UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form 10-K

 X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
   EXCHANGE ACT OF 1934
   For the fiscal year ended December 31, 2002

   TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934
   For the transition period from _______________ to _______________

Commission file number 0-16704

                    PROVIDENCE AND WORCESTER RAILROAD COMPANY
                    -----------------------------------------

             (Exact name of registrant as specified in its charter)
             ------------------------------------------------------


           Rhode Island                            05-0344399
  -----------------------------            --------------------------
 (State or other jurisdiction of       I.R.S. Employer Identification No.
  incorporation or organization)

75 Hammond Street, Worcester, Massachusetts          01610
  -----------------------------            --------------------------
(Address of principal executive offices)           (Zip Code)

Registrant's telephone number, including area code(508) 755-4000

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

                                             Name of each exchange
       Title of Each Class                    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 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. X

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No



As of March 1, 2003,  the  aggregate  market  value of the voting  stock held by
non-affiliates  of the  Registrant  was  $24,306,539.  (For  this  purpose,  all
directors of the Registrant are considered affiliates.)

As of March 1,  2003,  the  Registrant  had  4,443,756  shares of  Common  Stock
outstanding.

Documents Incorporated by Reference -
- -------------------------------------
None

Exhibit Index - Page IV-1.


                                     PART I

Item 1. Business
- ----------------

     Providence and Worcester  Railroad  Company  ("P&W") is a regional  freight
railroad 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   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,  has
grown from 45 miles of track to its current system of  approximately  545 miles.
P&W operates the largest  double stack  intermodal  terminal  facilities  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 construction aggregate,  iron and steel products,  chemicals,  lumber,
scrap metals,  plastic  resins,  cement,  coal,  processed foods and edible food
stuffs,  such as frozen  foods,  corn syrup and animal and vegetable  oils.  Its
customers  include  Cargill,   Inc.,  The  Dow  Chemical  Company,   Exxon-Mobil
Corporation,  Frito-Lay,  Inc.,  Getty Petroleum  Marketing Inc.,  International
Paper Company,  Northeast  Utilities,  Smurfit-Stone  Container  Corporation and
Tilcon Connecticut,  Inc. In 2002, P&W transported approximately 32,000 carloads
of freight and 59,000 intermodal  containers.  The Company also generates income
through sales of properties, grants of easements and licenses and leases of land
and tracks.

     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  creative  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

     Railroads are divided into three classes based on operating revenues: Class
I, $266.7 million or more; Class II, $21.3 million to $266.6 million;  and Class
III, less than $21.3 million. As a result of mergers and  consolidations,  there
are now only seven Class I railroads in the country.  These large systems handle
92% of the nation's rail freight business.

     The rail freight industry  underwent a revitalization  after the passage of
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.   Rail  freight   service  became  more   competitive   with  other
transportation  modes with  respect  to both  quality  and price.  The volume of
freight moved by rail has risen  dramatically  since 1980 and  profitability has
improved significantly.

     One result of the  revitalization  of the  industry  has been the growth of
regional (over 350 miles) and short-line  railroads,  which has been fueled by a
trend among Class I railroads to divest  certain  branch lines in order to focus
on their  long-haul core systems.  There are now more than 550 of these regional
and short-line railroads.  They operate in all 50 states,  account for more than
30% of all rail track,  employ 12% of all rail workers and generate  about 8% of
all rail revenue.

     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.  Over the past decade,
commodity  shippers  have  increasingly  turned  to  intermodal   transportation
principally  as an  alternative to long-haul  trucking.  The  development of new
intermodal  technology,  which  allows  containers  to be moved  by rail  double
stacked (i.e.,  stacked one on top of the other) in specially designed railcars,
together  with  increasing  highway  traffic  congestion  and  the  shortage  of
long-haul truck drivers have contributed to this trend.


Regional Developments

     There are a number of  development  projects  underway  in New  England  to
increase  port  capacity  along  the  extensive  coastline  and to  improve  the
intermodal  transportation and distribution  infrastructure in the region. These
projects  present  significant  opportunities  for the Company to  increase  its
business.


                                      I-1


   Quonset/Davisville

     The State of Rhode Island has proposed  the  redevelopment  of a 1,000 acre
portion of the former Naval facility at Quonset/Davisville to a more active port
and  industrial  park.  This facility  already  houses a number of rail oriented
industries and an auto port.  Construction of a freight rail improvement project
to provide additional track capacity and double stack clearance on the Northeast
Corridor  between  Quonset/Davisville  and the connection of the Corridor to the
Company's main line at Central Falls,  R.I commenced in 2002 at a cost in excess
of $120 million.


   Massachusetts Highway Improvement Program

     Work has begun on a significant  expansion of the Company's  bulk transload
and intermodal yards in Worcester in conjunction with the Massachusetts  Highway
Department's $250 million project creating a direct Worcester  connection to the
Massachusetts  Turnpike.  This  project  will  result in a near  doubling of the
Company's transload facilities when completed.


   Port of New Haven

     The State of Connecticut has completed  rebuilding the Tomlinson  Bridge in
New Haven,  which provides rail access to the Port of New Haven.  In conjunction
with this  project,  the Company is working  with the City of New Haven and area
users of the rail systems to fund a design for the  restoration  of local street
rail  service  directly to port  properties.  Completion  of this  project  will
provide the Company with improved access to customers at the Port of New Haven.


   Middletown/Hartford Line

     In cooperation with the state of Connecticut,  the Company has been engaged
in the  restoration  of the rail line  extending  from  Middletown  to Hartford,
Connecticut.  In April 2000, the state of Connecticut appropriated $1.85 million
to fund their portion of the project  (approx 70%).  The  restoration of this 11
mile segment is now complete  and ready for service.  With a planned  industrial
park along this line and a new  connection  to other  carriers in Hartford,  the
Company  believes  restoration  of this line presents  opportunities  for future
revenue growth.


   New London Interchange

     Through its New London  interchange  with the New England Central  Railroad
P&W has been able to develop significant new business with the Canadian National
Railway ("CN") and the Canadian Pacific Railway.  P&W has worked aggressively to
leverage its  extensive  bulk  transload  facilities  in  developing  additional
chemical and plastics traffic with CN and has developed a significant  volume of
steel traffic with CN that had previously moved via truck.


 Port of Providence

     The  Port  of  Providence,  in  conjunction  with  the  Company,  has  made
investments  in its  infrastructure,  including  paving,  lighting and "on dock"
rail, to  accommodate  growth in the movement of imported coal to inland markets
and to handle that  product more  efficiently.  This is expected to be a growing
source of revenue for the  Company  over the next few years.  More than  250,000
tons of coal have been handled through the Port of Providence to date.

Railroad Operations

     The Company's rail freight system extends over  approximately  545 miles of
track.  The  Company   interchanges  freight  traffic  with  CSX  at  Worcester,
Massachusetts  and at New  Haven,  Connecticut;  with the  Springfield  Terminal
Railway Company (formerly Boston and Maine Railroad) at Gardner,  Massachusetts;
with the New England Central Railroad  (formerly Central Vermont Railway) at New
London, Connecticut;  and with the New York and Atlantic Railroad (formerly Long
Island Railroad) at Fresh Pond Junction on Long Island. Through its connections,
P&W links more than 80 communities on its lines. It operates four classification
yards  (areas  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.

     By agreement  with a private  operator,  the Company  operates two approved
customs  intermodal  yards in Worcester.  A customs  intermodal  yard is an area
containing tracks used for the loading and unloading of containers.  These yards

                                      I-2


are U.S.  Customs  bonded,  and  international  traffic  must be  inspected  and
approved by U.S. Customs officials.  The intermodal facility serves primarily as
a terminal  for movement of  container  traffic  from the Far East  destined for
points in New England.  Several major  container ship lines utilize double stack
train  service  through  this  terminal.  P&W works  closely  with the  terminal
operator to develop and  maintain  strong  relationships  with  steamship  lines
involved in international intermodal transportation.


   Customers

     The Company  serves  approximately  160 customers in  Massachusetts,  Rhode
Island, Connecticut and New York. The Company's 10 largest customers account for
nearly half of its operating revenues. In 2002, Tilcon Connecticut,  Inc., which
ships  construction  aggregate from three  separate  quarries on P&W's system to
asphalt   production   plants  in  Connecticut  and  New  York,   accounted  for
approximately  15.4% of the  Company's  operating  revenues.  No other  customer
accounted for 10% or more of its total operating revenues in 2002.


   Markets

     The Company transports a wide variety of commodities for its customers.  In
2002,  chemicals and plastics and  construction  aggregate  were the two largest
commodity  groups  transported  by  the  Company,   constituting  35%  and  20%,
respectively,  of  conventional  carload freight  revenues.  The following table
summarizes  the Company's  conventional  carload  freight  revenues by commodity
group as a percentage of such revenues:

Commodity                              2002     2001     2000     1999     1998
- ---------                              ----     ----     ----     ----     ----
Chemicals and Plastics ............      35%      34%      38%      41%      41%
Construction Aggregate ............      20       19       17       17       17
Forest and Paper Products .........      13       16       16       14       14
Food and Agricultural .............      12       13       13       14       15
Metal products and other ..........      12       12       10        8       75
Scrap Metal and Waste .............       8        6        6        6        6
                                        ---      ---      ---      ---      ---
   Total ..........................     100%     100%     100%     100%     100%
                                        ===      ===      ===      ===      ===


   Sales and Marketing

     P&W's  sales and  marketing  staff of four  people has 50 years of combined
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 on
P&W's rail lines but not currently using rail services,  (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 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,
the  Company  is able to  offer  its  customers  creative  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 to
minimize  the  risk of  derailments  and  believes  its rail  system  is in good
condition.

     Safety of the  Company's  operations  is of  paramount  importance  for the
benefit and protection of the Company's employees, customers and the communities
served by its rail  lines.  The  Company and its  employees  have made  dramatic
improvements in preventing injuries while at the same time increasing operations
and expanding the work force.


                                      I-3


   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.
Overhead  traffic  passes  from one  connecting  carrier to another  and neither
originates nor terminates with shippers located on a railroad. Presently, P&W is
solely an on-line carrier but expects to provide  overhead service in the future
for certain rail traffic to and from Long Island.

     Rail freight rates can be in various forms. Generally,  customers are given
a "through"  rate, a single figure  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  between 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,  receives  revenue  greater than an amount based simply on mileage
hauled.


   Employees

     As of January 1, 2003,  the Company  had 153  full-time  employees,  117 of
which were  represented by three  national  railroad  labor  organizations.  The
Company's  employees have been represented by unions since the Company commenced
independent operations in 1973.

     The  Company's  initial  agreement  with the  United  Transportation  Union
covering the 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  re-negotiation  after the  agreed-upon  moratoriums.  The moratorium
periods are typically  three to five years in length.  The labor  agreements may
next be amended at July 1, 2004 for the United  Transportation Union (trainmen),
July 1,  2006  for the  Brotherhood  of  Railroad  Signalmen  (maintenance)  and
December 31, 2005 for the Transportation  Communications  Union (clerical).  The
Company considers its employee and labor relations to be good.


Competition

     The Company is the only rail carrier serving  businesses  located on- line.
However,  the  Company  competes  with other  carriers  in the  location  of new
rail-oriented  businesses  in the region.  The Company also  competes with other
modes of  transportation,  particularly  long-haul trucking  companies,  for the
transportation  of commodities.  Any improvement in the cost or quality of these
alternate modes of transportation,  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  carriers and at costs lower than some competing non-rail
carriers.  The Company also competes by  participating in efforts to attract new
industry to the areas which it serves.

     Certain rail competitors, including CSX and Norfolk Southern, are larger or
better  capitalized  than the Company.  While P&W believes the  acquisition  and
division  of  Conrail  will  lead  to  expansion   opportunities,   the  Conrail
transaction  may lead to increased  competition  with other  freight  railroads,
particularly in Massachusetts, and efforts by CSX and Norfolk Southern to reduce
revenue to connecting regional and short-line carriers.

     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.


                                      I-4


Governmental Regulation

     The  Company is subject to  governmental  regulation  by the United  States
Surface  Transportation  Board ("the STB"), the Federal Railroad  Administration
("the  FRA") 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 competitive  position and  profitability of the Company.
Additionally,  the Company is subject to STB  regulation  and may be required to
obtain STB approval  prior to its  acquisition  of any new railroad  properties.
Management of the Company  believes that the regulatory  freedoms granted by the
Staggers Rail Act have been  beneficial to the Company by giving 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
House of  Representatives  and Senate  (which  have  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  wastes.  The  Company  also  transports   hazardous
substances  for third parties and arranges for the disposal of hazardous  wastes
generated by the Company. The Company believes that it is in material compliance
with applicable environmental laws and regulations.

Item 2. Properties
- ------------------

   Track

     P&W's rail system extends over  approximately  545 miles of track, of which
it owns  approximately 170 miles. The Company has the right to use the remaining
375 miles  pursuant  to  perpetual  easements  and long-  term  trackage  rights
agreements.  Under certain of these  agreements,  the Company pays fees based on
usage.

     Virtually  all of the main lines on which the Company  operates  are in FRA
class 3 condition (allowing 40 m.p.h.  speeds) or better. The Company intends to
maintain these lines in such excellent condition.

     Of the approximately 545 miles of the Company's system,  313 miles, or 57%,
are located in Connecticut, 103 miles, or 19%, are located in Massachusetts, 102
miles,  or 19%, are located in Rhode Island and 28 miles,  or 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 2,600 square feet are leased to outside tenants.

     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 Plainfield and Worcester.
P&W  believes  that  its  executive  and   administrative   office   facilities,
classification  yards and  maintenance  facilities  are  adequate to support its
current level of operations.


   Other Properties

     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  amount,  P&W  owns
approximately eight acres in Pawtucket and has a perpetual easement for railroad
purposes over the remaining 122 acres.

     The Company has invested nearly $12 million in the development of the South
Quay,  which  is  adjacent  to 12  acres  of land  owned  by the  Company.  This
investment has resulted in the creation of  approximately 33 acres of waterfront
land.

                                      I-5

     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 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 by the Company as
of December 31, 2002:

     Description                                                    Number
     -----------                                                    ------
     Locomotive ..................................................      32
     Gondola .....................................................      77
     Flat Car ....................................................       5
     Ballast Car .................................................      30
     Passenger Equipment .........................................       7
     Caboose .....................................................       2
                                                                    ------
          Total ..................................................     153
                                                                    ======

     The  32  diesel  electric  locomotives,  which  include  seven  used  3,900
horsepower GE B39-8 locomotives acquired in 2002, are used on a daily basis, are
maintained to a high standard,  comply with all FRA and  Association of American
Railroads  rules and regulations and are adequate for the needs of the Company's
freight  operations.  The gondolas and flat cars are considered modern rail cars
and are used by certain P&W  customers.  Other rail freight  customers use their
own freight cars or obtain such equipment  from other sources.  The ballast cars
are used in track maintenance. From time to time, the Company has leased ballast
cars to other adjoining  railroads.  The passenger equipment and caboose are not
utilized in P&W's rail freight  operations  but are used on an occasional  basis
for Company functions, excursions and charter trips.


   Equipment

     P&W has a state-of-the-art  digital touch control dispatching system at its
Worcester  operations center  permitting  two-way radio contact with every train
crew and  maintenance  vehicle on its lines.  The system also enables each train
crew to maintain radio contact with other crew members.  The Company maintains a
computer facility in Worcester with back-up computer facilities in Worcester and
Plainfield,  Connecticut to assure the Company's ability to operate in the event
of  disruption of service in  Worcester.  The Company also has  state-of-the-art
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 modern 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.  The
Company's  locomotives are equipped with the cab signal technology necessary for
operations on the Northeast Corridor and are equipped with automatic civil speed
enforcement  systems  which  were  required  by the  introduction  of high speed
passenger service on the Northeast Corridor.


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 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
Superfund Site. Via these Notice letters, EPA makes a demand for payment of past
costs  (identified in the letter as $762,000) and future costs  associated  with
the  response  actions  taken to  address  the  contamination  at the Site,  and
requests PRPs to indicate their  willingness  to  participate  and resolve their
potential  liability  at the Site.  The Company has  responded to EPA by stating
that it does not  believe it has any  liability  for this  Site,  but that it is
interested in cooperating with EPA to address issues concerning liability at the
Site.  At this point,  two other  parties have already  committed  via a consent
order with EPA to pay for the Remedial Investigation/Feasibility Study ("RI/FS")
phase of the  clean-up at the Site,  which will take  approximately  two or more
years to complete. After that, EPA will likely seek to negotiate the cost of the
Remedial  Design and  implementation  of the remedy at the Site with the PRPs it
has identified via these Notice  Letters  (which  presently  includes over sixty
parties, and is likely to increase after EPA completes its investigation of the

                                      I-6


identity  of PRPs).  The Company  believes  that none of its  activities  caused
contamination at the Site, and will contest this claim by EPA.

     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 is one of about sixty  parties named thus far
by Plaintiffs,  who seek to recover response costs incurred in investigating and
responding  to the  releases of  hazardous  substances  at the Site.  Plaintiffs
allege that the Company is liable under 42 U.S.C. section 961(a)(3) of CERCLA as
an "arranger" or "generator" of waste that ended up at the Site. The Company has
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. 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 will contest this suit.



Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------

     Not applicable.



                                      I-7



                                     Part II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
- ----------------------------------------------------------------------------

The Common Stock is quoted on the American  Stock  Exchange  ("AMEX")  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
AMEX.  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
                                  ----            ---     ---------      ------
2002
     First Quarter........         8.36           6.87      $  5.00      $ .04
     Second Quarter.......        11.99           7.85          -0-        .04
     Third Quarter........         8.30           6.86          -0-        .04
     Fourth Quarter.......         8.44           6.05          -0-        .04


2001
     First Quarter........         9              6.875     $  5.00      $ .04
     Second Quarter.......        10.12           7.35          -0-        .04
     Third Quarter........         8.52           6.57          -0-        .04
     Fourth Quarter.......         7.30           6.24          -0-        .04




As of March 1,  2003,  there  were  approximately  695  holders of record of the
Company's Common 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 6. Selected Financial Data
- -------------------------------

     The selected  financial  data set forth below has been derived from audited
financial statements.  The data should be read in conjunction with the Company's
audited financial statements and notes thereto and "Management's  Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations"  and the other
information included elsewhere in this annual report on Form 10-K.



                                             Years Ended December 31,
                                   2002      2001      2000      1999      1998
                                 -------   -------   -------   -------   -------
                                     (in thousands, except per share amounts)
Income Statement Data:
 Operating revenues ..........   $22,868   $22,598   $23,470   $22,152   $22,974
 Other income ................       877     1,003     2,049     3,974     4,156
                                 -------   -------   -------   -------   -------
 Total Revenues ..............    23,745    23,601    25,519    26,126    27,130
                                 -------   -------   -------   -------   -------
 Operating expenses ..........    23,698    22,245    22,301    21,410    20,272
 Interest expense ............        --        --        --        --       495
                                 -------   -------   -------   -------   -------
 Total expenses ..............    23,698    22,245    22,301    21,410    20,767
                                 -------   -------   -------   -------   -------
 Income before income taxes
  and extraordinary item .....        47     1,356     3,218     4,716     6,363
 Provision for income taxes ..        25       505     1,200     1,690     2,360
                                 -------   -------   -------   -------   -------
 Income before extraordinary
  item .......................        22       851     2,018     3,026     4,003
 Extraordinary loss from
  early extinguishment of
  debt, net of income tax
  benefit ....................        --        --        --        --       219
                                 -------   -------   -------   -------   -------
 Net income ..................        22       851     2,018     3,026     3,784
 Preferred Stock dividend ....         3         3         3         3         3
                                 -------   -------   -------   -------   -------

 Net income available to
  common shareholders ........   $    19   $   848   $ 2,015   $ 3,023   $ 3,781
                                 =======   =======   =======   =======   =======

 Basic income per common
  share (a) ..................   $    --   $   .19   $   .47   $   .71   $  1.13
                                 =======   =======   =======   =======   =======

 Diluted income per common
  share (a) ..................   $    --   $   .19   $   .46   $   .70   $  1.10
                                 =======   =======   =======   =======   =======

 Weighted average
  shares-basic ...............     4,429     4,390     4,323     4,260     3,352
                                 =======   =======   =======   =======   =======

 Weighted average
  shares-diluted .............     4,497     4,458     4,390     4,334     3,433
                                 =======   =======   =======   =======   =======

 Cash dividends declared on
  Common Stock ...............   $   710   $   702   $   693   $   640   $   402
                                 =======   =======   =======   =======   =======

                                                   December 31,
                                   2002      2001      2000      1999      1998
                                 -------   -------   -------   -------   -------
                                                 (in thousands)
Balance Sheet Data:
Total assets .................   $90,500   $89,161   $89,073   $86,371   $84,594
Shareholders' equity .........    68,641    69,073    68,483    66,683    63,709


(a)  The income per share  amounts for 1998 are stated net of a loss of $.06 per
     share  attributable  to  the  extraordinary   item.

                                      II-2


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
on Form 10-K.

The statements  contained in  Management's  Discussion and Analysis of Financial
Condition  and  Results  of  Operations  ("MDA")  which are not  historical  are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended.  These forward- looking  statements  represent the Company's present
expectations or beliefs concerning future events. The Company cautions, however,
that actual results could differ materially from those indicated in MDA.


Critical Accounting Policies

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

The  Company's  significant  accounting  policies are described in Note 1 of the
Notes to Financial  Statements.  None of these significant  accounting  policies
require  management  to make  difficult,  subjective  or  complex  judgments  or
estimates, and therefore none meet the SEC definition of "critical".


Overview

The Company is a regional 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 recorded at the time  delivery is made to
the customer or the connecting  carrier.  Modest non-freight  operating revenues
are  derived  from  demurrage,  switching,  weighing,  special  train  and other
transportation  services as well as from services  rendered to freight customers
and other outside parties by the Company's Maintenance of Way,  Communications &
Signals,  and  Maintenance  of Equipment  Departments.  Operating  revenues also
include amortization of deferred grant income.

The  Company's  operating  expenses  consist of  salaries  and wages and related
payroll taxes and employee  benefits,  depreciation and amortization,  insurance
and casualty claim expense, diesel fuel, car hire, property taxes, materials and
supplies, purchased services 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 shut-downs. 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
recollectable  projects  performed  by the  Company's  Maintenance  of  Way  and
Communications & Signals  Departments can vary  significantly  from year to year
thereby impacting total operating expenses.

                                      II-3


The  Company  also  generates  income  through  sales of  properties,  grants of
easements and licenses, and leases of land and tracks. Income or loss from sale,
condemnation  and disposal of property and  equipment and grants of easements is
recorded  at the time the  transaction  is  consummated  and  collectibility  is
assured. This income varies significantly from year to year.

One  of  the  Company's  customers,   Tilcon  Connecticut,   Inc.,  which  ships
construction  aggregate from three separate  quarries on the Company's system to
asphalt   production   plants  in  Connecticut  and  New  York,   accounted  for
approximately  15.4%,  14.4% and 12.4% of its operating  revenues in 2002, 2001,
and 2000,  respectively.  The Company does not believe that this  customer  will
cease to be a rail shipper or will significantly  decrease its freight volume in
the  foreseeable  future.  In the  event  that  this  customer  should  cease or
significantly  reduce its rail freight operations,  management believes that the
Company could  restructure its operations to reduce operating costs by an amount
sufficient to substantially offset the decrease in operating revenues.

Results of Operations

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

                                           Years Ended December 31,
                                -----------------------------------------------
                                     2002            2001              2000
                                -------------   --------------    -------------
                                      (in thousands, except percentages)
Freight Revenues:
 Conventional carloads .......  $19,119   83.6% $18,427   81.6%  $18,747   79.9%
 Containers ..................    2,406   10.5    2,826   12.5     2,995   12.8
Non-Freight Operating Revenues:
 Transportation services .....     806    3.5       888    3.9     1,041    4.4
 Other .......................     537    2.4       457    2.0       687    2.9
                               -------  -----   -------  -----   -------  -----
     Total.................... $22,868  100.0%  $22,598  100.0%  $23,470  100.0%
                               =======  =====   =======  =====   =======  =====

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,
                                -----------------------------------------------
                                     2002            2001              2000
                                -------------   --------------    -------------
                                      (in thousands, except percentages)
Chemicals and plastics .......    $ 6,783   35.5% $ 6,263  34.0% $ 7,053   37.6%
Construction aggregate .......      3,759   19.7    3,509  19.0    3,150   16.8
Forest and paper products ....      2,434   12.7    2,847  15.5    2,940   15.7
Food and agricultural products      2,400   12.5    2,453  13.3    2,495   13.3
Metal products and other .....      2,235   11.7    2,152  11.7    1,924   10.3
Scrap metal and waste ........      1,508    7.9    1,203   6.5    1,185    6.3
                                  -------  -----  ------- -----  -------  -----
  Total ......................    $19,119  100.0% $18,427 100.0% $18,747  100.0%
                                  =======  =====  ======= =====  =======  =====

                                      II-4


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

                                           Years Ended December 31,
                                -----------------------------------------------
                                     2002            2001              2000
                                -------------   --------------    -------------
                                      (in thousands, except percentages)
Salaries, wages, payroll taxes
 and employee benefits .......    $13,402   58.6% $13,372  59.2% $12,688   54.1%
Casualties and insurance .....      1,049    4.6      709   3.1      795    3.4
Depreciation and amortization       2,734   12.0    2,728  12.1    2,681   11.4
Diesel fuel ..................      1,051    4.6    1,074   4.8    1,280    5.5
Car hire, net ................        874    3.8      983   4.3      952    4.0
Purchased services, including
 legal and professional fees .      1,550    6.8    2,159   9.6    2,385   10.2
Repairs and maintenance of
 equipment ...................        875    3.8      803   3.5      971    4.1
Track and signal materials ...      2,242    9.8    2,381  10.5    2,245    9.6
Track usage fees .............      1,715    7.5      330   1.5      331    1.4
Other materials and supplies .        842    3.7      910   4.0      918    3.9
Other ........................      1,449    6.3    1,549   6.8    1,627    6.9
                                  -------  -----  ------- -----  -------  -----
 Total .......................     27,783  121.5   26,998 119.4   26,873  114.5
 Less capitalized and
  recovered costs ............      4,085   17.9    4,753  21.0    4,572   19.5
                                  -------  -----  ------- -----  -------  -----
  Total ......................    $23,698  103.6% $22,245  98.4% $22,301   95.0%
                                  =======  =====  ======= =====  =======  =====


Year ended December 31, 2002 Compared to Year Ended December 31, 2001

Amtrak Arbitration

The  Company  has been  party to an  arbitration  proceeding  with the  National
Railroad Passenger  Corporation  ("Amtrak")  concerning  Amtrak's claim for rate
increases  with respect to the Company's  freight  operations  over a portion of
Amtrak's Northeast  Corridor in the States of Rhode Island and Connecticut.  The
arbitrator issued a decision in June 2002 in which he ordered the Company to pay
Amtrak  additional track usage fees and siding  maintenance costs retroactive to
July 9, 1999. The statement of income for 2002 includes  $935,000 of track usage
fees and  $165,000 of siding  maintenance  costs which  relate to years prior to
2002.  The  additional  costs  related to 2002  operations,  resulting  from the
arbitrator's  decision,  are track  usage fees and siding  maintenance  costs of
approximately  $427,000  and  $40,000,  respectively.  In past  years it was the
Company's  practice to net its track  usage fees  against  conventional  freight
revenues.  Because of the  increased  significance  of track usage fees upon the
Company's  operations  and in order to conform to common  industry  practice the
Company began  reporting  track usage fees as an operating  expense during 2002.
Operating  revenues  and  expenses  for prior  years have been  reclassified  to
conform to the presentation in 2002.

Operating Revenues

Operating  revenues increased  $270,000,  or 1.2%, to $22.9 million in 2002 from
$22.6 million in 2001. This increase was comprised of a $692,000 (3.8%) increase
in conventional freight revenues partially offset by a $420,000 (14.9%) decrease
in  container  freight  revenues  and a $2,000  (.1%)  decrease  in  non-freight
operating revenues.

The increase in conventional  freight  revenues  results from a 6.0% increase in
traffic  volume,  partially  offset by a 2.1%  decrease in the  average  revenue
received  per  conventional  carloading.   The  Company's  conventional  freight
carloadings  increased  by 1,803 to  31,938 in 2002  from  30,135  in 2001.  The
increase in conventional traffic results from new customers as well as increases
from certain  existing  customers.  The decrease in the average revenue received
per  conventional  carloading is  attributable  to a shift in traffic mix toward
lower  rated  commodities,  such  as  construction  and  demolition  debris  and
construction aggregates.

The decrease in  container  freight  revenues is primarily  due to a decrease in
traffic volume. Total intermodal containers handled decreased by 9,305 to 59,391
containers in 2002 from 68,696  containers in 2001.  This decrease is the result
of the loss of a customer during the third quarter of 2001 and to the continuing
weakness in economic conditions.

                                      II-5


Operating Expenses

Operating  expenses  increased  $1.5 million,  or 6.5%, to $23.7 million in 2002
from $22.2  million in 2001.  Operating  expenses as a  percentage  of operating
revenues  ("operating  ratio")  increased  to 103.6% in 2002 from 98.4% in 2001.
This increase is entirely  attributable to the impact of the Amtrak  arbitration
decision as previously discussed.

Other Income

Other  income  decreased  to  $877,000 in 2002 from $1.0  million in 2001.  This
decrease is primarily the result of a reduction in interest  income due to lower
investable cash balances and rates of return.

Year ended December 31, 2001 Compared to Year Ended December 31, 2000

Operating Revenues

Operating  revenues decreased  $872,000,  or 3.7%, to $22.6 million in 2001 from
$23.5 million in 2000. This decrease was comprised of a $320,000 (1.7%) decrease
in  conventional  freight  revenues,  a $169,000  (5.6%)  decrease in  container
freight  revenues  and a $383,000  (22.2%)  decrease  in  non-freight  operating
revenues.

The decrease in conventional  freight  revenues  results from a 2.9% decrease in
the average revenue received per conventional carloading,  partially offset by a
small increase in traffic volume. The Company's conventional freight carloadings
increased by 359, or 1.2%, to 30,135 in 2001 from 29,776 in 2000.

The  increase  in  conventional  carloadings  results  from  new  customers  and
increased traffic from certain existing customers, partially offset by decreases
in traffic from other existing customers,  primarily in the manufacturing sector
of the economy.  These decreases have resulted from weakening  conditions in the
national  economy and from several plant  closings.  The decrease in the average
revenue  received per  conventional  carloading  occurred  because of a shift in
traffic mix toward lower rated commodities,  such as construction and demolition
debris and construction aggregates. The impact of this shift in traffic mix more
than  offset the effect of modest  increases  in the  freight  rates for certain
commodities.

The decrease in  container  freight  revenues is primarily  due to a decrease in
container traffic volume. Total intermodal containers handled decreased by 3,043
or 4.2% to 68,696 in 2001 from 71,739 in 2000.  This decrease is attributable to
weakened economic conditions as well as the loss of a customer.

The  decrease  in  non-freight  operating  revenue  is the  result of  decreased
demurrage charges and maintenance  department billings.  Revenues of this nature
typically vary from year to year depending upon the needs of customers and other
outside parties.

Operating Expenses

Operating  expenses  decreased  $56,000,  or .3%, to $22.2  million in 2001 from
$22.3 million in 2000. The operating ratio increased to 98.4% in 2001 from 95.0%
in 2000.  Increases  in certain  operating  expense  categories  were  offset by
decreases in others. The expense category with the greatest change was salaries,
wages,  payroll taxes and employee benefits,  which increased by $684,000 during
2001. An increase in employee health and welfare costs of $418,000  accounts for
the majority of this increase.

Other Income

Other income  decreased to $1.0 million in 2001 from $2.0 million in 2000.  This
decrease  is  primarily  attributable  to a  reduction  in gains  from the sale,
condemnation and disposal of property, equipment and easements.

Liquidity and Capital Resources

The Company  generated $4.3 million,  $3.0 million and $3.9 million of cash from
operations in 2002,  2001 and 2000,  respectively.  The Company's total cash and
cash  equivalents  decreased  by $916,000  in 2002 and $1.8  million in 2001 and
increased  by $933,000 in 2000.  The  principal  utilization  of cash during the
three year period was for expenditures  for property and equipment  acquisitions
and payment of dividends.

                                      II-6


During 2002,  2001 and 2000 the Company  generated  $444,000,  $498,000 and $1.3
million, respectively, from the sales and disposals of properties not considered
essential  for  railroad  operations  and from the  granting  of  easements  and
licenses.  Included in these amounts are $1.1 million in 2000 generated from the
sale of permanent easements. The Company holds various properties which could be
made  available for sale,  lease or grants of easements  and licenses.  Revenues
from sales of  properties,  easements and licenses can vary  significantly  from
year to year.

In June 2001, the Company's  principal bank renewed the Company's revolving line
of credit for a two year period through June 1, 2003 and increased the borrowing
limit  to $3.0  million.  Borrowings  under  this  line are  unsecured  and bear
interest  at either the prime rate or one and one half per cent over  either the
one or three month London Interbank  Offered Rates. The Company does not pay any
commitment  fee on this line.  The Company had no advances  against this line of
credit during 2002 and 2001.

Substantially  all of the mainline  track owned by the Company meets FRA Class 3
standards  (permitting  freight  train  speeds  of 40 miles per  hour),  and the
Company  intends to continue to maintain  this track at this level.  The Company
expended  $3.1  million,  $3.4 million and $3.0 million for track  structure and
bridge improvements in 2002, 2001 and 2000, respectively.  Deferred grant income
of $305,000 in 2002, $204,000 in 2001 and $679,000 in 2000 financed a portion of
these  improvements.  Management  estimates that  approximately  $3.0 million of
improvements  to the Company's track structure and bridges will be made in 2003,
provided  that  sufficient  funds,  including  grant  proceeds,  are  available.
Improvements  to the Company's  track  structure are made, for the most part, by
the Company's Maintenance of Way Department personnel.

During  2002  the  Company   acquired  seven  used  3,900  horsepower  GE  B39-8
locomotives  for $1.3 million in cash and seven older 2,250  horsepower GE U-23B
locomotives  which it owned.  The Company intends to acquire two additional used
GE B39-8  locomotives in 2003 for  approximately  $320,000 and one additional GE
U-23B locomotive.

In  2002,  the  Company  paid  dividends  in the  amount  of  $5.00  per  share,
aggregating $3,000, on its outstanding  noncumulative  Preferred Stock and $0.16
per share,  aggregating  $710,000,  on its outstanding  Common Stock.  Continued
payment of such  dividends is contingent  upon the Company's  continuing to have
the necessary financial resources available.

The Company believes that expected cash flows from operating  activities will be
sufficient to fund its capital  requirements for at least the next 12 months. To
the extent  that the  Company is  successful  in  consummating  acquisitions  or
implementing   its  expansion  plans,  it  may  be  necessary  to  finance  such
acquisitions  or  expansion  plans  through the  issuance of  additional  equity
securities, incurrence of indebtedness or both.

On January 29, 2002, the Company received a "Notice of Potential Liability" from
the United States Environmental  Protection Agency ("EPA") regarding an existing
Superfund  Site that  includes  the J.M.  Mills  Landfill in  Cumberland,  Rhode
Island.  EPA sends these  "Notice"  letters to potentially  responsible  parties
("PRPs")  under the  Comprehensive  Environmental  Response,  Compensation,  and
Liability  Act  ("CERCLA").  EPA  identified  the  Company as a PRP based on its
status as an owner and/or operator because its railroad  property  traverses the
Superfund Site. Via these Notice letters, EPA makes a demand for payment of past
costs  (identified in the letter as $762,000) and future costs  associated  with
the  response  actions  taken to  address  the  contamination  at the Site,  and
requests PRPs to indicate their  willingness  to  participate  and resolve their
potential  liability  at the Site.  The Company has  responded to EPA by stating
that it does not  believe it has any  liability  for this  Site,  but that it is
interested in cooperating with EPA to address issues concerning liability at the
Site.  At this point,  two other  parties have already  committed  via a consent
order with EPA to pay for the Remedial Investigation/Feasibility Study ("RI/FS")
phase of the  clean-up at the Site,  which will take  approximately  two or more
years to complete. After that, EPA will likely seek to negotiate the cost of the
Remedial  Design and  implementation  of the remedy at the Site with the PRPs it
has identified via these Notice  Letters  (which  presently  includes over sixty
parties,  and is likely to increase after EPA completes its investigation of the
identity  of PRPs).  The Company  believes  that none of its  activities  caused
contamination at the Site, and will contest this claim by EPA.

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 is one of about sixty  parties named thus far
by Plaintiffs,  who seek to recover response costs incurred in investigating and
responding  to the  releases of  hazardous  substances  at the Site.  Plaintiffs
allege that the Company is liable under 42 U.S.C. section 961(a)(3) of CERCLA as
an "arranger" or "generator" of waste that ended up at the Site. The Company has


                                      II-7


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. 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 will contest this suit.

Land Held for Development

Pursuant to permits  issued by the United States  Department of the Army Corp of
Engineers  ("ACE") and the Rhode Island  Coastal  Resources  Management  Council
("CRMC"),  the Company created 33 acres of waterfront  land in East  Providence,
Rhode Island ("South Quay")  originally  designed to capitalize on the growth of
intermodal  transportation  utilizing rail, water and highway  connections.  The
property  has good  highway  access (1/2 mile from I-195) and direct rail access
and is adjacent to a 12 acre site also owned by the Company.

The permits for the  property  allow for  construction  of a dock along the west
face of the South Quay.  The ACE permit has been  extended to December  31, 2003
and the CRMC permit has been extended to May 11, 2009.

In April 1999, the Rhode Island  Supreme Court issued an Opinion  confirming the
Company's fee simple  absolute  title to the South Quay.  In January  2000,  the
Rhode Island Superior Court confirmed the Company's fee simple absolute title to
the 12 acre parcel  adjacent to the South Quay.  Also in 1999,  the Rhode Island
Department of Transportation entered into a contract for engineering services to
undertake  roadway  improvements  to provide  direct  vehicular  access from the
interstate  highway  system to the South Quay.  The project is anticipated to be
complete by 2004.

The  City of East  Providence  has been  working  to  create a large  waterfront
redevelopment  area  with a  proposed  zoning  overlay  (which  has not yet been
unveiled) that would  encourage  development  of  restaurants,  shops,  marinas,
condominiums and "clean"  employment.  The Company has been cooperating with the
City of East  Providence  in these  efforts.  In  addition,  the City is  moving
forward with the plan,  described above,  that will provide a direct  connection
from I-195 to the South Quay.

In 2001, the Company  completed  overhead  clearances  between Worcester and the
South Quay,  which enables  operation of double stack trains (having a height of
nineteen feet, two inches) and multi-level automobile cars.

Selected Quarterly Financial Data

Historically the Company has experienced  lower operating  revenues in the first
quarter of the year. The following table sets forth selected  financial data for
each quarter of 2002 and 2001.  The  information  for each of these  quarters is
unaudited  but  includes  all  normal  recurring  adjustments  that the  Company
considers  necessary for a fair presentation.  These results,  however,  are not
necessarily indicative of results for any future period.


                                               Year Ended December 31, 2002
                                          -------------------------------------
                                           First    Second     Third    Fourth
                                          Quarter   Quarter   Quarter   Quarter
                                          -------   -------   -------   -------
                                        (in thousands, except per share amounts)
Operating Revenues .............          $ 4,956   $ 6,284   $ 6,313   $ 5,315
Income (Loss) from Operations ..             (809)     (653)      681       (49)
Net Income (Loss) ..............             (313)     (318)      543       110

Basic Income (Loss) Per Common
 Share .........................          $  (.07)  $  (.07)  $   .12   $   .02

Diluted Income (Loss) Per Common
 Share .........................          $  (.07)  $  (.07)  $   .12   $   .02

                                      II-8


                                               Year Ended December 31, 2001
                                          -------------------------------------
                                           First    Second     Third    Fourth
                                          Quarter   Quarter   Quarter   Quarter
                                          -------   -------   -------   -------
                                        (in thousands, except per share amounts)
Operating Revenues .............          $ 5,074   $ 5,830   $ 6,071   $ 5,623
Income (Loss) from Operations ..             (484)      263       526        48
Net Income (Loss) ..............             (191)      301       448       293

Basic Income (Loss) Per Common
 Share .........................          $  (.04)  $   .07   $   .10   $   .06

Diluted Income (Loss) Per Common
 Share .........................          $  (.04)  $   .07   $   .10   $   .06


Inflation

In recent years,  inflation  has not had a  significant  impact on the Company's
operations.

Seasonality

Historically,  the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during this period and to
winter weather conditions.

Recent Accounting Pronouncements

On June 29, 2001,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 142,  "Goodwill  and
Other Intangible Assets". SFAS No. 142 applies to all acquired intangible assets
whether acquired singly, as part of a group, or in a business combination.  SFAS
142 requires, among other things, the cessation of the amortization of goodwill.
The Company adopted this statement on January 1, 2002 and there was no effect on
the Company's financial statements.

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations".  This statement  establishes  accounting standards for recognition
and  measurement  of a  liability  for an asset  retirement  obligation  and the
associated costs. Under this statement,  an entity must recognize the fair value
of a liability for an asset  retirement  obligation in the period in which it is
incurred  or in a period in which a  reasonable  estimate  of fair  value may be
made.  This  statement is effective for financial  statements  issued for fiscal
years  beginning  after June 15, 2002.  The Company does not expect any material
financial statement impact as a result of the adoption of this statement.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets".  This  statement  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived  Assets or for Long-Lived Assets to
be Disposed Of," in its entirety, and APB Opinion No. 30, "Reporting the Results
of  Operations  - Reporting  the Effects of Disposal of a Segment of a Business,
and Extraordinary,  Unusual and Infrequently Occurring Events and Transactions,"
only for  segments to be disposed  of. The  provisions  of this  statement  were
adopted  January  1, 2002 and there  was no  effect on the  Company's  financial
statements.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44 and 64,  Amendment of FASB  Statement No. 13, and Technical  Corrections".
This statement  rescinds FASB Statement No. 4, "Reporting  Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement,  FASB Statement No.
64,  "Extinguishments of Debt Made to Satisfy Sinking-Fund  Requirements".  This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers". This statement amends FASB Statement No. 13, "Accounting for
Leases," to  eliminate an  inconsistency  between the  required  accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions.   This  statement   also  amends  other   existing   authoritative
pronouncements  to make various  technical  corrections,  clarify  meanings,  or
describe  their  applicability  under  changed  conditions.  This  statement  is
effective for financial  statements issued on or after May 15, 2002. The Company
does not  expect  any  material  financial  statement  impact as a result of the
adoption of this statement.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal Activities". This statement addresses financial accounting
and  reporting  for  costs  associated  with  exit or  disposal  activities  and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition for


                                      II-9


Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including  Certain  Costs  Incurred in a  Restructuring)".  This  statement  is
effective for exit or disposal  activities that are initiated after December 31,
2002. The Company does not expect any material  financial  statement impact as a
result of the adoption of this statement.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition  and Disclosure-an Amendment of FASB Statement No. 123".
SFAS No. 148 provides  alternative  methods of transition for a voluntary change
to  the  fair  value  based  method  of  accounting  for  stock-based   employee
compensation.  The  Company  does not  currently  intend to adopt the fair value
based method of measuring compensation  associated with stock awards and grants.
As a  consequence  of  continuing  to  utilize  the  intrinsic  value  method of
measuring  such  compensation,  the Company  will be required in 2003 to provide
additional  disclosures in its quarterly financial statements which will reflect
the impact on net income and  earnings  per share on a pro forma  basis as if it
had applied the fair value method to stock-based employee compensation.


Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- ------------------------------------------------------------------

Cash and Cash Equivalents

As of December 31, 2002, the Company is exposed to market risks which  primarily
include changes in U.S. interest rates.

The  Company  invests  cash  balances  in excess of  operating  requirements  in
short-term  securities,  generally  with  maturities  of 90  days  or  less.  In
addition,  the  Company's  revolving  line  of  credit  agreement  provides  for
borrowings  which bear interest at variable  rates based on either prime rate or
one and one half  percent  over either the one or three month  London  Interbank
Offered  Rates.  The  Company  had no  borrowings  outstanding  pursuant  to the
revolving line of credit  agreement at December 31, 2002.  The Company  believes
that the effect,  if any, of reasonably  possible  near-term changes in interest
rates on the Company's financial position, results of operations, and cash flows
would not be material.


                                     II-10


Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------

                    PROVIDENCE AND WORCESTER RAILROAD COMPANY


                          INDEX TO FINANCIAL STATEMENTS



                                                         Page
                                                         ----
Independent Auditors' Report.........................   II-12

Balance Sheets as of December 31, 2002 and 2001......   II-13

Statements of Income for the Years Ended December 31,
 2002, 2001 and 2000.................................   II-14

Statements of Shareholders' Equity for the Years Ended
 December 31, 2002, 2001 and 2000....................   II-15

Statements of Cash Flows for the Years Ended
 December 31, 2002, 2001 and 2000....................   II-16

Notes to Financial Statements........................   II-17


                                     II-11


INDEPENDENT AUDITORS' REPORT


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 as of December 31, 2002 and 2001, and
the related statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31,
2002.  Our audits also included the financial statement schedule
listed in the Index at Item 14(a)(2).  These financial statements
and financial statement schedule are the responsibility of the
Company's management.  Our responsibility is to express an opinion
on the financial statements and financial statement schedule based
on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America.  Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes 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, such financial statements present fairly, in all
material respects, the financial position of Providence and
Worcester Railroad Company as of December 31, 2002 and 2001, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States
of America.  Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.


/s/ Deloitte & Touche LLP

Boston, Massachusetts
March 7, 2003

                                     II-12


PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)

                                                                December 31,
                                                               2002        2001
                                                             -------     -------
ASSETS
Current Assets:
 Cash and equivalents ..................................     $ 2,888     $ 3,804
 Accounts receivable, net of allowance for
  doubtful accounts of $125 in 2002 and 2001 ...........       3,304       3,809
 Materials and supplies ................................       1,634       1,434
 Prepaid expenses and other ............................         536         493
 Deferred income taxes .................................         126          73
                                                             -------     -------
  Total Current Assets .................................       8,488       9,613

Property and Equipment, net ............................      70,057      67,647
Land Held for Development ..............................      11,955      11,901
                                                             -------     -------
Total Assets ...........................................     $90,500     $89,161
                                                             =======     =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
 Accounts payable ......................................     $ 3,017     $ 1,745
 Accrued expenses ......................................         964         781
                                                             -------     -------
  Total Current Liabilities ............................       3,981       2,526
                                                             -------     -------
Profit-Sharing Plan Contribution .......................          --         151

                                                             -------     -------
Deferred Grant Income ..................................       7,980       7,891
                                                             -------     -------
Deferred Income Taxes ..................................       9,898       9,520
                                                             -------     -------

Commitments and Contingencies (Note 8)

Shareholders' Equity:
 Preferred stock, 10% noncumulative, $50 par
  value; authorized, issued and outstanding 645
  shares in 2002 and 2001 ..............................          32          32
 Common stock, $.50 par value; authorized
  15,000,000 shares; issued and outstanding
  4,443,380 shares in 2002 and 4,411,238  shares
  in 2001 ..............................................       2,222       2,206
 Additional paid-in capital ............................      29,619      29,376
 Retained earnings .....................................      36,768      37,459
                                                             -------     -------
  Total Shareholders' Equity ...........................      68,641      69,073
                                                             -------     -------
Total Liabilities and Shareholders' Equity .............     $90,500     $89,161
                                                             =======     =======

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

                                     II-13


PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)

                                                      Years Ended December 31,
                                                    2002       2001       2000
                                                 --------   --------   --------
Revenues:
 Operating Revenues - Freight and Non-
  Freight ....................................    $22,868    $22,598    $23,470
 Other Income ................................        877      1,003      2,049
                                                 --------   --------   --------
   Total Revenues ............................     23,745     23,601     25,519
                                                 --------   --------   --------

Expenses:
 Operating:
  Maintenance of way and structures ..........      3,279      3,124      3,324
  Maintenance of equipment ...................      2,166      2,004      2,175
  Transportation .............................      6,532      6,326      6,376
  General and administrative .................      3,925      4,036      3,541
  Depreciation ...............................      2,734      2,681      2,587
  Taxes, other than income taxes .............      2,253      2,391      2,441
  Car hire, net ..............................        874        983        952
  Employee retirement plans ..................        220        370        574
  Track usage fees ...........................      1,715        330        331
                                                 --------   --------   --------
   Total Operating Expenses ..................     23,698     22,245     22,301
                                                 --------   --------   --------

Income before Income Taxes ...................         47      1,356      3,218

Provision for Income Taxes ...................         25        505      1,200
                                                 --------   --------   --------

Net Income ...................................         22        851      2,018

Preferred Stock Dividends ....................          3          3          3
                                                 --------   --------   --------

Net Income Available to Common Shareholders ..   $    19     $   848    $ 2,015
                                                 =======     =======    =======

Basic Income Per Common Share ................   $    --     $   .19    $   .47
                                                 =======     =======    =======

Diluted Income Per Common Share ..............   $    --     $   .19    $   .46
                                                 =======     =======    =======

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

                                     II-14


PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands Except Per Share Amounts)

                                  Years Ended December 31, 2002, 2001 and 2000
                                  ---------------------------------------------
                                                                         Total
                                                   Additional            Share-
                              Preferred  Common     Paid-in   Retained  holders'
                                 Stock    Stock     Capital   Earnings   Equity
                                -------  -------   -------    -------   -------
Balance, January 1, 2000 ....   $    32  $ 2,141   $28,519    $35,991   $66,683

Issuance of 56,418 common
 shares to fund the Company's
 1999 profit sharing plan
 contribution ...............                 28       363                  391
Issuance of 14,117 common
 shares for stock options
 exercised, employee stock
 purchases, conversion of 2
 preferred shares and other .                  7        80                   87
Dividends paid:
 Preferred stock, $5.00 per
  share .....................                                      (3)       (3)
 Common stock, $.16 per share                                    (693)     (693)
Net income for the year .....                                   2,018     2,018
                                -------  -------   -------    -------   -------
Balance, December 31, 2000 ..        32    2,176    28,962     37,313    68,483

Issuance of 45,140 common
 shares to fund the Company's
 2000 profit sharing plan
 contribution ...............                 23       334        357
Issuance of 14,283 common
 shares for stock options
 exercised, employee stock
 purchases, and other .......                  7        80         87
Dividends paid:
 Preferred stock, $5.00 per
  share .....................                                      (3)       (3)
 Common stock, $.16 per share                                    (702)     (702)
Net income for the year .....                                     851       851
                                -------  -------   -------    -------   -------
Balance, December 31, 2001 ..        32    2,206    29,376     37,459    69,073

Issuance of 16,205 common
 shares to fund the Company's
 2001 profit sharing plan
 contribution ...............                  8       143                  151
Issuance of 15,937 common
 shares for stock options
 exercised, employee stock
 purchases, and other .......                  8       100                  108
Dividends paid:
 Preferred stock, $5.00 per
  share .....................                                      (3)       (3)
 Common stock, $.16 per share                                    (710)     (710)
Net income for the year .....                                      22        22
                                -------  -------   -------    -------   -------
Balance, December 31, 2002 ..   $    32  $ 2,222   $29,619    $36,768   $68,641
                                =======  =======   =======    =======   =======
    The accompanying notes are an integral part of the financial statements.

                                     II-15


PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

                                                    Years Ended December 31,
                                                  2002        2001        2000
                                               --------    --------    --------
Cash Flows from Operating
 Activities:
 Net income ................................   $     22    $    851    $  2,018
 Adjustments to reconcile net income to net
  cash flows from operating activities:
   Depreciation and amortization ...........      2,734       2,728       2,681
   Amortization of deferred grant income ...       (216)       (211)       (201)
   Profit-sharing plan contribution to be
     funded with common stock ..............         --         151         348
   Gains from sale, condemnation and
     disposal of property, equipment and
     easements, net ........................       (337)       (359)     (1,244)
   Deferred income taxes ...................        325         405         230
   Other, net ..............................         38          69          55
   Increase (decrease) in cash and
     equivalents from:
     Accounts receivable ...................        506        (642)        (73)
     Materials and supplies ................       (200)        298         375
     Prepaid expenses and other ............        (43)        219        (531)
     Accounts payable and accrued expenses .      1,511        (489)        208
                                               --------    --------    --------
 Net cash flows from operating activities ..      4,340       3,020       3,866
                                               --------    --------    --------
Cash Flows from Investing Activities:
 Purchase of property and equipment ........     (5,378)     (5,019)     (4,255)
 Proceeds from sale and condemnation of
  property, equipment and easements ........        444         498       1,288
 Proceeds from deferred grant income .......        289         368         647
                                               --------    --------    --------
 Net cash flows used in investing activities     (4,645)     (4,153)     (2,320)
                                               --------    --------    --------
Cash Flows from Financing Activities:
 Dividends paid ............................       (713)       (705)       (696)
 Issuance of common shares for stock options
  exercised and employee stock purchases ...        102          83          83
                                               --------    --------    --------
 Net cash flows used in financing activities       (611)       (622)       (613)
                                               --------    --------    --------
Increase (Decrease) in Cash and Equivalents        (916)        933
Cash and Equivalents, Beginning of Year ....      3,804       5,559       4,626
                                               --------    --------    --------
Cash and Equivalents, End of Year ..........   $  2,888    $  3,804    $  5,559
                                               ========    ========    ========

Supplemental Disclosures:
 Cash paid during year for income taxes ....   $     --    $     11    $  1,464
                                               ========    ========    ========

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

                                     II-16


PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(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 (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.

     One  customer  accounted  for  15.4%,  14.4%  and  12.4%  of the  Company's
     operating revenues in 2002, 2001 and 2000, respectively.

     Cash and 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.

     Materials and Supplies
     ----------------------

     Materials and  supplies,  which  consist of 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.  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.  Gains or
     losses on sales or other  dispositions  are  credited or charged to income.
     Depreciation is provided using the straight-line  method over the estimated
     useful lives of the assets as follows:

               Track structure                    20 to 67 years
               Buildings and other structures     33 to 45 years
               Equipment                           4 to 25 years

     The Company continually 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 factors  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  measuring  whether  the  carrying  amounts  of the  assets  are
     recoverable.

     Deferred Grant Income
     ---------------------

     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 70% 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 for
     capital  improvements to bridges and track structure,  they are recorded as
     deferred  grant  income  and  amortized   into  operating   revenues  on  a
     straight-line  basis  over  the  estimated  useful  lives  of  the  related
     improvements ($216 in 2002, $211 in 2001 and $201 in 2000).

     Grant  proceeds  utilized  to finance  public  improvements,  such as grade
     crossings  and  signals,  are  recorded  as a direct  offset to the related
     expense.

                                     II-17


     Although the Company  cannot  predict the extent and length of future grant
     programs,  it intends to continue filing requests for such grants when they
     are available.

     Revenue Recognition
     -------------------

     Freight  revenues are recorded at the time delivery is made to the customer
     or the connecting carrier.

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

     Income Taxes
     ------------

     Deferred  income taxes are recorded  based on the  differences  between the
     financial statement and tax basis of assets and liabilities.  Such deferred
     income taxes are also adjusted to reflect changes in the U.S. tax laws when
     enacted and changes in blended state tax rates.

     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,  options and warrants  (using the treasury stock method),
     except where such items would be antidilutive.

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


                                                     Years Ended December 31,
                                                   2002        2001        2000
                                               ---------   ---------   ---------
     Weighted average shares for basic ......  4,428,522   4,389,916   4,323,237
     Dilutive effect of convertible preferred
      stock, options and warrants ...........     68,692      67,919      67,028
                                               ---------   ---------   ---------
     Weighted average shares for diluted ....  4,497,214   4,457,835   4,390,265
                                               =========   =========   =========

     Options and  warrants to purchase  188,103,  195,503 and 204,563  shares of
     common stock were outstanding during 2002, 2001 and 2000, respectively, but
     were not included in the  computation of diluted  earnings per common share
     because their effect would be antidilutive.

     Employee Stock Option Plan
     --------------------------

     The  Company  accounts  for  stock-based  awards  to  employees  using  the
     intrinsic value method.

     Use of Estimates
     ----------------

     The  preparation of the Company's  financial  statements in conformity with
     generally  accepted  accounting  principles  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.  The  Company's  principal  estimates  include the allowance for
     doubtful  accounts,   useful  lives  of  properties,   accrued  liabilities
     including health insurance  claims and legal and other  contingencies,  and
     income taxes.

                                     II-18


     Stock Based Compensation
     ------------------------

     The Company accounts for stock-based compensation awards to employees using
     the intrinsic value method in accordance with Accounting  Principles  Board
     Opinion No. 25, "Accounting for Stock Issued to Employees". Had the Company
     used the fair value method to value compensation, as set forth in Statement
     of Financial  Accounting  Standards No. 123,  "Accounting  for  Stock-Based
     Compensation", the Company's net income and net income per share would have
     been reported as follows:

                                                      Years Ended December 31,
                                                   2002        2001       2000
                                                 -------     -------    -------
     Net income (loss) available to
      common shareholders:
      As reported ..........................     $    19     $   848    $ 2,015
      Less impact of stock option expense...          30          32         30
                                                 -------     -------    -------
      Pro forma ............................     $   (11)    $   816    $ 1,985
                                                 =======     =======    =======
     Basic income (loss) per share:
      As reported ..........................     $    --     $   .19    $   .47
      Less impact of stock option expense...          --          --        .01
                                                 -------     -------    -------
      Pro forma ............................     $    --     $   .19    $   .46
                                                 =======     =======    =======
     Diluted income (loss) per share:
      As reported ..........................     $    --     $   .19    $   .46
      Less impact of stock option expense...          --         .01        .01
                                                 -------     -------    -------
      Pro forma ............................     $    --     $   .18    $   .45
                                                 =======     =======    =======

     The fair  value of  options  on their  grant  date is  measured  using  the
     Black/Scholes  option pricing model.  The estimated  weighted  average fair
     value of options granted during 2002,  2001 and 2000 were $4.35,  $3.62 and
     $4.20 per option, respectively.  Key assumptions used to apply this pricing
     model are as follows:

                                            2002      2001      2000
                                          ---------  ---------  ---------
     Average risk-free interest rate         4.97%     4.97%     6.30%
     Expected life of option grants           7.0 years 7.0 years 7.0 years
     Expected volatility of underlying stock  76%       58%       55%
     Expected dividend payment rate, as
      a percentage of the share price
      on the date of grant                   2.37%     2.25%     2.00%

     The option pricing model used was designed to value readily  tradable stock
     options  with  relatively  short  lives  and no  vesting  restrictions.  In
     addition,  option valuation  models require the input of highly  subjective
     assumptions  including the expected price  volatility.  Because the options
     granted to employees  are not tradable  and have  contractual  lives of ten
     years and changes in the subjective input assumptions can materially affect
     the fair  value  estimate,  in  management's  opinion,  the  models  do not
     necessarily  provide a reliable measure of fair value of the options issued
     under the Company's stock plan.

     Comprehensive Income
     --------------------

     Comprehensive Income equals net income for 2002, 2001 and 2000.

     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  non-freight  transportation
     services such as switching,  weighing and special trains and other services


                                     II-19


     rendered to freight  customers and other  outside  parties by the Company's
     Maintenance of Way,  Communications  & Signals and Maintenance of Equipment
     Departments.

     Recently Issued Financial Accounting Standards
     ----------------------------------------------

     On June 29, 2001, the Financial  Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
     Other Intangible  Assets".  SFAS No. 142 applies to all acquired intangible
     assets  whether  acquired  singly,  as part of a  group,  or in a  business
     combination.  SFAS 142 requires,  among other things,  the cessation of the
     amortization of goodwill.  The Company adopted this statement on January 1,
     2002 and there was no effect on the Company's financial statements.

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
     Retirement  Obligations".  This statement establishes  accounting standards
     for  recognition  and  measurement  of a liability for an asset  retirement
     obligation and the associated costs.  Under this statement,  an entity must
     recognize the fair value of a liability for an asset retirement  obligation
     in the period in which it is incurred or in a period in which a  reasonable
     estimate  of fair  value  may be made.  This  statement  is  effective  for
     financial statements issued for fiscal years beginning after June 15, 2002.
     The Company does not expect any material  financial  statement  impact as a
     result of the adoption of this statement.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
     Impairment or Disposal of Long-Lived  Assets".  This  statement  supersedes
     SFAS No. 121,  "Accounting  for the Impairment of Long- Lived Assets or for
     Long-Lived Assets to be Disposed Of," in its entirety,  and APB Opinion No.
     30,  "Reporting  the  Results of  Operations  -  Reporting  the  Effects of
     Disposal  of a  Segment  of a  Business,  and  Extraordinary,  Unusual  and
     Infrequently  Occurring Events and  Transactions,"  only for segments to be
     disposed of. The provisions of this statement were adopted  January 1, 2002
     and there was no effect on the Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
     No.  4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and  Technical
     Corrections".  This  statement  rescinds FASB  Statement No. 4,  "Reporting
     Gains and Losses from  Extinguishment  of Debt," and an  amendment  of that
     Statement,  FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy
     Sinking-Fund Requirements". This statement also rescinds FASB Statement No.
     44,  "Accounting for Intangible  Assets of Motor Carriers".  This statement
     amends FASB  Statement  No. 13,  "Accounting  for  Leases," to eliminate an
     inconsistency   between  the   required   accounting   for   sale-leaseback
     transactions  and the required  accounting for certain lease  modifications
     that have economic effects that are similar to sale-leaseback transactions.
     This statement also amends other existing  authoritative  pronouncements to
     make various technical  corrections,  clarify  meanings,  or describe their
     applicability  under changed  conditions.  This  statement is effective for
     financial  statements issued on or after May 15, 2002. The Company does not
     expect any material financial  statement impact as a result of the adoption
     of this statement.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated  with Exit or Disposal  Activities".  This  statement  addresses
     financial  accounting  and  reporting  for  costs  associated  with exit or
     disposal  activities  and  nullifies  Emerging  Issues Task Force Issue No.
     94-3, "Liability  Recognition for Certain Employee Termination Benefits and
     Other  Costs to Exit an Activity  (including  Certain  Costs  Incurred in a
     Restructuring)".   This   statement  is  effective  for  exit  or  disposal
     activities that are initiated after December 31, 2002. The Company does not
     expect any material financial  statement impact as a result of the adoption
     of this statement.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation-Transition  and Disclosure-an  Amendment of FASB Statement No.
     123".  SFAS No.  148  provides  alternative  methods  of  transition  for a
     voluntary  change  to  the  fair  value  based  method  of  accounting  for
     stock-based employee compensation. The Company does not currently intend to
     adopt the fair value based method of measuring compensation associated with
     stock awards and grants.  As a  consequence  of  continuing  to utilize the
     intrinsic value method of measuring such compensation,  the Company will be
     required  in  2003  to  provide  additional  disclosures  in its  quarterly


                                     II-20


     financial  statements  which  will  reflect  the  impact on net  income and
     earnings per share on a pro forma basis as if it had applied the fair value
     method to stock-based employee compensation.

     Reclassifications
     -----------------

     Certain prior year amounts have been  reclassified  to be  consistent  with
     current year presentation.

2.   Property and Equipment

     Property and equipment consists of the following:
                                                              December 31,
                                                           2002           2001
                                                         -------        -------
     Land and improvements ....................          $10,414        $10,303
     Track structure ..........................           62,473         59,499
     Buildings and other structures ...........            7,888          7,686
     Equipment ................................           24,962         23,949
                                                         -------        -------
                                                         105,737        101,437
     Less accumulated depreciation ............           35,680         33,790
                                                         -------        -------
     Total property and equipment, net ........          $70,057        $67,647
                                                         =======        =======


3.   Land Held for Development

     Pursuant to permits issued by the United States Department of the Army Corp
     of Engineers  ("ACE") and the Rhode  Island  Coastal  Resources  Management
     Council  ("CRMC"),  the Company created 33 acres of waterfront land in East
     Providence,  Rhode Island ("South Quay") originally  designed to capitalize
     on the  growth  of  intermodal  transportation  utilizing  rail,  water and
     highway  connections.  The property has good highway  access (1/2 mile from
     I-195) and direct  rail access and is adjacent to a 12 acre site also owned
     by the Company.

     The permits for the  property  allow for  construction  of a dock along the
     west face of the South Quay.  The ACE permit has been  extended to December
     31, 2003 and the CRMC permit has been extended to May 11, 2009.

     In April 1999, the Rhode Island Supreme Court issued an Opinion  confirming
     the Company's fee simple absolute title to the South Quay. In January 2000,
     the Rhode Island Superior Court confirmed the Company's fee simple absolute
     title to the 12 acre parcel  adjacent to the South Quay.  Also in 1999, the
     Rhode  Island  Department  of  Transportation  entered  into a contract for
     engineering  services to undertake  roadway  improvements to provide direct
     vehicular access from the interstate  highway system to the South Quay. The
     project is anticipated to be complete by 2004.

     The City of East  Providence has been working to create a large  waterfront
     redevelopment  area with a proposed  zoning overlay (which has not yet been
     unveiled) that would encourage development of restaurants,  shops, marinas,
     condominiums and "clean" employment.  The Company has been cooperating with
     the City of East  Providence  in these  efforts.  In addition,  the City is
     moving forward with the plan,  described above,  that will provide a direct
     connection from I-195 to the South Quay.

     In 2001, the Company completed  overhead  clearances  between Worcester and
     the South Quay,  which enables  operation of double stack trains  (having a
     height of nineteen feet, two inches) and multi-level automobile cars.

                                     II-21


4.   Revolving Line of Credit

     The Company has a revolving  line of credit with its principal  bank in the
     amount of $3,000  expiring  June 1,  2003.  Borrowings  under  this line of
     credit are unsecured,  due on demand and bear interest at either the bank's
     prime rate or one and one half  percent  over either the one or three month
     London Interbank  Offered Rates. The Company pays no commitment fee on this
     line.  There were no loans  outstanding  under the line at any time  during
     2002 or 2001.

5.   Other Income

     Other income consists of the following:         Years Ended December 31,
                                                   2002        2001        2000
                                                  ------      ------      ------
     Gains from sale, condemnation and
      disposal of property, equipment and
      easements, net ...........................  $  337      $  359      $1,244
     Rentals and license fees under
      various operating leases .................     490         448         489
     Interest ..................................      50         196         316
                                                  ------      ------      ------
                                                  $  877      $1,003      $2,049
                                                  ======      ======      ======

     Gains from sale,  condemnation  and  disposal of  property,  equipment  and
     easements  for 2000  includes  $1,132  received  from the sale of permanent
     easements.

6.   Amtrak Arbitration

     The Company has been party to an arbitration  proceeding  with the National
     Railroad Passenger  Corporation  ("Amtrak")  concerning  Amtrak's claim for
     rate  increases  with respect to the Company's  freight  operations  over a
     portion of Amtrak's  Northeast  Corridor in the states of Rhode  Island and
     Connecticut.  The  arbitrator  issued a  decision  in June 2002 in which he
     ordered  the Company to pay Amtrak  additional  track usage fees and siding
     maintenance  costs retroactive to July 9, 1999. The statement of income for
     2002 includes $935 of track usage fees and $165 of siding maintenance costs
     which relate to years prior to 2002. The liability to Amtrak as of December
     31, 2002, in the amount of $1,250, is included in accounts payable.

7.   Income Taxes

     The provision for income taxes consists of the following:

                                                     Years Ended December 31,
                                                   2002        2001        2000
                                                  ------      ------      ------
     Current:
      Federal ...........................         $ (300)     $   90      $  900
      State .............................             --          10          70
                                                  ------      ------      ------
                                                    (300)        100         970
     Deferred, Federal and State ........            325         405         230
                                                  ------      ------      ------
                                                  $   25      $  505      $1,200
                                                  ======      ======      ======

                                     II-22


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

                                                     Years Ended December 31,
                                                   2002        2001        2000
                                                  -----       -----       -----
     Depreciation ...........................     $ 382       $ 326       $ 207
     Deferred grant income ..................       (32)          2        (272)
     Gains from sale, condemnation and
      disposal of property and equipment ....       (15)        (20)        346
     Accrued casualty and other claims ......       (56)         56         (71)
     Other ..................................        46          41          20
                                                  -----       -----       -----
                                                  $ 325       $ 405       $ 230
                                                  =====       =====       =====

     Deferred income taxes reflect the net tax effects 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
     effects of significant  items  comprising the Company's net deferred income
     tax liability as of December 31, 2002 and 2001 are as follows:

                                                               December 31,
                                                            2002          2001
                                                          -------       -------
     Deferred income tax liabilities:
      Differences between book and tax basis of
       property and equipment .......................     $12,723       $12,356
                                                          -------       -------
      Other .........................................          13            18
                                                          -------       -------
                                                           12,736        12,374
                                                          -------       -------
     Deferred income tax assets:
      Rental income received in advance .............           7            17
      Deferred grant income .........................       2,833         2,801
      Accrued casualty and other claims .............          80            24
      Allowance for doubtful accounts and other .....          44            85
                                                          -------       -------
                                                            2,964         2,927
                                                          -------       -------

     Net deferred income tax liability ..............     $ 9,772       $ 9,447
                                                          =======       =======

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

                                                      Years Ended December 31,
                                                     2002       2001       2000
                                                     ----       ----       ----
     Federal statutory rate .......................    34%        34%        34%
     Depreciation of properties acquired from
      bankrupt railroads having a tax basis
      in excess of cost ...........................   (48)        (3)        (2)
     Non deductible expenses, etc .................    67          5          4
     State income tax, net of federal income
      tax benefit .................................    --          1          1
                                                     ----       ----       ----
     Effective tax rate ...........................    53%        37%        37%
                                                     ====       ====       ====

                                     II-23


8.   Commitments and Contingencies

     The Company is a defendant in certain lawsuits relating to casualty losses,
     many of which are covered by insurance subject to a deductible. The Company
     believes that adequate provision has been made in the financial  statements
     for any  expected  liabilities  which may result from  disposition  of such
     lawsuits.

     On January 29, 2002, the Company received a "Notice of Potential Liability"
     from the United States Environmental Protection Agency ("EPA") regarding an
     existing   Superfund   Site  that  includes  the  J.M.  Mills  Landfill  in
     Cumberland,  Rhode Island.  EPA sends these "Notice" letters to potentially
     responsible   parties  ("PRPs")  under  the   Comprehensive   Environmental
     Response,  Compensation,  and Liability Act ("CERCLA").  EPA identified the
     Company as a PRP based on its status as an owner  and/or  operator  because
     its  railroad  property  traverses  the  Superfund  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. At
     this point,  two other  parties have already  committed via a consent order
     with EPA to pay for the Remedial  Investigation/Feasibility Study ("RI/FS")
     phase of the  clean-up at the Site,  which will take  approximately  two or
     more years to complete.  After that,  EPA will likely seek to negotiate the
     cost of the Remedial  Design and  implementation  of the remedy at the Site
     with the PRPs it has identified  via these Notice Letters (which  presently
     includes over sixty parties,  and is likely to increase after EPA completes
     its  investigation of the identity of PRPs). The Company believes that none
     of its activities  caused  contamination at the Site, and will contest this
     claim by EPA.

     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 is one of about
     sixty parties named thus far by  Plaintiffs,  who seek to recover  response
     costs incurred in investigating and responding to the releases of hazardous
     substances at the Site.  Plaintiffs allege that the Company is liable under
     42 U.S.C.  section  961(a)(3) of CERCLA as an "arranger" or  "generator" of
     waste that ended up at the Site.  The Company has 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. 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 will contest this suit.

9.   Employee Benefit Plans

     Stock Option Plan
     -----------------

     The Company has a  non-qualified  stock  option plan  ("SOP")  covering all
     management  personnel  having 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 Company's
     outside  directors are eligible to  participate  in the SOP. The SOP covers
     50,000  common  shares or 5% of the  shares of  common  stock  outstanding,
     whichever is greater (222,169 shares at December 31, 2002). Options granted
     under the SOP, which are fully vested when granted,  are exercisable over a
     ten year period at the market  price for the  Company's  common stock as of
     the date the options are granted.


                                     II-24


     Changes in stock options outstanding are as follows:

                                                            Weighted Average
                                                            ----------------
                                             Number         Exercise   Fair
                                             of shares        Price    Value
                                             ------          ------   ------
     Outstanding at January 1, 2000 .....    37,569          $ 9.92

     Granted ............................     8,060            8.00    $4.20
     Exercised ..........................      (614)           5.37
     Expired ............................    (3,411)           8.90
                                             ------          ------   ------
     Outstanding and exercisable at
      December 31, 2000..................    41,604            9.70

     Granted ............................     8,130            7.13    $3.62
     Exercised ..........................    (1,220)           5.72
     Expired ............................    (1,763)           5.99
                                             ------          ------   ------
     Outstanding and exercisable at
      December 31, 2001..................    46,751            9.50

     Granted ............................     8,200            6.75   $4.35
     Exercised ..........................    (3,431)           7.17
     Expired ............................    (2,761)           6.88
                                             ------          ------   ------
     Outstanding and exercisable at
      December 31, 2002..................    48,759          $ 9.35
                                             ======          ======   ======

     The following table sets forth  information  regarding  options at December
     31, 2002:

                                                   Weighted Average
                     Range of       Number         ----------------
         Number      Exercise      Currently    Exercise   Remaining
        of Options    Prices      Exercisable     Price   Life (in years)
       ---------    ----------    ----------    ---------- -----------
          1,779    $3.25 - 4.88      1,779         $4.38        1
         33,877     5.50 - 8.25     33,877          7.30        7
          6,703     8.50 - 12.75     6,703         12.38        7
          6,400        18.38         6,400         18.38        6

     Defined Contribution Retirement Plans
     -------------------------------------

     The Company has a deferred 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 on the day  contributed.  Contributions  accrued under
     this Plan amounted to $151 in 2001 and $357 in 2000. No contributions  were
     accrued in 2002 since the Company had negative income from operations.  The
     Company made its 2001 and 2000  contributions in newly issued shares of its
     common stock.

     The Company also has a Simplified  Employee  Pension  Plan  ("SEPP")  which
     covers  substantially  all  employees  who  are not  members  of one of its
     collective  bargaining  units.  Contributions to the SEPP 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 SEPP  amounted to $203 in 2002,  $201 in 2001 and $208 in
     2000 which,  in each year,  was less than the maximum  amount  allowable by
     law.

                                     II-25


     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 11,831 shares in 2002, 12,413 shares in
     2001 and 12,828 shares in 2000.

10.  Preferred Stock

     The Company's $50 par value preferred stock is convertible  into 100 shares
     of common stock at the option of the shareholder.  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 are entitled to one vote for each share in
     the  election  of  two-thirds  of the Board of  Directors.  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.


                                     II-26



Item 9. Disagreements on Accounting and Financial Disclosure
- ------------------------------------------------------------
         None.

                                     II-27


                                    PART III

Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------

     The Company's  Charter and Bylaws  provide that the members of the Board of
Directors (the "Board") shall be elected separately by the Company's two classes
of stock.  Holders of Common Stock elect one-third of the Board of Directors and
the holders of Preferred  Stock elect the remainder of the Board.  Directors are
elected to serve until the next annual meeting and until their  successors  have
been duly  elected by the  shareholders.  There are  currently  three  directors
elected  by the  holders of the Common  Stock and six  directors  elected by the
holders  of the  Preferred  Stock.  Officers  are  elected  by and  serve at the
discretion of the Board of Directors.


Directors and Executive Officers

     The  current  directors  and  executive  officers,  their  ages  and  their
positions held with the Company are as follows:

          Name                          Age   Position
          ----                          ---   --------
     Robert H. Eder(a) ...............   70   Chairman of the Board and Chief
                                               Executive Officer
     Orville R. Harrold(b) ...........   70   President, Chief Operating
                                               Officer and Director
     Robert J. Easton ................   59   Treasurer
     P. Scott Conti ..................   45   Vice President Engineering
     Mary A. Tanona ..................   45   Secretary and General Counsel
     Richard W. Anderson (a) .........   55   Director
     Frank W. Barrett(b) .............   63   Director
     John H. Cronin(b) ...............   69   Director
     J. Joseph Garrahy(b) ............   72   Director
     John J. Healy(b) ................   67   Director
     Charles M. McCollam, Jr.(b) .....   70   Director
     Merrill W. Sherman(a) ...........   54   Director
- --------------
     (a)  Elected by holders of Common Stock.
     (b)  Elected by holders of Preferred Stock.

     The  following is a brief  summary of the  background  of each director and
executive officer.


Directors and Executive Officers

     Robert H. Eder, Chairman of the Board and Chief Executive Officer. Mr. Eder
became  President of the Company in 1966 and led the Company through its efforts
to become an independent  operating  company.  He has been Chairman of the Board
since 1980. He is a graduate of Harvard College and Harvard Law School. He (with
his wife) is also majority owner and Chairman of an affiliated company,  Capital
Properties,  Inc., a real estate holding company of which he is also a Director.
Mr. Eder is admitted to practice law in Rhode Island and New York.

     Orville R. Harrold,  President,  Chief Operating Officer and Director.  Mr.
Harrold  has  been  with the  Company  since  the  commencement  of  independent
operations in February 1973.  Over the past 29 years,  he has held the positions
of Chief Engineer and General Manager,  becoming  President in 1980. Mr. Harrold
has a  bachelors  degree in  mechanical  engineering  from the Pratt  Institute,
Brooklyn,  New York and has been  employed in the  railroad  industry in various
capacities since 1960.

     Robert J. Easton,  Treasurer.  Mr.  Easton has been with the Company  since
1986, initially as Controller.  He was promoted to the position of Treasurer and
Controller  in 1988.  Prior to joining the Company,  Mr.  Easton had 21 years of
experience in public  accounting.  He is a Certified  Public  Accountant  with a
bachelors degree in accounting from the University of Rochester.

     P. Scott Conti,  Vice  President  Engineering.  Mr. Conti has been with the
Company since 1988 and is responsible  for all activities of the  Maintenance of
Way and Engineering  Department which maintains the Company's  tracks,  bridges,


                                     III-1


buildings  and grade  crossings,  overseeing  all  construction  activity  on or
affecting railroad  property.  From June 1988 to December 1997, Mr. Conti served
as Engineering Manager. In January 1998 he was promoted to Chief Engineer and in
March 1999 he was promoted to Vice President.  Prior to Joining the Company, Mr.
Conti was employed by Perini Corporation.

     Mary A.  Tanona,  Secretary  and General  Counsel.  Ms.  Tanona  joined the
Company in 1999 as Assistant  General Counsel and Assistant  Secretary.  In 2000
she was promoted to General Counsel. Prior to joining the Company, Ms Tanona was
an associate with Dewey  Ballantine in New York.  Most  recently,  she served as
associate general counsel at Arbor National Mortgage.  She is a 1987 graduate of
Fordham  University School of Law and holds a bachelor of arts degree from Smith
College.  Ms. Tanona is admitted to practice law in Massachusetts,  Rhode Island
and New York.

     Richard W.  Anderson,  Director.  Mr.  Anderson  has been a Director of the
Company  since  1998.  He is Senior  Vice  President  of  Massachusetts  Capital
Resource  Company   ("MCRC"),   a  private   investment  firm  funded  by  major
Massachusetts  based life insurance companies providing high risk growth capital
to Massachusetts  businesses.  He began working at MCRC in 1981. Mr. Anderson is
also a  director  of  Valpey  Fisher  Corporation,  a  company  specializing  in
frequency control devices.

     Frank W. Barrett,  Director. Mr. Barrett has been a Director of the Company
since 1995.  From 1993 to 1998 he was Executive  Vice  President at  Springfield
Institution for Savings ("SIS").  Effective January 1, 1999, he became Executive
Vice  President  and Chief  Lending  Officer of Family  Bank.  Family Bank was a
Massachusetts subsidiary of Peoples Heritage Financial Group and the acquirer of
SIS. Family Bank became First  Massachusetts  Bank, N.A. upon the acquisition of
Bank North Group by Peoples  Heritage  Financial  Group  (which then changed its
name to  BankNorth  Group).  Effective  June  2000,  he  became  Executive  Vice
President of First  Massachusetts  Bank,  N.A.  Effective  January  2002,  First
Massachusetts Bank, N.A. was merged into Banknorth  Massachusetts.  No change in
Mr. Barrett's responsibility was effected as a result of the merger. Mr. Barrett
is also a director of Dairy Mart Convenience Store, Inc.

     John H.  Cronin,  Director.  Mr.  Cronin has been a Director of the Company
since 1986.  Since 1971 until his  retirement in 1996,  Mr. Cronin was owner and
President of Ideal Products, Inc., a wholesale entertainment supply company.

     J. Joseph Garrahy, Director. Mr. Garrahy has been a Director of the Company
since 1992. He is a former four term  Governor of Rhode Island and,  since 1990,
has been an independent  business  consultant in the State of Rhode Island.  Mr.
Garrahy is also a director of Grove Real Estate Investment Trust.

     John J. Healy, Director. Mr. Healy has been a Director of the Company since
1991. He has been President of Worcester  Affiliated Mfg. L.L.C., an independent
business  consulting  firm  involved in efforts to revitalize  manufacturing  in
Massachusetts,   since  January  1997.  Mr.  Healy  is  also  President  of  the
Manufacturing Assistance Center.

     Charles M. McCollam, Jr., Director. Mr. McCollam has been a Director of the
Company since 1996. He owns and operates a number of insurance businesses in the
State of Connecticut,  as well as McCollam Associates, a consulting firm. He was
the Chief of Staff to a former governor of Connecticut.

     Merrill W.  Sherman,  Director.  Ms.  Sherman  has been a  Director  of the
Company  since 1999.  She is President  and Chief  Executive  Officer of Bancorp
Rhode Island, Inc. and has been President,  Director and Chief Executive Officer
of its primary  subsidiary,  Bank Rhode Island,  a community bank in the greater
Providence metropolitan area, since its formation in March 1996.

Committees of the Board of Directors

     The  Board  of  Directors  has an  Executive  Committee,  a Stock  Option &
Compensation  Committee and an Audit Committee.  The Board of Directors does not
have a nominating committee.  In accordance with the By-laws of the Company, the
Executive Committee,  currently comprised of Robert H. Eder,  Chairman,  John J.
Healy and Orville R. Harrold,  exercises the authority of the Board of Directors
when  formal  Board  action  is  required  between  meetings,   subject  to  the
limitations imposed by law, the By-laws or the Board of Directors. The Executive


                                     III-2


Committee  acts  on  routine  matters  such  as  authorizing  the  execution  of
government  contracts  for  reimbursement  for Company work on highway  projects
adjacent to the railroad and grade crossing rehabilitation.

     The Stock Option & Compensation  Committee,  currently comprised of John H.
Cronin,  Chairman,  Richard  W.  Anderson  and  Charles  M.  McCollam,  Jr.,  is
responsible  for  establishing  the amount of option shares to be granted to the
Company's  employees under the Stock Option Plan and for making  recommendations
to the full Board concerning executive officer compensation.

     The Audit  Committee of the Board of  Directors,  currently  comprising  J.
Joseph  Garrahy,   Chairman,  Frank  W.  Barrett  and  Merrill  W.  Sherman,  is
responsible  for  providing  independent,  objective  oversight of the Company's
accounting  functions and internal controls.  The Audit Committee is composed of
three  directors,  all of whom are  independent as defined by the American Stock
Exchange listing standards. The Audit Committee operates under a written charter
first  adopted and approved by the Board of  Directors  on April 26,  2000.  The
Company  reviews the charter  annually,  and expects that it will be modified to
comply with the requirements of the Sarbanes-Oxley Act of 2002.

     The Board of Directors  held four  meetings,  the Audit  Committee held six
meetings,  the Stock Option &  Compensation  Committee held two meetings and the
Executive Committee held five meetings during the fiscal year ended December 31,
2002.

Compensation of Directors

     During the fiscal year ended  December 31, 2002,  each director who was not
an employee of the Company received a base fee of $500 for each attended meeting
of the Board of Directors plus $50 per attended meeting for each year of service
as a director,  and each member of the Audit  Committee  and the Stock  Option &
Compensation  Committee received $300 for each attended meeting of the committee
(other than the Chairman of the Committee, who received $350).

     During the month of January of each year, directors of the Company who were
serving as such on the preceding  December 31 and are not full time employees of
the  Company are  granted  options for the  purchase of 100 shares of the Common
Stock of the Company,  plus options for an  additional  ten shares for each full
year of service to the Company. The exercise price is the last sale price of the
Common Stock on the last  business day of the  preceding  year,  and the term of
each option is ten years  (subject to earlier  termination if the grantee ceases
to serve as a director), provided, however, that no option is exercisable within
six months following the date of grant.

                                     III-3


Item 11. Executive Compensation
- -------------------------------

     The following  table  summarizes  the  compensation  paid or accrued by the
Company  during the three year period  ended  December  31,  2002,  to its Chief
Executive  Officer  and each of its  executive  officers  who  earned  more than
$100,000  in salary  and bonus in 2002 (the  "Named  Executive  Officers"),  for
services rendered in all capacities to the Company during 2002.

                           Summary Compensation Table

                                                              Long-Term
                                  Annual Compensation         Compensation
                                  -------------------         ------------
                                                              Securities
                                                              Underlying    All
                                                    Other     Options to   Other
                                                    Annual    Purchase   Compen-
                                   Salary          Compen-    Common      sation
Name and Principal Position  Year  ($)(a) Bonus($) sation($)  Stock       ($)(b)
- ---------------------------- ----  ------ ------   --------  ------------ ------
Robert H. Eder.............. 2002  358,655    0      2,638       0        45,796
 Chairman of the Board and   2001  342,464    0     36,459(c)    0        45,236
  Chief Executive Officer    2000  325,621    0     35,337(c)    0        47,302

Orville R. Harrold.......... 2002  308,250    0         0      1,151      38,992
 President and Chief         2001  293,955    0         0      1,128      37,758
  Operating Officer          2000  279,077    0         0      1,178      39,242

P. Scott Conti.............. 2002  125,578    0         0       234        8,503
 Vice President Engineering  2001  114,192    0         0       223        7,993
                             2000  105,546    0         0       232        7,916

Robert J. Easton............ 2002  144,618    0         0       356        9,762
 Treasurer                   2001  138,846    0         0       281        9,719
                             2000  133,304    0         0       301        9,998

Mary A. Tanona.............. 2002  116,352    0         0       112        7,854
 Secretary and General       2001  109,373    0         0        90        7,656
  Counsel                    2000   84,954(d) 0         0         0        6,372


(a)  Includes  amounts  taxable to employees  for personal use of  Company-owned
     vehicles,  other than Mr. Eder and Ms. Tanona, who do not have personal use
     of a Company-owned vehicle.

(b)  Includes  amounts paid  directly to the  retirement  accounts of management
     staff under the Company's  simplified  employee  pension plan,  and, in the
     case of Robert H. Eder and Orville R.  Harrold,  includes for 2002 premiums
     paid for life  insurance  coverage in the  amounts of $32,296 and  $25,492,
     respectively.

(c)  Includes the cost of a vehicle for Mr. Eder.

(d)  Appointed  to the  position  of  Secretary  and General  Counsel  effective
     October 2, 2000.

                                     III-4


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

     The following  table  contains  information  concerning  the grant of stock
options  under  the  Company's  Non-Qualified  Stock  Option  Plan to the  Named
Executive  Officers  during the Company's last fiscal year. The Company does not
issue stock appreciation rights.

                                    % of Total
                        Number of    Options
                        Securities   Granted To
                        Underlying   Employees                        Grant Date
                         Options     In Fiscal   Exercise  Expiration    Present
     Name              Granted(a)     2002       Price($)     Date   Value($)(b)
    ------             ----------   ---------     ------    -------- -----------
Robert H. Eder(c).....       0          0            0           0          0

Orville R. Harrold....    1,151      16.44         6.75     01/02/12  5,006.85

P. Scott Conti........      234       3.34         6.75     01/02/12  1,017.90

Robert J. Easton......      356       5.09         6.75     01/02/12  1,548.60

Mary A. Tanona........      112       1.60         6.75     01/02/12    487.20

(a)  All options were granted on January 2, 2002 and became  exercisable on July
     2, 2002.

(b)  Amounts  represent  fair value of options and were estimated as of the date
     of grant using  Black-Scholes  options - pricing  model with the  following
     weighted average  assumptions:  expected volatility of 76%; expected life 7
     years; and risk free interest rate of 4.97%. Dividends at the rate of 2.37%
     per share were assumed for purposes of this estimate.

(c)  Under the terms of the Company's  Non-Qualified Stock Option Plan, Mr. Eder
     is not eligible to receive a grant of stock options.


               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUES

     The following table sets forth individual exercises of stock options during
2002 and the  year-end  values of options to purchase  Common  Stock held by the
Named Executive Officers as of December 31, 2002.

                                      Number of Securities
                                   Underlying Unexercised   Value of Unexercised
                                              Options at         In-the-Money at
                                         December 31, 2002  December 31, 2002(b)
                                         -----------------  --------------------
                       Shares
                      Acquired on     Value      Exercisable/       Exercisable/
             Name     Exercise   Realized($)(a) Unexercisable   Unexercisable($)
             ----    ----------- -------------- -------------   ----------------

Robert H. Eder.......     0             0             0/0              0/0

Orville R. Harrold...  2,702         2,494        2,018/0             85/0

P. Scott Conti.......    223           396          745/0            234/0

Robert J. Easton.....     0             0         2,251/0            745/0

Mary A. Tanona.......     0             0           202/0            168/0


(a)  Based on the last sale  price of the Common  Stock on the date of  exercise
     minus the exercise price.

(b)  Based on the  difference  between the exercise  price of each grant and the
     closing  price of the  Company's  Common  Stock on the AMEX on December 31,
     2002, which was $7.75.


                                     III-5


Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------

     The table set forth below reflects the only persons  (including any "group"
as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934)
who,  to the  best  of the  Company's  knowledge,  were on  March  7,  2003  the
beneficial owners of more than five percent of the Company's  outstanding Common
Stock,  $.50 par value,  or Preferred  Stock,  $50 par value.  Each share of the
Company's  outstanding Preferred Stock is convertible at any time, at the option
of the  holder,  into one hundred  shares of Common  Stock of the  Company.  The
footnote to the table below sets forth the percentages of the outstanding Common
Stock  which would be held by the  indicated  owners if such  owners'  Preferred
Stock were converted in whole into Common Stock.


                                                                       Percent
Name and Address                      Number of Shares Owned           of Class
- ----------------                      ----------------------           --------

Robert H. and Linda Eder                  842,742 (Common)             19.0%(a)
2441 S.E. Bahia Way                           500 (Preferred)          77.5%
Stuart, Florida 34996

Steinberg Priest & Sloan Capital          508,870 (Common)             11.5%
 Management, LLC.
Michael A. Steinberg & Company, Inc.
Michael A. Steinberg
12 East 49th Street
New York, New York  10017

Franklin Resources, Inc.                  302,000 (Common)              6.8%
One Franklin Parkway
San Mateo, CA  94403-1906

Keeley Asset Management Corp.             245,820 (Common)              5.5%
Kamco Performance Limited Partnership
Kamco Limited Partnership No. 1
401 South LaSalle Street
Chicago, Illinois  60605


(a)  Assuming no conversion of Preferred  Stock.  If their  Preferred Stock were
     converted in whole to Common  Stock,  Mr. and Mrs.  Eder would own 19.9% of
     the outstanding Common Stock.

     Of the shares owned by Mr. and Mrs.  Eder,  768,162  shares of Common Stock
and 500 shares of Preferred  Stock were held  directly by Mr.  Eder,  and 74,580
shares of Common  Stock  were held  directly  by Mrs.  Eder.  By reason of their
ownership,  Mr. and Mrs. Eder may be deemed to be "control persons" with respect
to the Company.


                                     III-6


     The following table reflects, as of March 7, 2003, the beneficial ownership
of the Common Stock of the Company by directors,  nominees for directors,  Named
Executive Officers and all officers and directors as a group.


Name                                                   Number       Percentage
- ----                                                   ------       ----------

Richard W. Anderson(a) .......................         201,160        4.5%
Frank W. Barrett(b) ..........................           1,310          *
P. Scott Conti(c) ............................           3,952          *
John H. Cronin(d) ............................           2,480          *
Robert J. Easton(e) ..........................           4,723          *
Robert H. Eder(f) ............................         892,742        19.8%
J. Joseph Garrahy(g) .........................           1,520          *
Orville R. Harrold(h) ........................          34,574          *
John J. Healy(i) .............................           1,740          *
Charles M. McCollam, Jr.(j) ..................           1,050          *
Merrill W. Sherman(k) ........................             830          *
Mary A. Tanona(l) ............................           1,134          *
All executive officers and directors as a group
(13 people)(m)................................       1,147,260        25.5%

  *    Less than one percent

     (a)  Includes 200,000 shares of common stock held by Massachusetts  Capital
          Resource Company of which Mr. Anderson disclaims beneficial ownership.
          Mr.  Anderson  is  Senior  Vice  President  of  Massachusetts  Capital
          Resource  Company.  Also includes 460 shares of Common Stock  issuable
          under stock options exercisable within 60 days.

     (b)  Includes  810 shares of Common  Stock  issuable  under  stock  options
          exercisable within 60 days.

     (c)  Includes  745 shares of Common  Stock  issuable  under  stock  options
          exercisable within 60 days.

     (d)  Includes  1,150 shares of Common Stock  issuable  under stock  options
          exercisable within 60 days.

     (e)  Includes 118 shares of Common Stock held by Mr.  Easton's  wife in her
          name and 2,251 shares of Common  Stock  issuable  under stock  options
          exercisable within 60 days.

     (f)  Includes  74,580  shares of Common Stock owned by Mr.  Eder's wife and
          assumes the  conversion of the 500 shares of Preferred  Stock owned by
          Mr. Eder.

     (g)  Includes  850 shares of Common  Stock  issuable  under  stock  options
          exercisable within 60 days.

     (h)  Includes (i) 1,700 shares of Common Stock held by Mr.  Harrold's wife,
          (ii) 3,200 shares of Common Stock held by a custodian in an individual
          retirement  account  for the  benefit of Mr.  Harrold  and (iii) 1,882
          shares of Common Stock issuable under stock options exercisable within
          60 days.

     (i)  Includes  1,440 shares of Common Stock  issuable  under stock  options
          exercisable within 60 days.

     (j)  Includes  110 shares of Common  Stock  issuable  under  stock  options
          exercisable within 60 days.

     (k)  Includes  330 shares of Common  Stock  issuable  under  stock  options
          exercisable within 60 days.

     (l)  Includes  202 shares of Common  Stock  issuable  under  stock  options
          exercisable within 60 days.

     (m)  Includes 19 shares of Common  Stock owned by an officer of the Company
          who is not a Named  Executive  Officer,  50,000 shares of Common Stock
          issuable  upon  conversion  of  Preferred  Stock and 10,230  shares of
          Common Stock issuable under stock options exercisable within 60 days.


Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------

     Not Applicable


                                     III-7


                                PART IV

Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------


     (a)  (1) All financial statements:

          An index of financial  statements is included in Item 8, page II-11 of
          this annual report

          (2)  Financial   Statement   schedule:
               Schedule  II  Valuation   and Qualifying Accounts.....Page IV-6

               All other  schedules are omitted  because they are not applicable
               or not  required,  or because the required  information  is shown
               either in the financial statements or the notes thereto.

          (3)  Listing of Exhibits.

               (10A) Material Contracts (incorporated by reference to Exhibit 10
               to the  registration  statement of the  Registrant on Form 10, to
               the  Non-Qualified  Stock Option Plan and Employee Stock Purchase
               Plan of the  Registrant  on  Forms  S-8  and to the  registration
               statements of the Registrant on Form S-1).



               (23) Independent Auditors' Consent

               (99) Certification pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbannes-Oxley Act of 2002.

     (b)  A report  on Form 8-K was  filed on April 4,  2002  reporting  that by
          press  release  dated  April 3, 2002 the  Registrant  reported  to the
          general public that it had entered into a memorandum of  understanding
          with an  affiliate  of  Chevron  Texaco  Corp.  with  respect to joint
          development by the two companies of property located on the waterfront
          in East Providence, Rhode Island.

          A report  on Form 8-K was  filed on June 28,  2002  reporting  that by
          press  release  dated June 27, 2002 the  Registrant  announced  to the
          general  public that a ruling had been issued by the  arbitrator  in a
          proceeding with the National Railroad Passenger Corporation ("Amtrak")
          concerning Amtrak's claim for rate increases and maintenance costs for
          rail sidings with respect to the Registrant's  freight operations over
          a portion of Amtrak's Northeast Corridor in the States of Rhode Island
          and Connecticut.

     (c)  Exhibits (annexed).

     Controls and Procedures

     Financial Statement Schedule. See item (a) (2.) above




                                      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 31, 2003

     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
________________________      Chief Executive Officer            March 31, 2003
Robert H. Eder                and Chairman (Principal
                              Executive Officer)

/s/ Orville R. Harrold
________________________      President and Director             March 31, 2003
Orville R. Harrold            (Chief Operating Officer)

/s/ Robert J. Easton
________________________      Treasurer                          March 31, 2003
Robert J. Easton              (Principal financial officer and
                              principal accounting officer)
/s/ Frank W. Barrett
________________________      Director                           March 31, 2003
Frank W. Barrett

/s/ J. Joseph Garrahy
________________________      Director                           March 31, 2003
J. Joseph Garrahy

/s/ Merrill W. Sherman
________________________      Director                           March 31, 2003
Merrill W. Sherman

                                      IV-2


                    Providence and Worcester Railroad Company
                            Certification Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert H. Eder, certify that:

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

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

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

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information  relating  to the  registrant  is made known to us by others  within
those  entries,  particularly  during the period in which this annual  report is
being prepared;

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors:

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

DATE:  March 31, 2003
                                      By:  /s/ Robert H. Eder
                                           ---------------------------
                                           Robert H. Eder,
                                           Chairman of the Board
                                            And Chief Executive Officer

                                      IV-3


                    Providence and Worcester Railroad Company
                            Certification Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert J. Easton certify that:

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

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

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

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information  relating  to the  registrant  is made known to us by others  within
those  entries,  particularly  during the period in which this annual  report is
being prepared;

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors:

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

DATE:  March 31, 2003
                                      By:  /s/ Robert J. Easton
                                           ---------------------------
                                           Robert J. Easton
                                           Treasurer and Principal
                                           Financial Officer

                                      IV-4



Controls and Procedures

Based  on  their  evaluation  of  the effectiveness  of  the  Company;s
disclosure controls and procedures as of a date within 90 days prior to
the  filing date of this annual report, the undersigned officers of the
Company have concluded that such disclosure controls and procedures are
adequate.  There were no significant changes in internal controls or in
other  factors  that  could  significantly  affect  internal  controls,
including   any   corrective  actions  with   regard   to   significant
deficiencies  and material weaknesses, subsequent to the  date  of  the
most  recent evaluation by the undersigned officers of the  Company  of
the  design  and  operation of internal controls which could  adversely
affect  the Company's ability to record, process, summarize and  report
financial data.


                                      IV-5


                                                            SCHEDULE II

                    PROVIDENCE AND WORCESTER RAILROAD COMPANY

                        VALUATION AND QUALIFYING ACCOUNTS

                  YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
                              (IN THOUSAND DOLLARS)

         Column A        Column B    Column C Additions    Column D   Column E
         --------        --------    ------------------    --------   --------
                                      (1)        (2)
                         Balance   Charged to Charged to              Balance
                            at     costs and    other                  at end
       Description      beginning   expenses   accounts   Deductions     of
                        of period              describe      (A)       period
Allowance for doubtful
 accounts:
Year ended
 December 31, 2002.....   $ 125                                          $125
                          =====                                          ====
Year ended
 December 31, 2001.....   $ 125       $  5                  $   (5)      $125
                          =====       ====                  ======       ====
Year ended
 December 31, 2000.....   $ 125                                          $125
                          =====                                          ====
- ---------
(A) Bad debts written off.


                                      IV-6


                                                       EXHIBIT 99



                    PROVIDENCE AND WORCESTER RAILROAD COMPANY
                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In  connection  with the Annual  Report of  Providence  and  Worcester  Railroad
Company (the  Company) on form 10-K for the year ended  December  31,  2002,  as
filed with the  Securities  and  Exchange  Commission  on the date  hereof  (the
Report),  I, Robert H. Eder,  Chief Executive  Officer of the Company,  certify,
pursuant  to 18 U.S.C.  ss.  1350,  as adopted  pursuant  to Section  906 of the
Sarbanes-Oxley Act of 2002, that:

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

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





                                  /s/ Robert H. Eder
                                  -----------------------------
                                  Robert H. Eder,
                                  Chairman of the Board And Chief
                                  Executive Officer
                                  March 31, 2003

In  connection  with the Annual  Report of  Providence  and  Worcester  Railroad
Company (the  Company) on form 10-K for the year ended  December  31,  2002,  as
filed with the  Securities  and  Exchange  Commission  on the date  hereof  (the
Report), I, Robert J. Easton,  Chief Financial Officer of the Company,  certify,
pursuant  to 18 U.S.C.  ss.  1350,  as adopted  pursuant  to Section  906 of the
Sarbanes-Oxley Act of 2002, that:

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

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




                                  /s/ Robert J. Easton
                                  -----------------------------
                                  Robert J. Easton,
                                  Treasurer and Chief Financial Officer
                                  March 31, 2003



                                                       EXHIBIT 23




INDEPENDENT AUDITORS' CONSENT


We  consent to the incorporation by reference in Registration Statement
Nos.  333-65937, 333-65949, and 333-21617 of Providence  and  Worcester
Railroad  Company  on  Form  S-8 of our  report  dated  March  7,  2003
appearing  in  this  Annual  Report on  Form  10-K  of  Providence  and
Worcester Railroad Company for the year ended December 31, 2002.


/s/ Deloitte & Touche LLP

Boston, Massachusetts
March 28, 2003