October 21, 2005
Zip+4 Code: 20549-3561
Via Fax & U.S. Mail
Mr. C.K. Chow
Chief Executive Officer
MTR Corporation Limited
MTR Tower
Telford Plaza
Kowloon Bay
Hong Kong
RE: MTR Corporation Limited (the "Company")
Form 20-F for the Fiscal Year Ended December 31, 2004
Filed June 17, 2005
File No. 333-13904
Dear Mr. Chow:
We have reviewed your response letter dated September 22,
2005
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 information so we may better understand
your
disclosure. After reviewing this information, we may 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.
Item 8. Financial Information
Notes to the Consolidated Financial Statements
(G) Depreciation, page F-10
(D) Depreciation of Certain Fixed Assets, page F-72
1. We have reviewed your response to our prior comment number 4,
but
we do not concur with your conclusion that it is appropriate to
use
estimated useful lives of 80 to 100 years for the depreciation of
tunnel linings, underground civil structures, overhead structures,
immersed tubing depot structures, and station building structures
under U.S. GAAP. We note that the predominant practice for public
companies reporting under U.S. GAAP is to depreciate similar
assets
over a significantly shorter useful life (generally a period that
is
no longer than 40 to 50 years). In addition, we note that the
companies that you have cited in your response, and with whom you
have
chosen to compare your estimated useful lives, are not public
reporting entities. As such, we believe that you should expand
your
discussion in the "Depreciation of Certain Fixed Assets" section
of
Footnote 47 to your financial statements to discuss and quantify
the
difference in treatment under U.S. GAAP for the aforementioned
assets
and disclose the impact of this difference in accounting treatment
in
your reconciliations of net income and stockholders` equity under
Hong
Kong GAAP to U.S. GAAP.
2. We have reviewed you response to our prior comment number 5.
We
note that you have indicated that your company did not consider it
necessary to discuss the difference in the accounting treatment
for
capitalized rail costs under Hong Kong GAAP versus U.S. GAAP in
Footnote 47 (the reconciliation footnote) to your financial
statements, as the annual costs that have been charged to
operating
expenses in past years for the replacement of your rail assets,
approximate the annual depreciation charges that would have been
incurred if the rails had been depreciated. Thus, you believe
that no
material impact has resulted from the differences in accounting.
However we do not believe that your response has fully addressed
our
concerns. Your response appears to imply that the reconciliation
of
the accounting treatment for rail assets from Hong Kong GAAP to
U.S.
GAAP would result in the capitalization of rail replacement costs
that
were expensed under Hong Kong GAAP, and that the capitalization of
such costs would offset the recognition of rail depreciation costs
under U.S. GAAP. In order to further our understanding of your
conclusion, please tell us:
* Why you believe the rail replacement costs would qualify for
depreciation under U.S. GAAP, and how such costs differ from
routine
repair and maintenance costs.
* The period over which you have assumed that rails should be
depreciated under U.S. GAAP, when you determined that the annual
depreciation costs that would have been incurred in prior years
would
have approximated the rail replacement costs that were recognized
as
expense under Hong Kong GAAP.
* Whether the incremental increases to your fixed asset balance
and
depreciation, which would have been recognized assuming that you
had
capitalized the rail replacement costs, were considered when you
determined that rail depreciation costs would have approximated
the
rail replacement costs that were expensed under Hong Kong GAAP,
but
would be capitalized under U.S. GAAP.
3. Assuming that an adequate response is provided, which explains
the
assumptions relied upon to conclude that the depreciation of rails
would not have a material impact on your financial statements
presented under U.S. GAAP, we still believe that Footnote 47 to
your
financial statements should describe the differences in the
accounting
treatment of rail assets/costs under Hong Kong GAAP versus U.S.
GAAP.
As such, please expand your disclosures to address such
differences
and their financial statement impact. If the impact resulting
from
the differences in accounting treatment is immaterial, please
state
this fact in your footnote.
4. We also note that you have indicated in your response to our
prior
comment number 5 that because your company has adopted a new
accounting policy to depreciate rail assets as of January 1, 2005,
pursuant to a change in the applicable Hong Kong Accounting
Standard,
there will be no difference between the HK GAAP and U.S. GAAP
accounting treatment of your rail assets in the future. Please
tell
us whether the new/revised Hong Kong accounting standard will be
applied retrospectively, prospectively, or under another method of
adoption. If the method of adoption will not result in the
retrospective application of the new/revised standard, please
confirm
that you will provide appropriate disclosure in the reconciliation
footnote included in your future filings, which discusses the
differences in accounting treatment and the related impact to the
financial statements for each of the accounting periods presented
in
your future filings that occurred prior to the adoption of the
new/revised standard.
14 Fixed Assets
A The analysis of the investment properties ....held in Hong Kong
are
as follows:, page F-31
5. We have reviewed your response to our prior comment number 10
in
which you indicate that all of your investment properties are
situated
on leasehold land under both long-term and medium-term leases. We
also
note that because the lease term is more than 75% of the estimated
economic life of the properties, all of the leases fulfill the
criteria for treatment as capital leases under US GAAP, as
outlined in
paragraph 7c of SFAS No.13. However, we are unclear from your
response how your recognition of the investment properties as
assets
at inception of the lease complies with the guidance outlined in
paragraph 10 of SFAS No.13, as your response indicates that the
properties are capitalized at "historical costs", as further
described
in your response. Please explain how this treatment complies with
the
guidance outlined in paragraph 10 of SFAS No.13 for US GAAP
purposes.
Alternatively, please explain why you believe the treatment used
is
appropriate.
40 Interests in Jointly Controlled Operations, page F-62
6. We have reviewed your response to our prior comment number 13.
We
note that while you have explained that your interests in jointly
controlled operations would not be consolidated under Hong Kong
GAAP
or U.S. GAAP, would not require the application of the equity
method
of accounting pursuant to APB Opinion 18 under U.S. GAAP, and do
not
require any reconciliation of accounting treatment from Hong Kong
GAAP
to U.S. GAAP, you have not discussed how you account for your
investment in jointly controlled projects. Please tell us how you
account for these interests including how and when profits
generated
from your investments in jointly controlled projects are
recognized
for U.S. GAAP purposes. In addition, please tell us whether your
investments in jointly controlled projects are subject to any
level of
joint approval between your company and another party, such as for
decisions regarding the development, sale, or operations of
properties.
47 Summary of Differences Between Hong Kong and United States GAAP
A Revenue Recognition on Property Developments, page F-71
7. We note your response to prior comment number 14. Please
revise
the disclosures provided in Note 47 to discuss and quantify the
difference that exists between Hong Kong and US GAAP in accounting
for
the shell of a retail center at Union Square, Kowloon Station and
its
car parking spaces. The disclosures provided should be presented
in a
level of detail similar to that provided in your response to our
prior
comment.
K Derivative Instruments, page F-74
8. We have reviewed your response to our prior comment number 18,
and
we believe that the expanded discussion provided in your response
to
the Staff, and more specifically, the disclosure of the derivative
instruments that have been classified as fair value hedges,
provides
clarity as to the facts and circumstances that resulted in the
differences in net income reported under Hong Kong GAAP versus
U.S.
GAAP. Accordingly, please revise Note 47 to include the
information
provided in response to our prior comment 18 for each period
presented
in your reconciliations of net income and stockholders` equity
between
Hong Kong and U.S. GAAP.
Q Reconciliation of Net Income to U.S. GAAP, page F-76
9. We note your response to our prior comment number 19 and the
proposed disclosures to be made in Note 47 in response to our
prior
comment. Please revise the disclosures to be provided in Note 47
to
disclose the statutory tax rate used to compute the tax effect of
the
various Hong Kong/US GAAP adjustments and to disclose the impact
that
the matters referenced in your response to our prior comment had
on
the "tax effect" adjustment for 2003 and 2004.
S Statement of Cash Flows, page F-77
10. We have reviewed your response to our prior comment number 21,
and
we note that your revised reconciliation of your statement of cash
flows from Hong Kong GAAP to U.S. GAAP does not appear to include
all
reconciling differences. For example, we note that your revised
reconciliation does not appear to reflect the U.S. GAAP
adjustments to
the investing and financing activity sections of your cash flow
statement which relate to your lease out lease back transactions
and
are described in Note 47(M) to your financial statements. Please
revise the reconciliation of your statement of cash flows from
Hong
Kong GAAP to U.S. GAAP to include all reconciling differences
related
to the presentation of cash flows under Hong Kong GAAP versus U.S.
GAAP.
Other
11. We note from your letter dated September 22, 2005 that you
have
proposed to include your revised disclosures, which were prepared
in
response to our prior comments, in your Annual Report on Form 20-F
for
the fiscal year ending December 31, 2005, but do not intend to
amend
your 2004 Form 20-F. Given the significance of the revisions
requested in our prior comment letter and in our additional
comments
issued above, we continue to believe that your Form 20-F for the
fiscal year ending December 31, 2004 requires amendment. As such,
please amend your 2004 Form 20-F to address our prior comments and
the
additional matters outlined above.
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the
amendment to expedite our review. Please furnish a cover letter
with
your amendment that keys your responses to our comments and
provides
any requested information. Detailed cover letters greatly
facilitate
our review. Please understand that we may have additional
comments
after reviewing your amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing
includes all information required under the Securities Exchange
Act of
1934 and that they have provided all information investors require
for
an informed investment 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 filing;
* 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 Jeffrey Sears at (202) 551-3302 or the
undersigned at (202) 551-3813 if you have questions regarding our
comments on the financial statements and related matters.
Sincerely,
Linda Cvrkel
Branch Chief
Via facsimile: Mr. Lincoln K.K. Leong
+011 852-2993-3376
Mr. C.K. Chow
MTR Corporation Limited
October 20, 2005
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