PITTSBURGH & WEST VIRGINIA RAILROAD
(a Pennsylvania business trust)
2007
ANNUAL REPORT and 10-K
PITTSBURGH & WEST VIRGINIA RAILROAD
#2 Port Amherst Drive
Charleston, West Virginia 25306
April 15, 2008
To the Shareholders
Pittsburgh & West Virginia Railroad ("the Trust") has elected to be treated for
tax purposes as a real estate investment trust. As such, the Trust is not
required to pay federal corporate income taxes on any of its taxable income
that is distributed to shareholders. It has been the Trust's policy to
distribute as dividends all of its ordinary taxable income.
The Trust's only line of business is the ownership of a small railroad running
from western Pennsylvania to the eastern section of Ohio. The railroad is
under long-term lease to Norfolk Southern Corporation (NSC) for a fixed rental
of $915,000 per year. This amount, equivalent to 60 cents per share, is the
only cash income to the Trust. All cash available, after payment of
administrative expenses, is distributed as dividends. This net cash flow
amounted to $ 781,000 or 52 cents per share in 2007, and dividends of 52 cents
were distributed. Income and distributions in the prior year were
approximately the same. A quarterly dividend of 13 cents per share was paid
on March 31, 2008, to shareholders of record March 10, 2008.
The lease with NSC requires accounting for substantial amounts of non-cash
rental. These amounts do not increase cash flow or net income and are not
reported in our published financial statements.
Included in this report is our 2007 annual report to the Securities and
Exchange Commission on Form 10-K.
Enclosed is the proxy material for the Annual Shareholders meeting to be held
in Charleston, West Virginia, on May 15, 2008. Please sign and return the
proxy card promptly.
For the Trustees,
/s/ Herbert E. Jones, Jr. /s/ Herbert E. Jones, III
Herbert E. Jones, Jr. Herbert E. Jones, III
Chairman of the Board President
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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)
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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
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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.
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.
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 other
assets used in the operation of the railroad, such as real estate, machinery
and equipment, and supplies, but excluding rolling stock all of which was sold
to NSC prior to the effective date of the lease.
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. 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.
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
- 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
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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
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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
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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
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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. Within 90 days prior to the date of 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 in timely alerting them to material information relating to the
Registrant required to be included in the Registrant's periodic filings with
the SEC.
There have been no significant changes in the Registrant's internal controls
or in other factors that 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.
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
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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
(a) Exhibits
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:
3.1 Pittsburgh & West Virginia Railroad Declaration of Trust dated
February 18, 1967.
3.2 Pittsburgh & West Virginia Railroad Regulations.
3.3 Plan and Agreement of Reorganization, dated February 18, 1967, between
Pittsburgh & West Virginia Railroad and The Pittsburgh and West
Virginia Railway Company
3.4 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.
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.
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Exhibit 1.3 - Section 302 Certification for Herbert E. Jones, Jr.
Exhibit 1.4 - Section 302 Certification for Herbert E. Jones, III
Exhibit 1.5 - Section 302 Certification for Robert R. McCoy
Exhibit 1.6 - 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: March 24, 2008
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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
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