SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 2007
Commission File Number 1-5447
PITTSBURGH & WEST VIRGINIA RAILROAD
(Exact name of registrant as specified in its charter)
Pennsylvania 25-6002536
(State of organization) (I.R.S. Employer Identification No.)
#2 Port Amherst Drive, Charleston, WV 25306-6699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (304) 926-1124
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Shares of beneficial interest, American Stock Exchange
without par value
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes X No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act Yes No X
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer,
accelerated filer, small reporting company, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer X Small Reporting Company _____
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act. Yes No X
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 29, 2008 was $ 14,161,927.
At February 29, 2008, there were 1,510,000 outstanding shares of beneficial
interest.
Notices and communications from the Securities and Exchange Commission for the
registrant may be sent to Robert R. McCoy, Vice President and
Secretary-Treasurer, #2 Port Amherst Drive, Charleston, WV 25306.
The information required by Part III hereof is incorporated by reference from
Registrant's Proxy Statement, which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 2007.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PITTSBURGH & WEST VIRGINIA RAILROAD
By /s/ Robert R. McCoy
Robert R. McCoy
Vice President and Secretary-Treasurer
Date: March 24, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Herbert E. Jones, Jr. /s/ Herbert E. Jones, III
Herbert E. Jones, Jr. Herbert E. Jones, III
Chairman of the Board and Trustee President and Trustee
Date: March 24, 2008
Audited Financial Statements
Pittsburgh & West Virginia Railroad
Years Ended December 31, 2007 and 2006
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm F-2
Financial Statements:
Balance Sheet F-3
Statement of Operations F-4
Statement of Changes in Shareholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7 - F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders
Pittsburgh & West Virginia Railroad
We have audited the accompanying balance sheet of Pittsburgh & West
Virginia Railroad, a Pennsylvania business trust (the Trust), as of
December 31, 2007 and 2006, and the related statements of operations,
changes in shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 2007. These financial statements are
the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The
company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
company's internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pittsburgh & West
Virginia Railroad as of December 31, 2007 and 2006, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
s/ Gibbons & Kawash
Charleston, West Virginia
March 24, 2008
F-2
PITTSBURGH & WEST VIRGINIA RAILROAD
BALANCE SHEET
December 31, 2007 and 2006
ASSETS 2007 2006
Cash 44,270 49,389
Net investment in capital lease $ 9,150,000 $ 9,150,000
$ 9,194,270 $ 9,199,389
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity:
Shares of beneficial interest, without
par value:
Authorized number of shares - unlimited;
issued and outstanding - 1,510,000
shares at December 31, 2006 and 2005 9,145,359 9,145,359
Retained earnings 48,911 54,030
9,194,270 9,199,389
The accompanying notes are an integral part
of these financial statements.
F-3
PITTSBURGH & WEST VIRGINIA RAILROAD
STATEMENT OF OPERATIONS
Years Ended December 31, 2007, 2006, 2005
2006 2005 2004
Interest income from capital lease $ 915,000 $ 915,000 $ 915,000
Less general and administrative
expenses 134,919 125,804 134,763
Net income $ 780,081 $ 789,196 $ 780,237
Per share:
Net income $ 0.52 $ 0.52 $ 0.52
The accompanying notes are an integral part
of these financial statements.
F-4
PITTSBURGH & WEST VIRGINIA RAILROAD
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 2007, 2006, and 2005
Shares of
Beneficial Retained
Interest Earnings
Balance at December 31, 2004 $ 9,145,359 $ 54,997
Net income - 780,237
Cash dividends paid ($.52 per share) - (785,200)
Balance at December 31, 2005 9,145,359 50,034
Net income - 789,196
Cash dividends paid ($.52 per share) - (785,200)
Balance at December 31, 2006 9,145,359 54,030
Net income - 780,081
Cash dividends paid ($.52 per share) - (785,200)
Balance at December 31, 2007 $ 9,145,359 $ 48,911
The accompanying notes are an integral part
of these financial statements.
F-5
PITTSBURGH & WEST VIRGINIA RAILROAD
STATEMENT OF CASH FLOWS
Years Ebded December 31, 2007, 2006 and 2005
2007 2006 2005
Cash flows from operating activities:
Net income $ 780,081 $ 789,196 $ 780,237
Adjustments to reconcile net
income to net cash provided by
operating activities:
Decrease in accounts payable
and accrued liabilities - (8,950) -
Net cash provided by
operating activities 780,081 780,246 780,237
Cash flows used in financing activities
Dividends paid (785,200) (785,200) (785,200)
Net increase (decrease)
in cash (5,119) (4,954) (4,963)
Cash, beginning of year 49,389 54,343 59,306
Cash, end of year $ 44,270 $ 49,389 $ 54,343
The accompanying notes are an integral part
of these financial statements.
F-6
PITTSBURGH & WEST VIRGINIA RAILROAD
NOTES TO FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Pittsburgh & West Virginia Railroad (the Trust) is a business trust
organized under the laws of Pennsylvania on February 18, 1967, for the
purpose of leasing railroad properties to Norfolk Southern Corporation.
The leased properties consist of a railroad line 112 miles in length,
extending from Connellsville, Washington, and Allegheny Counties in the
Commonwealth of Pennsylvania, Brooke County in the State of West Virginia,
and Jefferson and Harrison Counties in the State of Ohio, to Pittsburgh
Junction, Harrison County, State of Ohio. There are also branch lines
that total 20 miles in length located in Washington County and Allegheny
County in Pennsylvania and Brooke County, West Virginia. The lease
provides the Trust's source of revenue, which is received in quarterly
installments.
Revenue Recognition
Interest on the capital lease is earned based on an implicit rate of
10% over the life of the lease which is assumed to be perpetual.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
2 - CAPITAL LEASE
Under the terms of a lease which became effective October 16, 1964
(the "lease"), Norfolk Southern Corporation (formerly Norfolk and Western
Railway Company) (Norfolk Southern) - (the "lessee") leased all of
Pittsburgh & West Virginia Railroad's (the "Trust") real properties,
including its railroad lines, for a term of 99 years, renewable by the
lessee upon the same terms for additional 99-year terms in perpetuity.
The lease provides for a cash rental of $915,000 per annum for the current
99 year lease period and all renewal periods. The leased properties are
maintained entirely at Norfolk Southern's expense.
F-7
PITTSBURGH & WEST VIRGINIA RAILROAD
NOTES TO FINANCIAL STATEMENTS
(Continued)
2 - CAPITAL LEASE (Continued)
Prior to 1983, the lease was accounted for as an operating lease in
accordance with the Statement of Financial Accounting Standards (SFAS)
No. 13, "Accounting for Leases," because the railroad assets as accounted
for under "betterment accounting" were considered similar to land.
Effective January 1, 1983, the Interstate Commerce Commission (ICC)
changed the method of accounting for railroad companies from "betterment
accounting" (which was previously used by the Trust and most railroads) to
"depreciation accounting." The leased assets, under "depreciation
accounting," are no longer similar to land; and, effective January 1, 1983,
under the provisions of Statement No. 13, the lease is considered a capital
lease and the property deemed sold in exchange for rentals receivable under
the lease. The lease may be terminated by the lessee either by expiration
of the initial or any renewal term, or by default of Norfolk Southern. In
the event of termination, Norfolk Southern is obligated to return to the
Trust all properties covered by the lease, together with sufficient cash
and other assets to permit operation of the railroad for a period of one
year, and to settle the noncash settlement account described in Note 3.
The Trust has determined that the lease term is perpetual based on
these substantial penalties to the lessee upon nonrenewal. Accordingly,
as of January 1, 1983, the rentals receivable of $915,000 per annum,
recognizing renewal options by the lessee in perpetuity, were estimated
to have a present value of $9,150,000, assuming an implicit interest rate
of 10%.
3 - NONCASH RENTAL SETTLEMENT
Under the terms of the lease, a noncash settlement account is
maintained to record amounts due to or due from Norfolk Southern upon
termination of the lease. The amount is credited with noncash rent
equivalent to: (a) the deductions allowable to the Trust, for tax
purposes for depreciation, amortization or retirements of the leased
properties and amortization of debt discount and expense; and (b) all
other expenses of the Trust, except those incurred for the benefit of
the shareholders. The settlement account is charged with the cost of
capital asset acquisitions and expenses of the Trust paid for by Norfolk
Southern on behalf of the Trust.
At December 31, 2007 and 2006, the noncash settlement account had a
balance of $14,933,273 and $14,229,640, respectively, receivable from
Norfolk Southern. The account will not be settled until the expiration of
the lease, whether by default or nonrenewal. Because of the indeterminate
settlement date of the account, no values have been reported in the
accompanying financial statements for the balance of the account or the
transactions affecting the balance.
F-8
PITTSBURGH & WEST VIRGINIA RAILROAD
NOTES TO FINANCIAL STATEMENTS
(Continued)
4 - INCOME TAXES
The Trust was organized as a Pennsylvania business trust and has
elected to be treated under the Internal Revenue Code as a real estate
investment trust. As such, the Trust is exempt from Federal taxes on
taxable income and capital gains to the extent that they are distributed
to shareholders. In order to maintain qualified status, at least 90% of
ordinary taxable income must be distributed; it is the intention of the
Trustees to continue to make sufficient distributions of ordinary taxable
income. Dividends distributed for the years ended December 31, 2007,
2006, and 2005, were comprised entirely of ordinary income.
5 - RELATED PARTY TRANSACTIONS
A Trustee of the Trust serves as Chairman and CEO of Wheeling &
Lake Erie Railway Company which subleases from Norfolk Southern
Corporation the right of way and real estate owned by the Trust. The
Sublease is substantially similar by virtue of assignment and assumption
of rights and obligations as the Lease between the Trust and Norfolk
Southern Corporation. As Chairman and CEO of Wheeling & Lake Erie
Railway, the Trustee exercises the rights and obligations under the
Sublease to maintain the property, to operate the property, and to sell
or dispose of the property not needed for ongoing operations in
accordance with the provisions of the Lease and Sublease.
The Trust leases office space and equipment from a company related
to its Chairman. Rent is paid on a month to month basis in the amount of
$1,500 per month.
6 - CONTINGENCY
Under the provisions of the lease, the Trust may not issue, without
the prior written consent of Norfolk Southern, any shares or options to
purchase shares or declare any dividends on its shares of beneficial
interest in an amount exceeding the value of the assets not covered by
the lease plus the annual cash rent of $915,000 to be received under the
lease, less any expenses incurred for the benefit of shareholders. At
December 31, 2007, all net assets are covered by the lease.
The Trust may not borrow any money or assume any guarantees except
with the prior written consent of Norfolk Southern.
F-9
PITTSBURGH & WEST VIRGINIA RAILROAD
NOTES TO FINANCIAL STATEMENTS
(Continued)
7 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following presents a summary of the unaudited quarterly financial
information for the years ended December 31, 2007 and 2006.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Year Ended
December 31, 2007
Revenue $ 228,750 $ 228,750 $ 228,750 $ 228,750
Net income $ 170,873 $ 187,638 $ 209,792 $ 211,777
Net income
per share $ 0.11 $ 0.12 $ 0.14 $ 0.14
Year Ended
December 31, 2006
Revenue $ 228,750 $ 228,750 $ 228,750 $ 228,750
Net income $ 172,884 $ 195,426 $ 210,115 $ 210,771
Net income
per share $ 0.11 $ 0.13 $ 0.14 $ 0.14
F-10