UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act
Date of Report (Date of earliest event reported): November 10, 1998
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-6324 41-6034000
(Commission File Number) (I.R.S. Employer
Identification No.)
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)
(Not Applicable)
(Former Name or Former Address, If Changed Since Last Report)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. OTHER EVENTS
Attached as Exhibit 12.1 is a statement regarding computation of ratio of
earnings to fixed charges (as of September 30, 1998).
Attached as Exhibit 99.1 are the Company's consolidated financial
statements and notes thereto for the three and nine month periods ended
September 30, 1998.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits:
See Exhibit Index included herewith.
<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 hereunto duly authorized.
THE BURLINGTON NORTHERN AND SANTA FE
RAILWAY COMPANY
(Registrant)
Date: November 10, 1998 By:/s/ Thomas N. Hund
---------------------
(Signature)
Thomas N. Hund
Vice President and Controller
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------
12.1 Computation of ratio of earnings to fixed charges (as of September
30, 1998).
99.1 The Burlington Northern and Santa Fe Railway Company's consolidated
financial statements and notes thereto for the three month and nine
month periods ended September 30, 1998.
<PAGE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
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>
Nine Months Ended
September 30,
-------------------
1998 1997
-------- -------
Earnings:
Pre-tax income $ 1,444 $ 1,125
Add:
Interest and fixed charges,
excluding capitalized interest 220 207
Portion of rent under long-term
operating leases representative
of an interest factor 144 139
Amortization of capitalized interest 3 3
Less: Undistributed equity in earnings
of investments accounted for
under the equity method (12) (8)
-------- -------
Total earnings available for fixed charges $1,799 $1,466
======== =======
Fixed charges:
Interest and fixed charges $ 232 $ 220
Portion of rent under long-term operating
leases representative of an interest
factor 144 139
------ ------
Total fixed charges $ 376 $ 359
======= ======
Ratio of earnings to fixed charges 4.78x (1) 4.08x
<FN>
(1) Earnings for the nine months ended September 30, 1998 include a pre-tax
gain on the pipeline partnerships sale of $67 million. Excluding this gain,
the ratio for the nine months ended September 30, 1998 would have been 4.61x.
</TABLE>
<PAGE>
EXHIBIT 99.1
<TABLE>
<CAPTION>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1998 1997 1998 1997
-------- ------- ------- -------
Revenues $ 2,306 $ 2,137 $ 6,684 $ 6,223
------- ------- ------- -------
Operating expenses:
Compensation and benefits 694 660 2,086 2,004
Purchased services 243 217 707 644
Depreciation and amortization 211 195 617 574
Equipment rents 203 200 597 601
Fuel 178 173 541 555
Materials and other 164 151 548 517
------- ------- ------- -------
Total operating expenses 1,693 1,596 5,096 4,895
------- ------- ------- -------
Operating income 613 541 1,588 1,328
Interest expense 50 45 134 137
Interest expense, related parties 29 26 86 70
Other income (expense), net (9) (4) 76 4
------- ------- ------- -------
Income before income taxes 525 466 1,444 1,125
Income tax expense 195 175 545 423
------- ------- ------- -------
Net income $ 330 $ 291 $ 899 $ 702
======= ======= ======= =======
</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>
September 30, December 31,
ASSETS 1998 1997
Current assets:
Cash and cash equivalents $ 224 $ -
Accounts receivable, net 612 632
Materials and supplies 212 205
Current portion of deferred income taxes 327 333
Other current assets 43 27
-------- --------
Total current assets 1,418 1,197
Property and equipment, net 20,208 19,152
Other assets 731 850
-------- --------
Total assets $ 22,357 $ 21,199
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,986 $ 1,981
Long-term debt due within one year 261 108
-------- --------
Total current liabilities 2,247 2,089
Long-term debt 2,441 2,750
Intercompany notes payable 2,288 2,063
Deferred income taxes 5,493 5,172
Casualty and environmental reserves 418 448
Employee, merger and separation costs 420 469
Other liabilities 1,127 1,185
-------- --------
Total liabilities 14,434 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 3,224 2,324
Accumulated other comprehensive deficit (7) (7)
-------- ---------
Total stockholder's equity 7,923 7,023
-------- ---------
Total liabilities and stockholder's equity $ 22,357 $ 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>
Nine Months Ended
September 30,
-------------------
1998 1997
-------- --------
Operating Activities:
Net income $ 899 $ 702
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 617 574
Deferred income taxes 326 268
Employee, merger and separation costs paid (63) (86)
Other, net (128) (107)
Sale of accounts receivable 19 320
Other changes in working capital 21 (547)
-------- --------
Net cash provided by operating activities 1,691 1,124
-------- --------
Investing Activities:
Cash used for capital expenditures (1,558) (1,476)
Other, net (240) (123)
-------- --------
Net cash used for investing activities (1,798) (1,599)
-------- --------
Financing Activities:
Proceeds from issuance of long-term debt 207 179
Payments on long-term debt (92) (159)
Net increase in intercompany notes payable 225 458
Other, net (9) -
-------- --------
Net cash provided by financing activities 331 478
-------- --------
Increase in cash and cash equivalents 224 3
Cash and cash equivalents:
Beginning of period - 20
-------- --------
End of period $ 224 $ 23
======== ========
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 160 $ 155
Income taxes paid, net of refunds 98 170
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
</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. The consolidated balance
sheets at September 30, 1998 and December 31, 1997 and the consolidated
statements of income and cash flows for the three and nine month periods ended
September 30, 1998 and 1997 have been adjusted to include the results of SFP.
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 nine month periods ended September 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 September 30, 1998 and
December 31, 1997 and the consolidated results of operations for the three and
nine month periods ended September 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 nine month periods ended September 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
$488 million are included in the consolidated balance sheet at September 30,
1998. During the first nine months of 1998, the Company paid $63 million of
employee, merger and separation costs.
At September 30, 1998, $68 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 354 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 $36 million
during the first nine 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 $192 million for remediation and
restoration of all known sites. BNSF Railway anticipates that the majority of
the accrued costs at September 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 has
evaluated compliance requirements and associated costs and believes the costs
will not be material in any given year. 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 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 September 30, 1998, BNSF Railway had entered into fuel swaps for
approximately 1.9 billion gallons at an average price of approximately 49
cents per gallon and forward purchases for approximately 100 million gallons
at an average price of approximately 53 cents per gallon.
The above prices do not include taxes, transportation costs, certain other
fuel handling costs and, except for forward purchases, any differences which
may occur from time to time between the prices of commodities hedged and the
purchase price of BNSF Railway's diesel fuel.
BNSF Railway's fuel hedging program covers approximately 82 percent of
estimated fuel purchases for the remaining three months of 1998, and
approximately 75 percent, 40 percent, 22 percent and 7 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 $70 million based on Gulf Coast #2
heating oil as of September 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., an indirect, 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 partnership units
of Kinder Morgan or cash equal to the par value of the VREDs. 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
nine months of 1998, BNSF Railway paid BNSF $98 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 nine 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.
