UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

For the quarterly period ended September 30, 2013

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)

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 has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such fields).    Yes  x    No  ¨

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

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

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

As of November 1, 2013, the registrant had 4,847,549 shares of common stock, par value $.50 per share, outstanding.

PROVIDENCE AND WORCESTER RAILROAD COMPANY

Index to Quarterly Report on Form 10-Q

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Part I – Financial Information

Item 1. Financial Statements

PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED BALANCE SHEETS

(Dollars in Thousands Except Per Share Amounts)

(Unaudited)

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

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF OPERATIONS

(Dollars in Thousands Except Per Share Amounts)

(Unaudited)

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

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

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

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

(Dollars in Thousands Except Per Share Amounts)

The Company reviews new accounting standards as issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any standards that it believes merit further discussion. The Company expects none of the recent accounting pronouncements will have a significant impact on its financial statements.

Revolving Line of Credit

The Company has a revolving line of credit facility in the amount of $5,000 from a commercial bank expiring on June 25, 2015. Borrowings under this line of credit are unsecured, due on demand and bear interest at either the bank’s prime rate or one and three-quarters percent over the thirty, sixty or ninety day London Interbank Offered Rate (“LIBOR”) with a LIBOR floor of one

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

and one-quarter percent. The Company pays no commitment fee on this line of credit and has no compensating balance requirements. It is subject to financial and non-financial covenants including maintenance of a minimum net worth and restrictions as to the incurrence of additional indebtedness, as well as the sale or encumbrance of its assets. At September 30, 2013 and December 31, 2012, no amounts were outstanding.

Basic income (loss) per common share is computed using the weighted-average number of common shares outstanding during each period. Diluted income (loss) per common share reflects the effect of the Company’s outstanding convertible preferred stock and stock options except where such items would be antidilutive.

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

Options to purchase 68,974 shares of common stock were outstanding at September 30, 2013. Options to purchase 65,508 shares of common stock were outstanding at September 30, 2012. For the nine month period ended September 30, 2013 and the three month period ended September 30, 2012, 10,746 and 4,085, respectively, of outstanding options to purchase common stock were not included in the diluted earnings per share (EPS) as the effect would antidilutive. For the three month period ended September 30, 2013, 14,373 of outstanding options to purchase common shares were included in the computation of diluted earnings per share (EPS), and for the nine month period ended September 30, 2012, 4,944 of outstanding options to purchase common shares were included in the computation of diluted earnings per share (EPS). The remaining outstanding options to purchase common stock were not included in the computation of diluted EPS because the options exercise price was greater than the average market prices of the Company’s common stock.

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 for the three and nine-month periods ended September 30, 2013 and 2012. For the three month period ended September 30, 2013 and for the nine month period ended September 30, 2012, 64,000 shares of the Company’s common stock were included in the diluted EPS. For the nine period ended September 30, 2013 and the three month period ended September 30, 2012, the 64,000 shares of the Company’s common stock were not included as the effect would be antidilutive.

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

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 (“the Site”) that includes the J.M. Mills Landfill in Cumberland, Rhode Island. EPA sends these “Notice” letters to potentially responsible parties (“PRPs”) under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). EPA identified the Company as a PRP based on its status as an owner and/or operator because its railroad property traverses the Site. Via these Notice letters, EPA makes a demand for payment of past costs (identified in the letter as $762) and future costs associated with the response actions taken to address the contamination at the Site, and requests PRPs to indicate their willingness to participate and resolve their potential liability at the Site. The Company has responded to EPA by stating that it does not believe it has any liability for this Site, but that it is interested in cooperating with EPA to address issues concerning liability at the Site. 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. § 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 thousand to settle this suit in March 2006.

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

In January 2013, the Company entered into a license for the use of the Company’s right of way to an unrelated party for a twenty-five (25) year period, commencing March 11, 2013. The Company received the rental payments of $927 in advance. The Company will amortize $37 per annum into rental income during the 25 year term which expires in April 2038.

On April 4, 2012, the Company and National Railroad Passenger Corporation (“Amtrak”) entered into the 2012 Settlement and Amendment Agreement (the “2012 Agreement”) which settles certain disputes between the parties and amends, in part, both an Agreement dated January 3, 1978 (the “1978 Agreement”) and an Agreement dated July 9, 1979 by and between Amtrak and the Company. Under the 1978 Agreement, Amtrak obtained the right to remove the Company certain trackage subject to the requirement of providing replacement facilities.

Pursuant to the Agreement, the Company received a credit for mileage travelled along the Northeast Corridor. The Company will recognize the expense offset relative to Track Usage Fees as the expenses are incurred. As such, the Company did not record any related assets or liabilities relative to the mileage credit at the date of the settlement. The Company has recorded the following offsets to Track Usage expense and has the following track mileage credit remaining:

Robert Eder, who owns a majority of the Company’s Preferred Shares, with his wife, also controls Capital Properties, Inc. (“CPI”) and its subsidiaries. Pursuant to an agreement between the Company and Getty Oil Company (Eastern Operations), Inc. dated August 6, 1975, the Company has the right to relocate any portion of two pipelines located within the Company’s right of way, in East Providence, Rhode Island. The Company and CPI have supported an extension of Waterfront Drive, so-called, in East Providence, which road is being constructed on the Company’s right of way. The State of Rhode Island’s plans for Waterfront Drive’s extension required a relocation of a portion of the pipelines which the Company has the right to relocate. The Rhode Island Department of Transportation (“RIDOT”) entered into an agreement with the Company to reimburse the Company for expenses incurred by it in relocating the pipelines up to a maximum of $159. In May 2011, CPI’s subsidiary, Capital Terminal Company (“CTC”), entered into an agreement with the Company to act as the Company’s agent to select, direct and supervise all subcontractors subject to the Company’s approval. All invoices from contractors to CTC are submitted to the Company for approval along with a check from CTC in the amount of the invoice. The Company pays the invoice out of the funds provided by CTC. The Company is then obligated to submit the invoices to RIDOT for reimbursement under its agreement with RIDOT. When the Company receives reimbursement from RIDOT, it is obligated to pay that amount to CTC. Any shortfall in RIDOT’s reimbursement is borne by CTC. The Company has received invoices to date of $219, which have been paid by the Company to the subcontractors out of funds received from CTC. CTC, through subcontractors, completed the pipeline relocation

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

NOTES CONDENSED TO FINANCIAL STATEMENTS (Unaudited) — (Continued)

(Dollars in Thousands Except Per Share Amounts)

during 2011. At September 30, 2013 and December 31, 2012, respectively, the remaining receivable in the amount of $22 from RIDOT, and the corresponding accounts payable to CTC have been reflected in the Company’s Condensed Balance Sheets.

In May 2012 the Company and CPI entered into a License Agreement licensing to CPI track facilities which may be installed in connection with a railcar-loading/unloading facility up the Company’s right-of-way in East Providence, Rhode Island. The License Agreement continues through December 31, 2015, and may be extended for additional three-year periods unless cancelled by CPI upon 30-days written notice prior to termination.

On October 30, 2013, the Company declared a dividend of $.04 per share on its outstanding Common Stock payable November 27, 2013 to shareholders of record on November 13, 2013.

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PROVIDENCE AND WORCESTER RAILROAD COMPANY

ITEM 2-MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MDA”) which are not historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company’s present expectations or beliefs concerning future events. The Company cautions, however, that actual results could differ materially from those indicated in MDA. The following discussion should be read in conjunction with the Condensed Financial Statements and applicable notes to the Condensed Financial Statements, Item 1. The Company does not undertake the obligation to update forward-looking statements in response to new information, future events or otherwise.

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. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and during the first nine months of 2013.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, including, without limitations, statements concerning the conditions in our industry and our operations, economic performance and financial condition, including, in particular, statements relating to our business and strategy. The words “may,” “might,” “should,” “estimate,” “project,” “plan,” “anticipate,” “expect,” “intend,” “outlook,” “believe,” and other similar expressions are intended to identify forward-looking statements and information although not all forward-looking statements include these identifying words. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties.

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In particular, our business might be affected by uncertainties affecting the railroad and transportation industry generally as well as the following, among other factors:

Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any standards that it believes merit further discussion. The Company expects none of the recent accounting pronouncements will have a significant impact on its financial statements.

Results of Operations

The following table sets forth the Company’s operating revenues, exclusive of rental operating revenues of $157 and $167 during the three months ended September 30, 2013 and 2012, respectively, and $487 and $427 during the nine months ended September 30, 2013 and 2012, respectively, by category in dollars and as a percentage of operating revenues:

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

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

Operating Revenues:

Operating revenues increased $1.5 million, or 6.6%, to $24.1 million in the nine months ended September 30, 2013 from $22.6 million in 2012. This increase is the result of a $2.2 million (11.3%) increase in conventional freight revenues, a $101,000 (22.5%) increase in other freight-related revenues, and a $150,000 (17.3%) increase in container freight revenues, offset by a $1.0 million (67.2%) decrease in other operating revenues.

The increase in conventional freight revenues results from a 9.9% increase in traffic volume and a 1.0% increase in the average revenue received per conventional carload. The Company’s conventional carloads increased by 2,320 to 25,706 in the nine-month period ended September 30, 2013 from 23,386 in 2012.

The number of shipments of most commodities handled by the Company was substantially constant except for increases in stone and ethanol shipments during the first nine months of 2013. The increase in the average revenue received per conventional carload is due to a shift in the mix of commodities, as well as some rate changes.

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The increase in container freight revenues is the result of a 19.4% increase in traffic volume, offset by a 1.1% decrease in the average revenue received per container. Container traffic volume increased 2,306 to 14,214 in the first nine months of 2013 from 11,908 containers in 2012. This increase in traffic results from improved economic conditions while the decrease in average revenue received per container is primarily due to a shift in the mix of containers.

The increase in other freight-related revenues results from the MBTA locomotive repairs performed by the Company while the decrease in other operating revenues is due to less maintenance department billings for services rendered to freight customers and other outside parties.

Operating Expenses:

Operating expenses for the nine-month period ended September 30, 2013 were $24.7 million. Exclusive of the Amtrak Agreement offsetting $3 million of Maintenance of Way during 2012, operating expenses increased $77 thousand or 3%. The increase is attributable mainly to increases in depreciation ($91 thousand), diesel fuel ($149 thousand), repairs and maintenance of equipment ($203 thousand), and other expenses ($183 thousand). These increases were offset in part by decreases in purchased services ($131 thousand) and track and signal materials ($580 thousand).

The Company’s track usage fees were reduced by $587 and $320 thousand for the nine month period ended September 30, 2013 and 2012, respectively, as a result of the utilization of a portion of the available mileage credit received pursuant to the Amtrak Agreement. The mileage credit utilized is reflected in the line item capturing capitalized and recovered costs. The Company has $1,407 million of credit remaining to offset future mileage charges for use of Amtrak’s Northeast Corridor.

Provision for Income Taxes (Benefit):

The income tax (benefit) for the nine months ended September 30, 2013 and 2012 is equal to 2100% and (20)% of the pre-tax income. This effective rate reflects the federal income tax rate adjusted by the effect of non deductible expenses and state taxes. The estimated annual rate does not agree with statutory rate due to changes in the valuation allowance the Company had previously established against its deferred tax assets based upon the Company’s analysis of the Company’s reversal pattern of taxable temporary differences.

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

Operating Revenues:

Operating revenues increased $0.9 million, or 11.5%, to $8.7 million in the third quarter of 2013 from $7.8 million in the third quarter of 2012. The increase is the result of a $1.2 million (17.9%) increase in conventional freight revenues, a $75,000 (25.1%) increase in container freight revenues, and a $69,000 (37.3%) increase in other freight related revenue, offset by a $454,000 (75.2%) decrease in other operating revenues.

The increase in conventional freight revenues results from a 21.1% increase in conventional traffic volume, offset by a 3.6% decrease in the average revenue received per conventional carload. Conventional carloads increased by 1,710 to 9,800 in the third quarter of 2013 from 8,090 in the third quarter of 2012. The reason for the increase in conventional traffic is primarily due to increased stone shipments while the decrease in average revenue received per carload is due to a shift in the mix of carloads.

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The increase in container freight revenues for the quarter is the result of a 27.1% increase in traffic volume, offset by a 1.5% decrease in the average revenue received per container. Container traffic volume increased by 1,111 to 5,211 in the third quarter of 2013 from 4,100 in the third quarter of 2012. Reasons for the increase in traffic volume and the decrease in the average revenue received per container during the third quarter are the same as for the nine-months period ended September 30, 2013, as previously discussed.

Reasons for the increase in other freight-related revenues and decrease in other operating revenues are also the same as for the nine-month period ended September 30, 2013, as previously discussed.

Operating Expenses:

Operating expenses for the three-month period ended September 30, 2013 were $8.3 million, about the same as that for the three-month period ended September 30, 2012. The Company utilized $282 and $173 thousand of the track usage fee offsets obtained via the Amtrak Agreement in the third quarter of 2013 and 2012, respectively. Changes in operating expenses for the quarter are attributable mainly to increases in payroll related expense ($120 thousand), depreciation ($35 thousand), diesel fuel ($175 thousand), and purchased services ($102 thousand), offset in part by decreases in casualty expense ($145 thousand) and track and signal materials ($361 thousand).

As noted above, the Company’s track usage fees were reduced by $282 thousand as a result of the utilization of a portion of the available mileage credit received under the Amtrak Agreement. The Company has $1,407 million of credit remaining to offset future mileage charges for use of Amtrak’s Northeast Corridor.

Provision for Income Taxes:

The income tax provision for the third quarter of 2013 and 2012 is equal to 11% and (154%) of pre-tax income (loss). This effective rate reflects the federal income and state tax rates increased by the effect of an increase in the valuation allowance against tax credit carryovers that are reserved based upon the reversal pattern of the Company’s deferred tax assets and liabilities.

Liquidity and Capital Resources

During the nine months ended September 30, 2013, the Company generated $3.4 million of cash from operating activities, used $3.0 million in investing activities and $174 thousand in financing activities.

On October 30, 2013, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on November 27, 2013. The declaration of future dividends and the amount thereof will depend on the Company’s future earnings, financial factors and other events.

The Company executed its funding requests for its assignment of Internal Revenue Code Section 45G tax credits. The Company expects this assignment will net the Company approximately $1.8 million (pre-tax) by December 31, 2013.

The Company has a revolving line of credit facility in the amount of $5 million from a commercial bank expiring on June 25, 2015. At September 30, 2013, no amounts were outstanding.

Item 4. Controls and Procedures

Our management with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a–15(e)

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and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

There was no significant change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting. The Company continues to enhance its internal controls over financial reporting, primarily by evaluating and enhancing process and control documentation. Management discusses with and discloses these matters to the Audit Committee of the Board of Directors and the Company’s auditors.

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PART II – Other Information

None.

101 The following financial information from the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2013, filed with the Securities and Exchange Commission on November 13, 2013, formatted in eXtensible Business Reporting Language:

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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.

DATED: November 13, 2013

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