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 MARCH 31, 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) 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
Shares Outstanding
Class as of April 30, 1998
Common Stock, par value $1.00* 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)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $2,161 $2,023
Operating expenses:
Compensation and benefits 702 692
Purchased services 231 216
Depreciation and amortization 202 190
Equipment rents 191 200
Fuel 182 196
Materials and other 206 200
----- -----
Total operating expenses 1,714 1,694
----- -----
Operating income 447 329
Interest expense 45 47
Interest expense, related parties 28 19
Other income (expense), net 84 2
----- -----
Income before income taxes 458 265
Income tax expense 180 100
----- -----
Net income $ 278 $ 165
====== ======
</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)
March 31, December 31,
1998 1997
------ ------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 273 $ -
Accounts receivable, net 566 632
Materials and supplies 213 205
Current portion of deferred income taxes 333 333
Other current assets 30 27
------- -------
Total current assets 1,415 1,197
Property and equipment, net 19,363 19,152
Other assets 1,024 850
------- -------
Total assets $21,802 $21,199
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,973 $ 1,981
Long-term debt due within one year 108 108
------- -------
Total current liabilities 2,081 2,089
Long-term debt 2,749 2,750
Intercompany notes payable 2,288 2,063
Deferred income taxes 5,203 5,172
Casualty and environmental liabilities 431 448
Employee, merger and separation costs 444 469
Other liabilities 1,304 1,185
------- -------
Total liabilities 14,500 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 4,707 4,706
Retained earnings 2,602 2,324
Accumulated other comprehensive income (7) (7)
------- -------
Total stockholder's equity 7,302 7,023
------- -------
Total liabilities and stockholder's
equity $21,802 $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)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 278 $ 165
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 202 190
Deferred income taxes 31 40
Employee, merger and separation costs paid (30) (31)
Other, net (45) (15)
Sale of accounts receivable 19 20
Changes in working capital 40 (458)
------ ------
Net cash provided by (used for)
operating activities 495 (89)
------ ------
Investing Activities:
Cash used for capital expenditures (366) (296)
Other, net (82) (35)
------ ------
Net cash used for investing activities (448) (331)
------ ------
Financing Activities:
Proceeds from issuance of long-term debt 27 21
Payments on long-term debt (26) (100)
Net increase in intercompany notes payable 225 478
Other, net - 1
------ ------
Net cash provided by financing activities 226 400
------ ------
Increase decrease in cash and cash equivalents 273 (20)
Cash and cash equivalents:
Beginning of period - 20
------ ------
End of period $ 273 $ -
====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 60 $ 51
Income taxes paid (refunds), net (31) 162
</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 the 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 Railways parent,
Santa Fe Pacific Corporation (SFP), merged with and into BNSF Railway. All
significant intercompany accounts and transactions have been eliminated.
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's
consolidated financial position as of March 31, 1998 and December 31, 1997 and
the consolidated results of operations for the three month periods ended March
31, 1998 and 1997 have been included.
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 March 31, 1998 and December 31, 1997 and the consolidated
statements of income and cash flows for the three month periods ended
March 31, 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 Railways
Form 10-Q for the three month period ended March 31, 1997.
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
quarters ended March 31, 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
$521 million are included in the consolidated balance sheet at March 31, 1998.
During the first three months of 1998, the Company paid $30 million of
employee, merger and separation costs.
At March 31, 1998, approximately $77 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. In addition, certain merger-related costs have been
recorded as operating expenses.
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 352 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 $11 million
during the first three 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 $200 million for
remediation and restoration of all known sites. BNSF Railway anticipates that
the majority of the accrued costs at March 31, 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 Environmental Protection
Agency on April 16, 1998. These regulations, which in most respects become
effective June 15, 1998, will be phased in between 2000 and 2010. Under some
interpretations of federal law, older locomotive engines may be regulated by
states based on standards and procedures which the State of California
ultimately adopts. The State of California has previously indicated to the
Environmental Protection Agency that it will support the federal rule as
proposed subject to slight technical modifications. Presently, the magnitude
of any future expense is unknown.
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 March 31, 1998, BNSF Railway had entered into forward purchases for
approximately 330 million gallons at an average price of approximately 47
cents per gallon, and fuel swaps for approximately 1.2 billion gallons at an
average price of approximately 52 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 85 percent of
estimated fuel purchases for the remaining nine months of 1998, and
approximately 35 percent, 25 percent and 10 percent of estimated fuel
purchases for 1999, 2000 and 2001, 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 $63 million as of March 31, 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 direct, wholly-owned
subsidiary of BNSF Railway (SFP Holdings), had outstanding $219 million
principal amount of Variable Rate Exchangeable Debentures due 2010 (the
"VREDs") at March 31, 1998.
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 Units 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 BNSF Railway 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 VRED holders became eligible to receive either cash equal to the
par value of the VREDs or substantially all of the Kinder Morgan units
received by SFP Pipelines in exchange for its Partnership Units. Kinder
Morgan has agreed to pay and perform all obligations of SFP Holdings related
to the VREDs and has agreed to indemnify and hold harmless BNSF and its
subsidiaries from and against any and all losses, costs, damages, expenses,
liabilities and claims arising or resulting from or relating to, among other
things, the Partnership, SFPP, L.P. or the VREDs.
In April 1998, an amendment to the VREDs Registration Statement on Form S-4
announcing the intention to offer to exchange the VREDs for the partnership
units of Kinder Morgan was filed. Subsequently, an exchange prospectus was
distributed to unit holders who have until May 26, 1998 to elect to exchange
the VREDs. Any unit holders who do not elect the exchange will have their
VREDs redeemed in cash.
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
three months of 1998, BNSF Railway received refunds from BNSF of $31 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 three months of 1998, BNSF Railway had net
borrowings from BNSF of $225 million used to fund capital expenditures and
other operating activities. These borrowings increased intercompany notes
payable from $2,063 million to $2,288 million. 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 ("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 ("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.
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 March 31, 1998 and December 31, 1997 and the consolidated
statements of income and cash flows for the three month periods ended
March 31, 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 month period ended March 31, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997.
BNSF Railway recorded net income for the first quarter of 1998 of $278
million, compared with first quarter 1997 net income of $165 million. The
increase in net income is a result of increased revenue in coal, merchandise
and intermodal sectors, partially offset by only a 1 percent increase in
operating expense despite an 8 percent increase in cars and units handled. In
addition, more moderate winter weather in the first quarter of 1998 relative
to 1997 and the initial phase of a real estate portfolio sale 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 $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 $246 million for the first quarter of 1998.
<PAGE>
REVENUES
<TABLE>
<CAPTION>
The following table presents BNSF Railway's revenue information by commodity for
the three months ended March 31, 1998 and 1997 and includes certain
reclassifications of prior year information to conform to current year
presentation.
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
------------ ------------- -----------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermodal $ 561 $ 516 19,448 18,232 $28.85 $28.30
Coal 558 489 49,160 39,653 11.35 12.33
Agricultural Commodities 279 292 14,481 15,153 19.27 19.27
Chemicals 197 191 8,051 7,201 24.47 26.52
Metals and Minerals 194 175 8,792 7,350 22.07 23.81
Forest Products 147 136 6,829 6,049 21.53 22.48
Consumer Goods 132 118 4,852 4,407 27.21 26.78
Automotive 92 106 1,501 1,579 61.29 67.13
------ ------ ------- ------ ------ ------
Total Freight Revenues 2,160 2,023 113,114 99,624 $19.10 $20.31
======= ====== ====== ======
Other Revenues 1 -
------ ------
Total Operating Revenues $2,161 $2,023
====== ======
</TABLE>
Total revenues for first quarter of 1998 were $2,161 million or 7 percent
higher compared with revenues of $2,023 million for the first quarter of 1997.
Intermodal revenues of $561 million for the first quarter of 1998 increased
$45 million or 9 percent reflecting increases in all sectors. Direct
marketing revenues benefited from increased units shipped for Yellow Freight.
International revenues were up due to volume gains associated with diversion
of traffic from Union Pacific Corporation ("UP") to BNSF Railway. Truckload
revenues increased due to volume growth from J.B. Hunt and Schneider, and from
new Triple Crown business.
Coal revenues of $558 million for the 1998 first quarter increased $69 million
or 14 percent primarily due to favorable operating conditions as a result of a
more moderate winter in 1998 and from volume gains associated with the
diversion of business from UP to BNSF Railway.
Agricultural Commodities revenues of $279 million for the 1998 first quarter
were $13 million or 4 percent lower than revenues for the 1997 first quarter
due to weak corn and wheat export markets through the Pacific Northwest.
Metals and minerals revenues of $194 million for the first quarter of 1998
were $19 million or 11 percent higher than the first quarter of 1997 and were
led primarily by volume increases in steel products. Strength in the
aluminum, clay and rock and specialty minerals also contributed to the
increase in revenues.
Forest products revenues of $147 million for the 1998 first quarter were $11
million or 8 percent higher than the 1997 first quarter primarily due to
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 $132 million for the 1998 first quarter were $14
million or 12 percent higher than the 1997 first quarter primarily due to
volume increases in corn syrup traffic to Mexico and a milder winter in 1998
which favorably impacted sugar traffic. Additionally, government and
machinery revenues increased due primarily to higher movements for Boeing.
Automotive revenues of $92 million for the 1998 first quarter were $14 million
or 13 percent lower than the first quarter of 1997 reflecting decreases in
volume due to the loss of Ford's Southwestern United States business and a
rail industry shortage of vehicle carriers.
EXPENSES
Total operating expenses for the first quarter of 1998 were $1,714 million, an
increase of $20 million or 1 percent, compared with operating expenses for the
1997 first quarter of $1,694 million. The operating ratio improved
significantly to 79.3 percent for the first quarter of 1998, compared with an
83.7 percent operating ratio for the first quarter 1997.
Compensation and benefits expenses of $702 million were $10 million or 1
percent higher than the first quarter of 1997. The increase was primarily due
to wage increases, higher incentive compensation expense (minimal amounts were
earned in the first quarter of 1997) and increased employment, partially
offset by increased operating efficiency due to less severe weather in the
first quarter of 1998.
Purchased services of $231 million for the first quarter of 1998 were $15
million or 7 percent higher than the 1997 first quarter due principally to
volume driven increases in ramping, drayage and distribution services
expenses.
Equipment rents expenses for the first quarter of 1998 of $191 million were $9
million or 5 percent lower than the 1997 first quarter reflecting lower
private railcar expense and lower time and mileage payments for freight cars
as a result of improved equipment utilization.
Fuel expenses of $182 million for the first quarter of 1998 were $14 million
or 7 percent lower than the first quarter of 1997, as a result of a 9 cent or
13 percent decrease in the average price paid per gallon of diesel fuel
partially offset by a 7 percent increase in consumption.
Materials and other expenses of $206 million for the first quarter of 1998
were $6 million or 3 percent higher than the 1997 first quarter principally
reflecting a decrease in credits from the sale of easements, and higher
casualty and locomotive material expenses, partially offset by lower personal
injury and employee relocation expenses.
Interest expense with external and related parties of $73 million for the
first quarter of 1998 was $7 million or 11 percent higher than in the first
quarter of 1997, primarily due to higher debt levels, which increased from
$4,921 million at December 31, 1997 to $5,145 million at March 31, 1998.
Other income (expense), net was $82 million higher than the 1997 first quarter
due primarily to the $67 million pre-tax gain on the pipelines sale in 1998.
Excluding the gain on the pipeline partnerships sale, other income (expense),
net for the first quarter of 1998 was $15 million higher than 1997 due to
gains on the initial phase of a real estate portfolio sale. This increase was
partially offset by higher accounts receivable sale fees due to the increase
in receivables sold.
Income tax expense of $180 million was $80 million higher in the first quarter
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 of the action originally filed against
BNSF Railway by Southwestern Electric Power Company ("SWEPCO") in the 102nd
Judicial 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 Texas
Supreme Court 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 which is pending.
ENVIRONMENTAL PROCEEDINGS
Reference is made to the discussion in Registrant's Report on Form 10-K
for the year ended December 31, 1997 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). BNSF Railway and the State have
reached a settlement in principle 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. A stipulation
signed by the parties would be subject to court approval.
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 the Registrant and as
principal accounting officer)
Schaumburg, Illinois
May 15, 1998
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.
E-1
<PAGE>
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)
Three Months
Ended March 31,
---------------
1998 1997
---- ----
Earnings:
Pre-tax income $ 458 $ 265
Add:
Interest and fixed charges,
excluding capitalized interest 73 66
Portion of rent under long-term
operating leases representative
of an interest factor 45 47
Amortization of capitalized interest 1 1
Less: Undistributed equity in earnings
of investments accounted for
under the equity method 3 (2)
----- -----
Total earnings available for fixed charges $ 574 $ 381
----- -----
Fixed charges:
Interest and fixed charges $ 76 $ 69
Portion of rent under long-term operating
leases representative of an interest
factor 45 47
----- -----
Total fixed charges $ 121 $ 116
----- -----
Ratio of earnings to fixed charges 4.74x(1) 3.28x
(1) Earnings for the quarter ended March 31, 1998 include a pre-tax
gain on the pipeline partnerships sale of $67 million. Excluding this
gain, the ratio for the quarter ended March 31, 1998 would have
been 4.19x.
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 273
<SECURITIES> 0
<RECEIVABLES> 631
<ALLOWANCES> 65
<INVENTORY> 213
<CURRENT-ASSETS> 1415
<PP&E> 24075
<DEPRECIATION> 4712
<TOTAL-ASSETS> 21802
<CURRENT-LIABILITIES> 2081
<BONDS> 5037
<COMMON> 0
0
0
<OTHER-SE> 7302
<TOTAL-LIABILITY-AND-EQUITY> 21802
<SALES> 0
<TOTAL-REVENUES> 2161
<CGS> 0
<TOTAL-COSTS> 1714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 458
<INCOME-TAX> 180
<INCOME-CONTINUING> 278
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</TABLE>
