Summary
Norfolk Southern Corporation (NSC) has announced a strategic investment in a limited liability company (LLC) that owns and operates coal-based synthetic fuel production facilities. Effective June 1, 2004, NSC will acquire a 40.5 percent membership interest in this LLC, funded by internally generated cash. This move is significant as the LLC members are eligible for tax credits under Section 29 of the Internal Revenue Code for synthetic fuel produced through 2007, a status confirmed by a private letter ruling from the IRS. The financial impact of this investment is expected to be positive. While the investment will be recorded as an expense in "Other income - net," the associated tax credits will reduce income taxes. The company projects that this will lower its effective tax rate to below 30 percent for 2004 and anticipates an increase in net income of approximately $10 million for the year.
Key Highlights
- 1NSC enters agreement to acquire a 40.5% membership interest in a synthetic fuel production LLC.
- 2The investment is effective June 1, 2004, and will be funded from operating cash flow.
- 3The LLC's facilities produce synthetic fuel from coal.
- 4Members of the LLC are entitled to tax credits under Section 29 of the Internal Revenue Code for synthetic fuel produced until 2007.
- 5The IRS has issued a private letter ruling confirming eligibility for these tax credits.
- 6The investment will be expensed in 'Other income - net', but tax savings are expected.
- 7NSC projects a reduction in its effective tax rate to below 30% for 2004 due to these credits.
- 8The investment is expected to increase net income by approximately $10 million in 2004.