<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 September 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 October 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 Nine Months Ended
September 30, September 30,
--------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenues $ 2,314 $ 2,338 $ 6,784 $ 6,708
-------- -------- -------- -------
Operating expenses:
Compensation and benefits 674 701 2,049 2,069
Purchased services 240 226 698 686
Depreciation and amortization 225 227 669 667
Equipment rents 192 190 547 564
Fuel 231 170 661 504
Materials and other 182 195 599 618
-------- -------- -------- -------
Total operating expenses 1,744 1,709 5,223 5,108
-------- -------- -------- -------
Operating income 570 629 1,561 1,600
Interest expense 45 46 139 139
Interest expense, related parties 25 29 85 87
Other income (expense), net (2) 36 (2) 31
-------- -------- -------- -------
Income before income taxes 498 590 1,335 1,405
Income tax expense 189 221 503 527
-------- -------- -------- -------
Net income $ 309 $ 369 $ 832 $ 878
======== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 128 $ 79
Accounts receivable, net 384 394
Materials and supplies 202 255
Current portion of deferred income taxes 325 326
Other current assets 102 63
----------------- -----------------
Total current assets 1,141 1,117
Property and equipment, net 22,059 21,622
Other assets 936 898
----------------- -----------------
Total assets $ 24,136 $ 23,637
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,889 $ 2,052
Long-term debt due within one year 132 158
----------------- -----------------
Total current liabilities 2,021 2,210
Long-term debt 2,528 2,592
Intercompany notes payable 1,240 1,583
Deferred income taxes 6,310 6,063
Casualty and environmental liabilities 437 423
Employee merger and separation costs 281 302
Other liabilities 1,028 1,005
----------------- -----------------
Total liabilities 13,845 14,178
----------------- -----------------
Commitments and contingencies (see notes 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 5,592 4,760
Accumulated other comprehensive deficit (7) (7)
----------------- -----------------
Total stockholder's equity 10,291 9,459
----------------- -----------------
Total liabilities and stockholder's equity $ 24,136 $ 23,637
================= =================
See accompanying notes to consolidated financial statements.
</TABLE>
2
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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Operating Activities:
Net income $ 832 $ 878
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 669 667
Deferred income taxes 248 351
Employee merger and separation costs paid (47) (80)
Other, net 64 (102)
Changes in current assets and liabilities:
Accounts receivable 10 59
Materials and supplies 53 (5)
Other current assets (39) (9)
Accounts payable and other current liabilities (179) 211
-------------- --------------
Net cash provided by operating activities 1,611 1,970
-------------- --------------
Investing Activities:
Capital expenditures (990) (1,357)
Other, net (139) (78)
-------------- --------------
Net cash used for investing activities (1,129) (1,435)
-------------- --------------
Financing Activities:
Proceeds from issuance of long-term debt 50 233
Payments on long-term debt (140) (273)
Net decrease in intercompany notes payable (343) (495)
Other, net - (14)
-------------- --------------
Net cash used for financing activities ( 433) ( 549)
-------------- --------------
Increase (decrease) in cash and cash equivalents 49 (14)
Cash and cash equivalents:
Beginning of period 79 95
-------------- --------------
End of period $ 128 $ 81
============== ==============
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 203 $ 210
Income taxes paid, net of refunds 338 83
See accompanying notes to consolidated financial statements.
</TABLE>
3
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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 September 30, 2000 and the consolidated results of
operations for the three and nine month periods ended September 30, 2000 and
1999 have been included. For the three and nine month periods ended September
30, 2000 and 1999, the Company's comprehensive income approximates 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 Circuit upholding the STB's
authority to impose the moratorium that precluded 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, BNSF recorded to other
income (expense) $20 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 been consummated.
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
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4. Employee Merger and Separation Costs
Current and long-term employee merger and separation liabilities totaling $332
million are included in the consolidated balance sheet at September 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 (iii) certain salaried employee severance costs. During the
first nine months of 2000, the Company made employee merger and separation
payments of $47 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 on 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 September 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 as of
September 30, 2000 primarily because most severed employees have elected to
receive payments over the next several years, rather than lump-sum payments.
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. 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 September 30, 2000, $51
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 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.
5
<PAGE>
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 375 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 $34
million during the first nine 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 $236 million for
remediation and restoration of all known sites. BNSF Railway anticipates that
the majority of the accrued costs at September 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 in a single period could have a material adverse effect on
the results of operations in a particular quarter or fiscal year.
6
<PAGE>
6. Hedging Activities
FUEL
Historically, fuel expenses have approximated 10 percent of total operating
expenses; however, fuel costs during the first nine months of 2000 represent 13
percent of total operating expenses due to significantly higher 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 may 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 nine 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 September 30, 2000, BNSF Railway had entered into fuel swaps for
approximately 500 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 three
months of 2000, and approximately 23 percent and 8 percent of estimated annual
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 $153 million as of September 30, 2000, of which $55 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 $338 million and $83 million, respectively,
during the first nine 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 September 30, 2000 of
$33 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 September 30, 2000 and December 31, 1999, $1,764 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. During the first nine months of 2000, BNSF
Railway also had additional net borrowings of $158 million of variable rate
notes and net borrowings of $30 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.
At September 30, 2000 and December 31, 1999, BNSF Railway had $682 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 $83 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 $531
million during the first nine months of 2000. Interest is collected semi-
annually on all intercompany notes receivable. The 2000 and 1999 balances
include a $130 million receivable due 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 $1,240 million and $1,583
million at September 30, 2000 and December 31, 1999, respectively.
7
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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
---------------------
Nine months ended September 30, 2000 compared with nine months ended September
30, 1999
BNSF Railway recorded net income for the first nine months of 2000 of $832
million, compared with the first nine months of 1999 net income of $878 million.
This decrease is primarily due to a $115 million increase in operating expenses
and an unfavorable change in other income (expense), partially offset by a $76
million increase in revenues. The increase in operating expenses was primarily
due to significantly higher fuel expense, which increased $157 million compared
to the first nine months of 1999.
Revenues
The following table presents BNSF Railway's revenue information by commodity for
the nine months ended September 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 Thousands)
<S> <C> <C> <C> <C> <C> <C>
Intermodal $ 1,959 $ 1,821 2,561 2,338 $ 765 $ 779
Carload 1,955 1,908 1,348 1,327 1,450 1,438
Coal 1,604 1,673 1,512 1,578 1,061 1,060
Agricultural Commodities 902 968 501 522 1,800 1,854
Automotive 365 319 191 183 1,911 1,743
----------- ----------- ------------- ----------- ------------- ------------
Total Freight Revenues 6,785 6,689 6,113 5,948 1,110 1,125
Other Revenues (1) 19 ============= =========== ------------- ------------
----------- -----------
Total Operating Revenues $ 6,784 $ 6,708
=========== ===========
</TABLE>
Total revenues for the first nine months of 2000 were $6,784 million or 1
percent higher than revenues of $6,708 million for the first nine months of
1999. Increases primarily reflect growth in the intermodal, carload, and
automotive sectors, partially offset by lower coal and agricultural commodities
revenues. Average revenue per car/unit decreased one percent in the first nine
months of 2000 to $1,110 from $1,125 in the first nine months of 1999.
Intermodal revenues of $1,959 million for the first nine months of 2000
increased $138 million or 8 percent reflecting increases in the international,
and truckload sectors partially offset by decreases in the IMC sector.
International revenues were up sharply due to increased loadings from Maersk,
NYK, and OOCL, resulting from increased Trans-Pacific trade and new customer
contracts. Truckload revenues benefited from increased shipments with Schneider
National. Revenue increases were partially offset by decreases in the IMC
sector due to the loss of shipments to Union Pacific Corporation due to pricing
pressure and strong over-the-road competition.
Carload revenues of $1,955 million for the first nine months of 2000 were $47
million or 2 percent higher than the first nine months of 1999 due to increases
in all sectors. The increases were a result of 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 in the Forest Products sector, strong increases in Perishables and
other Consumer Products sectors due to increased citrus and vegetable shipments,
and increased shipments from beverage and food shippers.
8
<PAGE>
Coal revenues of $1,604 million for the first nine months of 2000 decreased $69
million or 4 percent compared to the first nine 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 $902 million for the first nine months of
2000 were $66 million or 7 percent lower than revenues for the first nine months
of 1999 due to weak Pacific Northwest and Mexico shipments of corn, and
decreased shipments of Gulf and Pacific Northwest wheat, both caused by
worldwide crop competition, decreased shipments of bulk foods and barley due to
market pricing issues and decreased shipments of soybeans due to reduced
exports.
Automotive revenues of $365 million for the first nine months of 2000 were $46
million or 14 percent higher than the first nine months of 1999. This increase
can be attributed to increased regional demand for vehicles.
Expenses
Total operating expenses for the first nine months of 2000 were $5,223 million,
an increase of $115 million or 2 percent, over 1999 on a 3 percent increase
in cars and units handled and a $157 million increase in fuel expenses. The
operating ratio of 77.0 percent for the first nine months of 2000 was higher
than the 76.1 operating ratio for the same period of 1999 due to significantly
higher fuel costs to date in 2000.
Compensation and benefits expenses of $2,049 million were $20 million or 1
percent lower than the first nine months of 1999 primarily due to lower
employment levels and reduced incentive expense offset by increased base wages.
Purchased services of $698 million for the first nine months of 2000 were $12
million or 2 percent higher than the first nine months of 1999 principally due
to increased equipment maintenance costs due to an increase in the number of
locomotives under maintenance contracts, and higher ramping and drayage expenses
due to increased intermodal volume partially offset by lower joint facility
costs.
Equipment rents expenses for the first nine months of 2000 of $547 million were
$17 million or 3 percent lower than the first nine 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, partially offset by increased locomotive
rental expense.
Fuel expenses of $661 million for the first nine months of 2000 were $157
million or 31 percent higher than the first nine months of 1999, as a result of
a 18 cent or 32 percent increase in the average all-in cost per gallon of diesel
fuel. Consumption was slightly lower in the first nine months of 2000 at 871
million gallons compared to 877 million gallons in the first nine months of
1999. The increase in the average all-in cost per gallon of diesel fuel
includes a 34 cent increase in the average purchase price, partially offset by
the favorable impact in 2000 from the Company's fuel hedging program of 12 cents
per gallon compared with additional expense from hedging of 4 cents per gallon
in 1999.
Materials and other expenses of $599 million for the first nine months of 2000
were $19 million or 3 percent lower than the first nine 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 other materials 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); (iii) the loss of
previously earned state tax incentives in the second quarter 2000; and (iv)
higher costs in 2000 related to the maintenance of leased equipment.
Interest expense with external and related parties of $224 million for the first
nine months of 2000 was $2 million or 1 percent lower than in the first nine
months of 1999, principally reflecting lower intercompany debt levels. Total
debt decreased to $3,900 million at September 30, 2000 from $4,518 million at
September 30, 1999.
9
<PAGE>
Other income (expense) was unfavorable by $33 million compared to the first nine
months of 1999 primarily due to the recognition in the third quarter of 1999 of
a gain of $37 million (pre-tax) in connection with prior period line sales that
was partially offset by costs related to those sales.
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 Circuit upholding the STB's
authority to impose the moratorium that precluded 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, BNSF recorded to
other income (expense) $20 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 been consummated.
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.
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.
The National Carriers' Conference Committee, BNSF Railway's multiemployer
collective bargaining representative, recently reached a tentative agreement
with the United Transportation Union (UTU) covering wage and work rule issues
through the year 2004 for conductors, brakemen, yardmen, yardmasters and firemen
(approximately one third of BNSF's unionized workforce). The agreement is
subject to ratification by the UTU's membership. Health and welfare benefit
issues were not resolved by this agreement, and will remain the subject of
continuing negotiations.
10
<PAGE>
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,
changes in labor costs, and labor difficulties including strikes; legal and
regulatory factors: changes in and new 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 September 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>
September 30, 2000
----------------------------------------------------------------
Maturity Date
------------------------------------ Fair
2000 2001 2002 Total Value (1)
---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions) 123 277 101 501 $153
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.
11
<PAGE>
The BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
PART II OTHER INFORMATION
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
June 30, 2000.
12
<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
November 13, 2000
13
<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) under the heading "Proposed Combination
with Canadian National Railway Company"
27.1 Financial Data Schedule for the quarter ended September 30, 2000
27.2 Restated Financial Data Schedule for the quarter ended September 30, 1999
E-1
