UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 0-16704 ------- PROVIDENCE AND WORCESTER RAILROAD COMPANY - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) - --------------------------------------------------------------------------- Rhode Island 05-0344399 ----------------------------- -------------------------- (State or other jurisdiction of I.R.S. Employer Identification No. incorporation or organization) 75 Hammond Street, Worcester, Massachusetts 01610 ----------------------------- -------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 755-4000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.) YES X NO ___ --- Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES ___ NO X --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 1, 2004, the registrant has 4,477,644 shares of common stock, par value $.50 per share, outstanding. PROVIDENCE AND WORCESTER RAILROAD COMPANY Index Part I - Financial Information Item 1 - Financial Statements: Balance Sheets - September 30, 2004 and December 31, 2003...... 3 Statements of Income - Three and Nine Months Ended September 30, 2004 and 2003........................................................ 4 Statements of Cash Flows - Nine months Ended September 30, 2004 and 2003........................ 5 Notes to Financial Statements .................................. 6-9 Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 10-13 Item 3 -Quantitative and Qualitative Disclosures About Market Risk... 13 Item 4 -Controls and Procedures...................................... 14 Part II - Other Information: Item 6 - Exhibits and Reports on Form 8-K .......................... 14 Signatures ............................................................... 15 EXHIBIT 31-Certifications Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002..............................16-17 EXHIBIT 32-Certifications Pursuant To 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002.................. 18 2 Item 1. Financial Statements - ---------------------------- PROVIDENCE AND WORCESTER RAILROAD COMPANY BALANCE SHEETS (Dollars in Thousands Except Per Share Amounts) ASSETS September 30,December 31, 2004 2003 (Unaudited) ------- ------- Current Assets: Cash and equivalents ................................ $ 1,804 $ 1,232 Accounts receivable, net of allowance for doubtful accounts of $125 in 2004 and 2003 ......... 4,201 3,820 Materials and supplies .............................. 1,647 1,771 Prepaid expenses and other .......................... 300 239 Deferred income taxes ............................... 239 191 ------- ------- Total Current Assets ............................... 8,191 7,253 Property and Equipment, net .......................... 71,737 71,408 Land Held for Development ............................ 11,958 11,958 ------- ------- Total Assets ......................................... $91,886 $90,619 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable .................................... $ 2,085 $ 2,019 Accrued expenses .................................... 1,276 1,378 ------- ------- Total Current Liabilities .......................... 3,361 3,397 ------- ------- Profit-Sharing Plan Contribution ..................... 185 119 ------- ------- Deferred Grant Income ................................ 7,995 8,154 ------- ------- Deferred Income Taxes ................................ 10,958 10,258 ------- ------- Commitments and Contingent Liabilities................ Shareholders' Equity: Preferred stock, 10% noncumulative, $50 par value; authorized, issued and outstanding 645 shares in 2004 and 2003 ........................ 32 32 Common stock, $.50 par value; authorized 15,000,000 shares; issued and outstanding 4,476,931 shares in 2004 and 4,457,494 shares in 2003 ..................................... 2,239 2,229 Additional paid-in capital .......................... 29,878 29,709 Retained earnings ................................... 37,238 36,721 ------- ------- Total Shareholders' Equity ......................... 69,387 68,691 ------- ------- Total Liabilities and Shareholders' Equity ........... $91,886 $90,619 ======= ======= The accompanying notes are an integral part of the financial statements. 3 PROVIDENCE AND WORCESTER RAILROAD COMPANY STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands Except Per Share Amounts) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 ------- ------- ------- ------- Revenues: Operating Revenues - Freight and Non-Freight ................... $ 7,036 $6,674 $ 18,596 $17,789 Other Income ....................... 1,169 253 1,432 515 ------- ------ -------- ------- Total Revenues .................. 8,205 6,927 20,028 18,304 ------- ------ -------- ------- Operating Expenses: Maintenance of way and structures ....................... 733 865 2,717 2,700 Maintenance of equipment .......... 622 561 1,971 1,709 Transportation .................... 1,752 1,614 5,253 4,902 General and administrative ........ 1,072 980 3,121 2,814 Depreciation ...................... 728 718 2,076 2,153 Taxes, other than income taxes ............................ 545 555 1,687 1,703 Car hire, net ..................... 245 218 594 618 Employee retirement plans ......... 241 157 354 270 Track usage fees .................. 255 190 588 533 ------- ------ -------- ------- Total Operating Expenses ......... 6,193 5,858 18,361 17,402 ------- ------ -------- ------- Income before Income Taxes ......... 2,012 1,069 1,667 902 Provision for Income Taxes ......... 715 375 610 325 ------- ------ -------- ------- Net Income ......................... 1,297 694 1,057 577 Preferred Stock Dividends .......... -- -- 3 3 ------- ------ -------- ------- Net Income Available to Common Shareholders ...................... $ 1,297 $ 694 $ 1,054 $ 574 ======= ====== ======== ======= Basic Income Per Common Share ...... $ .29 $ .16 $ .24 $ .13 ======= ====== ======== ======= Diluted Income Per Common Share ............................. $ .28 $ .15 $ .23 $ .13 ======= ====== ======== ======= The accompanying notes are an integral part of the financial statements. 4 PROVIDENCE AND WORCESTER RAILROAD COMPANY STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Nine Months Ended September 30, 2004 2003 ------- ------- Cash Flows from Operating Activities: Net income ......................................... $ 1,057 $ 577 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation ...................................... 2,076 2,153 Amortization of deferred grant income ............. (171) (165) Profit-sharing plan contribution to be funded with common stock ......................... 185 100 Gains from sale, condemnation and disposal of property, equipment and easements, net ........ (1,081) (157) Deferred income tax expense ....................... 652 205 Increase (decrease) in cash from: Accounts receivable .............................. (526) (365) Materials and supplies ........................... 124 214 Prepaid expenses and other ....................... (61) 362 Accounts payable and accrued expenses ............ (43) (1,359) ------- ------- Net cash flows from operating activities ........... 2,212 1,565 ------- ------- Cash Flows from Investing Activities: Purchase of property and equipment ................. (2,785) (3,294) Proceeds from sale and condemnation of property, equipment and easements ................. 1,468 175 Proceeds from deferred grant income ................ 157 352 ------- ------- Net cash flows used in investing activities ........ (1,160) (2,767) ------- ------- Cash Flows from Financing Activities: Dividends paid ..................................... (540) (536) Issuance of common shares for stock options exercised and employee stock purchases ............ 60 58 ------- ------- Net cash flows used in financing activities ........ (480) (478) ------- ------- Increase (decrease) in Cash and Equivalents ........ 572 (1,680) Cash and Equivalents, Beginning of Period .......... 1,232 2,888 ------- ------- Cash and Equivalents, End of Period ................ $ 1,804 $ 1,208 ======= ======= Supplemental Disclosures: Cash received during the period from Income tax refunds ....................................... $ 222 $ 156 ======= ======= Non-cash transactions are described in Note 2. The accompanying notes are an integral part of the financial statements. 5 PROVIDENCE AND WORCESTER RAILROAD COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (Dollars in Thousands Except Per Share Amounts) 1. In the opinion of management, the accompanying interim financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2004 and the results of operations and cash flows for the interim periods ended September 30, 2004 and 2003. Results for interim periods may not necessarily be indicative of the results to be expected for the year. These interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission. 2. 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: Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2004 2003 2004 2003 ------ ------ ------ ------ Net income available to common shareholders: As reported ............ $1,297 $ 694 $1,054 $ 574 Less impact of stock option expense ........ 9 10 26 28 ------ ------ ------ ------ Pro forma .............. $1,288 $ 684 $1,028 $ 546 ====== ====== ====== ====== Basic income per share: As reported ............. $ .29 $ .16 $ .24 $ .13 Less impact of stock option expense ........ -- .01 .01 .01 ------ ------ ------ ------ Pro forma ............... $ .29 $ .15 $ .23 $ .12 ====== ====== ====== ====== Diluted income per share: As reported ............. $ .28 $ .15 $ .23 $ .13 Less impact of stock option expense ........ -- -- -- .01 ------ ------ ------ ------ Pro forma ............... $ .28 $ .15 $ .23 $ .12 ====== ====== ====== ====== 6 3. Changes in Shareholders' Equity: Total Additional Share Preferred Common Paid-in Retained holders' Stock Stock Capital Earnings Equity ------- ------- ------- ------- ------- Balance, December 31,2003 $ 32 $ 2,229 $29,709 $36,721 $68,691 Issuance of 6,809 common shares for stock options exercised and employee stock purchases .............. 4 56 60 Issuance of 12,628 common shares to fund the Company's 2003 profit-sharing plan contribution (non-cash transaction) ........... 6 113 119 Dividends: Preferred stock, $5.00 per share ........ (3) (3) Common stock, $.12 per share .............. (537) (537) Net income for the period ................. 1,057 1,057 ------- ------- ------- ------- ------- Balance, September 30, 2004 $ 32 $ 2,239 $29,878 $37,238 $69,387 ======= ======= ======= ======= ======= 4. Other Income: Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2004 2003 2004 2003 ------ ------ ------ ------ Gains from sale, condemnation and disposal of property, equipment and easements, net ...... $1,060 $ 145 $1,081 $ 157 Rentals .............. 106 107 346 350 Interest ............. 3 1 5 8 ------ ------ ------ ------ $1,169 $ 253 $1,432 $ 515 ====== ====== ====== ====== 5. Income Per Common Share: Basic income per common share is computed using the weighted average number of common shares outstanding during each period. Diluted income per common share reflects the effect of the Company's outstanding convertible preferred stock, options and warrants except where such items would be antidilutive. A reconciliation of weighted average shares used for the basic computation and that used for the diluted computation is as follows: Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Weighted average shares for basic ............ 4,474,896 4,449,774 4,467,719 4,446,775 Dilutive effect of convertible preferred stock, options and warrants ............. 76,599 69,355 75,007 65,912 --------- --------- --------- --------- Weighted average shares for diluted .......... 4,551,495 4,519,129 4,542,726 4,512,687 ========= ========= ========= ========= 7 Options to purchase 12,559 shares of common stock were outstanding for the three and nine month periods ended September 30, 2004, and options and warrants to purchase 87,559 shares and 108,214 shares of common stock were outstanding for the three and nine month periods ended September 30, 2003 respectively, but were not included in the computation of diluted earnings per share because their effect would be antidilutive. 6. Commitments and Contingent Liabilities: The Company is a defendant in certain lawsuits relating to casualty losses, many of which are covered by insurance subject to a deductible. The Company believes that adequate provision has been made in the 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. During May of 2004 a decision was rendered in the case of George W. O'Leary v. Providence and Worcester Railroad Company, et al., C.A. No. 99-560. The jury found the Company liable for compensatory and punitive damages which, along with accrued interest through September 30, 2004, amount to approximately $330. The Company is appealing this judgment to the Rhode Island Supreme Court and has accrued a liability of $275 to provide for the possible loss. 8 7. Dividends: On October 27, 2004, the Company declared a dividend of $.04 per share on its outstanding Common Stock payable November 18, 2004 to shareholders of record November 4, 2004. 9 PROVIDENCE AND WORCESTER RAILROAD COMPANY ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ---------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MDA") which are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions, however, that actual results could differ materially from those indicated in MDA. Critical Accounting Policies - ---------------------------- The Securities and Exchange Commission ("SEC") defines critical accounting policies as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The Company's significant accounting policies are described in Note 1 of the Notes to Financial Statements in its Annual Report on Form 10-K. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. Management believes that the Company's policy for the evaluation of long-lived asset impairment is a critical accounting policy. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When 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. Results of Operations - --------------------- The following table sets forth the Company's operating revenues by category in dollars and as a percentage of operating revenues: Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ----------------------------- 2004 2003 2004 2003 ------------- ------------- -------------- -------------- (In thousands, except percentages) Freight Revenues: Conventional carloads ...... $5,829 82.9% $5,516 82.7% $15,515 83.4% $14,697 82.6% Containers ..... 831 11.8 800 12.0 2,092 11.3 2,218 12.5 Non-Freight Operating Revenues: Transportation services ...... 184 2.6 228 3.4 504 2.7 542 3.0 Other .......... 192 2.7 130 1.9 485 2.6 332 1.9 ------ ----- ------ ----- ------- ----- ------- ----- Total ........ $7,036 100.0% $6,674 100.0% $18,596 100.0% $17,789 100.0% ====== ===== ====== ===== ======= ===== ======= ===== 10 The following table sets forth a comparison of the Company's operating expenses expressed in dollars and as a percentage of operating revenues: Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ----------------------------- 2004 2003 2004 2003 ------------- ------------- -------------- -------------- (In thousands, except percentages) Salaries, wages, payroll taxes and employee benefits $3,681 52.3% $3,465 51.9% $10,356 55.7% $9,987 56.1% Casualties and insurance ...... 236 3.4 244 3.7 1,010 5.4 788 4.4 Depreciation .... 728 10.3 718 10.8 2,076 11.1 2,153 12.1 Diesel fuel ..... 306 4.3 276 4.1 839 4.5 833 4.7 Car hire, net ... 245 3.5 218 3.3 594 3.2 618 3.5 Purchased services, including legal and professional fees ........... 421 6.0 374 5.6 984 5.3 968 5.4 Repair and maintenance of equipment ...... 193 2.7 169 2.5 794 4.2 609 3.4 Track and signal materials ...... 583 8.3 700 10.5 1,188 6.4 1,771 9.9 Track usage fees. 255 3.6 190 2.8 588 3.2 533 3.0 Other materials and supplies ... 296 4.2 213 3.2 741 4.0 792 4.5 Other ........... 342 4.9 324 4.9 1,224 6.6 1,149 6.5 ------ ----- ------ ----- ------- ----- ------ ----- Total .......... 7,286 103.5 6,891 103.3 20,394 109.6 20,201 113.5 Less capitalized and recovered costs ......... 1,093 15.5 1,033 15.5 2,033 10.9 2,799 15.7 ------ ----- ------ ----- ------- ----- ------ ----- Total ........ $6,193 88.0% $5,858 87.8% $18,361 98.7% $17,402 97.8% ====== ===== ====== ===== ======= ===== ======= ===== Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003 Operating Revenues: Operating revenues increased $807,000, or 4.5%, to $18.6 million during the nine months ended September 30, 2004 from $17.8 million in 2003. This increase is the net result of an $818,000 (5.6%) increase in conventional freight revenues and a $115,000 (13.2%) increase in non-freight operating revenues partially offset by a $126,000 (5.7%) decrease in container freight revenues. The increase in conventional freight revenues is the result of a 4.1% increase in conventional carloadings and a 1.4% increase in the average revenue received per conventional carloading. The Company's conventional carloadings increased by 956 to 24,310 in the first nine months of 2004 from 23,354 carloadings in 2003. This increase in traffic volume consists of carloadings of coal, metal products and certain other commodities partially offset by a decline in carloadings of construction aggregates. The increase in the average revenue per conventional carloadings is attributable to a shift in the mix of commodities hauled as well as some modest rate increases. The decrease in container revenues is attributable to lower traffic volume as well as a decline in the average revenue received per container. Intermodal containers handled during the nine-month period decreased by 444, or .9%, to 49,273 in 2004 from 49,717 in 2003. The average revenue received per container decreased by 4.8% as a result of contractual rate adjustments and a shift in the mix of containers handled. The increase in non-freight operating revenues for the nine-month period results from an increase in maintenance department billings to customers and other outside parties. 11 Other Income: Other income increased by $917,000 to $1.4 million in the nine months ended September 30, 2004 from $515,000 in 2003. This increase is primarily the result of a $948,000 gain realized on the disposal of a portion of a branch line which the Commonwealth of Massachusetts acquired by eminent domain. Operating Expenses: Operating expenses for the nine-month period increased $959,000, or $5.5%, to $18.4 million in 2004 from $17.4 million in 2003. Operating expenses in 2004 include $185,000 of profit-sharing expense compared to $100,000 in 2003. In addition a provision of $275,000 was made in 2004 to cover the possible loss of an appeal of a lawsuit judgment against the Company. Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003 Operating Revenues: Operating revenues increased $362,000, or 5.4%, to $7.0 million in the third quarter of 2004 from $6.7 million in the third quarter of 2003. This increase is the result of a $313,000 (5.7%) increase in conventional freight revenues, a $31,000 (3.9%) increase in container freight revenues and an $18,000 (5.0%) increase in non-freight operating revenues. The increase in conventional freight revenues is the result of a 2.5% increase in carloadings and a 3.1% increase in the average revenue received per conventional carloading. The Company's conventional carloadings increased by 245 to 9,900 in the third quarter of 2004 from 9,655 carloadings in the third quarter of 2003. Increased carloadings of metal products and certain other commodities during the quarter were partially offset by decreased carloadings of other commodities, including construction aggregates and coal. The increased revenue per carload is attributable to this change in traffic mix as well as some modest rate increases. The small increase in container revenues for the quarter is attributable to a 12.0% increase in traffic volume partially offset by a 7.2% decrease in the average revenue received per container. Intermodal containers handled during the third quarter of 2004 increased by 2,096 to 19,558 from 17,462 in the third quarter of 2003. The decrease in the average revenue received per container results from contractual rate adjustments as well as a shift in the mix of containers handled. The increase in non-freight operating revenues for the quarter results from increased maintenance department billings partially offset by decreased demurrage and secondary switching charges. Revenues of this nature typically vary from period to period depending upon the needs of freight customers and other outside parties. Other Income: Other income increased by $916,000 to $1.2 million in the third quarter of 2004 from $253,000 in the third quarter of 2003. As previously noted this increase results from a gain of $948,000 which the Company realized when a portion of one of its branch lines was taken by the Commonwealth of Massachusetts by eminent domain. 12 Operating Expenses: Operating expenses increased by $335,000, or 5.7%, to $6.2 million in the third quarter of 2004 from $5.9 million in the third quarter of 2003. As previously discussed $85,000 of additional profit-sharing expense accounts for a portion of this increase. Liquidity and Capital Resources - ------------------------------- During the first nine months of 2004 the Company generated $2.2 million of cash from its operations. Total cash and equivalents increased by $572,000 for the period. The principal utilization of cash during the period, other than for operations, was for expenditures for property and equipment, of which $1.8 million was for additions and improvements to track structure, and for the payment of dividends. In management's opinion, cash generated from operations during the remainder of 2004 will be sufficient to enable the Company to meet its operating expenses and its capital expenditure and dividend requirements. Seasonality - ----------- Historically, the Company's operating revenues are lowest for the first quarter due to the absence of construction aggregate shipments during a portion of this period and to winter weather conditions. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ Cash and Equivalents As of September 30, 2004, 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 September 30, 2004. 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 should not be material. 13 Item 4. Controls and Procedures - ------------------------------- As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Treasurer. Based upon that evaluation, the Chief Executive Officer and the Treasurer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There was no significant change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company's internal control over financial reporting. PART II - Other Information - --------------------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (b) No reports on Form 8-K were filed during the quarter ended September 30, 2004. 14 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROVIDENCE AND WORCESTER RAILROAD COMPANY By: /s/ Robert H. Eder --------------------------- Robert H. Eder, Chairman of the Board and Chief Executive Officer By: /s/ Robert J. Easton --------------------------- Robert J. Easton Treasurer and Chief Financial Officer DATED: November 11, 2004 15 EXHIBIT 31.1 Providence and Worcester Railroad Company Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, ROBERT H. EDER, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Providence and Worcester Railroad Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on our evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: November 11, 2004 By: /s/ Robert H. Eder --------------------------- Robert H. Eder, Chairman of the Board and Chief Executive Officer 16 EXHIBIT 31.2 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 quarterly report on Form 10-Q of Providence and Worcester Railroad Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on our evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: November 11, 2004 By: /s/ Robert J. Easton --------------------------- Robert J. Easton Treasurer and Chief Financial Officer 17 EXHIBIT 32 PROVIDENCE AND WORCESTER RAILROAD COMPANY CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Providence and Worcester Railroad Company (the Company) on form 10-Q for the quarterly period ended September 30, 2004, 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 November 11, 2004 In connection with the Quarterly Report of Providence and Worcester Railroad Company (the Company) on form 10-Q for the quarterly period ended September 30, 2004, 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 November 11, 2004