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November 4, 2005
Mail Stop 3561
Via US Mail and Facsimile
Mr. Henry C. Wolf
Vice Chairman and Chief Financial Officer
3 Commercial Place
Norfolk, Virginia 23510-2191
Re: Norfolk Southern Corporation
Form 10-K for the year ended December 31, 2004
Forms 10-QSB for the periods ended June 30, 2005, March 31,
2005
and
September 30, 2005
Commission file #: 001-08339
Dear Mr. Wolf:
We have reviewed the above referenced filing and have the
following
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is to
assist
you in your compliance with the applicable disclosure requirements
and to enhance the overall disclosure in your filing. We look
forward to working with you in these respects. We welcome any
questions you may have about our comments or any other aspect of
our
review. Feel free to call us at the telephone numbers listed at
the
end of this letter.
* * * * * * * * * * * * * * * * * * * * * * *
Form 10-K for the year ended December 31, 2004
Item 1. Business, page K3
1. We note your disclosure on page K6 that in 2004 your railroads
were found by the STB not to be "revenue adequate" and that the
determination does not adversely impact your liquidity or capital
resources. Please tell us and disclose in future filings the
nature
of any negative financial statement impacts this finding has (or
will
have in the future) on the Company, such as penalties, fines, etc.
Notes to the Financial Statements
Note 1. Summary of Significant Accounting Policies
- - Description of Business
2. We note your disclosure that ultimate points of origination or
destination for some of the freight are outside the United States.
In future filings, to the extent that total revenues from external
customers attributed to all foreign countries from which the
enterprise derives revenues are material, please disclose the
amount
in the notes to the financial statements in future filings. See
paragraph 38(a) of SFAS 131.
- - Revenue Recognition
3. We note your disclosure that refunds are recorded as a
reduction
to revenues based on management`s best estimate of projected
liability. Please explain to us the nature of the transactions
that
are subject to refunds and tell us how your revenue recognition
policy for recording revenues that are subject to refund is
consistent with SAB 101. Include in your response your method for
developing reasonable and reliable estimates of the amount of
refunds. See Question 7 of SAB 101.
4. We note the disclosure in Note 1 indicating that transportation
revenues are recognized proportionally as a shipment moves from
origin to destination. Please tell us and clarify in your
accounting
policy disclosures in future filings, how your related
transportation
expenses are recognized as expense. Your response should clearly
indicate how your expense recognition policy complies with the
guidance outlined in EITF 91-9.
Note 2. Investment in Conrail and Operations Over Its Lines
- - Conrail Corporate Reorganization
5. We note the disclosure in Note 2 indicating that in connection
with the Conrail Corporate Reorganization, the Company obtained
direct ownership and control of Conrail`s former subsidiary
Pennsylvania Lines LLC (PRR) and terminated its operating and
lease
agreements with PRR. We also note that in connection with this
reorganization transaction, the Company became obligated on new
debt
securities which were issued in exchange for the unsecured public
debentures of Conrail, and that as a result of this transaction,
the
Company`s investment in Conrail no longer includes amounts related
to
PRR and NYC, indicating that the Company also relinquished any
ownership which it previously held in New York Central Lines, LLC.
Additionally, we note that the Company accounted for this
transaction
at fair value and recognized a gain of $53 million.
With regards to this reorganization transaction, please address
the
following matters in your response and in your revised
disclosures:
* Please explain how the Company determined the carrying value of
the
portion of its "investment in Conrail" of $5,515 which was
attributable to the assets or interests relinquished or exchanged
in
this transaction.
* Please clarify the amount of debt on which the Company became
the
direct obligor as a result of the reorganization transaction. We
are
unclear as to why long-term debt on the Company`s balance sheet
increased by $734 million as a result of the transaction as the
table
on page K50 indicates if the Company issued debt for only 58% of
Conrail`s unsecured public debentures of $800 million (i.e.,
approximately $464 million) as the disclosure on page K49
indicates.
Also, we note from the disclosure on page K49 that Conrail`s
secured
debt and lease obligations remained obligations of Conrail so we
are
unclear as to why they would be reflected in the Company`s
financial
statements as a result of the reorganization transaction. Please
explain why capitalized leases as disclosed in Note 8 on page K58
includes $135 million related to the fair value of equipment
sublease
obligations for equipment that remain secured debt and lease
obligations of Conrail.
* Please indicate the nature of the items comprising the line item
"extinguishment of amounts due to PRR" of $870 million reflected
in
the table on page K50 reflecting the calculation of the $53
million
gain. As part of your response and your revised disclosures,
please
explain why it is appropriate to consider these amounts in the
determination of the gain or loss on the transaction.
* Explain why you believe gain recognition in connection with this
reorganization transaction is appropriate and in accordance with
the
guidance outlined in EITF 01-2 or other applicable accounting
literature.
Also, revise to disclose pro forma information giving effect to
the
reorganization transaction in accordance with paragraphs 54 and 55
of
SFAS No.141. If you do not believe this is required, explain in
detail your basis for this conclusion, given that "Conrail rents
and
services" will be reduced following the reorganization
transaction.
If the reorganization transaction is expected to result only in
reclassification of the amounts reported in your financial
statements, explain the nature and amounts of the
reclassifications
that are expected to result from the transaction in your response
and
in your revised disclosures.
We may have further comment upon receipt of your response and our
review of your revised disclosure.
- - Investment in Conrail
6. We note the disclosure indicating that NS is continuing to
apply
the equity method of accounting to its remaining investment in
Conrail. We also note that NS is amortizing the excess of the
purchase price over Conrails` net equity, based primarily on the
estimated remaining useful lives of Conrail`s depreciable property
and equipment. Please explain and clarify in your disclosures why
you
believe this difference relates to depreciable property and
equipment
rather than goodwill and should therefore continue to be
amortized.
7. Please tell us and revise Note 2 to include a breakdown of the
various components of "Conrail rents and services" as described in
(1) through (3) in the last paragraph of page K50 for each period
presented in the Company`s consolidated statements of operations.
We
believe enhanced disclosure of these items should be provided
given
the Company`s affiliate relationship with Conrail and to provide
enhanced disclosure regarding the impact of the reorganization
transaction on the Company`s results of operations. Refer to the
requirements of paragraph 2 of SFAS No.57.
Note 3. Other Income-Net
8. We note that you have classified the impairment of
telecommunications assets related to your T-Cubed subsidiary as
"other income - net" in your statements of income. Please tell us
why you believe that this impairment charge is properly presented
as
non-operating income or alternatively revise future filings to
present this charge as part of operating expenses. See paragraph
25
of SFAS No. 144. Also, gains and losses from sales of properties
and
other assets should also be included as a component of income from
operations. Refer to the guidance outlined in paragraphs 25 and
45
of SFAS No. 144 and footnote 68 of SAB Topic 13.
Note 14. Earnings Per Share
9. We note that you have presented the calculation of basic and
diluted earnings per share using net income rather than income
from
continuing operations. In future filings, and specifically
related
to the year ended December 31, 2003, please include a
reconciliation
of the numerators and the denominators of the basic and diluted
per-
share computations for income from continuing operations. See
paragraph 40(a) of SFAS No. 128. Also, revise future filings to
disclose basic and diluted earnings per share for discontinued
operations and the cumulative effect of changes in accounting
principles. Refer to the requirements of paragraph 37 of SFAS No.
128.
Note 18. Commitments and Contingencies
10. We note that you have several guarantees and indemnifications
for
which a liability has not been recorded. It appears that the
first
two paragraphs in the guarantees section relate to
indemnifications
that may fall under paragraph 3(c) of FIN 45 and therefore be
subject
to the requirements of that interpretation. For each type of
indemnification disclosed, please tell us how you have complied
with
the requirements of FIN 45. If any of the indemnifications
disclosed
arose prior to the effective date of FIN 45 or would result in a
liability that is immaterial to your operating results and
financial
position, please note that in your response.
Quarterly Report on Form 10-Q for the Quarter ended September 30,
2005
Note 6. Long-Term Debt
11. We note the disclosure in Note 6 indicating that the Company
issued $717 of unsecured notes ($350 million at 5.64% due 2029 and
$367 million at 5.59% due 2025) and paid $218 million of premium
in
exchange for $717 million of its previously issued unsecured notes
($350 million at 7.8% due 2027, $200 million at 7.25% due 2031 and
$167 million at 9.0% due 2021). We also note that the $218 million
cash premium payment is reflected as a reduction of debt in the
Company`s balance sheet and is being amortized as additional
interest
expense over the terms of the new debt. Given the significant
changes
in the terms of the Company`s outstanding debt that resulted from
this transaction, please explain in further detail why you believe
the treatment used for $218 million premium payment made in
connection with the exchange transaction was appropriate and in
accordance with the guidance outlined in EITF 96-19, or other
applicable accounting literature. We may have further comment upon
receipt of your response.
* * * * * * * * * * * * * * * * * * * * * * *
As appropriate, please respond via EDGAR to these comments within
10
business days or tell us when you will provide us with a response.
Please furnish a cover letter that keys your responses to our
comments and provides any requested supplemental information.
Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy
of the disclosure in the filings reviewed by the staff to be
certain
that they have provided all information investors require for an
informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please provide, in
writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has
access to all information you provide to the staff of the Division
of
Corporation Finance in our review of your filing or in response to
our comments on your filing.
You may contact Claire Erlanger at 202-551-3301 or me at 202-551-
3813
if you have questions.
Sincerely,
Linda Cvrkel
Branch Chief
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Mr. Henry C. Wolf
Norfolk Southern Corporation
November 4, 2005
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