PITTSBURGH & WEST VIRGINIA RAILROAD
(a Pennsylvania business trust)
2007
ANNUAL REPORT and 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 2 to
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
(Address of principal executive offices)
25306-6699
(Zip Code)
Registrant's telephone number, including area code
(304) 926-1124
Securities Registered Pursuant to Section 12(b) of the
Act:
Title of each class
Shares of beneficial interest
Name of each exchange
on which registered
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, a non-
accelerated filer, or a smaller reporting company. 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 _______
Smaller Reporting Company __X___
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.
EXPLANATORY NOTE
This Amendment No. 2 on Form 10-K/A amends
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007, filed with the
Securities and Exchange Commission ("SEC") on
March 31, 2008 (the "Original Annual Report").
This Amendment revises management's assessment
of internal control over financial reporting to
include a conclusion as to the effectiveness of the
Company's internal control over financial reporting
as of December 31, 2007 in Item 9A. Management has
concluded that, as of December 31, 2007, our
internal control over financial reporting is effective.
The Amendment also revises management's
evaluation of disclosure controls and procedures to
include the evaluation being conducted as of the end
of period covered by the report and to further clarify
the conclusion of management's evaluation of
disclosure controls and procedures. The
Amendment also includes revised disclosures
relating to Item 1 Business, to provide further
information related to employees of the business;
Item 2 Properties, to provide further information of
the terms of the lease agreement upon termination
of the lease; and Item 5 was revised to include the
sales price of traded shares as of the latest
practicable date We are also filing amended Exhibit
31.1, Section 302 Certification - Herbert E. Jones, Jr.,
Exhibit 31.2, Section 302 Certification -
Herbert E. Jones III, Exhibit 31.3, Section 302
Certification for Robert R McCoy, and Exhibit 99,
Section 906 Certification for Herbert E. Jones, Jr.,
Herbert E. Jones, III, and Robert R. McCoy.
Except as described above, no attempt has been
made in this Amendment to modify or update other
disclosures presented in the Original Annual Report.
This Amendment does not reflect events occurring
after the filing of the Original Annual Report, or
modify or update those disclosures, including the
exhibits to the Original Annual Report, affected by
subsequent events. Accordingly, this Amendment
should be read in conjunction with our filings with
the SEC subsequent to the filing of the Original
Annual Report, including any amendments to those
filings.
PART I
Item 1 BUSINESS
Pittsburgh & West Virginia Railroad (the
Registrant) was organized in Pennsylvania in 1967, as
a business trust, for the purpose of acquiring the
business and property of a small leased railroad. The
railroad was leased in 1964 to Norfolk and Western
Railway Company, now known as Norfolk Southern
Corporation ("NSC"), by Registrant's predecessor
company for 99 years with the right of unlimited
renewal for additional 99 year periods under the same
terms and conditions, including annual rent payments.
Registrant's business consists solely of the
ownership of the properties subject to the lease, and of
collection of rent thereon. The rent received is
$915,000 per year, in cash, which amount is fixed and
unvarying for the life of the lease, including any
renewal periods. In addition, the lease provides that
certain non-cash items be recorded as rent income
each year. These entries are equal in amount to the
sum of (1) Registrant's federal income tax deductions
for depreciation, retirements, and amortization of debt
discount expense, and (2) all other expenses of the
Registrant, except those expenses incurred for the
benefit of its shareholders. For financial reporting
purposes, only the cash income is reported, as the
non-cash items, although recorded under the terms of the
lease, have no financial value because of the
indeterminate settlement date.
Registrant has elected to be treated for tax
purposes as a real estate investment trust. As such,
the trust itself is exempt from federal income tax, to
the extent that its income is distributed to
shareholders. However, dividends paid by Registrant
are ordinary taxable income to its shareholders. In
order to maintain qualified status, at least 90% of
ordinary taxable income must be distributed. It is
Registrant's policy to distribute annually
approximately 100% of ordinary taxable income.
There are no employees. The accounting services
and other general administrative services are provided
through a contract with the Vice President,
Secretary/Treasurer. The investor relations services
are provided by a third party investor service
company.
Item 1B Unresolved Staff Comments
None
Item 2 PROPERTIES
The properties leased to NSC consist of 112 miles
of main line road extending from Pittsburgh Junction,
Ohio, through parts of West Virginia, to
Connellsville, Pennsylvania; approximately 20 miles
of branch lines; and real estate used in the operation
of the railroad.
The more significant provisions of the lease
applicable to the properties are:
NSC at its own expense and without deduction
from the rent, will maintain, manage and operate the
leased property and make such improvements thereto
as it considers desirable. Such improvements made
by NSC become the property of the Registrant, and
the cost thereof constitutes a recorded indebtedness of
Registrant to NSC. The indebtedness is offset when
non-cash rental is recorded over the depreciable life of
the improvements. Such part of the leased property as
is, in the opinion of NSC, not necessary, may be
disposed of. The proceeds of any disposition are
retained by NSC and constitute an indebtedness of
NSC to Registrant. These amounts are due and
payable upon termination of the lease, whether by
default or expiration. Although the lease provides for
additional rentals to be recorded, these amounts do
not increase cash flow or net income as they are
charged to NSC's settlement account with no
requirement for payment, except at termination of the
lease. Because of the indeterminate settlement date for
these items, such transactions and balances have not
been reported in the financial statements since 1982.
Upon termination of the lease, all properties covered
by the lease would be returned to Registrant, together
with sufficient cash and other assets to permit
operation of the railroad for one year. In addition, the
balance of the settlement account as described in the
preceding paragraph would be provided to the
Registrant. The amount of the settlement account was
14,933,273 as of December 31, 2007.
Following is summary financial data for Norfolk
Southern Corporation (NSC), the lessee of the
Registrant's properties, as reported in the NSC Form
10-K filed February 15, 2008:
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
($ in millions, except per share amounts)
2007 2006 2005 2004 2003
RESULTS OF OPERATIONS
Railway operating revenues $9,432 $9,407 $8,527 $7,312 $6,468
Railway operating expenses 6,847 6,850 6,410 5,610 5,404
Income from railway operations 2,585 2,557 2,117 1,702 1,064
Other income-net 93 149 74 76 19
Interest expense on debt 441 476 494 489 497
Income from continuing
operations before income tax
and accounting changes 2,237 2,230 1,697 1,289 586
Provision for income taxes 773 749 416 379 175
Income from continuing
operations before accounting
changes 1,464 1,481 1,281 910 411
Discontinued operations - - - - 10
Cumulative effect of changes in
accounting principles,
net of taxes - - - - 114
Net income $1,464 $1,481 $1,281 $910 $535
PER SHARE DATA
Income from continuing
operations before accounting
changes - basic $3.74 $3.63 $3.17 $2.31 $1.05
- diluted $3.68 $3.57 $3.11 $2.28 $1.05
Net income - basic $3.74 $3.63 $3.17 $2.31 $1.37
Dividends - diluted $3.68 $3.57 $3.11 $2.28 $1.37
Dividends $0.96 $0.68 $0.48 $0.36 $0.30
Stockholders' equity at
Year end $25.64 $24.19 $22.63 $19.92 $17.83
FINANCIAL POSITION
Total assets $26,144 $26,028 $25,859 $24,748 $20,596
Total long-term debt,
including current maturities
$6,368 $6,600 $6,930 $7,525 $7,160
Stockholders' equity $9,727 $9,615 $9,276 $7,977 $6,976
Item 3 LEGAL PROCEEDINGS
There were no legal proceedings.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth
quarter to a vote of security holders.
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Registrant's shares are listed for trading on the
American Stock Exchange under the symbol of "PW".
At February 29, 2008, there were approximately 685
holders of record of registrant's shares of beneficial
interest.
Stock Market and Dividend information per share of
beneficial interest.
2007 Quarters Ended
3/31 6/30 9/30 12/31
Sales price of traded shares
High...................... $9.65 $9.45 $9.45 $9.50
Low...................... 8.74 8.90 8.87 9.00
Dividends paid .13 .13 .13 .13
2006 Quarters Ended
3/31 6/30 9/30 12/31
Sales price of traded shares
High...................... $9.40 $9.25 $9.30 $9.19
Low...................... 8.90 8.20 8.66 8.65
Dividends paid .13 .13 .13 .13
Sales price of traded shares February 29, 2008
High...................... $9.49
Low...................... 9.28
It is the Registrant's intention to continue
distributing quarterly dividends. A quarterly dividend
of $.13 per share is payable March 31, 2008 to
shareholders of record on March 10, 2008.
Item 6 SELECTED FINANCIAL DATA
($Thousands, except per share amounts)
2007 2006 2005 2004 2003
Revenues $915 $915 $915 $915 $915
Income available for
distribution 781 789 780 805 799
Net income 781 789 780 805 799
Total assets 9,196 9,199 9,204 9,209 9,190
Per share amounts:
Net income .52 .52 .52 .53 .53
Income available for
distribution .52 .52 .52 .53 .53
Cash dividends .52 .52 .52 .51 .53
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
All of the Registrant's railroad properties are
leased to Norfolk and Western Railway Company,
now known as Norfolk Southern Corporation (NSC),
for 99 years, with unlimited renewals on the same
terms. Cash rental is a fixed amount of $915,000 per
year, with no provision for change during the term of
the lease and any renewal periods. This cash rental is
the only source of funds. Although the lease provides
for additional rentals to be recorded, these amounts do
not increase cash flow or net income as they are
charged to NSC's settlement account with no
requirement for payment, except at termination or non
renewal of the lease. Due to the indeterminate
settlement date, these additional rental amounts are
not recorded for financial reporting purposes. Income
available for distribution in 2007 and in 2006 was
approximately $781,000 and $789,000, respectively.
Registrant's only cash outlays, other than dividend
payments, are for general and administrative
expenses, which include professional fees, office
rental and director's fees. Professional fees have
increased primarily due to the costs of complying with
the requirements of the Sarbanes-Oxley Act of 2002.
The leased properties are maintained entirely at
NSC's expense.
Since cash revenue is fixed in amount and outlays for
general and administrative expenses are relatively
modest, inflation has had no material impact on
Registrant's reported net income for the past three
years. Although recent inflationary trends have been
relatively low, annual rental income is a fixed amount
for the current lease term and any renewal periods,
and inflation could affect the real dollar value of the
rental income over time. Changes in inflationary
trends could also affect the general and administration
expenses.
Item 7A QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly financial data (in $thousands, except per
share amounts)
2007 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Revenues $229 $229 $229 $228
Net income 171 188 210 212
Per share .11 .12 .14 .14
2006
Revenues $229 $229 $229 $228
Net income 173 195 210 211
Per share .11 .12 .14 .14
Detailed financial statements of Registrant appear
on pages F-3 through F-8 of this report. Per share
data for the year is slightly different from the sum of
four quarters due to rounding.
Item 9 CHANGES IN AND DISAGREEMENTS WITH
AUDITORS' ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
Item 9a CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management is responsible for establishing and
maintaining effective internal controls over financial
reporting. As of the end of the period covered by this
report, the Registrant carried out an evaluation under
the supervision and with the participation of the
Registrant's management, including the Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the
disclosure controls and procedures pursuant to
Rule 13a-14 under the Securities Exchange Act of
1934, as amended. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer
have concluded that the Registrant's disclosure controls
and procedures are adequate and effective to ensure that
information required to be disclosed in the Registrant's
required SEC filings is recorded, processed, summarized
and reported, within the time periods specified in the
Commission's rules and forms.
There have been no significant changes in the
Registrant's internal controls or in other factors that
could significantly affect internal controls
subsequent to the date the Registrant carried out its
evaluation.
Changes in Internal Control over Financial Reporting
We maintain a system of internal accounting
controls that are designed to provide reasonable
assurance that our books and records accurately reflect
the transactions of the Registrant and that our policies
and procedures are followed. There have been no
changes in our internal control during the fourth
quarter that have materially affected, or are reasonably
likely to materially affect such controls.
Management's Annual Report on Internal Control
over Financial Reporting
This annual report does not include an attestation
report of the Registrant's independent registered
public accounting firm regarding internal control over
financial reporting. Management's report was not
subject to attestation by the Registrant's independent
registered public accounting firm pursuant to
temporary rules of the Securities and Exchange
Commission that permit the Registrant to provide
only management's report in this annual report.
The management of Pittsburgh & West Virginia
Railroad is responsible for establishing and
maintaining adequate internal control over financial
reporting. The Registrant's internal control system
was designed to provide reasonable assurance to
management and the Trustees regarding the reliability
of financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principles.
All internal control systems, no matter how well
designed, have inherent limitations. Even those
systems determined to be effective can provide only
reasonable assurance with respect to financial
statement presentation and preparation. Further,
because of changes in conditions, the effectiveness of
internal control may vary over time.
Management conducted an evaluation of the
effectiveness of the Registrant's internal control over
financial reporting based on the framework in Internal
Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation,
management concluded that the Company's internal
control over financial reporting was effective as of
December 31, 2007.
PART III
Item 10 DIRECTORS AND EXECUTIVE
OFFICERS OF REGISTRANT
This information is incorporated herein by
reference to Registrant's 2008 Proxy Statement.
Item 11 EXECUTIVE COMPENSATION
Not applicable.
Item 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Management's ownership of Registrant's shares of
beneficial interest as of February 29, 2008.
Shares Percent of
Beneficially Outstanding
Name Owned Shares
Virgil E. Wenger,
Trustee 200 0.013
Herbert E. Jones, Jr.
,Trustee 4,000 0.265
Larry R. Parsons,
Trustee 12,500 0.828
C. Howard Capito,
Trustee 1,000 0.066
Herbert E. Jones, III,
Trustee and President 0 0.000
All trustees
and officers
as a group (6 persons) 17,700 1.172
Item 13 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
This information is set forth in Registrant's 2007
Proxy Statement, which is incorporated herein by
reference.
Item 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
This information is set forth in Registrant's 2007
Proxy Statement, which is incorporated herein by
reference.
PART IV
Item 15 EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON
FORM 8-K
Exhibits(a)
Exhibit 1.1 A list of all financial statements and financial
statement schedules filed as part of this report is set forth
on page F-1 herein.
Exhibit 1.2 - all the exhibits listed below are
incorporated herewith by reference to Form 8
Amendment to Annual Report on Form 10-K for the
year ended December 31, 1988:
2.1 Plan and Agreement of Reorganization,
dated February 18, 1967, between Pittsburgh &
West Virginia Railroad and The Pittsburgh and
West Virginia Railway Company
2.2 Amendment No. 1 to Plan and Agreement of
Reorganization dated February 18, 1967, between The
Pittsburgh and West Virginia Railway Company and
Pittsburgh & West Virginia Railroad.
3.1 Pittsburgh & West Virginia Railroad Declaration
of Trust dated February 18, 1967.
3.2 Pittsburgh & West Virginia Railroad Regulations.
10.1 Lease of railroad properties, dated July 12, 1962,
between the Pittsburgh and West Virginia Railway Company
and Norfolk and Western Railway Company.
10.2 Assignment of lease by The Pittsburgh and West
Virginia Railway Company to Pittsburgh & West Virginia
Railroad.
Exhibit 31.1 - Section 302 Certification for Herbert E. Jones, Jr.
Exhibit 31.2 - Section 302 Certification for Herbert E. Jones, III
Exhibit 31.3 - Section 302 Certification for Robert R. McCoy
Exhibit 99 - Section 906 Certification for Herbert E. Jones, Jr.,
Herbert E. Jones, III, and Robert R. McCoy
(b) No report on Form 8-K was filed during the fourth quarter
of 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: April 7, 2009
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.
Herbert E. Jones, Jr.
Chairman of the Board and Trustee
/s/ Herbert E. Jones, III
Herbert E. Jones, III
President and Trustee
Date: April 7,2009
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