Based on the Company’s earnings history, projected future taxable income and the expectation of reversing deferred tax liabilities, the Company decreased its valuation allowance. The remaining deferred tax assets are considered realizable; however, they could be reduced in the near term if estimates of future taxable income are reduced or reversing taxable temporary differences are increased.

A reconciliation of the U.S. federal statutory rate to the effective tax rate is as follows:

	Years Ended December 31,
	2015			2014
Federal statutory rate		34	%		34	%
Nondeductible expenses, state income taxes, and other		5			3
Change in valuation allowance		(8	)		(23	)
Effective tax rate		31	%		14	%

II-23

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

The Company’s year-end rate of 31% is a decrease from the September 2015 rate of 38%. The decrease in tax rate in the fourth quarter is due to changes in our reversal pattern analysis based upon fourth quarter activity and a result of the minimal amount of pre-tax income reported as of September 30, 2015. The Company’s 2014 year-end rate of 14% is a significant decrease from the September 2014 rate of 54%. The significant decrease in tax rate in the fourth quarter of 2014 was due to changes in our reversal pattern analysis based upon fourth quarter activity and a result of the minimal amount of pre-tax income reported as of September 30, 2014. The Company’s current income tax provision does not reflect the expected tax rate due to the utilization of carry forward 45G credits.

The Company is subject to U.S. federal income tax as well as income tax in the Commonwealth of Massachusetts. All U.S. federal income and Massachusetts income tax matters have been concluded through 2012.

11.	Commitments and Contingent Liabilities

12.	Employee Benefit Plans

Defined Contribution Retirement Plans

The Company has a profit-sharing plan (“Plan”) which covers all of its employees who are members of its collective bargaining units. Contributions to the Plan are required in years in which the Company has income from “railroad operations” as defined in the Plan. Contributions are to be equal to at least 10% but not more than 15% of the greater of income before income taxes or income from railroad operations subject to a maximum contribution of $3.5 per eligible employee. Contributions to the Plan may be made in cash or in shares of the Company’s common stock valued at the closing market price for the Company’s stock on the last business day of the year prior to the date the shares are granted. No contribution was made for 2015 or 2014 since the Company did not generate income from railroad operations during those years.

II-24

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

The Company also has a Simplified Employee Pension plan (“SEP”) which covers substantially all employees who are not members of one of its collective bargaining units. Contributions to the SEP are discretionary and are determined annually as a percentage of each covered employee’s compensation up to the maximum amount allowable by law. Contributions accrued under the SEP amounted to $208 in 2015 and $209 in 2014 which, in each year, was less than the maximum amount allowable by law.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“ESPP”) under which eligible employees may purchase registered shares of common stock at 85% of the market price for such shares. An aggregate of 200,000 shares of common stock are authorized for issuance under the ESPP which was established in 1997. Any shares purchased under the ESPP are subject to a two year lock-up. ESPP purchases amounted to 3,658 shares in 2015 and 3,556 shares in 2014.

401(k) Plan

The Company has a 401(k) Plan (“401(k)”) which covers employees who are members of a collective bargaining unit as well as management employees. Contributions to employees’ 401(k) accounts are made from individual employees’ payroll contributions. The Company is not liable for contributions, other than de minimus matching contributions for employees subject to collective bargaining agreements.

13.	GATX Corporation

On January 10, 2008, the Company entered into an agreement with GATX Corporation (“GATX”) whereby GATX acquired 239,523 (approximately 4.99%) newly-issued shares of the Company’s common stock for approximately $5,500 ($23 per share) to be utilized for capital improvements to enhance the Company’s railroad lines. The parties also entered into an Exclusive Railcar Supply Agreement whereby GATX has the exclusive right to supply the Company with railcars for certain rail traffic on market-competitive terms. In addition, the Company exchanged 72 of its mill gondolas for 137 (reduced to 10 during 2014) open-top hoppers owned by GATX, which was accounted for as a purchase. In June, 2014, the Company acquired from GATX 75 open-top hoppers, which were previously leased on a per trip lease/storage arrangement. In 2008, the Company leased 72 mill gondolas from GATX under operating leases for a period of up to 7 years at a minimum annual rental of $248 (adjusted to $163 for 2014) through January 2015. During 2012, the Company and GATX amended the lease with respect to 20 of the mill gondolas which the Company returned to GATX. All other terms and conditions remained the same. In September 2014 the lease for 52 mill gondolas from GATX was extended through December 2019 at annual rate of $183. Rental expense of $183 and $163 was incurred under this lease in 2015 and 2014, respectively. In addition to the lease of gondolas, which is a fixed-rent, fixed-term lease, the Company also entered into a 7 year “per-diem” lease of 200 auto carrying railcars, for which the Company is obligated to remit car-hire revenues only. This lease expired December 2014 and was extend to December 2019. Additionally, the Company entered into a lease for 76 automobile carrying railcars, for which the Company is obligated to remit car-hire revenues only. This lease expires December 2025 and automatically renews for one year increments unless either party serves the other with written notice of cancellation. In 2015 and 2014, the car-hire earned from other railroads and remitted to GATX was approximately $3,700 for both years under the leases for automobile carrying railcars.

In March 2014, the Company extended a lease for two (2) six-axle EMD SD-60 locomotives, with an additional EMD SD-60 locomotive being added to the agreement, for approximately $233 per annum through October 2017.

Based upon certain conditions in the lease, the Company extended in 2014 a lease/storage arrangement for 8 hi-sided gondolas in 2014, whereby the Company pays GATX for its sporadic use on a per trip basis only.

14.

Leases

During 2013, the Company installed a 209kw(DC) Solar System at its Worcester Engine House and adjacent land at a cost of $672. Upon completion of the installation, the Company sold the system to an unrelated third party for cost, leasing the Solar System back from the unrelated third party. The Company entered into a ten year operating lease for approximately $50 per annum (through December 2023). The Solar System went on line during December 2013. The Company has the option at the end of the lease term to purchase the Solar System at fair market value (not to exceed 15% of the original cost) or continue to lease month to month.

II-25

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2015, 2014

(Dollars in Thousands Except Per Share Amounts)

The Company leases through May 2018 from an unrelated party two (2) six-axle EMD SD-40 locomotives for approximately $84 per annum.

15.	Preferred Stock

The Company’s $50 par value preferred stock is convertible at any time at the option of the holder of the preferred stock into 100 shares of common stock. The noncumulative stock dividend is fixed by the Company’s Charter at an annual rate of $5.00 per share, out of funds legally available for the payment of dividends.

The holders of preferred stock and holders of common stock are entitled to one vote per share, voting as separate classes, upon matters voted on by shareholders. The holders of common stock elect one-third of the Board of Directors; the voters of preferred stock elect the remainder of the Board.

II-26

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Management’s Report Regarding the Effectiveness of Disclosure 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. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

Management’s Evaluation Regarding the Effectiveness of Internal Controls and Procedures

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that:

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate as a result of changes in conditions, or that the degree of compliance with the applicable polices and procedures may deteriorate.

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the Company’s internal control over financial reporting as of the end of the period covered by this annual report based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Such evaluation included reviewing the documentation of the Company’s internal controls, evaluating the design and operating effectiveness of key financial reporting controls and reviewing our overall control environment. Based on such evaluation, the Company’s management has concluded that as of the end of the period covered by this annual report, the Company’s internal control over financial reporting was effective.

Management’s annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

II-27

Item 9B. Other Information

None.

II-28

PART III

Item 10. Directors, Executive Officers and Corporate Governance

For information with respect to the directors of the Company, see pages 2 through 8 and 10 of the Company’s definitive proxy statement for the 2016 annual meeting of its shareholders, which pages are incorporated herein by reference.

The following are the executive officers of the Company:

Name	Age	Position	Election to Office
Robert H. Eder	83	Chairman	1980
P. Scott Conti	58	President	2005
Frank K. Rogers	54	Vice President	2005
Daniel T. Noreck	44	Treasurer	2010
Charles D. Rennick	34	Secretary	2013

Any officer elected or appointed by the Company’s Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Mr. Eder has served as Chairman of the Company since 1980. Mr. Eder also served as President of the Company from December 1966 until 1980. Mr. Conti served as Vice President from March 1999 until his election as President in 2005. Upon joining the Company in 1988, he served as Engineering Manager through December 1997, and then as Chief Engineer from 1998 until March 1999. Mr. Rogers joined the Company in 1994 and served as Director of Marketing prior to his promotion to Vice President in 2005. Mr. Noreck joined the Company in September 2010 as Treasurer. Mr. Rennick joined the Company in 2012 as Assistant General Counsel prior to his promotion to General Counsel and election as Secretary in 2013.

The Company has adopted a written code of ethics that applies to all of its employees including its Chief Executive Officer and its Chief Financial Officer. A copy of the Company’s code of ethics, entitled “Business Conduct Policy,” is available on the Company’s website at http://www.pwrr.com, and/or may be obtained without charge by contacting:

Investor Relations

Attention: Wendy Lavely

Providence and Worcester Railroad Company

75 Hammond Street

Worcester, Massachusetts 01610

(800) 447-2003

Internet Address: http://www.pwrr.com; wlavely@pwrr.com

Item 11. Executive Compensation

See pages 8 and 12 through 15 of the Company’s definitive proxy statement for the 2016 annual meeting of its shareholders, which pages are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

See pages 10-11 of the Company’s definitive proxy statement for the 2016 annual meeting of its shareholders, which pages are incorporated herein by reference.

III-1

The following table sets forth information as of the end of the Company’s most recently completed fiscal year with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

Number of Securities

To be Issued Upon

Weighted Average

Exercise of

Exercise Price of

Number of Securities

Outstanding Options

Remaining Available For

Plan Category

Warrants and Rights

Future Issuance

Equity compensation plans approved by

security holders

65,437

15.55

475,058

Equity compensation plans not approved by

security holders

N/A

181,125

Total

65,437

15.55

656,183

Item 13. Certain Relationships and Related Transactions and Director Independence

See pages 2, 5-6, 10 and 14 of the Company’s definitive proxy statement for the 2016 annual meeting of its shareholders which pages are incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

See pages 15-16 of the Company’s definitive proxy statement for the 2016 annual meeting of its shareholders which pages are incorporated herein by reference.

III-2

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	(1) All financial statements:

		An index of financial statements is included in Item 8, page II-9 of this annual report.

	(3)	Listing of Exhibits.

		3.1	Articles of Incorporation, as amended, incorporated by reference from the Company’s Registration Statement on Form S-1, Registration No. 333-46433

		3.2	By-laws, as amended, incorporated by reference from the Company’s Registration Statement on Form S-8, Registration No. 333-02975

		10.1	Business Loan Agreement dated June 25, 2009 between the Registrant and Commerce Bank & Trust Company, incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009

		10.2	Common Stock Purchase Agreement dated January 10, 2008 between the Registrant and GATX Corporation, incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008

		10.3	Exclusive Railcar Supply Agreement dated January 10, 2008 between the Registrant and GATX Corporation, incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008

		10.4	Registration Rights Agreement dated January 10, 2008 between the Registrant and GATX Corporation, incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008

		10.5	Non-Qualified Stock Option Plan (incorporated by reference from the Company’s Registration Statement on Form S-1 Registration No. 333-46433)
		10.6	Providence and Worcester Railroad Company 2015 Stock Incentive Plan (incorporated by reference from the Company’s Registration Statement on Form S-8 Registration No.333-205364)

		23	Consent of Independent Registered Public Accounting Firm.

		31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		32	Certification 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 Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 20, 2015, formatted in eXtensible Business Reporting Language:

			Balance Sheets as of December 31, 2015 and 2014;
			Statements of Income for the years ended December 31, 2015 and 2014;
			Statements of Shareholders’ Equity for the years ended December 31, 2015 and 2014;
			Statements of Cash Flows for the years ended December 31, 2015 and 2014; and
			Notes to Financial Statements.

(b)	Not applicable.

(c)	Exhibits (annexed).

IV-1

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

	/s/ Robert H. Eder
	By Robert H. Eder
	Chief Executive Officer
	Dated: March 21, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date

/s/ Robert H. Eder	Chairman of the Board	March 21, 2016
Robert H. Eder	(Chief Executive Officer)

/s/ P. Scott Conti	President and Director	March 21, 2016
P. Scott Conti	(Chief Operating Officer)

/s/ Daniel T. Noreck	Treasurer	March 21, 2016
Daniel T. Noreck	(Principal Financial Officer and Principal Accounting Officer)

/s/ Richard W. Anderson	Director	March 21, 2016
Richard W. Anderson

/s/ Frank W. Barrett	Director	March 21, 2016
Frank W. Barrett

/s/ John J. Healy	Director	March 21, 2016
John J. Healy

/s/ James C. Garvey	Director	March 21, 2016
James C. Garvey

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Providence & Worcester Railroad (PWX) Inactive 10-K2015 FY Annual report

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