<PAGE>
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, 2000
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
(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.
Shares
Class Outstanding at July 31, 2000
----- ----------------------------
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).
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ----------------------------------------
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $2,233 $2,188 $4,470 $4,370
----------------- ----------------- ----------------- -----------------
Operating expenses:
Compensation and benefits 677 679 1,375 1,368
Purchased services 227 231 458 460
Depreciation and amortization 222 221 444 440
Equipment rents 176 181 355 374
Fuel 219 169 430 334
Materials and other 230 216 417 423
----------------- ----------------- ----------------- -----------------
Total operating expenses 1,751 1,697 3,479 3,399
----------------- ----------------- ----------------- -----------------
Operating income 482 491 991 971
Interest expense 47 46 94 93
Interest expense, related parties 29 29 60 58
Other income (expense), net 3 (4) - (5)
----------------- ----------------- ----------------- -----------------
Income before income taxes 409 412 837 815
Income tax expense 152 155 314 306
----------------- ----------------- ----------------- -----------------
Net income $ 257 $ 257 $ 523 $ 509
================= ================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 146 $ 79
Accounts receivable, net 392 394
Materials and supplies 204 255
Current portion of deferred income taxes 316 326
Other current assets 91 63
----------------- -----------------
Total current assets 1,149 1,117
Property and equipment, net 21,886 21,622
Other assets 928 898
----------------- -----------------
Total assets $23,963 $23,637
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,792 $ 2,052
Long-term debt due within one year 131 158
----------------- -----------------
Total current liabilities 1,923 2,210
Long-term debt 2,572 2,592
Intercompany notes payable 1,557 1,583
Deferred income taxes 6,187 6,063
Casualty and environmental liabilities 434 423
Employee merger and separation costs 290 302
Other liabilities 1,018 1,005
----------------- -----------------
Total liabilities 13,981 14,178
----------------- -----------------
Commitments and contingencies (See Notes 2, 5 and 6)
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 5,283 4,760
Accumulated other comprehensive deficit (7) (7)
----------------- -----------------
Total stockholder's equity 9,982 9,459
----------------- -----------------
Total liabilities and stockholder's equity $23,963 $23,637
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.THE BURLINGTON
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NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
Operating Activities:
Net income $ 523 $ 509
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 444 440
Deferred income taxes 133 179
Employee merger and separation costs paid (32) (40)
Other, net 44 (55)
Changes in current assets and liabilities:
Accounts receivable 2 107
Materials and supplies 51 -
Other current assets (28) (6)
Accounts payable and other current liabilities (266) 182
-------------- ---------------
Net cash provided by operating activities 871 1,316
============== ===============
Investing Activities:
Capital expenditures (636) (921)
Other, net (94) (376)
-------------- ---------------
Net cash used for investing activities (730) (1,297)
============== ===============
Financing Activities:
Proceeds from issuance of long-term debt 50 229
Payments on long-term debt (98) (227)
Net decrease in intercompany notes payable (26) -
Other, net - (2)
-------------- ---------------
Net cash used for financing activities (74) -
-------------- ---------------
Increase in cash and cash equivalents 67 19
Cash and cash equivalents:
Beginning of period 79 95
-------------- ---------------
End of period $ 146 $ 114
============== ===============
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 156 $ 156
Income taxes paid, net of refunds 258 71
</TABLE>
See accompanying notes to consolidated financial statements.
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<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, 1999. BNSF Railway
is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF).
The consolidated financial statements include the accounts of BNSF Railway and
its majority owned subsidiaries. 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 Railway's consolidated
financial position as of June 30, 2000 and the consolidated results of
operations for the three and six month periods ended June 30, 2000 and 1999 have
been included. For the three and six month periods ended June 30, 2000 and 1999,
the Company's comprehensive income was equal to net income.
Certain comparative prior year amounts in the consolidated financial statements
have been reclassified to conform to the current year presentation.
2. TERMINATION OF PROPOSED COMBINATION WITH CANADIAN NATIONAL RAILWAY COMPANY
On December 18, 1999, BNSF and Canadian National Railway Company (CN) entered
into an agreement to combine the two companies (Combination). See the
discussion under "Proposed Combination With Canadian National Railway Company"
in Note 1 to the Consolidated Financial Statements on pages 34-35 of BNSF's 1999
Annual Report to Shareholders, which information is hereby incorporated by
reference. On July 20, 2000, BNSF and CN announced their mutual termination of
the Combination Agreement with neither party paying any break-up fees.
The termination followed the imposition by the Surface Transportation Board
(STB) on March 17, 2000 of a 15-month moratorium on major railroad control
transactions (STB Ex Parte No. 582) and the July 14, 2000 decision of the United
States Court of Appeals for the District of Columbia upholding the STB's
authority to impose the moratorium and to preclude BNSF and CN from filing their
control application with the STB during the pendency of the moratorium.
Due to the termination of the Combination in July 2000, the Company expects to
expense approximately $20 to $25 million (pre-tax) in costs related to the
Combination during the third quarter. These costs would have been included as
part of the purchase price had the combination proceeded. At June 30, 2000, the
majority of the costs were deferred in the Company's balance sheet.
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3. DEBT
In April 2000, BNSF Railway issued $50 million of privately placed debt secured
by locomotives that were acquired in 1999. This debt carries an interest rate
of 7.8 percent and matures in April 2015.
4. EMPLOYEE MERGER AND SEPARATION COSTS
Current and long-term employee merger and separation liabilities totaling $347
million are included in the consolidated balance sheet at June 30, 2000, and
principally represent: (i) employee-related severance costs for the
consolidation of clerical functions; (ii) deferred benefits payable upon
separation or retirement to certain active conductors, trainmen and locomotive
engineers and employee-related severance costs for certain trainmen reserve
boards; and (iii) certain salaried employee severance costs. During the
first six months of 2000, the Company made employee merger and separation
payments of $32 million.
During the second quarter of 2000, the Company incurred $22 million of costs for
severance, medical and other benefit costs for approximately 150 involuntarily
terminated employees, primarily material handlers in mechanical shops and
trainmen reserve boards, as part of the Company's ongoing initiatives to reduce
operating expense by improving its efficiency. The initiative sought to
eliminate approximately 200 positions, with the remaining reductions through the
elimination of contract services. As of June 30, 2000, approximately 100
positions have been eliminated, with the remaining positions to be eliminated by
the first quarter of 2001. The majority of these costs have not been paid out
as of June 30, 2000.
In the second quarter of 1999, the Company incurred $48 million of
reorganization costs for severance, pension, medical and other benefit costs for
approximately 325 involuntarily terminated non-union employees that were part of
a program that sought to reduce operating expenses by eliminating 1,000 union
and 400 non-union positions through severances, normal attrition and the
elimination of contractors. No significant costs were incurred as a result of
eliminating the 1,000 union positions. Additionally, in 1999 the Company
recorded a $54 million credit for the reversal of certain liabilities associated
with the consolidation of clerical functions.
Liabilities related to the consolidation of clerical functions are paid to
affected union employees in the form of a lump-sum payment or payments made over
five to ten years, or in some cases, through retirement. Liabilities related to
deferred benefits payable to certain active conductors, trainmen and locomotive
engineers are paid upon the employee's separation or retirement and liabilities
related to severance costs for trainmen are paid in the form of a lump-sum
payment or payments made over one to three years. Liabilities principally
related to certain remaining salaried employee severances will be paid in the
form of a lump sum payment or over the next several years based on deferral
elections made by affected employees. At June 30, 2000, $57 million of the
remaining liabilities are included within current liabilities for anticipated
costs to be paid over the next twelve months.
5. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
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 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
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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 (CERCLA), 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 has been notified that it is a potentially responsible
party (PRP) for study and clean-up costs at approximately 31 Superfund sites for
which investigation and remediation payments are or will be made or are yet to
be determined (the Superfund sites) and, in many instances, is one of several
PRPs. In addition, BNSF Railway may be considered a PRP under certain other
laws. Accordingly, under CERCLA and other federal and state statutes, BNSF
Railway may be held jointly and severally liable for all environmental costs
associated with a particular site. If there are other PRPs, BNSF Railway
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.
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 BNSF Railway'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. BNSF Railway 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 the ability of other PRPs to
pay for clean-up, and historical trend analyses.
BNSF Railway is involved in a number of administrative and judicial proceedings
and other clean-up efforts at approximately 370 sites, including the Superfund
sites, at which it is participating in the study or clean-up, or both, of
alleged environmental contamination. BNSF Railway paid approximately $23 million
during the first six months of 2000 for mandatory and unasserted clean-up
efforts, including amounts expended under federal and state voluntary clean-up
programs. BNSF Railway has accruals of approximately $237 million for
remediation and restoration of all known sites. BNSF Railway anticipates that
the majority of the accrued costs at June 30, 2000, 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, 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.
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 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.
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6. HEDGING ACTIVITIES
FUEL
Historically, fuel expenses have approximated 10 percent of total operating
expenses; however, fuel costs during the first six months of 2000 make up 12
percent of total operating expenses due to increased fuel prices. Due to the
significance of diesel fuel expenses to the operations of BNSF Railway and the
historical volatility of fuel prices, the Company maintains a program to hedge
against fluctuations in the price of its diesel fuel purchases. The intent of
the program is to protect the Company's operating margins and overall
profitability from adverse fuel price changes by entering into fuel hedge
instruments based on management's evaluation of current and expected diesel fuel
price trends. However, to the extent the Company hedges portions of its fuel
purchases, it will not realize the impact of decreases in fuel prices.
Conversely, to the extent the Company does not hedge portions of its fuel
purchases, it may be adversely affected by increases in fuel prices. The fuel-
hedging program includes the use of commodity swap transactions that are
accounted for as hedges. Any gains or losses associated with changes in the
market value of the fuel swaps are deferred and recognized as a component of
fuel expense in the period in which the fuel is purchased and used. Based on
annualized fuel consumption during the first six months of 2000 and excluding
the impact of the hedging program, each one-cent increase in the price of fuel
would result in approximately $12 million of additional fuel expense on an
annual basis.
As of June 30, 2000, BNSF Railway had entered into fuel swaps for approximately
623 million gallons at an average price of approximately 50 cents per gallon.
The above price does not include taxes, transportation costs, certain other fuel
handling costs, and 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. Currently, BNSF Railway's fuel hedging program covers approximately 42
percent of estimated fuel purchases for the remaining six months of 2000, and
approximately 23 percent and 8 percent of estimated annual and quarterly fuel
purchases for 2001 and 2002, respectively. Hedge positions are closely monitored
to ensure that they will not exceed actual fuel requirements in any period.
Unrecognized gains from BNSF Railway's fuel swap transactions were approximately
$114 million as of June 30, 2000, of which $62 million relates to swap
transactions that will expire in 2000. BNSF Railway also monitors its hedging
positions and credit ratings of its counterparties and does not anticipate
losses due to counterparty nonperformance.
7. 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. Under the terms of a
tax allocation agreement with BNSF, BNSF Railway made federal and state income
tax payments, net of refunds, of $258 million and $71 million, respectively,
during the first six months of 2000 and 1999, which are reflected in changes in
working capital in the consolidated statement of cash flows.
BNSF Railway had a net intercompany receivable balance at June 30, 2000 of $71
million and a net payable balance of $99 million at December 31, 1999, which are
reflected in accounts receivable and accounts payable and other current
liabilities, respectively, in the consolidated balance sheet. Net intercompany
receivable or payable balances are settled in the ordinary course of business.
At June 30, 2000 and December 31, 1999, $1,769 and $1,734 million, respectively,
of intercompany notes payable to BNSF had a fixed interest rate of 6.9 percent.
The remaining notes payable in both years had a variable interest rate of 1.0
percent above the monthly average of the daily effective Federal Funds rate.
During the first six months of 2000, BNSF Railway and BNSF agreed to offset $614
million of the variable rate notes payable against $614 million of variable rate
notes receivable. BNSF Railway also had additional borrowings of $181 million
of variable rate notes and net borrowings of $35 million of 6.9 percent fixed
rate notes. Proceeds from borrowings are primarily used to fund capital
expenditures and other investing activities. Interest is paid semi-annually on
all intercompany notes payable. Interest expense on intercompany notes payable
is reflected in interest expense, related parties in the consolidated income
statement. The intercompany notes are due on demand; however, it is not
anticipated that BNSF Railway will be required to pay these obligations in the
next twelve months.
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At June 30, 2000 and December 31, 1999, BNSF Railway had $393 million and $765
million, respectively, of intercompany notes receivable from BNSF with a
variable interest rate of 1.0 percent above the monthly average of the daily
effective Federal Funds rate. The $372 million decrease in intercompany notes
receivable is primarily due to the offsetting of the $614 million of variable
rate notes receivable against the $614 million of variable rate notes payable,
as discussed above. Additionally, BNSF had additional net borrowings of $242
million during the first six months of 2000. Interest is collected semi-
annually on all intercompany notes receivable. The 2000 and 1999 balances
include a $130 million receivable of SFP Pipelines Holdings, Inc., a subsidiary
of BNSF Railway, from BNSF. Interest income on intercompany notes receivable is
reflected in interest expense, related parties in the consolidated income
statement.
In the BNSF Railway consolidated balance sheet, the intercompany notes payable
are presented net of the intercompany notes receivable discussed above. BNSF
Railway had net intercompany notes payable balances of $1,557 million and $1,583
million at June 30, 2000 and December 31, 1999, respectively.
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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).
Results of Operations
---------------------
Six months ended June 30, 2000 compared with six months ended June 30, 1999
BNSF Railway recorded net income for the first six months of 2000 of $523
million , compared with the first six months of 1999 net income of $509 million.
This increase is primarily due to a $100 million increase in revenues partially
offset by an $80 million increase in operating expenses. The increase in
operating expenses was lead by fuel expense, which increased $96 million
compared to the first six months of 1999.
Revenues
The following table presents BNSF Railway's revenue information by commodity for
the six months ended June 30, 2000 and 1999 and includes certain
reclassifications of prior year information to conform to current year
presentation:
<TABLE>
<CAPTION>
Average
Revenue
Revenues Cars/Units Per
Car/Unit
----------------------------- ----------------------------- -----------------------------
2000 1999 2000 1999 2000 1999
------------- ----------- ------------- ----------- ------------- ------------
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Carload $ 1,303 $ 1,261 889 880 $ 1,466 $ 1,433
Intermodal 1,272 1,169 1,655 1,503 769 778
Coal 1,054 1,109 994 1,041 1,060 1,065
Agricultural Commodities 585 597 325 326 1,800 1,831
Automotive 258 220 137 126 1,883 1,746
------------- ----------- ------------- ----------- ------------- ------------
Total Freight Revenues 4,472 4,356 4,000 3,876 1,118 1,124
============= =========== ------------- ------------
Other Revenues (2) 14
------------- -----------
Total Operating Revenues $ 4,470 $ 4,370
============= ===========
</TABLE>
Total revenues for the first six months of 2000 were $4,470 million or 2 percent
higher than revenues of $4,370 million for the first six months of 1999. The
increase primarily reflects increases in the carload, intermodal, and automotive
sectors, partially offset by lower coal and agricultural commodities revenues.
Average revenue per car/unit decreased slightly in the first six months of 2000
to $1,118 from $1,124 in the first six months of 1999.
Carload revenues of $1,303 million for the first six months of 2000 were $42
million or 3 percent higher than the first six months of 1999 due to increases
in most sectors. The increases were a result of increased plastics shipments in
the chemicals sector due to plant expansions, increased steel coil and other
metal loadings in the metals sector, increased loadings of sand and clay in the
minerals sector due to increased domestic oil production, increased shipments of
pulpboard and printing paper in the forest products sector, and strong increases
in perishables and vegetable shipments in the other consumer products sector.
Intermodal revenues of $1,272 million for the first six months of 2000 increased
$103 million or 9 percent reflecting increases in the international, direct, and
truckload sectors. International revenues were up due to increased loadings
from Maersk, Evergreen, OOCL, and Hyundai. Direct marketing revenues benefited
from increased units shipped for UPS. Truckload marketing revenues benefited
from increased shipments with Schneider National. These revenue increases were
partially offset by decreases in the intermodal marketing companies (IMC) sector
due to Union Pacific Corporation/CSX Intermodal, Inc. pricing pressures and
increased trucking capacity. In addition, IMC has been negatively affected by
eastern railroad service issues, which has resulted in some intermodal rail
traffic converting to highway service.
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Coal revenues of $1,054 million for the first six months of 2000 decreased $55
million or 5 percent compared to the first six months of 1999 due in part to
decreased demand as a result of continued mild weather and high levels of
existing inventory at power plants.
Agricultural commodities revenues of $585 million for the first six months of
2000 were $12 million or 2 percent lower than revenues for the first six months
of 1999 due to weak Pacific Northwest shipments of corn due to worldwide crop
competition, and decreased shipments of bulk foods and barley due to market
pricing issues. These decreases were partially offset by increased domestic
wheat and soybean exports.
Automotive revenues of $258 million for the first six months of 2000 were $38
million or 17 percent higher than the first six months of 1999. This increase
can be attributed to increased regional demand for General Motors, Nissan, Ford,
Honda, and Mitsubishi vehicles.
Expenses
Total operating expenses for the first six months of 2000 were $3,479 million,
an increase of $80 million or 2 percent, over 1999 despite a 3 percent increase
in cars and units handled. The increase in operating expenses was primarily due
to $96 million of higher fuel costs in 2000 compared to the first six months of
1999, despite a one percent decrease in consumption. For the first six months of
2000 and 1999, the operating ratio was 77.8 percent.
Compensation and benefits expenses of $1,375 million were $7 million or less
than 1 percent higher than the first six months of 1999 primarily due to
increased wages and benefits levels.
Purchased services of $458 million for the first six months of 2000 were $2
million or less than 1 percent lower than the first six months of 1999
principally due to lower joint facility charges, contract switching and
professional services partially offset by increased equipment maintenance costs
due to an increase in the number of locomotives under maintenance contracts.
Equipment rents expenses for the first six months of 2000 of $355 million were
$19 million or 5 percent lower than the first six months of 1999 due to a
decrease in lease rates as well as a decrease in the number of leased
agricultural commodity and coal cars.
Fuel expenses of $430 million for the first six months of 2000 were $96 million
or 29 percent higher than the first six months of 1999, as a result of a 17 cent
or 30 percent increase in the average all-in cost per gallon of diesel fuel.
Consumption was slightly lower in the first six months of 2000 at 578 million
gallons compared to 582 million gallons in the first six months of 1999. The
increase in the average all-in cost per gallon of diesel fuel includes a 36 cent
increase in the average purchase price, partially offset by the favorable impact
in 2000 from the Company's fuel hedging program of 10 cents per gallon compared
with additional expense from hedging of 9 cents per gallon in 1999.
Materials and other expenses of $417 million for the first six months of 2000
were $6 million or 1 percent lower than the first six months of 1999. This
decrease primarily reflects: (i) reorganization costs of $48 million incurred in
the second quarter of 1999 for severance, pension, medical and other benefit
costs for approximately 325 involuntarily terminated salaried employees, (see
Note 4 to the Company's consolidated financial statements) (ii) lower current
year environmental expenses and locomotive and freight car material costs
compared to 1999; and (iii) higher current year gains from easement sales.
Offsetting these decreases were: (i) $22 million of employee related severance,
medical and other benefit costs recorded in the second quarter of 2000 (see Note
4 to the Company's consolidated financial statements) for approximately 150
involuntarily terminated employees, primarily material handlers in mechanical
shops and trainmen reserve boards; (ii) the second quarter 1999 $54 million
reversal of certain liabilities associated with the consolidation of clerical
functions (see Note 4 to the Company's consolidated financial statements) and
(iii) the loss of previously earned state tax incentives.
Interest expense with external and related parties of $154 million for the first
six months of 2000 was $3 million or 2 percent higher than in the first six
months of 1999, principally reflecting higher interest rates. Total debt
decreased to $4,259 million at June 30, 2000 from $5,055 million at June 30,
1999.
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Other income (expense) was favorable by $5 million compared to the first six
months of 1999 primarily due to higher current year gains from land sales,
largely offset by increased fees from the sale of accounts receivable as a
result of higher interest rates.
Other Matters
-------------
Termination of Proposed Combination With Canadian National Railway Company
On December 18, 1999, BNSF and Canadian National Railway Company (CN) entered
into an agreement to combine the two companies (Combination). See the discussion
under "Proposed Combination With Canadian National Railway Company" in Note 1 to
the Consolidated Financial Statements on pages 34-35 of BNSF's 1999 Annual
Report to Shareholders, which information is hereby incorporated by reference.
On July 20, 2000, BNSF and CN announced their mutual termination of the
Combination Agreement with neither party paying any break-up fees.
The termination followed the imposition by the Surface Transportation Board
(STB) on March 17, 2000 of a 15-month moratorium on major railroad control
transactions (STB Ex Parte No. 582) and the July 14, 2000 decision of the United
States Court of Appeals for the District of Columbia upholding the STB's
authority to impose the moratorium and to preclude BNSF and CN from filing their
control application with the STB during the pendency of the moratorium.
Due to the termination of the Combination in July 2000, the Company expects to
expense approximately $20 to $25 million (pre-tax) in costs related to the
Combination during the third quarter. These costs would have been included as
part of the purchase price had the combination proceeded. At June 30, 2000, the
majority of the costs were deferred in the Company's balance sheet.
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 financial
position or liquidity of BNSF Railway, although an adverse resolution of a
number of these items in a single period could have a material adverse effect on
the results of operations in a particular quarter or fiscal year.
-11-
<PAGE>
Labor
The negotiating process for new, major collective bargaining agreements covering
all of BNSF Railway's union employees is underway. Wages, health and welfare
benefits, work rules, and other issues have traditionally been addressed through
industry-wide negotiations. These negotiations have generally taken place over
a number of months and have previously not resulted in any extended work
stoppages. The existing agreements remained in effect on January 1, 2000, and
will continue to remain in effect until new agreements are reached or the
Railway Labor Act's procedures (which include mediation, cooling-off periods,
and the possibility of Presidential intervention) are exhausted. The current
agreements provide for periodic wage increases until new agreements are reached.
Forward-Looking Information
To the extent that statements made by the Company relate to the Company's future
economic performance or business outlook, predictions or expectations of
financial or operational results, or refer to matters which are not historical
facts, such statements are "forward-looking" statements within the meaning of
the federal securities laws. These forward-looking statements involve a number
of risks and uncertainties, and actual results may differ materially. Factors
that could cause actual results to differ materially include, but are not
limited to, economic and industry conditions: material adverse changes in
economic or industry conditions, customer demand, effects of adverse economic
conditions affecting shippers, adverse economic conditions in the industries and
geographic areas that produce and consume freight, changes in fuel prices, and
labor difficulties including strikes; legal and regulatory factors: change in
laws and regulations and the ultimate outcome of shipper claims, environmental
investigations or proceedings and other types of claims and litigation; and
operating factors: technical difficulties, changes in operating conditions and
costs, competition and commodity concentrations as well as natural events such
as severe weather, floods and earthquakes. The factors noted, individually or in
combination could, among other things, limit demand and pricing, affect costs
and the feasibility of certain operations, or affect traffic and pricing levels.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
In the ordinary course of business, BNSF Railway utilizes various financial
instruments which inherently have some degree of market risk. The qualitative
and quantitative information presented in Item 7A of the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, describes significant aspects
of BNSF's financial instrument programs which have material market risk.
Presented below is updated quantitative information for those programs that have
changed significantly from the information reported in BNSF Railway's Form 10-K
for the year ended December 31, 1999.
COMMODITY PRICE SENSITIVITY
As discussed in Note 6 to the Company's consolidated financial statements, BNSF
Railway has a program to hedge against fluctuations in the price of its diesel
fuel purchases. The table below provides information about BNSF Railway's
diesel fuel hedging instruments that are sensitive to changes in diesel fuel
prices. The table presents notional amounts in gallons and the weighted average
contract price by contractual maturity date as of June 30, 2000. The prices
included in the table below do not include taxes, transportation costs, certain
other fuel handling costs and 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.
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------------------------------
Maturity Date
------------------------------------ Fair
2000 2001 2002 Total Value (1)
---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions) 245 277 101 623 $114
Weighted average price per
gallon $0.50 $0.49 $0.50 $0.50 -
</TABLE>
(1) Represents unrecognized gains (in millions) based on the price of Gulf Coast
#2 heating oil.
-12-
<PAGE>
The BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the discussion in the Company's Form 10-K for the year
ended December 31, 1999, and its Form 10-Q for the quarter ended March 31,
2000, of the petitions for expedited review filed with the United States
Court of Appeals for the District of Columbia with respect to the United
States Surface Transportation Board's decision to impose a 15-month
moratorium on the filing of railroad merger applications (Burlington
Northern Santa Fe Corporation and The Burlington Northern and Santa Fe
Railway Company v. Surface Transportation Board and Untied States of
America, No. 00-1120) On July 14, 2000, the court issued its decision
denying BNSF's petition for review and upholding the STB's authority to
impose the moratorium. On July 20, 2000, BNSF and CN mutually agreed to
terminate their proposed combination and their amended and restated
Combination Agreement dated as of December 18, 1999. 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
The Registrant has filed no Current Reports on Form 8-K since those
reported in its quarterly report on Form 10-Q for the quarter ended March
31, 2000.
-13-
<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/ Dennis R. Johnson
----------------------
Dennis R. Johnson
Vice President and Controller
(On behalf of the Registrant and as principal
accounting officer)
Fort Worth, Texas
August 14, 2000
-14-
<PAGE>
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
Exhibit Index
12.1 Computation of Ratio of Earnings to Fixed Charges
13.1 1999 Annual Report to Shareholders of Burlington Northern Santa Fe
Corporation (pages 34-35 only)
27.1 Financial Data Schedule for the quarter ended June 30, 2000
27.2 Restated Financial Data Schedule for the quarter ended June 30, 1999
