- Quarterly Report (10-Q)

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 March 31, 2009

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 check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check one)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer X Smaller reporting company

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of May 1, 2009, the registrant has 4,805,732 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 - March 31, 2009
 (Unaudited) and December 31, 2008............................3

 Statements of Operations (Unaudited) -
 Three Months Ended March 31, 2009 and 2008...................4

 Statements of Cash Flows (Unaudited) -
 Three Months Ended March 31, 2009 and 2008...................5

 Notes to Financial Statements (Unaudited)..................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........................................13-14


 Item 4 - Controls and Procedures.....................................14

Part II - Other Information:


 Item 5 - Reports on Form 8-K.........................................14

 Item 6 - Exhibits....................................................14


Signatures.............................................................15

Part I - Financial Information

Item 1. Financial Statements

PROVIDENCE AND WORCESTER RAILROAD COMPANY

 BALANCE SHEETS
 (Dollars in Thousands Except Per Share Amounts)

ASSETS
 MARCH 31, DECEMBER 31,
 2009 2008
 (Unaudited)
 ------- -------
Current Assets:
 Cash and cash equivalents ........................... $ 873 $ 876
 Accounts receivable, net of allowance for
 doubtful accounts of $130 in 2009 and 2008 ......... 1,548 3,526
 Materials and supplies .............................. 902 1,103
 Prepaid expenses and other current assets ........... 231 442
 Deferred income taxes ............................... 309 318
 ------- -------
 Total Current Assets ............................... 3,863 6,265
Property and Equipment, net .......................... 80,714 80,787
Land Held for Development ............................ 11,958 11,958
 ------- -------
Total Assets ......................................... $96,535 $99,010
 ======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
 Accounts payable .................................... $ 2,212 $ 2,418
 Accrued expenses .................................... 1,447 1,460
 ------- -------
 Total Current Liabilities .......................... 3,659 3,878
 ------- -------
Deferred Income Taxes ................................ 11,434 12,123
 ------- -------
Deferred Grant Income ................................ 8,148 8,212
 ------- -------
Commitments and Contingent Liabilities (Note 5).......
Shareholders' Equity:
 Preferred stock, 10% noncumulative, $50 par
 value; authorized, issued and outstanding
 640 shares in 2009 and 2008 ........................ 32 32
 Common stock, $.50 par value; authorized
 15,000,000 shares; issued and outstanding
 4,805,732 shares in 2009 and 4,801,340
 shares in 2008 ..................................... 2,403 2,401
 Additional paid-in capital .......................... 36,778 36,705
 Retained earnings ................................... 34,081 35,659
 ------- -------
 Total Shareholders' Equity ......................... 73,294 74,797
 ------- -------
Total Liabilities and Shareholders' Equity ........... $96,535 $99,010
 ======= =======

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

PROVIDENCE AND WORCESTER RAILROAD COMPANY

STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in Thousands Except Per Share Amounts)

 MARCH 31, DECEMBER 31,
 2009 2008
 ------- -------
Revenues:
 Operating Revenues .................................. $ 4,941 $ 5,996
 Other Income ........................................ 145 119
 ------- -------
 Total Revenues .................................... 5,086 6,115
 ------- -------

Operating Expenses:
 Maintenance of way and structures ................... 1,257 1,374
 Maintenance of equipment ............................ 1,053 842
 Transportation ...................................... 1,970 2,251
 General and administrative .......................... 1,206 1,327
 Depreciation ........................................ 735 719
 Taxes, other than income taxes ...................... 587 616
 Car hire, net ....................................... 151 202
 Employee retirement plans ........................... 61 58
 Track usage fees .................................... 128 98
 ------- -------
 Total Operating Expenses .......................... 7,148 7,487
 ------- -------
Loss before Income Tax Benefit ....................... (2,062) (1,372)
Income Tax Benefit ................................... (680) (450)
 ======= =======
Net Loss ............................................. (1,382) (922)

Preferred Stock Dividends ............................ 3 3
 ------- -------
Net Loss Attributable to Common Shareholders ......... $(1,385) $ (925)
 ======= =======

Basic and Diluted Loss Per Common Share .............. $ (.29) $ (.19)
 ======= =======

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

PROVIDENCE AND WORCESTER RAILROAD COMPANY

STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)

 Three Months Ended March 31,
 2009 2008
 ------- ------
Cash Flows from Operating Activities:
Net loss ............................................. $(1,382) $ (922)
Adjustments to reconcile net loss to net cash
 flows from (used in) operating activities:
 Depreciation ........................................ 735 719
 Amortization of deferred grant income ............... (64) (63)
 Gains from sale and disposal of property,
 equipment and easements, net ....................... (11) --
 Deferred income taxes benefit ....................... (680) (450)
 Share-based compensation ............................ 56 68
 Increase (decrease) in cash from:
 Accounts receivable ................................ 1,978 (354)
 Materials and supplies ............................. 201 153
 Prepaid expenses and other current assets .......... 211 (27)
 Accounts payable and accrued expenses .............. (148) (388)
 ------- ------
Net cash flows from (used in) operating
 activities .......................................... 896 (1,264)
 ------- ------

Cash flows from Investing Activities:
Purchase of property and equipment ................... (733) (554)
Proceeds from sale of property, equipment and
 easements ........................................... 11 --
 ------- ------
Net cash flows used in investing activities .......... (722) (554)
 ------- ------

Cash Flows from Financing Activities:
Dividends paid ....................................... (196) (195)
Payments of borrowings under line of credit .......... -- (900)
Issuance of common shares to GATX Corporation ........ -- 5,509
Issuance of common shares for stock options
 exercised and employee stock purchases .............. 19 18
Proceeds from deferred grant income .................. -- 166
 ------- ------
Net cash flows (used in) from financing
 activities .......................................... (177) 4,598
 ------- ------

(Decrease) Increase in Cash and Cash
 Equivalents ......................................... (3) 2,780
Cash and Cash Equivalents, Beginning of
 Period .............................................. 876 181
 ------- ------
Cash and Cash Equivalents, End of Period ............. $ 873 $ 2,961
 ======= =======

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

PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO FINANCIAL STATEMENTS (Unaudited)

THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Dollars in Thousands Except Per Share Amounts)

1. In the opinion of management, the accompanying interim financial statements of the Providence and Worcester Railroad Company (the "Company") contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2009 and the results of operations and cash flows for the three months ended March 31, 2009 and 2008. Results for interim periods may not be necessarily 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, 2008 filed with the Securities and Exchange Commission.

2. Recent Accounting Pronouncements:

In December 2007 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51", ("SFAS No. 160"). SFAS No. 160 was issued to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. SFAS No. 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS No. 160 on January 1, 2009. The adoption of SFAS No. 160 did not have any impact on its Financial Statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"). SFAS No. 141R establishes principles and requirements for how the acquirer in a business combination should recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, recognize and measure the goodwill acquired in the business combination or a gain from a bargin purchase and determine what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of SFAS No. 141(R) shall be applied prospectively to business combinations with acquisition dates on or after the beginning of the first annual reporting period in which it is initially applied. SFAS No. 141(R) is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS No. 141(R) on January 1, 2009. The adoption of SFAS No. 141(R) did not have any impact on its Financial Statements.

In April 2008, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise form Contingencies" which amends and clarifies SFAS No. 141(R), "Business Combinations", to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS
141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted FSP FAS 141(R)-1 on January 1, 2009. The adoption of FSP FAS 141(R)-1 did not have any impact on its Financial Statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement ("SFAS No. 157")." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS No. 157-2, "Effective Date of FASB Statement No. 157" that partially deferred the effective date of SFAS No. 157 for one year for non-financial assets and non- financial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. SFAS No. 157 does not require any new fair value measurements, rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. Notwithstanding the effective date deferral discussed above, SFAS No. 157-2 was adopted on January 1, 2008. The Company adopted the provision of FSP SFAS No. 157-2 regarding non-financial assets and non-financial liabilities on January 1, 2009 and it did not have a material impact on its Financial Statements.

3. Changes in Shareholders' Equity:

 Total
 Additional Share
 Preferred Common Paid-in Retained holders'
 Stock Stock Capital Earnings Equity
 ------- ------- ------- ------- -------
 Balance December 31,2008 .$ 32 $ 2,401 $36,705 $35,659 $74,797
 Issuance of 4,392
 common shares for
 employee stock
 purchases, stock
 options exercised and
 employee stock awards ... 2 48 50
 Share-based
 compensation,
 options granted ......... 25 25
 Dividends:
 Preferred stock,
 $5.00 per share ......... (3) (3)
 Common stock, $.04
 per share ............... (193) (193)
 Net loss for the
 period .................. (1,382) (1,382)
 ------- ------- ------- ------- -------

 Balance March 31,2009 ....$ 32 $ 2,403 $36,778 $34,081 $73,294
 ======= ======= ======= ======= =======

4. Revolving Line of Credit:

The Company has a revolving line of credit with its principal bank in the amount of $5,000 expiring May 31, 2009. 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 and has no compensating balance requirements. No borrowings have been outstanding under this line since January 2008. The Company is currently engaged in negotiations with its principal bank, as well as other banks, to renew or replace this line.

5. Other Income:
 2009 2008
 ---- ----
 Gains from sale and disposal of
 property, equipment and easements,
 net .............................. $ 11 $ --
 Rentals ........................... 133 104
 Interest .......................... 1 15
 ---- ----
 $145 $119
 ==== ====

6. Loss per Common Share:

Basic loss per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted loss per common share reflects the effect of the Company's outstanding convertible preferred stock and stock options except where such items would be anti-dilutive.

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

 2009 2008
 --------- ---------
Weighted-average shares for basic ...... 4,803,010 4,769,462
Dilutive effect of convertible preferred
 stock and stock options ............... -- --
 --------- ---------
Weighted-average shares for diluted .... 4,803,010 4,769,462
 ========= =========

Preferred Stock convertible into 64,000 shares of Common Stock at the rate of 100 shares of Common Stock for each one share of Preferred Stock was outstanding during the quarters ended March 31, 2009 and 2008. In addition, options to purchase 51,960 and 48,833 shares of common stock were outstanding during the quarters ended March 31, 2009 and 2008, respectively. These Common Stock equivalents were not included in the computation of the diluted loss per share in either of the quarters because their effect would be anti-dilutive.

7. 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 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). On December 15, 2003, the EPA issued a second "Notice of Potential Liability" letter to the Company regarding the Site. EPA again identified the Company as a PRP, this time because EPA "believes that [the Company] accepted hazardous substance for transport to disposal or treatment facilities and selected the site for disposal." The Company responded again to EPA stating that it is interested in cooperating with EPA but that it does not believe it has engaged in any activities that caused contamination at the Site. The Company believes that none of its activities caused contamination at the Site, and will contest this claim by EPA and therefore no liability has been accrued for this matter.

In connection with the EPA claim described above, the two parties who have committed to conduct the RI/FS at the Site filed a complaint in the U.S. District Court of Rhode Island against the Company, in an action entitled CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al (consolidated with Unilever Bestfoods v. American Steel & Aluminum Corp. et al), C.A. No. 01-496/L, on December 18, 2002. The Company was one of about sixty parties named by Plaintiffs, in this suit, to recover response costs incurred in investigating and responding to the releases of hazardous substances at the Site. Plaintiffs alleged that the Company is liable under 42 U.S.C. section 961(a)(3) of CERCLA as an "arranger" or "generator" of waste that ended up at the Site. The Company entered into a Generator Cooperation Agreement with other defendants to allocate costs in responding to this suit, and to share technical costs and information in evaluating the Plaintiffs' claims. Although the Company does not believe it generated any waste that ended up at this Site, or that its activities caused contamination at the Site, the Company paid $45 to settle this suit in March 2006.

8. Dividends:

On April 29, 2009, the Company declared a dividend of $.04 per share on its outstanding Common Stock payable May 26, 2009 to shareholders of record May 11, 2009.

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 meets the SEC definition of critical.

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.

Recent Accounting Pronouncements

In April 2008, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise form Contingencies" which amends and clarifies SFAS No. 141(R), "Business Combinations", to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted FSP FAS
141(R)-1 on January 1, 2009. The adoption of FSP FAS 141(R)-1 did not have any impact on its Financial Statements.

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 March 31,
 -----------------------------------
 2009 2008
 -----------------------------------
 (In thousands, except percentages)
Freight Revenues:
 Conventional carloads ....... $4,402 89.1% $5,279 88.0%
 Containers .................. 255 5.2 369 6.2
 Other freight related ....... 187 3.8 235 3.9
Other operating revenues ...... 97 1.9 113 1.9
 ------ ----- ------ -----
 Total .................... $4,941 100.0% $5,996 100.0%
 ====== ===== ====== =====

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

 Three Months Ended March 31,
 -----------------------------------
 2009 2008
 -----------------------------------
 (In thousands, except percentages)
Salaries, wages, payroll taxes
 and employee benefits ........ $3,852 78.0% $3,937 65.7%
Casualties and insurance ...... 221 4.5 225 3.8
Depreciation .................. 735 14.9 719 12.0
Diesel fuel ................... 427 8.6 705 11.7
Car hire, net ................. 151 3.0 202 3.4
Purchased services, including
 legal and professional fees .. 485 9.8 508 8.5
Repair and maintenance of
 equipment .................... 572 11.6 308 5.1
Track and signal materials .... 282 5.7 274 4.6
Track usage fees .............. 128 2.6 98 1.6
Other materials and supplies .. 290 5.9 297 4.9
Other ......................... 498 10.1 476 7.9
 ------ ----- ------ -----
 Total ....................... 7,641 154.7 7,749 129.2
 Less capitalized and
 recovered costs ............ 493 10.0 262 4.3
 ------ ----- ------ -----
 Total .................... $7,148 144.7% $7,487 124.9%
 ====== ===== ====== =====

Operating Revenues:

Operating revenues decreased $1.1 million, or 17.6%, to $4.9 million in the first quarter of 2009 from $6.0 million in the first quarter of 2008. This decrease is the combined result of an $877,000 (16.6%) decrease in conventional freight revenues, a $114,000 (30.9%) decrease in container freight revenues, a $48,000 (20.4%) decrease in other freight related revenues and a $16,000 (14.2%) decrease in other operating revenues.

The decrease in conventional freight revenues is attributable to an 18.9% decline in traffic volume offset, to a small degree, by a 2.8% increase in the average revenue received per conventional carloading. The Company's conventional carloadings decreased by 1,106 to 4,757 in the first quarter of 2009 from 5,863 in 2008.

Shipments of most commodities handled by the Company decreased during the first quarter of 2009. This decline is primarily attributable to the current state of the United States and world economies and is consistent with the experience of other railroads in North America. The modest increase in the average revenue received per conventional carloading is the combined result of a shift in the mix of commodities, as well as some rate increases. While the Company's traffic volume has begun to improve during the second quarter of 2009 management cannot predict if and when economic conditions will improve enough to enable the Company to return to profitable operations.

The decrease in container freight revenues is the result of a 38.2% decline in traffic volume partially offset by an 11.8% increase in the average revenue received per container. Container traffic volume decreased by 2,267 containers to 3,667 in the first quarter of 2009 from 5,934 in 2008. This decline in traffic continues a trend which began in 2007 in which cross country container traffic to the East Coast has been shifted from rail to all water routes. Current economic conditions have further added to this decline in traffic. The increase in the average revenue received per container is attributable to a change in the mix of traffic toward higher rated containers as well as contractual rate adjustments based upon railroad industry cost indices.

The decrease in other freight-related revenues is the result of a decrease in demurrage billings. The decrease in demurrage revenue is consistent with the decrease in conventional traffic volume and the related decline in net car hire expense.

The decrease in other operating revenues reflects lower maintenance department billings for services rendered to freight customers and other outside parties.

Other Income:

Increased rental income received accounted for most of the $26,000 increase in other income realized during the quarter.

Operating Expenses:

Operating expenses for the first quarter of 2009 decreased by $339,000, or 4.5%, to $7.1 million from $7.5 million in the first quarter of 2008. More than eighty percent of this decrease consists of a $278,000 decrease in the cost of diesel fuel due to declining prices of petroleum products as well as decreased usage due to the reduced traffic volume. Decreases in other operating expenses were somewhat offset by increased locomotive repair and maintenance costs.

Income Tax Benefit:

The income tax benefit for the first quarter of 2009 and 2008 is approximately 33% of the pre-tax loss. This is the effective benefit which the Company expects to realize on any net operating losses which it may incur.

Liquidity and Capital Resources

During the first quarter of 2009 the Company's operations generated $896,000 of cash. Total cash and cash equivalents, however, remained virtually unchanged from the beginning of the quarter. The principal uses of cash, other than for operations, were for capital expenditures and the payments of dividends.

The Company intends to extend the five million revolving dollar line of credit with its principal bank that is due to expire on May 31, 2009, and is currently engaged in the negotiation of terms for such an extension with several Banks. If for some reason the Company should not be successful in renewing or replacing this credit line management believes that cash generated from operations during the remainder of the year will be sufficient to fund its operations, capital additions 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 March 31, 2009, 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 March 31, 2009. 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.

The Company purchases in excess of one million gallons of diesel fuel each year to operate its locomotives. The Company does not hedge its diesel fuel purchases but has been able to mitigate the impact of increased diesel fuel prices through the imposition of diesel fuel surcharges on the freight rates charged to customers.

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 have 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 5. Reports on Form 8-K

(a)No reports on Form 8-K were filed during the quarter ended March 31, 2009.

Item 6. Exhibits

(31.1) Rule 13a-14(a) Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(31.2) Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32) Certifications of Chairman of the Board and Chief Executive Officer and Treasurer and Principal Financial Officer pursuant to 18 U.S.C
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 Principal
 Financial Officer


DATED: May 14, 2009

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: May 14, 2009
 By: /s/ Robert H. Eder
 ----------------------------
 Robert H. Eder
 Chairman of the Board
 and Chief Executive Officer

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;

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: May 14, 2009
 By: /s/ Robert J. Easton
 ----------------------------
 Robert J. Easton
 Treasurer and Principal
 Financial Officer

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 March 31, 2009, 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. section 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
May 14, 2009

In connection with the Quarterly Report of Providence and Worcester Railroad Company (the Company) on form 10-Q for the quarterly period ended March 31, 2009, 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. section 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
May 14, 2009

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