<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6324
BURLINGTON NORTHERN RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
Delaware 41-6034000
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3800 Continental Plaza, 777 Main St.
Fort Worth, Texas 76102-5384
(Address of principal executive offices) (Zip Code)
(817) 333-2000
(Registrant's telephone number, including area code)
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 requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding
----- -----------
Common stock, without par value
as of March 31, 1994* 1,000 shares
*Burlington Northern Railroad Company is a wholly owned subsidiary of Burlington
Northern Inc. (BNI) and there is no market data with respect to such shares.
Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format permitted by General Instruction H(2).
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements......................... 1
Item 2. Management's Narrative Analysis of Results of
Operations................................. 7
(i)
<PAGE>
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Millions)
(Unaudited)
Three Months Ended
March 31,
------------------
1994 1993
------ ------
<S> <C> <C>
Revenues............................................... $1,210 $1,170
Costs and expenses:
Compensation and benefits............................ 445 440
Fuel................................................. 83 88
Materials............................................ 85 80
Equipment rents...................................... 112 99
Purchased services................................... 118 106
Depreciation......................................... 81 83
Other................................................ 108 108
------ ------
Total costs and expenses........................... 1,032 1,004
------ ------
Operating income...................................... 178 166
Interest expense....................................... 21 20
Other income, net...................................... 2 1
------ ------
Income before income taxes and cumulative effect of
change in accounting method.......................... 159 147
Income tax expense..................................... 62 55
------ ------
Income before cumulative effect of change in accounting
method............................................... 97 92
Cumulative effect of change in accounting for
postemployment benefits, net of tax.................. (10) -
------ ------
Net income............................................. $ 87 $ 92
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Millions)
(Unaudited)
ASSETS March 31, December 31,
1994 1993
------ ------
<S> <C> <C>
Current assets:
Cash and cash equivalents................... $ 23 $ 17
Accounts receivable, net.................... 594 591
Materials and supplies...................... 121 91
Current portion of deferred income taxes.... 159 167
Other current assets........................ 41 23
------ ------
Total current assets...................... 938 889
Property and equipment, net................... 5,506 5,488
Advances to affiliates........................ 165 104
Other assets.................................. 136 130
------ ------
Total assets.............................. $6,745 $6,611
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................ $ 526 $ 498
Casualty and environmental reserves......... 269 286
Compensation and benefits payable........... 238 269
Taxes payable............................... 116 131
Accrued interest............................ 34 22
Other current liabilities................... 49 69
Current portion of long-term debt........... 175 177
Commercial paper............................ 127 26
------ ------
Total current liabilities................. 1,534 1,478
Long-term debt................................ 691 702
Deferred income taxes......................... 1,334 1,329
Casualty and environmental reserves........... 427 426
Other liabilities............................. 178 182
------ ------
Total liabilities......................... 4,164 4,117
------ ------
Common stockholder's equity:
Common stock, without par value, 1,000
shares authorized, issued and outstanding. 1,191 1,191
Retained earnings........................... 1,390 1,303
------ ------
Total common stockholder's equity......... 2,581 2,494
------ ------
Total liabilities and stockholder's equity $6,745 $6,611
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Millions)
(Unaudited)
Three Months Ended
March 31,
---------------------
1994 1993
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................... $ 87 $ 92
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
method..................................... 10 -
Depreciation................................. 81 83
Deferred income taxes........................ 20 20
Changes in current assets and liabilities:
Accounts receivable, net................... (3) 7
Materials and supplies..................... (29) (20)
Other current assets....................... (18) (1)
Accounts payable........................... 28 6
Casualty and environmental reserves........ (17) (11)
Compensation and benefits payable.......... (33) (20)
Taxes payable.............................. (15) 10
Accrued interest........................... 12 17
Other current liabilities.................. (20) (19)
Changes in long-term casualty and
environmental reserves..................... 1 7
Other, net................................... (24) (25)
------ ------
Net cash provided by operating activities.......... 80 146
------ ------
Cash flows from investing activities:
Additions to property and equipment.............. (100) (66)
Advances to affiliates, net...................... (61) (51)
Proceeds from property and equipment dispositions 5 8
Other, net....................................... (5) (6)
------ ------
Net cash used in investing activities (161) (115)
------ ------
Cash flows from financing activities:
Net increase in commercial paper................. 101 -
Payments on long-term debt....................... (14) (35)
------ ------
Net cash provided by (used in) financing activities 87 (35)
------ ------
Increase (decrease) in cash and cash equivalents... 6 (4)
Cash and cash equivalents:
Beginning of period.............................. 17 57
------ ------
End of period.................................... $ 23 $ 53
====== ======
Supplemental cash flow information:
Interest paid.................................... $ 9 $ 10
Income taxes paid................................ 43 26
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting policies
The 1993 Annual Report on Form 10-K for Burlington Northern Railroad
Company (Railroad), a wholly owned subsidiary of Burlington Northern Inc.
(BNI), includes a summary of significant accounting policies and should
be read in conjunction with this Form 10-Q. The statements for the
periods presented are condensed and do not contain all information
required by generally accepted accounting principles to be included in a
full set of financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary
to present fairly Railroad's financial position as of March 31, 1994 and
December 31, 1993 and the results of operations and cash flows for the
three months ended March 31, 1994 and 1993 have been included. The
results of operations for any interim period are not necessarily
indicative of the results of operations to be expected for the entire
year.
2. Environmental reserves and other contingencies
Under the requirements of the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (Superfund) and certain
other laws, Railroad is potentially liable for the cost of clean-up of
various contaminated sites identified by the U.S. Environmental
Protection Agency and other agencies. Railroad has been notified that it
is a potentially responsible party (PRP) for study and clean-up costs at
approximately 50 sites (the PRP sites) and, in many instances, is one of
several PRPs. Railroad generally participates in the clean-up of these
sites through cost-sharing agreements with terms that vary from site to
site. Costs are typically allocated based on relative volumetric
contribution of material, the amount of time the site was owned or
operated, and/or the portion of the total site owned or operated by each
PRP. However, under Superfund and certain other laws, as a PRP, Railroad
can be held jointly and severally liable for all environmental costs
associated with a site.
Environmental costs include initial site surveys and environmental
studies of potentially contaminated sites as well as costs for
remediation and restoration of sites determined to be contaminated.
Liabilities for environmental clean-up costs are initially recorded when
Railroad's liability for environmental clean-up is both probable and a
reasonable estimate of associated costs can be made. Adjustments to
initial estimates are recorded as necessary based upon additional
information developed in subsequent periods. Railroad conducts an
ongoing environmental contingency analysis, which considers a combination
of factors, including independent consulting reports, site visits, legal
reviews, analysis of the likelihood of participation in and ability to
pay for clean-up by other PRPs, and historical trend analysis.
Railroad is involved in administrative and judicial proceedings and other
mandatory clean-up efforts at approximately 150 sites for which it is
being asked to participate in the clean-up of contaminated material
discharged into the environment. These approximate 150 sites include the
PRP sites. Railroad paid approximately $5 million
-4-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
during the three months ended March 31, 1994 relating to mandatory
clean-up efforts, including amounts expended under federal and state
voluntary clean-up programs. At this time, Railroad expects to spend
approximately $120 million in future years to remediate and restore these
sites, $115 million of which pertains to mandated sites, of which
approximately $60 million pertains to the PRP sites. Of the $120
million, Railroad expects to spend $33 million during the remainder of
1994. Also, Railroad anticipates that the majority of the $120 million
will be paid out over a period of less than 7 years; however, some costs
will be paid out over a longer period, in some cases up to 40 years. In
addition, 21 sites account for approximately $100 million of the accrual;
however, no individual site is considered to be material.
Liabilities for environmental costs represent Railroad's best estimates
for remediation and restoration of these sites and include asserted and
unasserted claims. At March 31, 1994, Railroad had accrued approximately
$120 million for estimated future environmental costs and believes it is
reasonably possible, although not probable, that actual environmental
costs could be lower than the recorded reserve or as much as 50 percent
higher. Railroad's best estimate of unasserted claims was approximately
$5 million as of March 31, 1994. Although recorded liabilities include
Railroad's best estimates of all costs, without reduction for anticipated
recovery from insurance, Railroad's total clean-up cost at these sites
cannot be predicted with certainty due to various factors such as the
extent of corrective actions that may be required, evolving environmental
laws and regulations, advances in environmental technology, the extent of
other PRPs participation in clean-up efforts, developments in ongoing
environmental analyses related to sites determined to be contaminated, and
developments in environmental surveys and studies of potentially
contaminated sites. As a result, charges to income for environmental
liabilities could possibly have a significant effect on results of
operations in a particular quarter or fiscal year as individual site
studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are
typically paid out over a long period, in some cases up to 40 years, and
are therefore not expected to have a material adverse effect on Railroad's
consolidated financial position, cash flow or liquidity.
3. Hedging activities
Railroad has a program to hedge against fluctuations in the price of its
diesel fuel purchases. This program includes forward purchases for
delivery at fueling facilities and exchange-traded petroleum futures
contracts. The futures contracts are accounted for as hedges which are
marked to market with any gains or losses associated with changes in
market value being deferred and recognized as a component of fuel expense
in the period in which the designated fuel is purchased and used. At
March 31, 1994, Railroad had entered into agreements with fuel suppliers
setting the price of certain quantities of fuel to be obtained by taking
physical delivery directly from such suppliers at a future date. The
average price of the approximately 98 million gallons which Railroad had
committed to purchase was approximately 49 cents per gallon, exclusive of
-5-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
taxes, certain transportation costs, and other charges. In addition,
Railroad held petroleum futures contracts representing approximately 67
million gallons at an average price of approximately 46 cents per gallon.
These contracts have expiration dates ranging from April to December 1994.
Railroad's current fuel hedging program is designed to cover no more than
50 percent of projected fuel requirements for the subsequent 12-month
period; therefore, hedge positions will not exceed actual fuel
requirements. The current and future fuel delivery prices are monitored
continuously and hedge positions are adjusted accordingly. In order to
reduce risk associated with market movements, fuel hedging transactions do
not extend beyond a 12-month period. Railroad purchases petroleum futures
contracts only through regulated exchanges (e.g. New York Merchantile
Exchange). In order to effectively monitor the fuel hedging activities,
results of the program are summarized and reported to senior management on
a regular basis.
4. Other income, net
Other income (expense), net includes the following (in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1994 1993
------ ------
<S> <C> <C>
Interest income............................ $ 2 $ 2
Gain on property dispositions.............. 2 1
Loss on sale of receivables................ (2) (3)
Miscellaneous, net......................... - 1
------ ------
Total...................................... $ 2 $ 1
====== ======
</TABLE>
5. Accounting change
Effective January 1, 1994, Railroad adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." The cumulative effect, net of $7 million income tax benefit,
of this change in accounting attributable to years prior to 1994, at the
time of adoption, was to decrease 1994 first quarter income by $10
million.
-6-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
Item 2. Management's Narrative Analysis of Results of Operations
Results of Operations
- ---------------------
Three months ended March 31, 1994 compared with three months ended March 31,
1993
Railroad recorded net income of $87 million compared with net income of $92
million for the same period in 1993. Results for 1994 were reduced by a $10
million, net of tax, cumulative effect of an accounting change for
postemployment benefits.
Revenues
The following table presents Railroad's revenue information by business unit
for the three months ended March 31:
<TABLE>
<CAPTION>
Revenues Per
Revenues Revenue Ton Miles Revenue Ton Mile
-------------- ----------------- -----------------
Three months ended March 31, 1994 1993 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------
(In Millions) (In Millions) (In Cents)
<S> <C> <C> <C> <C> <C> <C>
Coal.............................. $ 418 $ 381 32,502 29,092 1.29 1.31
Agricultural Commodities.......... 196 217 7,964 10,408 2.46 2.08
Intermodal........................ 178 176 5,897 5,724 3.02 3.07
Forest Products................... 122 122 5,053 5,116 2.41 2.38
Chemicals......................... 99 99 3,522 3,633 2.81 2.73
Consumer Products................. 65 65 2,278 2,244 2.85 2.90
Minerals Processors............... 46 42 1,900 1,729 2.42 2.43
Iron & Steel...................... 40 42 1,985 1,925 2.02 2.18
Vehicles & Machinery.............. 47 45 628 572 7.48 7.87
Aluminum, Nonferrous Metals & Ores 26 27 999 1,015 2.60 2.66
Shortlines and other.............. (27) (46) (2,223) (3,064) - -
------ ------ ------ ------
Total............................. $1,210 $1,170 60,505 58,394 2.00 2.00
====== ====== ====== ======
</TABLE>
Total revenues for the first quarter of 1994 were $1,210 million compared with
$1,170 million for the same period in 1993. The $40 million increase was
primarily due to improved Coal revenues. Lower Agricultural Commodities
revenues were partially offset by reduced shortlines and other.
Coal revenues improved $37 million during the first quarter of 1994 as a
result of increased traffic. This increase was primarily caused by a rise in
the demand for electricity as well as the need for utilities to replenish coal
stockpiles which were partially depleted during the 1993 summer flooding.
Partially offsetting the increase in traffic was a decline in yields. Lower
yields resulted from continuing competitive pricing pressures in contract
renegotiations and declining cost indices.
Revenues from the transportation of Agricultural Commodities during the first
quarter of 1994 were $21 million less than the first quarter of 1993,
primarily as a result of a decline in volumes. This traffic decrease was
caused by numerous factors including adverse weather conditions that
constrained both Railroad and customer operations, and reduced crop
production. Corn and soybean revenues were less than prior year revenues by
-7-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
Item 2. Management's Narrative Analysis of Results of Operations
$19 million and $9 million, respectively. These declines were primarily
volume related, and were mostly attributable to reduced crop production and
lower export demand. Flour/mill products and milo revenues also experienced
year-over-year decreases. Partially offsetting the decline in volumes was an
increase in yield, caused by traffic mix, price and length of haul, as well as
a $9 million improvement in barley revenues. The increase in barley revenues
was due to strong domestic demand, caused by favorable market conditions
during the first quarter of 1994.
Current quarter revenues for Minerals Processors improved by $4 million when
compared with the first quarter of 1993. Stronger clays and aggregates
traffic, primarily related to increased export demand for bentonite clay,
caused the majority of the increase in revenues for the quarter. Also, a rise
in construction activity boosted glass minerals and cement revenues.
First quarter revenues for Intermodal, Forest Products, Chemicals, Consumer
Products, Iron & Steel, Vehicles & Machinery and Aluminum, Nonferrous Metals &
Ores were relatively flat compared with the first quarter of 1993. Intermodal
revenues will be reduced in future periods reflecting Railroad's decision to
close two Intermodal hub centers in Texas beginning with the second quarter.
Total current year revenues also benefited from a $19 million reduction in
shortlines and other. This decline was partially due to increased
miscellaneous revenue of $8 million, additional haulage agreement revenues and
a $6 million decrease in payments to shortline railroads caused by less
Railroad traffic on their lines.
Expenses
Total operating expenses for the first quarter of 1994 were $1,032 million
compared with expenses of $1,004 million for the same period in 1993. The
operating ratio was 85 percent, an improvement of 1 percentage point compared
with the first quarter of 1993, as increased revenues more than offset
increased operating expenses.
Compensation and benefits expenses were $5 million greater compared with the
first quarter of 1993. The combination of severe winter weather, the three
percent basic wage increase for union represented employees effective July
1993 and higher traffic volumes caused increased wages and related payroll
taxes. Increases in salaries and pension expense, due to a reduction in the
discount rate used in determining the projected benefit obligation, also
contributed to higher compensation and benefits expenses. These increases
were partially offset by a $7 million decrease caused by reduced crew sizes in
the Northern tier, decreases for cost of living allowances and decreases in an
annuity tax.
Fuel expenses for the quarter were $5 million lower compared with 1993
primarily due to a $7 million price variance. The average price paid for
diesel fuel decreased from 60.4 cents per gallon in the first quarter of 1993
to 55.5 cents per gallon in the first quarter of 1994 despite the 4.3 cents
per gallon increase in the federal fuel tax, effective October 1, 1993, as
part of the Omnibus Budget Reconciliation Act of 1993. These savings were
partially offset by increased consumption due to a higher traffic volume and
-8-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
Item 2. Management's Narrative Analysis of Results of Operations
the severe weather experienced in January and February 1994. Railroad has a
program to hedge against fluctuations in the price of its diesel fuel
purchases. This program includes forward purchases for delivery at fueling
facilities and futures contracts.
Materials expenses for the first quarter of 1994 increased $5 million compared
with 1993, primarily due to higher locomotive and track materials costs which
partially resulted from the severe winter weather. Repairs for locomotives
increased due to weather-induced equipment failures, a larger fleet size in
1994 and a demand for locomotive power necessitating a higher in-service
status for the fleet.
Equipment rents expenses were $13 million higher than the first quarter of
1993 principally due to an increase in car-hire expenses of $6 million and
additional rentals from an affiliate. Expanded automotive traffic increased
rentals of flat cars and autoracks, and strong chemicals shipments increased
rentals of tank cars. Decreased train velocity caused by severe weather
operating conditions also resulted in higher car-hire expenses. Higher costs
were further attributable to a larger leased covered hopper fleet size and
increased lease rates as well as the leasing of locomotives to meet power
requirements.
Purchased services for the quarter increased $12 million from the first
quarter of 1993. The most significant contributing factors were higher
intermodal and automotive traffic related costs and third party locomotive
maintenance and repairs costs. These increases were partially offset by
haulage agreement related payments from the Atchison, Topeka and Santa Fe
Railroad (ATSF) for services provided by Railroad to ATSF.
Depreciation expense for the first three months of 1994 was slightly lower
than the same period in 1993.
Other operating expenses remained constant compared with the first quarter of
1993. An $11 million decrease in costs associated with personal injury claims
was offset by increases in derailment-related expenses, property taxes and
various other costs.
Interest expense for the quarter increased only $1 million compared with the
first quarter in 1993 primarily due to a favorable court ruling in 1993 which
reduced interest expense for the 1993 period.
Other income, net was $1 million higher in the first quarter of 1994 compared
with the same period in 1993.
The effective tax rate was 38.8 percent for 1994 compared with 37.4 percent
for the first quarter of 1993. This increase resulted primarily from the 1
percent increase in the corporate federal income tax rate as a part of the
Omnibus Budget Reconciliation Act of 1993.
-9-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
Item 2. Management's Narrative Analysis of Results of Operations
Other matters
- -------------
Environmental issues
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws,
Railroad is potentially liable for the cost of clean-up of various
contaminated sites identified by the U.S. Environmental Protection Agency and
other agencies. Railroad has been notified that it is a potentially
responsible party (PRP) for study and clean-up costs at approximately 50 sites
(the PRP sites) and, in many instances, is one of several PRPs. Railroad
generally participates in the clean-up of these sites through cost-sharing
agreements with terms that vary from site to site. Costs are typically allocated
based on relative volumetric contribution of material, the amount of time the
site was owned or operated, and/or the portion of the total site owned or
operated by each PRP. However, under Superfund and certain other laws, as a PRP,
Railroad can be held jointly and severally liable for all environmental costs
associated with a site.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and
restoration of sites determined to be contaminated. Liabilities for
environmental clean-up costs are initially recorded when Railroad's liability
for environmental clean-up is both probable and a reasonable estimate of
associated costs can be made. Adjustments to initial estimates are recorded
as necessary based upon additional information developed in subsequent
periods. Railroad conducts an ongoing environmental contingency analysis,
which considers a combination of factors, including independent consulting
reports, site visits, legal reviews, analysis of the likelihood of
participation in and ability to pay for clean-up by other PRPs, and historical
trend analysis.
Railroad is involved in administrative and judicial proceedings and other
mandatory clean-up efforts at approximately 150 sites for which it is being
asked to participate in the clean-up of contaminated material discharged into
the environment. These approximate 150 sites include the PRP sites. Railroad
paid approximately $5 million during the three months ended March 31, 1994
relating to mandatory clean-up efforts, including amounts expended under federal
and state voluntary clean-up programs. At this time, Railroad expects to spend
approximately $120 million in future years to remediate and restore these sites,
$115 million of which pertains to mandated sites, of which approximately $60
million pertains to the PRP sites. Of the $120 million, Railroad expects to
spend $33 million during the remainder of 1994. Also, Railroad anticipates that
the majority of the $120 million will be paid out over a period of less than 7
years; however, some costs will be paid out over a longer period, in some cases
up to 40 years. In addition, approximately 21 sites account for approximately
$100 million of the accrual; however, no individual site is considered to be
material.
Liabilities for environmental costs represent Railroad's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. At March 31, 1994, Railroad had accrued approximately $120 million
for estimated future environmental costs and believes it is reasonably
possible, although not probable, that actual environmental costs could be
-10-
<PAGE>
BURLINGTON NORTHERN RAILROAD COMPANY and SUBSIDIARIES
Item 2. Management's Narrative Analysis of Results of Operations
lower than the recorded reserve or as much as 50 percent higher. Railroad's
best estimate of unasserted claims was approximately $5 million as of March
31, 1994. Although recorded liabilities include Railroad's best estimates of
all costs, without reduction for anticipated recovery from insurance,
Railroad's total clean-up costs at these sites cannot be predicted with
certainty due to various factors such as the extent of corrective actions that
may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other PRPs participation in clean-up
efforts, developments in ongoing environmental analyses related to sites
determined to be contaminated, and developments in environmental surveys and
studies of potentially contaminated sites. As a result, charges to income for
environmental liabilities could possibly have a significant effect on results
of operations in a particular quarter or fiscal year as individual site
studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period, in some cases up to 40 years, and are therefore
not expected to have a material adverse effect on Railroad's consolidated
financial position, cash flow or liquidity.
Hedging activities
Railroad has a program to hedge against fluctuations in the price of its
diesel fuel purchases. This program includes forward purchases for delivery
at fueling facilities and exchange-traded petroleum futures contracts. The
futures contracts are accounted for as hedges which are marked to market with
any gains or losses associated with changes in market value being deferred and
recognized as a component of fuel expense in the period in which the
designated fuel is purchased and used. At March 31, 1994, Railroad had
entered into agreements with fuel suppliers setting the price of certain
quantities of fuel to be obtained by taking physical delivery directly from
such suppliers at a future date. The average price of the approximately 98
million gallons which Railroad had committed to purchase was approximately 49
cents per gallon, exclusive of taxes, certain transportation costs, and other
charges. In addition, Railroad held petroleum futures contracts representing
approximately 67 million gallons at an average price of approximately 46 cents
per gallon. These contracts have expiration dates ranging from April to
December 1994.
Railroad's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The
current and future fuel delivery prices are monitored continuously and hedge
positions are adjusted accordingly. In order to reduce risk associated with
market movements, fuel hedging transactions do not extend beyond a 12-month
period. Railroad purchases petroleum futures contracts only through regulated
exchanges (e.g. New York Merchantile Exchange). In order to effectively
monitor the fuel hedging activities, results of the program are summarized and
reported to senior management on a regular basis.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
BURLINGTON NORTHERN RAILROAD COMPANY
(Registrant)
By: /s/ Don S. Snyder
----------------------------
Vice President, Controller
Date: October 5, 1994
-12-
