UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY 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)
2650 Lou Menk Drive
Fort Worth, Texas 76131-2830
(Address of principal executive offices) (Zip Code)
(817) 352-6856
(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.
Shares
Class Outstanding at July 31, 1998
----- ----------------------------
Common stock, $1.00 par value 1,000 shares
*The Burlington Northern and Santa Fe Railway Company is a wholly-owned
subsidiary of Burlington Northern Santa Fe Corporation (BNSF); as a result
there is no market data with respect to registrant's 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>
--
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
Revenues $2,217 $2,063 $4,378 $4,086
------ ------ ------ ------
Operating expenses:
Compensation and benefits 690 652 1,392 1,344
Purchased services 233 211 464 427
Depreciation and amortization 204 189 406 379
Equipment rents 203 201 394 401
Fuel 181 186 363 382
Materials and other 178 166 384 366
------ ------ ------ ------
Total operating expenses 1,689 1,605 3,403 3,299
------ ------ ------ ------
Operating income 528 458 975 787
Interest expense 39 45 84 92
Interest expense, related parties 29 25 57 44
Other income (expense), net 1 6 85 8
------ ------ ------ ------
Income before income taxes 461 394 919 659
Income tax expense 170 148 350 248
------ ------ ------ ------
Net income $ 291 $ 246 $ 569 $ 411
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
June 30, December 31,
ASSETS 1998 1997
--------- -----------
Current assets:
Cash and cash equivalents $ 101 $ -
Accounts receivable, net 565 632
Materials and supplies 211 205
Current portion of deferred income taxes 320 333
Other current assets 48 27
------- -------
Total current assets 1,245 1,197
Property and equipment, net 19,781 19,152
Other assets 756 850
------- -------
Total assets $21,782 $21,199
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,966 $ 1,981
Long-term debt due within one year 256 108
------- -------
Total current liabilities 2,222 2,089
Long-term debt 2,374 2,750
Intercompany notes payable 2,288 2,063
Deferred income taxes 5,309 5,172
Casualty and environmental reserves 412 448
Employee, merger and separation costs 433 469
Other liabilities 1,152 1,185
------- -------
Total liabilities 14,190 14,176
------- -------
Commitments and contingencies (See note 3)
Stockholder's equity:
Common stock, $1 par value, (1,000 shares
authorized, issued and outstanding) and
paid-in capital 4,706 4,706
Retained earnings 2,893 2,324
Accumulated other comprehensive deficit (7) (7)
------- -------
Total stockholder's equity 7,592 7,023
------- -------
Total liabilities and stockholder's equity $21,782 $21,199
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Six Months Ended
June 30,
1998 1997
------ ------
Operating Activities:
Net income $ 569 $ 411
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 406 379
Deferred income taxes 151 137
Employee, merger and separation costs paid (46) (55)
Other, net (99) (50)
Sale of accounts receivable 19 320
Other changes in working capital 31 (555)
------ ------
Net cash provided by operating activities 1,031 587
------ ------
Investing Activities:
Cash used for capital expenditures (952) (845)
Other, net (240) (75)
------ ------
Net cash used for investing activities (1,192) (920)
------ ------
Financing Activities:
Proceeds from issuance of long-term debt 92 113
Payments on long-term debt (50) (125)
Net increase in intercompany notes payable 225 358
Other, net (5) 1
------ ------
Net cash provided by financing activities 262 347
------ ------
Increase in cash and cash equivalents 101 14
Cash and cash equivalents:
Beginning of period - 20
------ ------
End of period $ 101 $ 34
====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 105 $ 103
Income taxes paid, net of refunds 112 167
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Accounting policies and interim results
The consolidated financial statements should be read in conjunction with The
Burlington Northern and Santa Fe Railway Company ("BNSF Railway" or "Company")
Annual Report on Form 10-K for the year ended December 31, 1997. BNSF Railway
is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation
("BNSF"). BNSF Railway was formerly known as Burlington Northern Railroad
Company ("BNRR"). On December 31, 1996, The Atchison, Topeka and Santa Fe
Railway Company ("ATSF") merged with and into BNRR and the name of the
surviving entity, BNRR, was changed to The Burlington Northern and Santa Fe
Railway Company. Additionally, on January 2, 1998, BNSF Railway's parent,
Santa Fe Pacific Corporation ("SFP"), merged with and into BNSF Railway. All
significant intercompany accounts and transactions have been eliminated.
For accounting purposes, the merger of ATSF into BNRR and the subsequent
merger of SFP into BNSF Railway were treated as a combination of subsidiaries
for the periods they were under common control. Accordingly, the consolidated
balance sheets at June 30, 1998 and December 31, 1997 and the consolidated
statements of income and cash flows for the three and six month periods ended
June 30, 1998 and 1997 have been adjusted to include the results of SFP and
ATSF. As a result, the amounts reported in the consolidated financial
statements of BNSF Railway will differ from amounts reported in BNSF Railway's
Form 10-Q for the three and six month periods ended June 30, 1997.
The results of operations for any interim period are not necessarily
indicative of the results of operations to be expected for the entire year.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments, except as disclosed) necessary to present fairly BNSF
Railway's consolidated financial position as of June 30, 1998 and December 31,
1997 and the consolidated results of operations for the three and six month
periods ended June 30, 1998 and 1997 have been included.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" on January 1, 1998. SFAS No. 130 requires
the presentation of comprehensive income and its components in a full set of
financial statements, including the restatement of prior periods. For the
three and six month periods ended June 30, 1998 and 1997, the Company's
comprehensive income was equal to net income.
Certain comparative prior year amounts in the consolidated financial
statements and notes have been reclassified to conform with the current year
presentation.
2. Employee, merger and separation costs
Current and long-term employee, merger and separation liabilities totaling
$505 million are included in the consolidated balance sheet at June 30, 1998.
During the first six months of 1998, the Company paid $46 million of employee,
merger and separation costs.
At June 30, 1998, $72 million of the total liability is included within
current liabilities for anticipated costs to be paid over the next twelve
months. The remaining costs are anticipated to be paid over the next five
years, except for certain costs related to conductors, trainmen and locomotive
engineers which will be paid upon the employees' separation or retirement, as
well as certain benefits for clerical employees which may be paid on an
installment basis, generally over five to ten years or in some cases through
retirement.
3. Environmental and other contingencies
The Company's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. BNSF Railway's
operating procedures include practices to protect the environment from the
environmental risks inherent in railroad operations, which frequently involve
transporting chemicals and other hazardous materials. Additionally, many of
BNSF Railway's land holdings are and have been used for industrial or
transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property.
As a result, BNSF Railway is subject to environmental clean-up and enforcement
actions. In particular, the Federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, also known as the "Superfund" law, as
well as similar state laws generally impose joint and several liability for
clean-up and enforcement costs without regard to fault or the legality of the
original conduct on current and former owners and operators of a site.
BNSF Railway is involved in a number of administrative and judicial
proceedings and other mandatory clean-up efforts at 349 sites, at which it is
being asked to participate in the study or clean-up, or both, of alleged
environmental contamination. BNSF Railway paid approximately $22 million
during the first six months of 1998 for mandatory clean-up efforts, including
amounts expended under federal and state voluntary clean-up programs. BNSF
Railway has accruals of approximately $194 million for remediation and
restoration of all known sites. BNSF Railway anticipates that the majority of
the accrued costs at June 30, 1998, will be paid over the next five years. No
individual site is considered to be material.
Liabilities recorded for environmental costs represent BNSF Railway's best
estimates for remediation and restoration of these sites and include both
asserted and unasserted claims. Unasserted claims are not considered to be a
material component of the liability. Although recorded liabilities include
BNSF Railway's best estimates of all costs, without reduction for anticipated
recoveries from third parties, BNSF Railway'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
parties' 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, future charges to income for environmental liabilities
could 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;
therefore, management believes that it is unlikely that any identified
matters, either individually or in the aggregate, will have a material adverse
effect on BNSF Railway's consolidated financial position or liquidity.
The railroad industry, including BNSF Railway, is subject to future
requirements regulating air emissions from diesel locomotives that will
increase their operating costs. Final regulations applicable to new and
rebuilt locomotive engines were promulgated by the United States Environmental
Protection Agency ("EPA") and became effective June 15, 1998. The new
standards will be phased in between 2000 and 2005. BNSF Railway is
evaluating compliance requirements and associated costs. BNSF Railway has
also entered into agreements with the California State Air Resources Board and
the EPA regarding a program to reduce emissions in Southern California through
accelerated deployment of locomotives which comply with the federal standards.
Other claims and litigation
BNSF Railway and its subsidiaries are parties to a number of legal actions and
claims, various governmental proceedings and private civil suits arising in
the ordinary course of business, including those related to environmental
matters and personal injury claims. While the final outcome of these items
cannot be predicted with certainty, considering among other things the
meritorious legal defenses available, it is the opinion of management that
none of these items, when finally resolved, will have a material adverse
effect on the annual results of operations, financial position or liquidity of
BNSF Railway, although an adverse resolution of a number of these items could
have a material adverse effect on the results of operations in a particular
quarter or fiscal year.
4. Hedging activities
Fuel
BNSF Railway 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 various commodity swap and collar transactions
which are accounted for as hedges. Any gains or losses associated with
changes in market value of these hedges are deferred and recognized as a
component of fuel expense in the period in which the hedged fuel is purchased
and used. To the extent BNSF Railway hedges portions of its fuel purchases,
it may not fully benefit from decreases in fuel prices.
As of June 30, 1998, BNSF Railway had entered into forward purchases for
approximately 210 million gallons at an average price of approximately 47
cents per gallon, and fuel swaps for approximately 1.7 billion gallons at an
average price of approximately 50 cents per gallon.
The above prices do not include taxes, fuel handling costs, certain
transportation costs and any differences which may occur from time to time
between the price of commodities hedged and the purchase price of BNSF
Railway's diesel fuel.
BNSF Railway's fuel hedging program covers approximately 86 percent of
estimated fuel purchases for the remaining six months of 1998, and
approximately 56 percent, 40 percent, 19 percent and 4 percent of estimated
fuel purchases for 1999, 2000, 2001 and 2002, respectively. Hedge positions
are closely monitored to ensure that they will not exceed actual fuel
requirements in any period. Unrecognized losses from BNSF Railway's fuel
hedging transactions were approximately $65 million as of June 30, 1998. BNSF
Railway also monitors its hedging positions and credit ratings of its
counterparties and does not anticipate losses due to counterparty
nonperformance.
5. Sale of Investment in Pipeline Partnerships
Santa Fe Pacific Pipelines, Inc. ("SFP Pipelines"), an indirect, wholly-owned
subsidiary of BNSF Railway, served as the general partner of Santa Fe Pacific
Pipeline Partners, L.P. (the "Partnership") and of its operating partnership
subsidiary, SFPP, L.P. SFP Pipelines owned a two percent interest as the
Partnership's and SFPP, L.P.'s general partner and an approximate 42 percent
interest as limited partner of the Partnership. As general partner, SFP
Pipelines received two percent of all amounts available for distribution by
the Partnership and an additional incentive depending upon the level of cash
distributions paid to holders of limited partner interests in the Partnership
("Partnership Units"). SFP Pipeline Holdings, Inc., a wholly-owned subsidiary
of BNSF Railway ("SFP Holdings"), had outstanding $219 million principal
amount of Variable Rate Exchangeable Debentures due 2010 (the "VREDs") at
December 31, 1997.
In October 1997, SFP Pipelines and SFP Holdings entered into an agreement with
Kinder Morgan Energy Partners, L.P. ("Kinder Morgan") pursuant to which Kinder
Morgan acquired substantially all of SFP Pipelines' interests in the
Partnership and SFPP, L.P. for approximately $84 million in cash on March 6,
1998. The Partnership was liquidated as part of the transaction and each
Partnership Unit was converted into the right to receive 1.39 Kinder Morgan
common units. SFP Pipelines' 8,148,148 Partnership Units were converted into
the right to receive 11,325,925 Kinder Morgan common units. In addition, the
agreement called for the interest of SFP Pipelines in SFPP, L.P. to be
partially redeemed for a cash distribution of $5.8 million, with SFP Pipelines
retaining only a 0.5 percent special limited partnership interest in SFPP,
L.P. The Company recognized a $67 million one-time pre-tax gain ($32 million
after-tax) at the time of the sale.
Consummation of the transaction caused an "Exchange Event" under the VRED
agreement and in June 1998 all VRED holders received either cash equal to the
par value of the VREDs or partnership units of Kinder Morgan. As a result of
this transaction, substantially all of the Company's investment in the
Partnership and SFPP, L.P. and the VREDs were removed from the consolidated
balance sheet.
6. Related party transactions
BNSF Railway is involved with BNSF and certain of its subsidiaries in related
party transactions in the ordinary course of business which include payments
made on each other's behalf and performance of services. During the first six
months of 1998, BNSF Railway paid BNSF $112 million for state and federal
income taxes, which are reflected in changes in working capital in the
consolidated statement of cash flows.
Additionally, during the first six months of 1998, BNSF Railway had net
borrowings from BNSF of $225 million used to fund capital expenditures and
other investing activities. Interest is paid on intercompany notes payable at
a rate of 1.0% above the monthly average of the daily effective Federal Funds
rate. Interest expense is reflected in interest expense, related parties.
The notes are due on demand.
<PAGE>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Management's narrative analysis relates to the financial condition and results
of operations of The Burlington Northern and Santa Fe Railway Company and its
majority-owned subsidiaries (collectively "BNSF Railway", "Registrant" or
"Company"). BNSF Railway was formerly known as Burlington Northern Railroad
Company ("BNRR"). On December 31, 1996, The Atchison, Topeka and Santa Fe
Railway Company merged with and into BNRR and the name of the surviving
entity, BNRR, was changed to The Burlington Northern and Santa Fe Railway
Company. Additionally, on January 2, 1998, BNSF Railway's parent, Santa Fe
Pacific Corporation ("SFP"), merged with and into BNSF Railway.
For accounting purposes, the merger of ATSF into BNRR and the subsequent
merger of SFP into BNSF Railway were treated as a combination of subsidiaries
for the periods they were under common control. Accordingly, the consolidated
balance sheets at June 30, 1998 and December 31, 1997 and the consolidated
statements of income and cash flows for the three and six month periods ended
June 30, 1998 and 1997 have been adjusted to include the results of SFP and
ATSF. As a result, the amounts reported in the consolidated financial
statements of BNSF Railway will differ from amounts reported in BNSF Railway's
Form 10-Q for the three and six month periods ended June 30, 1997.
RESULTS OF OPERATIONS
- ---------------------
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997.
BNSF Railway recorded net income for the six months of 1998 of $569 million
compared with first six months 1997 net income of $411 million. The increase
in net income is a result of increased revenue in coal, merchandise and
intermodal sectors, partially offset by only a 3 percent increase in operating
expense despite a 9 percent increase in units handled. More moderate winter
weather in the first quarter of 1998 relative to 1997 and gains on real estate
portfolio sales contributed to the improvement. Additionally, as discussed in
Note 5 to the consolidated financial statements, the increase in net income
was partially due to a first quarter $67 million pre-tax gain ($32 million
after-tax) on the sale of substantially all of the Company's interest in Santa
Fe Pacific Pipeline Partners, L.P. Excluding the after-tax gain on the
pipelines sale, BNSF Railway's adjusted net income was $537 million for the
first six months of 1998.
<PAGE>
<TABLE>
<CAPTION>
REVENUES
The following table presents BNSF Railway's revenue information by commodity
for the six months ended June 30, 1998 and 1997:
<S> <C> <C> <C> <C> <C> <C>
Average Revenue
Revenues Units Per Unit
--------------- ------------ ----------------
1998 1997 1998 1997 1998 1997
(In Millions) (In Thousands)
Intermodal $1,166 $1,070 1,469 1,334 $ 794 $ 802
Coal 1,113 971 1,022 908 1,089 1,069
Agricultural Commodities 504 531 276 273 1,826 1,945
Chemicals 419 414 252 240 1,663 1,725
Metals and Minerals 398 360 328 293 1,213 1,229
Forest Products 305 283 173 165 1,763 1,715
Consumer Goods 276 246 178 163 1,551 1,509
Automotive 192 214 115 133 1,670 1,609
------ ------ ----- ----- ------ ------
Total Freight Revenues 4,373 4,089 3,813 3,509 $1,147 $1,165
===== ===== ====== ======
Other Revenues 5 (3)
------ ------
Total Operating Revenues $4,378 $4,086
====== ======
</TABLE>
Total revenues for the first six months of 1998 were $4,378 million or 7
percent higher compared with revenues of $4,086 million for the first six
months of 1997.
Intermodal revenues of $1,166 million for the first six months of 1998
increased $96 million or 9 percent reflecting increases in the direct
marketing, international and truckload sectors. Direct marketing revenues
benefited from increased units shipped for Yellow Freight, Roadway, ABF and
the United States Postal Service. International revenues were up due to
volume gains associated with diversion of traffic from Union Pacific
Corporation ("UP") to BNSF Railway and due to new business established with
Sealand and NYK. Truckload revenues increased due to volume growth from J.B.
Hunt and Schneider.
Coal revenues of $1,113 million for the first six months of 1998 increased
$142 million or 15 percent primarily due to favorable operating conditions as
a result of a more moderate winter in 1998, strong demand and volume gains
associated with the diversion of business from UP to BNSF Railway.
Agricultural commodities revenues of $504 million for the first six months of
1998 were $27 million or 5 percent lower than revenues for the first six
months of 1997 due to weak corn, soybean and barley exports through the
Pacific Northwest.
Chemicals revenues of $419 million for the second quarter of 1998 were $5
million higher than the second quarter of 1997. Increases in petroleum and
plastics were partially offset by weak fertilizer markets.
Metals and minerals revenues of $398 million for the first six months of 1998
were $38 million or 11 percent higher than the first six months of 1997 and
were led primarily by volume increases in steel products. Strength in
aluminum and rock and specialty minerals also contributed to the increase in
revenues.
Forest products revenues of $305 million for the first six months of 1998 were
$22 million or 8 percent higher than the first six months of 1997 primarily
due to printing paper volume gains as 1997 was impacted by severe winter
weather, increased Canadian newsprint imports and pulpboard volume gains as a
result of the diversion of traffic from UP to BNSF Railway. Additionally,
lumber volumes increased due to higher construction activity.
Consumer goods revenues of $276 million for the first six months of 1998 were
$30 million or 12 percent higher than the first six months of 1997 primarily
due to volume increases in corn syrup traffic to Mexico and increased sugar
traffic as 1997 was impacted by severe winter weather. Additionally,
government and machinery revenues increased as a result of increased Boeing
production.
Automotive revenues of $192 million for the first six months of 1998 were $22
million or 10 percent lower than the first six months of 1997 reflecting
decreases in volumes due to the loss of Ford's Southwestern United States
business, the General Motors strike and a rail industry shortage of equipment.
EXPENSES
Total operating expenses for the first six months of 1998 were $3,403 million,
an increase of $104 million or 3 percent, compared with operating expenses for
the first six months of 1997 of $3,299 million. The operating ratio improved
significantly to 77.7 percent for the first six months of 1998, compared with
an 80.7 percent operating ratio for the first six months 1997.
Compensation and benefits expenses of $1,392 million were $48 million or 4
percent higher than the first six months of 1997. The increase was primarily
due to higher scheduled wages related to volume driven increases to both
salaried and union employees as well as higher incentive compensation expenses
(1997 incentive compensation expense was substantially lower due to the impact
of the severe winter weather). Additionally, wages were higher because of
wage increases to both salaried and union employees.
Purchased services of $464 million for the first six months of 1998 were $37
million or 9 percent higher than the first six months of 1997 due principally
to volume driven increases in ramping, drayage and distribution services
expenses. Joint facility costs were also higher due to increased operations
over trackage rights gained from UP.
Equipment rents expenses for the first six months of 1998 of $394 million were
$7 million or 2 percent lower than the first six months of 1997 reflecting
lower private railcar expense, partially offset by higher leased equipment and
locomotive rent expenses.
Fuel expenses of $363 million for the first six months of 1998 were $19
million or 5 percent lower than the first six months of 1997, as a result of
an 8 cent or 11 percent decrease in the average price paid per gallon of
diesel fuel partially offset by a 6 percent volume driven increase in
consumption.
Materials and other expenses of $384 million for the first six months of 1998
were $18 million or 5 percent higher than the first six months of 1997
principally reflecting a decrease in credits from the sale of easements and
joint facility billings, partially offset by lower employee relocation and
material expenses.
Interest expense with external and related parties of $141 million for the
first six months of 1998 was $5 million or 4 percent higher than the first six
months of 1997 principally reflecting higher debt levels partially offset by
lower interest rates.
Other income (expense), net was $77 million higher than the first six months
of 1997 due primarily to the $67 million pre-tax gain on the pipelines sale in
the first quarter of 1998. Excluding the gain on the pipeline partnerships
sale, other income (expense), net for the first six months of 1998 was $10
million higher than 1997 due to gains on real estate portfolio sales,
partially offset by higher accounts receivable sale fees and lower equity in
earnings of pipelines due to the first quarter sale of this investment.
Income tax expense of $350 million was $102 million higher in the first six
months of 1998 due to higher pre-tax income and a higher effective tax rate
resulting from the sale of the Company's interest in the pipeline
partnerships.
<PAGE>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
COAL TRANSPORTATION CONTRACT LITIGATION
Reference is made to the discussion in Registrant's Report on Form 10-K
for the year ended December 31, 1997 and its Report on Form 10-Q for the
quarterly period ended March 31, 1998, of the action originally filed
against BNSF Railway by Southwestern Electric Power Company ("SWEPCO") in
the 102nd Judicial District Court for Bowie County, Texas seeking a
reduction of the transportation rates required to be paid under two coal
transportation contracts (Southwestern Electric Power Company v.
Burlington Northern Railroad Company, No. D-102-CV-91-0720). On March 13,
1998, the Supreme Court of Texas rendered judgment in favor of BNSF
Railway, unanimously affirming the decision of the Court of Appeals for
the Sixth Court of Appeals District of Texas, and assessing SWEPCO costs
of appeal (Southwestern Electric Power Company v. Burlington Northern
Railroad Company, No. 96-0684, Supreme Court of Texas). On April 7,
1998, SWEPCO served its Motion for Rehearing. The Supreme Court of
Texas overruled SWEPCO's motion for rehearing on June 5, 1998. This
matter is now considered terminated.
ENVIRONMENTAL PROCEEDINGS
Reference is made to the discussion in Registrant's Report on Form 10-K
for the year ended December 31, 1997 and its Report on Form 10-Q for the
quarterly period ended March 31, 1998, of the action originally filed
against BNSF Railway by the Wisconsin Department of Natural Resources
(State of Wisconsin v. Burlington Northern Railroad Company, Case No. 96
CV-403, Circuit Court, Douglas County, Wisconsin). On May 13, 1998, the
Circuit Court entered a judgment based on a stipulated settlement between
BNSF Railway and the State calling for BNSF Railway to reimburse the
State for $30,000 in costs and to pay a civil forfeiture of $85,000, a
penalty assessment of $18,700, an environmental assessment of $8,500,
and costs and attorneys' fees of $10,000, for a total of $152,200.
This matter is now considered terminated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See Index to Exhibits on page E-1 for a description of the
exhibits filed as part of this report.
B. Reports on Form 8-K
None.
<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.
THE BURLINGTON NORTHERN
AND SANTA FE RAILWAY COMPANY
(Registrant)
By: /s/ THOMAS N. HUND
-----------------------
Thomas N. Hund
Vice President and Controller
(On behalf of the Registrant and as
principal accounting officer)
Fort Worth, Texas
August 14, 1998
<PAGE>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
12 Computation of ratio of earnings to fixed charges.
27 Financial Data Schedule.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
Six Months
Ended June 30,
----------------
1998 1997
------ ------
Earnings:
Pre-tax income $ 919 $ 659
Add:
Interest and fixed charges,
excluding capitalized interest 141 136
Portion of rent under long-term
operating leases representative
of an interest factor 94 94
Amortization of capitalized interest 2 2
Less: Undistributed equity in earnings
of investments accounted for
under the equity method (8) (3)
------ ------
Total earnings available for fixed charges $1,148 $ 888
====== ======
Fixed charges:
Interest and fixed charges $ 148 $ 144
Portion of rent under long-term operating
leases representative of an interest
factor 94 94
------ ------
Total fixed charges $ 242 $ 238
====== ======
Ratio of earnings to fixed charges 4.74x(1) 3.73x
<FN>
(1)Earnings for the six months ended June 30, 1998 include a pre-tax gain on
the pipeline partnerships sale of $67 million. Excluding this gain, the
ratio for the six months ended June 30, 1998 would have been 4.47x.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Burlington Northern Santa Fe Railway Company's Consolidated Financial
Statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 641
<ALLOWANCES> 76
<INVENTORY> 211
<CURRENT-ASSETS> 1245
<PP&E> 24564
<DEPRECIATION> 4783
<TOTAL-ASSETS> 21782
<CURRENT-LIABILITIES> 2222
<BONDS> 4662
<COMMON> 0
0
0
<OTHER-SE> 7592
<TOTAL-LIABILITY-AND-EQUITY> 21782
<SALES> 0
<TOTAL-REVENUES> 4378
<CGS> 0
<TOTAL-COSTS> 3403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141
<INCOME-PRETAX> 919
<INCOME-TAX> 350
<INCOME-CONTINUING> 569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
