<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10595
SFP PIPELINE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3713699
(State of incorporation) (I.R.S. Employer Identification No.)
301 NUGGET AVENUE
SPARKS, NEVADA 89431
(Address of principal executive offices, including zip code)
(702) 358-6971
(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 [_]
NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ($0.01 PAR VALUE)
AS OF AUGUST 13, 1997: 1,000.
THE 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.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the discussion of the current status of certain litigation
appearing at "Part II, Item 1. Legal Proceedings" in the Partnership's Form 10-Q
for the quarter ended June 30, 1997, which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
Exhibit 13.1 Form 10-Q of Santa Fe Pacific Pipeline Partners, L.P. for
the quarter ended June 30, 1997. (Previously filed)
Exhibit 13.2 Form 10-Q of Burlington Northern Santa Fe Corporation for
the quarter ended June 30, 1997.
Exhibit 27 Financial Data Schedule as of and for the six months ended
June 30, 1997. (Previously filed)
(b) Reports on Form 8-K filed during the quarter ended June 30, 1997: None.
<PAGE>
SIGNATURE
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.
SFP PIPELINE HOLDING, INC
(Registrant)
Date: August 13, 1997 By: /s/ BARRY R. PEARL
-----------------------------------
Barry R. Pearl
Senior Vice President, Treasurer
and Chief Financial Officer
(On behalf of the Registrant)
<PAGE>
EXHIBIT 13.2
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, 1997
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 1-11535
BURLINGTON NORTHERN SANTA FE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-1804964
(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, 1997
----- ----------------------------
Common stock, $.01 par value 155,552,835 shares
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars In Millions, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
------- -------- ------ --------
<S> <C> <C> <C> <C>
Revenues........................................................ $2,073 $2,024 $4,109 $ 4,051
Operating expenses:
Compensation and benefits .................................... 652 638 1,345 1,306
Purchased services............................................. 220 216 448 439
Equipment rents .....,...,.................................... 201 183 401 361
Depreciation and amortization.................................. 189 187 379 374
Fuel........................................................... 186 184 382 352
Materials and other............................................ 166 198 366 416
------ ------ ------ --------
Total operating expenses..................................... 1,614 l,606 3,321 3,248
------ ------ ------ --------
Operating income ............................................... 459 418 788 803
Interest expense .............................................. 85 73 169 148
Other income (expense), net..................................... - (1) (3) (5)
------ ------ ------ --------
Income before income taxes...................................... 374 344 616 650
Income tax expense ............................................ 139 133 231 252
------ ------ ------ --------
Net income...................................................... $ 235 $ 211 385 398
------ ------ ------ --------
Net income per common share..................................... $ 1.50 $ 1.35 $ 2.45 $ 2.56
------ ------ ------ --------
Average shares outstanding .................................... 157.2 156.1 157.2 155.6
------ ------ ------ --------
Dividends declared per common share............................. $ .30 $ .30 $ .60 $ .60
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 42 $ 47
Accounts receivable, net........................... 655 628
Materials and supplies............................. 205 222
Current portion of deferred income taxes........... 326 307
Other current assets............................... 58 44
------- -------
Total current assets............................. 1,286 1,248
Property and equipment, net.......................... 18,180 17,633
other assets......................................... 889 882
------- -------
Total assets..................................... $20,355 $19,763
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities..... $ 1,865 $ 2,063
Long-term debt due within one year................. 94 165
------- -------
Total current liabilities........................ 1,959 2,228
Long-term debt and commercial paper.................. 4,935 4,546
Deferred income taxes................................ 4,894 4,729
Casualty and environmental reserves.................. 518 543
Employee, merger and separation costs................ 440 466
Other liabilities.................................... 1,267 1,270
------- -------
Total liabilities................................ 14,013 13,782
------- -------
Commitments and contingencies (See note 4)
Stockholders' equity:
Common stock, $.01 par value, 300,000,000 shares
authorized; 154,988,847 shares and 154,198,088
shares issued, respectively....................... 2 2
Additional paid-in capital......................... 4,914 4,838
Retained earnings.................................. 1,458 1,165
Other.............................................. (32) (24)
------- -------
Total stockholders' equity....................... 6,342 5,981
------- -------
Total liabilities and stockholders' equity....... $20,355 $19,763
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1997 1996
------- ------
<S> <C> <C>
Operating Activities:
Net income ......................................... $ 385 $ 398
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 379 374
Deferred income taxes............................. 146 110
Employee, merger and separation costs paid........ (55) (98)
Other, net........................................ (46) (5)
Sale of accounts receivable....................... 320 30
Other changes in working capital.................. (496) (96)
------ ------
Net cash provided by operating activities............. 633 713
------ ------
Investing Activities:
Cash used for capital expenditures................... (845) (822)
Other, net........................................... (75) 18
------ ------
Net cash used for investing activities................ (920) (804)
------ ------
Financing Activities:
Net increase (decrease) in commercial paper and
bank loans ........................................ 234 (270)
Proceeds from issuance of long-term debt............. 213 375
Payments on long-term debt........................... (125) (41)
Dividends paid....................................... (92) (93)
Proceeds from stock options exercised................ 50 95
Other, net .......................................... 2 (1)
------ ------
Net cash provided by financing activities............. 282 65
------ ------
Decrease in cash and cash equivalents................. (5) (26)
Cash and cash equivalents:
Beginning of period ................................ 47 5O
------ ------
End of period........................................ $ 42 $ 24
------ ------
Supplemental cash flow information:
Interest paid, net of amounts capitalized............ 165 150
Income taxes paid, net of refunds.................... 5 57
Assets financed through capital lease obligations.... - 33
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION 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 Santa Fe Corporation Annual Report on Form 10-K for the
year ended December 31, 1996, including the financial statements and notes
thereto incorporated by reference from the Registrant's 1996 Annual Report to
Shareholders. The consolidated financial statements include the accounts of
Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries
(collectively, "BNSF" or "Company"). BNSF was incorporated in Delaware on
December 16, 1994, for the purpose of effecting a business combination
between Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP)
which was consummated on September 22, 1995. The Company's principal
operating subsidiary is The Burlington Northern and Santa Fe Railway Company
(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 June 30, 1997 and December 31,
1996 and the consolidated results of operations for the three and six month
periods ended June 30, 1997 and 1996 have been included.
Certain comparative prior year amounts in the consolidated financial
statements 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
$527 million are included in the consolidated balance sheet at June 30, 1997.
During the first six months of 1997, the Company paid $55 million of
employee, merger and separation costs.
At June 30, 1997, approximately $87 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.
In addition to the above, certain merger and separation costs, including
relocation costs associated with clerical employees, have been recorded as
operating expenses in 1997 and will be in future periods. The Company
anticipates recording additional charges to operating expense within the next
twelve months principally related to voluntary separations of clerical
employees; however, the magnitude of such future expense is presently
unknown.
3. Accounts receivable, net
As discussed in Note 7 to the consolidated financial statements included in
the 1996 Annual Report to Shareholders, the Company had an accounts
receivable sale agreement effective through 1999. In June 1997, this
agreement was replaced by an amended and restated agreement which allows BNSF
Railway, through a special purpose subsidiary, to sell up to $600 million of
variable rate certificates which mature in 2002 evidencing undivided
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<PAGE>
interests in an accounts receivable master trust. The master trust's assets
include an ownership interest in a revolving portfolio of BNSF Railway's
accounts receivable which are used to support the certificates. At June 30,
1997, the maximum of $600 million of certificates sold were outstanding and
were supported by receivables of approximately $1.2 billion in the master
trust. BNSF Railway has retained the collection responsibility with respect
to the accounts receivable held in trust. BNSF Railway is exposed to credit
loss related to collection of accounts receivable to the extent that the
amount of receivables in the master trust exceeds the amount of certificates
sold. Costs related to such agreements vary on a monthly basis and are
generally related to certain interest rates. These costs are included in
Other income (expense), net.
4. 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'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'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 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 of the original
conduct on current and former owners and operators of a site.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 340 sites, at which it is
being asked to participate in the study or clean-up, or both, of alleged
environmental contamination. BNSF paid approximately $20 million during the
first six months of 1997 for mandatory clean-up efforts, including amounts
expended under federal and state voluntary clean-up programs. BNSF has
accruals of approximately $214 million for remediation and restoration of all
known sites. BNSF anticipates that the majority of the accrued costs at June
30, 1997, will be paid over the next five years. No individual site is
considered to be material.
Liabilities recorded for environmental costs represent BNSF'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's best
estimates of all costs, without reduction for anticipated recoveries from
third parties, BNSF'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's
consolidated financial position or liquidity.
The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that may
-5-
<PAGE>
increase their operating costs. Proposed regulations applicable to new
locomotive engines were issued by the Environmental Protection Agency in
early 1997, with final regulations to be promulgated by the end of the year.
It is anticipated that these regulations will be effective for new locomotive
engines installed after 1999 and through 2010 and will preempt state
regulation of locomotive emission standards. 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. At
this time, the State of California has indicated to the Environmental
Protection Agency that it will support the proposed federal rule subject to
slight technical modifications.
Other claims and litigation
BNSF 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, 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.
5. Hedging activities
Fuel
BNSF 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 hedges portions of its fuel purchases, it may not fully
benefit from decreases in fuel prices.
As of June 30, 1997, BNSF had entered into forward purchases for
approximately 110 million gallons at an average price of approximately 58
cents per gallon, and fuel swaps for approximately 740 million gallons at an
average price of approximately 54 cents per gallon.
The above prices do not include taxes, fuel handling costs, certain
transportation costs and, except for forward contracts, any differences which
may occur from time to time between the prices of commodities hedged and the
purchase price of BNSF's diesel fuel.
These contracts have expiration dates ranging from September 1997 to December
1999, with 370 million gallons expiring during the last six months of 1997,
430 million gallons expiring in 1998 and 50 million gallons expiring in 1999.
BNSF's current fuel hedging program covers approximately 70 percent of
projected fuel purchases for the remaining six months of 1997, approximately
40 percent of estimated 1998 fuel purchases and approximately 5 percent of
estimated 1999 fuel purchases. Hedge positions are closely monitored to
ensure that they will not exceed actual fuel requirements in any period.
Unrecognized losses from BNSF's fuel hedging transactions were approximately
$1 million at June 30, 1997. BNSF also monitors its hedging positions and
credit ratings of its counterparties and does not anticipate losses due to
counterparty nonperformance.
-6-
<PAGE>
Interest rate
BNSF has interest rate swap transactions, which fix the interest rate on the
total principal amount of $875 million of its commercial paper debt. The
interest rate swap transactions require payment of a weighted average fixed
interest rate of approximately 5.8 percent, and the receipt of a variable
interest rate based on a commercial paper composite rate and mature from
August 1997 through December 1999. Any gains and losses associated with
changes in market value of these hedges are deferred and recognized as a
component of interest expense in the period that corresponds with interest
expense for the related outstanding debt. Unrecognized losses from BNSF's
swap transactions were not material as of June 30, 1997.
-7-
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Santa Fe Corporation and its
majority-owned subsidiaries (collectively "BNSF", "Registrant" or "Company").
The Company's principal operating subsidiary is The Burlington Northern and
Santa Fe Railway Company ("BNSF Railway").
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
BNSF recorded net income for the second quarter of 1997 of $235 million or $1.50
per common share, compared with second quarter 1996 net income of $211 million
or $1.35 per common share.
REVENUES
The following table presents BNSF's revenue information by commodity for the
three months ended June 30, 1997 and 1996 and includes certain reclassifications
of prior year information to conform to current year presentation.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
---------------- ------------------ ------------------
1997 1996 1997 1996 1997 1996
------ ------ ------- ------- ------ ------
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Intermodal........................... $ 563 $ 503 19,670 17,486 $28.62 $28.77
Coal.................................. 482 490 42,054 41,736 11.46 11.74
Agricultural Commodities.............. 239 267 12,668 14,454 18.87 18.47
Chemicals............................. 212 199 7,765 7,485 27.30 26.59
Forest Products....................... 147 138 6,610 6,411 22.24 21.53
Consumer goods........................ 128 122 4,919 4,499 26.02 27.12
Automotive............................ 108 110 1,743 1,644 61.96 66.91
Metals................................ 105 103 4,828 5,059 21.75 20.36
Minerals.............................. 91 82 3,548 3,075 25.65 26.67
------ ------ ------- ------- ------ ------
Total Freight Revenues................ 2,075 2,014 103,805 101,849 19.99 19.77
Other Revenues........................ (2) 10 - - - -
------ ------ ------- ------- ------ ------
Total Operating Revenues.............. $2,073 $2,024 103,805 101,849 $19.99 $19.77
====== ====== ======= ======= ====== ======
</TABLE>
Intermodal revenues of $563 million for the second quarter of 1997 increased $60
million or 12 percent reflecting increases in all segments. The direct segment
benefited from increased units shipped for UPS, Yellow Freight, Roadway and
Consolidated Freightways. Truckload units increased due to volume growth from
J.B. Hunt and Schneider. International revenues were up due to volume gains for
OOCL, Hanjin, Hyundai, and Cosco.
Coal revenues of $482 million for the 1997 second quarter decreased $8 million
compared to revenues for the 1996 second quarter primarily due to lower volumes.
Agricultural Commodities revenues of $239 million for the 1997 second quarter
were $28 million or 10 percent lower than revenues of $267 million for the 1996
second quarter. This decrease is due to lower corn shipments in the Pacific
Northwest ("PNW") as well as lower wheat exports due to a poor Southern Plains
crop.
Chemical revenues of $212 million for the 1997 second quarter were $13 million
or 7 percent higher than the 1996 second quarter primarily due to increases in
both petroleum and agricultural chemicals.
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<PAGE>
Forest Products revenues of $147 million for the 1997 second quarter were $9
million or 7 percent higher than the 1996 second quarter primarily due to
increased demand in the lumber and paper industries.
Minerals revenues of $91 million for the 1997 second quarter were $9 million
higher than the second quarter of 1996 reflecting increases in all segments.
EXPENSES
Total operating expenses for the second quarter of 1997 were $1,614 million, an
increase of $8 million or 1 percent, compared with operating expenses for the
1996 second quarter Of $1,606 million. The operating ratio was 77.9 percent for
the second quarter of 1997, compared with a 79.3 percent operating ratio for the
second quarter 1996.
Compensation and benefits expenses of $652 million were $14 million or 2 percent
higher than the second quarter of 1996. A majority of the increase was due to
scheduled wages related to train crews and maintenance activities. Additionally,
wages were higher because of 1997 wage increases to both salaried and union
employees. These increases were partially offset by lower payroll related costs
and salaried employee incentive compensation expense.
Equipment rents expenses for the second quarter of 1997 of $201 million were $18
million or 10 percent higher than the 1996 second quarter reflecting higher
locomotive rents and a volume-related increase in intermodal equipment lease
expense.
Materials and other expenses of $166 million for the 1997 second quarter were
$32 million or 16 percent lower than the 1996 second quarter. Personal injury
expenses were lower reflecting the continuing benefits of employee safety
programs which have reduced injuries. Derailment expenses also decreased
compared to last year.
Interest expense for the second quarter of 1997 increased by $12 million to $85
million reflecting higher debt levels.
RESULTS OF OPERATIONS
- ---------------------
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
BNSF recorded net income for the first six months of 1997 of $385 million or
$2.45 per common share, compared with net income of $398 million or $2.56 per
common share for the first six months of 1996. The decrease in net income is
primarily due to severe weather in the first quarter of 1997 which affected BNSF
Railway operations throughout the Northern Plains and PNW for large portions of
the first quarter, partially offset by improved second quarter 1997 results.
The financial impact of recurring and protracted outages on many parts of the
system, the cost of repairing track, signals and equipment, and the operating
inefficiencies caused by the weather is virtually impossible to measure with
precision. However, the Company estimates that the severe weather in the first
quarter of 1997 resulted in lost revenue opportunities of approximately $100
million and increased operating expenses of at least $50 million.
-9-
<PAGE>
REVENUES
The following table presents BNSF's revenue information by commodity for the six
months ended June 30, 1997 and 1996 and includes certain reclassifications of
prior year information to conform to current year presentation.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
----------------- ----------------- -----------------
1997 1996 1997 1996 1997 1996
------ ------ ------- ------- ------- ------
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Intermodal.................................. $1,090 $ 994 37,902 34,187 $28.76 $29.08
Coal........................................ 971 968 81,707 82,696 11.88 11.71
Agricultural Commodities.................... 531 607 27,821 31,772 19.09 19.10
Chemicals................................... 403 386 14,966 14,455 26.93 26.70
Forest Products............................. 283 273 12,659 12,180 22.36 22.41
Consumer Goods.............................. 246 237 9,326 8,833 26.38 26.83
Automotive ................................. 215 208 3,322 3,137 64.72 66.31
Metals...................................... 206 208 9,238 10,038 22.30 20.72
Minerals.................................... 165 154 6,488 5,761 25.43 26.73
------ ------ ------- ------- ------ ------
Total Freight Revenues...................... 4,110 4,035 203,429 203,059 20.20 19.87
Other Revenues ............................ (1) 16 - - - -
------ ------ ------- ------- ------ ------
Total Operating Revenues.................... $4,109 $4,051 203,429 203,059 $20.20 $19.87
====== ====== ======= ======= ====== ======
</TABLE>
Intermodal revenues of $1,090 million for the first six months of 1997 increased
by $96 million compared to revenues for the same period of 1996. The increase
was due to improved results in all segments. The direct segment benefited from
increased units shipped for UPS, Yellow Freight, Roadway and Consolidated
Freightways. Truckload revenue increased due to volume growth from J.B. Hunt and
Schneider. International revenues were up due to volume gains for OOCL, Hanjin,
Hyundai, and Cosco.
Agricultural Commodities revenues of $531 million for the first half of 1997
were $76 million lower than revenues for the 1996 first six months. This
decrease was due primarily to first quarter weather related service problems in
the Northern Plains and PNW which principally affected corn shipments and a
decrease in shipments of wheat for export due to United States uncompetitiveness
in the world market.
Chemicals revenues of $403 for the first half of 1997 were $17 million or 4
percent higher than the first half of 1996 led primarily by growth in petroleum
and plastics revenues.
Forest Products revenues of $283 million for the six months ended June 30, 1997
increased $l0 million or 4 percent compared to the same period of 1996. The
increase was primarily due to increased demand in the paper and construction
industries.
Minerals revenues of $165 for the first half of 1997 were $11 million or 7
percent higher than the first half of 1996 led primarily by increased revenues
in the clay and sodium compound segments.
EXPENSES
Total operating expenses for the first six months of 1997 were $3,321 million,
an increase of $73 million or 2 percent, compared with operating expenses for
the first six months of 1996 of $3,248 million. The operating ratio was 80.8
percent for the first six months of 1997, compared with an 80.2 percent
operating ratio for the same 1996 period.
Compensation and benefit expenses of $1,345 million were $39 million or 3
percent higher than the first six months of 1996. A majority of the increase was
due to higher costs associated with weather-related repairs to track and
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<PAGE>
equipment and slower operations. Additionally, wages were higher because of 1997
wage increases to both salaried and union employees. These increases were
partially offset by lower salaried employee incentive compensation expense due
to the Company's first quarter 1997 performance relative to certain goals.
Equipment rents expenses for the first six months of 1997 of $401 million were
$40 million or 11 percent higher than the first six months of 1996. The increase
was primarily due to poor railcar utilization in the first quarter caused by
adverse weather and higher leased railcar expense.
Fuel expenses of $382 million for the first six months of 1997 were $30 million
higher than fuel expenses for the first six months of 1996 due to a 6 cent or 9
percent increase in the average price paid per gallon of diesel fuel.
Materials and other expenses of $366 million for the first six months of 1997
were $50 million or 12 percent lower than the first six months of 1996. The
decrease was primarily due to lower derailment and personal injury expenses.
Interest expense for the first six months of 1997 was $169 million compared with
interest expense of $148 million for the first six months of 1996. The increase
is primarily due to higher debt levels.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
CASH FROM OPERATIONS
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional requirements through debt issuance, including
commercial paper, or leasing of assets.
Operating activities provided cash of $633 million for the six months ended June
30, 1997 compared with $713 million for the six months ended June 30, 1996. The
decrease in cash from operations was in part caused by a $400 million increase
in cash used for working capital. This variance was primarily attributable to
higher accounts receivable balances due to the implementation of an updated
system-wide revenue accounting system which caused a delay in accounts
receivable billings to customers. The Company expects to reduce this backlog
throughout the remainder of 1997. The sale of an additional $300 million of
accounts receivable in June as discussed below partially offset the impact of
the changes in working capital. BNSF's cash outflows from investing activities
for the six months ended June 30, 1997 principally relate to capital
expenditures of $845 million while net sources of cash from financing activities
of $282 million principally reflect net proceeds from borrowings used to fund
capital expenditures, both of which are further discussed below.
OTHER CAPITAL RESOURCES
BNSF issues commercial paper from time to time. These borrowings are supported
by bank revolving credit agreements. Outstanding commercial paper balances are
considered as reducing the amount of borrowings available under these
agreements. The bank revolving credit agreements allow borrowings of up to $500
million on a short-term basis and $1.5 billion on a long-term basis. Annual
facility fees are currently 0.075 percent and 0.11 percent, respectively, and
are subject to change based upon changes in BNSF's senior unsecured debt
ratings. Borrowing rates are based upon i) LIBOR plus a spread based upon BNSF's
senior unsecured debt ratings, ii) money market rates offered at the option of
the lenders, or iii) an alternate base rate. The commitments of the lenders to
make loans are currently scheduled to expire on November 14, 1997 and November
15, 2001, respectively.
At June 30, 1997, there were no borrowings against the long-term revolving
credit agreement and the maturity value of commercial paper outstanding was
$1,167 million, leaving a total remaining capacity of $333 million under the
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long-term revolving credit agreement available and $500 million under the short-
term credit agreement available.
In February 1997, BNSF issued $100 million of 6.1% Medium-Term Notes, due
February 27, 2027. In July 1997, BNSF issued $175 million of 6.53% Medium-Term
Notes due July 15, 2037 ("Medium-Term Notes") and $200 million of 7.25%
Debentures due August 1, 2097. The Medium-Term Notes may be redeemed on August
1, 2003, at the option of the holder. The net proceeds were used for general
corporate purposes including the repayment of commercial paper. The notes and
the Debentures were issued under a BNSF shelf registration. Additionally, BNSF
filed a shelf registration in August 1997 for debt securities that may be issued
in one or more series at an aggregate offering price not to exceed $550 million.
No borrowings have occurred under this new shelf registration.
As discussed in Note 3 to the financial statements, the Company completed a new
accounts receivable sales agreement in June 1997 to sell up to $600 million of
accounts receivable. This agreement replaced an existing accounts receivable
sale agreement which allowed the sale of up to $300 million of accounts
receivable. In June 1997, the Company sold an additional $300 million of
accounts receivable which was used to reduce its outstanding commercial paper.
CAPITAL EXPENDITURES
A breakdown of cash capital expenditures is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1997 1996
----- --------
<S> <C> <C>
Maintenance of Way......... $ 409 $ 360
Equipment Projects......... 221 247
Expansion Projects......... 128 143
Other...................... 87 105
----- ------
Total...................... $ 845 $ 855
===== ======
</TABLE>
The increase in Maintenance of Way expenditures principally reflects timing for
BNSF Railway's new rail programs. For the six months ended June 30, 1997, BNSF
Railway inserted 1.2 million cross ties and laid 295 track miles of new rail
compared to 1.1 million cross ties inserted and 208 track miles of new rail laid
for the six months ended June 30, 1996. Equipment expenditures were $26 million
below 1996 reflecting reduced locomotive and freight car purchases as well as
locomotive overhauls. Expansion projects were $15 million below 1996 reflecting
lower capacity expansion projects compared to last year.
DIVIDENDS
Common stock dividends declared for the six months ended June 30, 1997 and 1996
were $.60 per common share. Dividends paid on common stock during the first six
months of 1997 were $92 million. Dividends paid during the first six months of
1996 were $88 million on common stock and $5 million on preferred stock. On July
17, 1997, BNSF's Board of Directors declared a regular quarterly common stock
dividend of $0.30 per share to stockholders of record on September 8, 1997 to be
paid on October 1, 1997.
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 44 percent at June 30, 1997
compared with 44 percent at December 31, 1996.
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<PAGE>
OTHER MATTERS
- -------------
SHARE REPURCHASE PROGRAM
On July 17, 1997, the Board of Directors of BNSF authorized the repurchase of up
to 10 million shares of the Company's common stock from time to time in the open
market. Repurchased shares will be available to satisfy future requirements of
various stock-based employee compensation programs. To date, no common shares
have been repurchased under this program.
UNITED PARCEL SERVICE STRIKE
United Parcel Service of America ("UPS") is BNSF's largest intermodal customer.
On Monday, August 4, 1997, a strike against UPS by members of the International
Brotherhood of Teamsters was initiated. As of August 14, 1997, this labor
dispute has not been resolved.
As the timing of a settlement is currently unknown, it is impossible to
determine the ultimate effect of the strike on BNSF intermodal revenues or
results of operations; however, the Company estimates that lost revenues through
August 13, were approximately $8 million. If the strike continues, it is
expected that there will be additional reductions in BNSF's revenues and results
of operations; however, the Company does not believe that the strike will
significantly affect its financial condition.
OTHER CLAIMS AND LITIGATION
BNSF 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, 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.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" which specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held common
stock. The statement is effective for periods ending after December 15, 1997 and
early adoption is prohibited. SFAS No. 128 requires the presentation of basic
and diluted earnings per share calculated pursuant to the requirements of the
standard. Had the Company adopted SFAS No. 128 in the second quarter of 1997,
basic earnings per share would have been $1.52 and $1.39 for the three months
ended June 30, 1997 and 1996, respectively and $2.50 and $2.63 for the six
months ended June 30, 1997 and 1996, respectively. Diluted earnings per share
would have been the same as net income per common share included in the
accompanying consolidated statement of income.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information." The Statements are effective for fiscal years beginning after
December 15, 1997; however, earlier adoption is permitted. SFAS No. 130 requires
the presentation of comprehensive income and its components in a full set of
financial statements. SFAS No. 131 requires the disclosure of financial and
descriptive information about reportable operating segments. Both SFAS No. 130
and 131 are modifications of existing disclosure requirements which will have no
effect on the results of operations or financial condition of the
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<PAGE>
Company. The Company is currently evaluating the standards and their potential
impact on disclosures and if it will adopt these pronouncements prior to the
required effective date.
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<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
CROW RESERVATION CROSSING ACCIDENT CASE
Reference is made to the discussion in Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1996 and in its Current Report on
Form 10-Q for the quarter ended March 31, 1997 of the lawsuit filed in Crow
Tribal Court (Estates of Red Wolf, Red Horse and Bull Tail v. Burlington
Northern Railroad Company, Case No. 94-31) arising out of a 1993 accident
at a BNSF Railway crossing located within the boundaries of the Crow
reservation in which three members of the Crow tribe were killed. The
lawsuit was filed on behalf of the estates of the driver of the vehicle and
the two passengers in the vehicle involved. One of the passenger cases was
severed and has yet to go to trial. The other two cases proceeded to trial
in January 1996. On February 6, 1996, a Crow Tribal Court jury rendered a
verdict against BNSF Railway for compensatory damages in the total amount
of $250 million. Subsequently, the plaintiffs filed a Notice and Request
with the Tribal Appellate Court requesting, among other things, the entry
of an order reducing the amount of the judgment from $250 million to $25
million in compensatory damages and, on June 17, 1997, the Tribal Appellate
Court issued an order remanding the matter to the trial court for the
limited purpose of reducing the judgment in accordance with the request.
On February 26, 1996, the Federal District Court for the District of
Montana entered an order enjoining any action by the Tribal Court
plaintiffs to enforce the judgment pending appeal through the tribal court
and federal court systems. Upon appeal of that decision by the Tribal Court
plaintiffs to the United States Court of Appeals for the Ninth Circuit, the
Ninth Circuit issued an opinion on January 29, 1997 which reversed the
district court and remanded the matter to the trial court with instructions
to dissolve the injunction. The basis for the appellate court's decision
was that BNSF Railway had failed to exhaust its remedies in the tribal
court. On April 10, 1997, the Ninth Circuit denied BNSF Railway's petition
for rehearing and, on April 17, 1997, issued an order granting a stay of
its mandate to the district court. BNSF Railway petitioned the United
States Supreme Court for a writ of certiorari on May 16, 1997 with respect
to the Ninth Circuit's decision. The Supreme Court has not issued a ruling
on that petition.
COAL TRANSPORTATION CONTRACT LITIGATION
Reference is made to the discussion in Registrant's Report on Form 10-K for
the year ended December 31, 1996 of the action filed by Southwestern
Electric Power Company ("SWEPCO") against BNSF Railway in the 102nd
Judicial District Court for Bowie County, Texas seeking a reduction of the
coal transportation rates required to be paid under two contracts
(Southwestern Electric Power Company v. Burlington Northern Railroad
Company, No. D-102-CV-91-0720), the judgment in which case was reversed on
April 30, 1996 by the Court of Appeals for the Sixth Court of Appeals
District of Texas, Texarkana, Texas (Burlington Northern Railroad Company
v. Southwestern Electric Power Company, No. 06-95-00024-CV). On October 14,
1996, SWEPCO applied for discretionary review of the Court of Appeals
decision by the Texas Supreme Court. On June 12, 1997, the Texas Supreme
Court granted SWEPCO's application for writ of error. Oral argument on the
case is set for October 8, 1997.
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<PAGE>
ICC MERGER CASE
Reference is made to the discussion in Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1996 to the challenges to the railroad
merger and control order served by the Interstate Commerce Commission
("ICC") on August 23, 1995 in Finance Docket No. 32549 (Burlington Northern
Inc. and Burlington Northern Railroad Company--Control and Merger--Santa Fe
Pacific Corporation and The Atchison, Topeka and Santa Fe Railway Company).
Several petitions for reconsideration or to reopen the ICC's decision were
filed by parties to the proceeding and all were denied. The principal
appellate challenges to the ICC decision were rejected by the United States
Court of Appeals for the District of Columbia on March 28, 1997, and the
remaining challenge was voluntarily dismissed by the petitioner on June 16,
1997. 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 filed the following Current Reports on Form 8-K on July
24, 1997.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: July 22, 1997), in which it reported, under Item 5, Other
Events, Burlington Northern Santa Fe Corporation's Second Quarter 1997
earnings press release.
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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.
BURLINGTON NORTHERN SANTA FE CORPORATION
(Registrant)
By: /s/ T. N. HUND
-----------------------------------
T. N. Hund
Vice President and Controller
(On behalf of the Registrant and as
principal accounting officer)
Schaumburg, Illinois
August 14, 1997
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BURLINGTON NORTHERN SANTA FE CORPORATION
Exhibit Index
<TABLE>
<C> <S>
11 Computation of earnings per common share.
12 Computation of ratio of earnings to fixed charges.
27 Financial Data Schedule.
</TABLE>
E-1
