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, 1996
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)
3800 Continental Plaza, 777 Main St.
Fort Worth, Texas 76102-5384
(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, 1996
Common stock, $.01 par value 153,047,584 shares
<TABLE>
<CAPTION>
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)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 2,032 $ 1,284 $ 4,063 $ 2,631
Operating expenses:
Compensation and benefits 638 445 1,309 928
Purchased services 211 122 416 235
Depreciation and amortization 185 106 370 213
Equipment rents 184 116 361 232
Fuel 184 100 351 198
Materials and other 212 143 453 336
Merger, severance and asset charge - 10 - 42
--------- ------- -------- --------
Total operating expenses 1,614 1,042 3,260 2,184
--------- ------- -------- --------
Operating income 418 242 803 447
Interest expense 73 50 148 93
Other income (expense), net (1) 12 (5) 15
--------- ------- -------- --------
Income before income taxes 344 204 650 369
Income tax expense 133 80 252 144
--------- ------- -------- --------
Income before cumulative effect of
change in accounting method 211 124 398 225
Cumulative effect of change in
accounting method, net of tax - - - (100)
--------- ------- -------- --------
Net income $ 211 $ 124 $ 398 $ 125
========= ======= ======== ========
Primary earnings per common share:
Income before cumulative effect of
change in accounting method $ 1.35 $ 1.31 $ 2.56 $ 2.36
Change in accounting method - - - (1.10)
--------- ------- -------- --------
Net income per common share $ 1.35 $ 1.31 $ 2.56 $ 1.26
========= ======= ======== ========
Average shares (in millions) 156.1 90.8 155.6 90.5
========= ======= ======== ========
Fully diluted earnings per common share:
Income before cumulative effect of
change in accounting method $ 1.35 $ 1.26 $ 2.56 $ 2.36
Change in accounting method - - - (1.10)
--------- ------- -------- --------
Net income per common share $ 1.35 $ 1.26 $ 2.56 $ 1.26
========= ======= ======== ========
Average shares (in millions) 156.1 98.4 155.6 90.5
========= ======= ======== ========
Dividends declared per common share $ .30 $ .30 $ .60 $ .60
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 24 $ 50
Accounts receivable, net 671 620
Materials and supplies 242 220
Current portion of deferred income taxes 292 320
Other current assets 63 54
-------- --------
Total current assets 1,292 1,264
Property and equipment, net 16,517 16,001
Other assets 966 1,004
-------- --------
Total assets $18,775 $18,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 2,141 $ 2,289
Long-term debt and commercial paper due
within one year 152 80
-------- --------
Total current liabilities 2,293 2,369
Long-term debt and commercial paper 4,170 4,153
Deferred income taxes 4,316 4,233
Casualty and environmental reserves 605 626
Employee, merger and separation costs 491 530
Other liabilities 1,417 1,321
-------- --------
Total liabilities 13,292 13,232
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 300,000,000
shares authorized; 152,555,337 shares and
149,649,930 shares issued, respectively 2 1
Additional paid-in capital 4,749 4,606
Retained earnings 766 459
Other (34) (29)
-------- --------
Total stockholders' equity 5,483 5,037
-------- --------
Total liabilities and stockholders'
equity $18,775 $18,269
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
Operating Activities:
<S> <C> <C>
Net income $ 398 $ 125
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting method - 100
Depreciation and amortization 370 213
Deferred income taxes 110 31
Merger, severance and asset charge - 42
Employee, merger and separation costs paid (98) (17)
Other, net (5) 12
Changes in working capital (79) (176)
------ ------
Net cash provided by operating activities 696 330
------ ------
Investing Activities:
Cash used for capital expenditures (822) (402)
Investment in Santa Fe Pacific Corporation - (500)
Other, net 23 2
------ ------
Net cash used for investing activities (799) (900)
------ ------
Financing Activities:
Net increase (decrease) in commercial paper (270) 141
Proceeds from issuance of long-term debt 375 522
Payments on long-term debt (41) (32)
Dividends paid (93) (64)
Proceeds from stock options 107 8
Other, net (1) (1)
------ ------
Net cash provided by financing activities 77 574
------ ------
Increase (decrease) in cash and cash equivalents (26) 4
Cash and cash equivalents:
Beginning of period 50 27
------ ------
End of period $ 24 $ 31
====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized 150 88
Income taxes paid, net of refunds 57 77
Assets financed through capital lease obligations 33 3
</TABLE>
See accompanying notes to consolidated financial statements.
<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 (BNSF, Registrant or Company) Annual
Report on Form 10-K for the year ended December 31, 1995, including those
financial statements and notes thereto incorporated by reference from the
Registrant's 1995 Annual Report to Shareholders. The principal subsidiaries
of BNSF are Burlington Northern Inc. (BNI), Burlington Northern Railroad
Company (BNRR), Santa Fe Pacific Corporation (SFP) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF). As a result of a business combination,
SFP and ATSF became wholly owned subsidiaries of BNSF on September 22, 1995.
The BNSF consolidated balance sheet at December 31, 1995 and June 30, 1996,
consolidated statement of income for the three and six month periods ended
June 30, 1996 and the consolidated statement of cash flows for the six month
period ended June 30, 1996 include the results of both BNI and SFP. The
consolidated statement of income for the three and six months ended June 30,
1995, and consolidated statement of cash flows for the six months ended June
30, 1995 reflect only BNI historical amounts.
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, 1996 and December 31, 1995 and
the consolidated results of operations for the three and six month periods
ended June 30, 1996 and 1995 have been included.
Certain comparative prior year amounts in the consolidated financial
statements and notes have been reclassified to conform with the current year
presentation.
2. Employee, merger and separation costs
Current and long-term employee merger and separation liabilities totaling $642
million are included in the consolidated balance sheet at June 30, 1996.
During the first six months of 1996, the Company paid $98 million of employee,
merger and separation costs.
At June 30, 1996, approximately $151 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.
Certain merger and separation costs, including relocation costs associated
with clerical employees, will be recorded as operating expenses during the
rest of 1996 and future periods. The ultimate timing and magnitude of any
such future expense is presently unknown.
Results for the first six months of 1995 include $42 million of merger-related
expenses principally related to restricted stock which vested upon approval of
the merger by BNI shareholders.
3. Accounting change
Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, costs of owned locomotives
relating to components requiring major overhaul are depreciated, on a
straight-line basis, to the first major overhaul date. The remaining cost of
the owned locomotive is depreciated, on a straight-line basis, over the
estimated economic life of the locomotive. The cost of overhauls on owned
units are then capitalized when incurred and depreciated, on a straight-line
basis, until the next anticipated overhaul. In addition, estimated costs for
major overhauls on leased units are accrued on a straight-line basis over the
life of the leases. BNSF previously expensed locomotive overhauls when the
costs were incurred. The cumulative effect of this change on years prior to
1995 was a reduction in net income of $100 million, net of a $63 million tax
benefit.
Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, costs of owned locomotives
relating to components requiring major overhaul are depreciated, on a
straight-line basis, to the first major overhaul date. The remaining cost of
the owned locomotive is depreciated, on a straight-line basis, over the
estimated economic life of the locomotive. The cost of overhauls on owned
units are then capitalized when incurred and depreciated, on a straight-line
basis, until the next anticipated overhaul. In addition, estimated costs for
major overhauls on leased units are accrued on a straight-line basis over the
life of the leases. BNSF previously expensed locomotive overhauls when the
costs were incurred. The cumulative effect of this change on years prior to
1995 was a reduction in net income of $100 million, net of a $63 million tax
benefit.
4. Environmental and other contingencies
BNSF'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 (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 has been notified that it is a potentially
responsible party (PRP) for study and clean-up costs at approximately 30
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 may be considered a PRP
under certain other laws. Accordingly, under CERCLA and other federal and
state statutes, BNSF may be held jointly and severally liable for all
environmental costs associated with a particular site. If there are other
PRPs, BNSF 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'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 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 is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 335 sites, including the
Superfund sites, at which it is being asked to participate in the study or
clean-up of the alleged environmental contamination. BNSF paid approximately
$21 million during the first six months of 1996 relating to mandatory clean-up
efforts, including amounts expended under federal and state voluntary clean-up
programs. BNSF has accruals of approximately $230 million for remediation and
restoration of all known sites, including $225 million pertaining to mandated
sites, of which approximately $55 million relates to the Superfund sites.
BNSF anticipates that the majority of the accrued costs at June 30, 1996 will
be paid over the next five years. No individual site is considered to be
material.
Liabilities 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 PRPs' 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, and are therefore not expected to have a material
adverse effect on BNSF's consolidated financial position or liquidity.
BNSF expects that it will become subject to future requirements regulating air
emissions from diesel locomotives that may increase their operating costs.
Regulations applicable to new locomotive engines are expected to be issued by
the Environmental Protection Agency soon. It is anticipated that these
regulations will be effective for locomotive engines installed after 1999.
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 it is unknown whether California
will adopt locomotive emission standards that may differ from federal
standards.
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.
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. Additionally, this program includes exchange-traded
petroleum futures contracts and various commodity swap transactions which are
accounted for as hedges. Any gains or losses associated with changes in
market value of these hedges are deferred and recognized as a component of
fuel expense in the period in which the hedged fuel is purchased and used. To
the extent BNSF hedges portions of its fuel purchases, it may not fully
benefit from decreases in fuel prices.
As of June 30, 1996, BNSF had entered into forward purchases for approximately
35 million gallons at an average price of approximately 49 cents per gallon,
fuel swaps for approximately 44 million gallons at an average price of
approximately 46 cents per gallon and petroleum futures contracts representing
approximately 17 million gallons at an average price of approximately 48 cents
per gallon. These contracts have expiration dates ranging from July 1996 to
December 1996.
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.
BNSF's current fuel hedging program at July 31, 1996 covers approximately 15
percent of projected fuel purchases for the remaining five months of 1996 and
approximately 5 percent for 1997. The current and future fuel delivery prices
are monitored continuously and hedge positions are adjusted accordingly.
Hedge positions are also closely monitored to ensure that they will not exceed
actual fuel requirements in any period. Unrealized gains from BNSF's fuel
hedging transactions were approximately $3.7 million at June 30, 1996. BNSF
monitors its hedging positions and credit ratings of its counterparties and
does not anticipate losses due to counterparty nonperformance.
Interest rates
BNSF has interest rate swap transactions to fix interest rates on floating
rate debt with a total principal amount of $250 million. The interest rate
swap transactions require payment of a weighted average fixed interest rate of
approximately 4.8 percent, and the receipt of a variable interest rate based
on LIBOR and mature from February 1997 through August 1997. Unrealized gains
from BNSF's swap transactions were approximately $2.4 million as of June 30,
1996.
<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 or Company). The principal
subsidiaries are Burlington Northern Inc. (BNI), Burlington Northern Railroad
Company (BNRR), Santa Fe Pacific Corporation (SFP) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF).
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1995
BNSF recorded net income for the second quarter of 1996 of $211 million or
$1.35 per common share, compared with second quarter 1995 net income of $124
million ($1.31 per common share, primary, on 90.8 million shares and $1.26 per
common share, fully diluted on 98.4 million shares). Results for the second
quarter of 1995 include the results of BNI only.
REVENUES
The following table presents BNSF's revenue information by commodity for the
three months ended June 30, 1996 and 1995 and includes certain
reclassifications of prior year information to conform to current year
presentation. The revenue, revenue ton miles and revenue per thousand ton
miles for the three month period ended June 30, 1995 represents historical BNI
amounts.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
1996 1995 1996 1995 1996 1995
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Intermodal $ 503 $ 183 17,486 5,955 $28.77 $30.73
Coal 490 426 41,736 37,490 11.74 11.36
Agricultural Commodities 259 217 14,454 13,165 17.92 16.48
Chemicals 197 92 7,485 3,941 26.32 23.34
Forest Products 133 103 6,411 4,959 20.75 20.77
Consumer and Food Products 118 73 4,499 2,785 26.23 26.21
Automotive 109 40 1,644 592 66.30 67.57
Metals 102 66 5,059 3,116 20.16 21.18
Minerals and Ores 79 53 3,075 2,310 25.69 22.94
------ ------ -------- ------- ------ ------
Total Freight Revenues 1,990 1,253 101,849 74,313 19.54 16.86
Other Revenues 42 31 - - - -
------ ------ -------- ------- ------ ------
Total Operating Revenues $2,032 $1,284 101,849 74,313 $19.54 $16.86
====== ====== ======== ======= ====== ======
</TABLE>
Total revenues for the second quarter of 1996 were $2,032 million compared
with revenues of $1,284 million for the second quarter of 1995. The increase
in revenues of $748 million is principally due to additional revenues from the
acquisition of SFP as a result of the business combination effected September
22, 1995.
Intermodal revenues of $503 million for the 1996 second quarter increased $320
million compared to revenues of $183 million for the 1995 second quarter. The
increase was due to additional revenues resulting from the acquisition of SFP.
Coal revenues of $490 million for the 1996 second quarter increased $64
million compared to revenues of $426 million for the 1995 second quarter.
This increase was due primarily to additional revenues resulting from the
acquisition of SFP and higher average revenue per car and cars handled.
Agricultural Commodities revenues of $259 million for the 1996 second quarter
were $42 million greater than revenues of $217 million for the 1995 second
quarter. Approximately two-thirds of this increase is due to additional
revenues from the acquisition of SFP; the remainder of the increase was due to
higher average revenue per car reflecting stronger export demand.
Chemicals revenues of $197 million increased by $105 million for the second
quarter of 1996 as compared to the second quarter of 1995. The increase is
due to continued strong petroleum products demand as well as additional
revenues from the acquisition of SFP.
Revenue increases in all other commodity groups are principally due to the
acquisition of SFP.
EXPENSES
Total operating expenses for the second quarter of 1996 were $1,614 million,
an increase of $572 million or 55 percent, compared with operating expenses
for the 1995 second quarter of $1,042 million. Second quarter 1995 operating
expenses reflect BNI only. The operating ratio was 79.4 percent for the
second quarter of 1996, an improvement over the 81.2 percent operating ratio
for the second quarter 1995. Excluding the merger, severance and asset charge
of $10 million, the operating ratio was 80.4 percent for the 1995 second
quarter.
Compensation and benefit expenses of $638 million were $193 million or 43
percent higher than the second quarter of 1995. A majority of the increase
was due to the acquisition of SFP partially offset by lower costs due to a
reduction in the number of salaried employees.
Purchased services expenses for the 1996 second quarter of $211 million were
$89 million or 73 percent higher than expenses of $122 million for the 1995
second quarter. The increase principally reflects the additional expenses
related to former SFP operations.
Depreciation and amortization expense of $185 million for the 1996 second
quarter was $79 million or 75 percent higher than depreciation and
amortization expense for the second quarter of 1995. This increase was due to
an increase in BNSF's asset base which includes former SFP assets which have
been adjusted to reflect values assigned in the merger.
Equipment rents expenses for the second quarter of 1996 of $184 million was
$68 million or 59 percent higher than the 1995 second quarter. The increase
was primarily due to the inclusion of equipment rents expenses related to
former SFP equipment and operations.
Fuel expenses of $184 million for the 1996 second quarter were $84 million
higher than fuel expenses for the second quarter of 1995 primarily due to
additional volume from the acquisition of SFP. An increase in the average
price per gallon of diesel fuel also contributed to the increase.
Materials and other expenses of $212 million for the 1996 second quarter were
$69 million or 48 percent higher than the 1995 second quarter due to the
inclusion of expenses related to former SFP operations.
Interest expense for the second quarter of 1996 was $73 million compared with
interest expense of $50 million for the second quarter of 1995. The increase
is primarily due to interest expense associated with the inclusion of former
SFP debt partially offset by favorable variable interest rates.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
BNSF recorded net income for the first six months of 1996 of $398 million or
$2.56 per common share, compared with net income of $125 million or $1.26 per
common share for the first six months of 1995. Results for the first six
months of 1995 include the results of BNI only and reflect a $100 million
after-tax charge for the cumulative effect of a change in accounting for
locomotive overhauls.
REVENUES
The following table presents BNSF's revenue information by commodity for the
six months ended June 30, 1996 and 1995 and includes certain reclassifications
of prior year information to conform to current year presentation. The
revenue, revenue ton miles and revenue per thousand ton miles for the six
month period ended June 30, 1995 represents historical BNI amounts.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
1996 1995 1996 1995 1996 1995
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Intermodal $ 993 $ 367 34,187 12,136 $29.05 $30.24
Coal 967 877 82,696 76,302 11.69 11.49
Agricultural Commodities 587 464 31,772 26,519 18.48 17.50
Chemicals 383 181 14,455 7,687 26.50 23.55
Forest Products 264 212 12,180 9,942 21.67 21.32
Consumer and Food Products 228 152 8,833 5,697 25.81 26.68
Automotive 206 77 3,137 1,141 65.67 67.48
Metals 204 136 10,038 6,425 20.32 21.17
Minerals and Ores 147 100 5,761 4,434 25.52 22.55
------ ------ ------- ------ ------ ------
Total Freight Revenues 3,979 2,566 203,059 150,283 19.60 17.07
Other Revenues 84 65 - - - -
------ ------ ------- ------- ------ ------
Total Operating Revenues $4,063 $2,631 203,059 150,283 $19.60 $17.07
====== ====== ======= ======= ====== ======
</TABLE>
Total revenues for the first six months of 1996 were $4,063 million compared
with revenues of $2,631 million for the first six months of 1995. The
increase in revenues of $1,432 million is principally due to additional
revenues from the acquisition of SFP as a result of the business combination
effected September 22, 1995.
Intermodal revenues of $993 million for the first six months of 1996 increased
$626 million compared to revenues of $367 million for the same period of 1995.
The increase was due to additional revenues resulting from the acquisition of
SFP.
Coal revenues of $967 million for the six months ended June 30, 1996 increased
$90 million compared to revenues of $877 million for the same period of 1995.
This increase was due primarily to additional revenues resulting from the
acquisition of SFP partially offset by lower Powder River Basin (PRB) volumes
as compared to 1995 due to severe weather conditions and related operating
constraints which reduced PRB coal traffic during the 1996 first quarter.
Agricultural Commodities revenues of $587 million for the first half of 1996
were $123 million greater than revenues of $464 million for the 1995 first six
months. Approximately two-thirds of this increase is due to additional
revenues from the acquisition of SFP; the remainder of the increase was due to
higher average revenue per car reflecting stronger export demand.
Chemicals revenues of $383 million increased by $202 million for the first six
months of 1996 as compared to the first six months of 1995. The increase is
due to continued strong petroleum products demand as well as additional
revenues from the acquisition of SFP.
Revenue increases in all other commodity groups are principally due to the
acquisition of SFP.
EXPENSES
Total operating expenses for the first six months of 1996 were $3,260 million,
an increase of $1,076 million or 49 percent, compared with operating expenses
for the first six months of 1995 of $2,184 million. Operating expenses for
1995 reflect BNI only. The operating ratio was 80.2 percent for the first six
months of 1996, an improvement over the 83.0 percent operating ratio for the
first six months of 1995. Excluding the merger, severance and asset charge of
$42 million, the operating ratio was 81.4 percent for the first half of 1995.
Compensation and benefit expenses of $1,309 million were $381 million or 41
percent higher than the first six months of 1995. A majority of the increase
was due to the acquisition of SFP partially offset by lower costs due to a
reduction in the number of salaried employees.
Purchased services expenses for the first six months of 1996 of $416 million
were $181 million or 77 percent higher than expenses of $235 million for the
same period of 1995. The increase principally reflects the additional
expenses related to former SFP operations.
Depreciation and amortization expense of $370 million for the first half of
1996 was $157 million or 74 percent higher than depreciation and amortization
expense for the first half of 1995. This increase was due to an increase in
BNSF's asset base which includes former SFP assets which have been adjusted to
reflect values assigned in the merger.
Equipment rents expenses for the first six months of 1996 of $361 million was
$129 million or 56 percent higher than the first six months of 1995. The
increase was primarily due to the inclusion of equipment rents expenses
related to former SFP equipment and operations.
Fuel expenses of $351 million for the first six months of 1996 were $153
million higher than fuel expenses for the first six months of 1995 primarily
due to an additional volume from the acquisition of SFP. An increase in the
average price paid per gallon of diesel fuel also contributed to the increase.
Materials and other expenses of $453 million for the first six months of 1996
were $117 million or 35 percent higher than the first six months of 1995 due
to the inclusion of expenses related to former SFP operations and higher costs
associated with severe weather and derailments which occurred in the 1996
first quarter.
Interest expense for the first six months of 1996 was $148 million compared
with interest expense of $93 million for the first six months of 1995. The
increase is primarily due to interest expense associated with the inclusion of
former SFP debt partially offset by favorable variable interest rates.
As discussed in Note 3, BNSF changed its accounting for locomotive overhauls,
effective January 1, 1995, resulting in an after-tax charge in 1995 of $100
million for the cumulative effect of the change.
CAPITAL RESOURCES AND LIQUIDITY
CASH FROM OPERATIONS
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional liquidity requirements through the issuance of
debt or financing through capital or operating leases.
Operating activities provided cash of $696 million for the six months ended
June 30, 1996 compared with $330 million for the six months ended June 30,
1995. The increase in cash from operations was attributable primarily to a
$409 million increase in net income before depreciation and amortization,
deferred income taxes and the 1995 change in accounting. The above was
partially offset by an increase in payments for employee, merger and
separation costs. BNSF's net cash outflows from investing and financing
activities for the six months ended June 30, 1996 principally relate to
dividend payments of $93 million and capital expenditures of $822 million
which are further discussed below.
OTHER CAPITAL RESOURCES
BNSF maintains a program for the issuance, from time to time, of commercial
paper. These borrowings are supported by bank revolving credit agreements.
Outstanding commercial paper balances are considered as reducing available
borrowings under these agreements. The bank revolving credit agreements allow
borrowings of up to $1.0 billion on a short-term basis and an additional $1.5
billion on a long-term basis. Annual facility fees are currently 0.08 percent
and 0.125 percent, respectively, and are subject to change based upon changes
in BNSF's senior unsecured debt ratings. Borrowing rates are based upon LIBOR
plus a spread based upon BNSF's senior unsecured debt ratings, money market
rates as offered by the lenders, or an alternate base rate. The commitment of
the banks to make the loans are currently scheduled to expire on November 19,
1996 and November 21, 2000, respectively. At June 30, 1996, borrowings
against the long-term revolving credit agreement were $50 million and the
maturity value of commercial paper outstanding was $684 million, leaving a
total of $766 million of the long-term revolving credit agreement available
and $1.0 billion of the short-term credit agreement available.
In February 1996, BNSF issued $175 million of 6.875% Debentures due February
15, 2016 under a shelf registration statement. The net proceeds from the sale
of the debentures were used primarily for the repayment of short-term debt.
In June 1996, BNSF issued $200 million of 7.29% Debentures due June 1, 2036
under a $675 million shelf registration statement. The net proceeds from the
sale of the debentures were used primarily for the repayment of short-term
debt.
Subsequent to the issuance of these debt securities, BNSF has $475 million
remaining under its shelf registration.
CAPITAL EXPENDITURES AND RESOURCES
A breakdown of capital expenditures is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
<S> <C> <C>
1996 1995
----- -----
Road, roadway structures and real estate $ 620 $ 297
Equipment 235 108
----- -----
Total $ 855 $ 405
===== =====
</TABLE>
Capital roadway expenditures during the six months ended June 30, 1996
increased when compared with the first six months of 1995 as a result of
expanded maintenance requirements due to the increase in BNSF's route system
and related structures resulting from the business combination with SFP.
Additionally, expenditures increased due to capacity expansion projects in the
PRB. For the six months ended June 30, 1996, the Company inserted 1,386,000
cross ties and laid 443 track miles of rail compared to 718,000 cross ties
inserted and 324 track miles of rail laid for the six months ended June 30,
1995. Capital equipment expenditures also increased for the first six months
of 1996 as compared to the same period of 1995 because of additional purchases
of locomotives.
BNSF has a commitment to acquire 299 locomotives during 1996 and 1997,
including 150 locomotives committed to in April 1996 some of which will be
used to replace older, less cost-efficient units. From January 1996 to July
31, 1996, 92 of these locomotives were acquired and have been financed through
capital leases. The remaining commitment will be financed from one or a
combination of sources including, but not limited to, cash from operations,
leases and debt issuances. The decision on the method used to finance
equipment depends upon current market conditions and other factors and will be
based upon the most appropriate alternative available at such time. The total
remaining commitment for locomotive acquisitions described above is
approximately $292 million.
The Company anticipates that 1996 capital expenditures will exceed $2 billion,
including costs of acquiring 125 of the locomotives committed to in April 1996
and $150 million for the purchase of 335 miles of track from Union Pacific
Corporation (UP) and Southern Pacific Rail Corporation (SP) as discussed
below.
DIVIDENDS
Common stock dividends declared for the six months ended June 30, 1996 and
1995 were $.60 per common share. Dividends paid on common stock during the
first six months of 1996 and 1995 were $93 million and $53 million,
respectively. During the first six months of 1995, a preferred stock dividend
of $11 million was paid; the Company currently has no preferred stock
outstanding. On July 1, 1996, BNSF paid to stockholders of record on June 7,
1996 a common stock dividend of $0.30 per share. On July 18, 1996, the
Company's Board of Directors declared a regular quarterly common stock
dividend of $0.30 per share to stockholders of record on September 6, 1996 to
be paid on October 1, 1996.
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 44 percent at June 30, 1996
compared with 46 percent at December 31, 1995.
OTHER MATTERS
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.
LABOR
Labor unions represent approximately 87 percent of BNRR and ATSF employees
under collective bargaining agreements with 13 different labor organizations.
BNRR, ATSF and other major railroads have been actively involved in
industry-wide labor contract negotiations since late 1994. Through this
process, wages, health and welfare benefits, work rules and other issues have
now been negotiated for substantially all BNRR and ATSF rail union-represented
employees (subject to ratification, in some instances, by union members).
Negotiated agreements covering BNRR's and ATSF's operating crafts reached
between the unions and BNRR's and ATSF's multi-employer bargaining
representative, the National Carriers' Conference Committee (NCCC), were
ratified by the unions' respective memberships in May 1996. A tentative
agreement between the NCCC and the Brotherhood of Railway Signalmen (BRS) was
reached in May 1996, and the results of the BRS membership ratification
process should be known by the end of September 1996. Labor disputes
involving five other non-operating craft unions, following the unions'
rejection of binding arbitration and subsequent release from mediation by the
National Mediation Board, were the subject of Presidential Emergency Boards
(PEBs) appointed by President Clinton in May 1996 pursuant to the Railway
Labor Act.
On June 23, 1996, the PEBs issued their respective reports to the President
and made non-binding recommendations to the railroads represented by the NCCC
and the various unions regarding the settlement of their labor disputes.
Following negotiations, tentative agreements were reached between the NCCC and
the five unions in July 1996. The results of the unions' membership
ratification processes should be known by the end of September 1996. The June
23, 1996 release of the PEB reports triggered a 30-day "cooling-off" period
under the Railway Labor Act, after which the parties could engage in
"self-help" remedies (such as a strike or a lockout) absent congressional
intervention. This 30-day cooling-off period expired on July 24, 1996.
However, these five unions and the railroads represented by the NCCC have
agreed not to engage in self-help remedies at least until the ratification
processes have been concluded, and in no event while Congress is not in
session.
The outcome of the ratification processes cannot be predicted and the
potential still exists for one or more work stoppages in the railroad industry
which may affect BNRR and/or ATSF if any of the agreements are not ratified by
the unions' respective memberships. However, the likelihood of work stoppages
has been reduced since the NCCC and the unions have reached tentative
agreements. The new collective bargaining agreements, when implemented, will
remain in effect through at least December 31, 1999 and until new agreements
are reached or the Railway Labor Act's procedures are exhausted. The new
collective bargaining agreements include provisions for retroactive wage
increases, signing bonuses and lump sum payments which are effective upon
ratification. Throughout the negotiation process, the Company has been
providing reserves related to potential union agreements; therefore, payments
related to the retroactive portion of these agreements are not expected to
have a material effect on the Company's results of operations.
UNION PACIFIC/SOUTHERN PACIFIC MERGER
The Surface Transportation Board (STB) approved the proposed common control
and merger of rail carriers controlled by UP and SP in its written decision
dated August 12, 1996. As a condition of the merger, the STB imposed
provisions of the trackage rights agreement between BNRR, ATSF and UP/SP which
grants rights to BNRR and ATSF to more than 3,500 miles of track and will
require the purchase from UP and SP of more than 335 miles of track for $150
million which is anticipated to occur in the fourth quarter of 1996. The STB
decision allows the Company's subsidiaries greater access to Gulf Coast and
West Coast markets. The Company is currently evaluating the STB decision and
impact of the UP/SP merger; however, the ultimate effect of the UP/SP merger
is presently not known.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
COAL TRANSPORTATION CONTRACT LITIGATION
Reference is made to the discussion in Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1995 and in its Report on Form 10-Q for the
quarter ended March 31, 1996 concerning the action filed by Southwestern
Electric Power Company (SWEPCO) against Burlington Northern Railroad Company
(BNRR) 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). BNRR had appealed the trial court's judgment
(which approximated $74 million and contained other relief) to 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), and SWEPCO had filed a notice of cross appeal. By
decision dated April 30, 1996, the Court of Appeals reversed the judgment of
the trial court and rendered judgment in favor of BNRR. SWEPCO was assessed
costs of appeal. SWEPCO has been denied two motions for rehearing before the
Court of Appeals. SWEPCO may apply for discretionary review of the decision
by the Texas Supreme Court.
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 during
the quarter ended June 30, 1996.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: April 12, 1996), which included as an exhibit an unaudited
Pro Forma Combined Statement of Income for the year ended December 31,
1995 prepared as if the business combination of Burlington Northern
Inc. and Santa Fe Pacific Corporation (consummated on September 22,
1995) took place as of January 1, 1995.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: June 19, 1996), in which it reported, under Item 4, Changes
in Registrant's Certifying Accountant, the termination on June 19,
1996 of Coopers & Lybrand L.L.P. as the Registrant's independent
accountants and the appointment on June 20, 1996 of Price Waterhouse
LLP as the Registrant's new independent accountants.
<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.
BURLINGTON NORTHERN SANTA FE CORPORATION
(Registrant)
By: /s/ T. N. HUND
T. N. Hund
Vice President and Controller
(On behalf the Registrant and as
principal accounting officer)
Schaumburg, Illinois
August 14, 1996
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
11 Computation of earnings per common share.
12 Statement regarding computation of ratio
of earnings to fixed charges.
27 Financial Data Schedule.
EXHIBIT 11
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
<S> <C> <C> <C> <C> <C>
1996 1995 1996 1995
------ ------ ------ ------
Net income
- ------------
Primary:
Net income $ 211 $ 124 $ 389 $ 125
Convertible preferred stock dividends - (5) - (11)
------ ------ ------ ------
Net income available for
common shareholders $ 211 $ 119 $ 389 $ 114
====== ====== ====== ======
Fully diluted:
Net income $ 211 $ 124 $ 389 $ 125
====== ====== ====== ======
Weighted average number of shares
- --------------------------------------
Primary:
Average common shares outstanding 152.2 89.6 151.2 89.4
Common share equivalents resulting
from assumed exercise of stock
options 3.9 1.2 4.4 1.1
------ ------ ------ ------
156.1 90.8 155.6 90.5
====== ====== ====== ======
Fully diluted:
Average common shares outstanding 152.2 89.6 151.2 89.4
Common share equivalents resulting from
assumed conversion of convertible
preferred stock - 7.3 - 7.3
Common share equivalents resulting
from assumed exercise of stock
options assuming full dilution 3.9 1.5 4.4 1.5
------ ------ ------ ------
156.1 98.4 155.6 98.2
====== ====== ====== ======
Net income per common share
- -------------------------------------------
Primary $ 1.35 $1.31 $ 2.56 $1.26
Fully diluted 1.35 1.26 2.56 1.27
</TABLE>
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Fully diluted
earnings per common share are computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
Common share equivalents are computed using the treasury stock method. An
average market price is used to determine the number of common share
equivalents for primary earnings per common share. The higher of the average
or end-of-period market price is used to determine common share equivalents
for fully diluted earnings per common share. In addition, the if-converted
method is used for convertible preferred stock when computing fully diluted
earnings per common share.
EXHIBIT 12
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------- ------- ------- -------
Earnings:
Pre-tax income $ 344 $ 204 $ 650 $ 369
Add:
Interest and fixed charges,
excluding capitalized interest 73 50 148 93
Portion of rent under long-term
operating leases representative
of an interest factor 44 27 88 55
Less: Undistributed equity in earnings
of investments accounted for
under the equity method 4 - 7 -
------- ------- ------- -------
Total earnings available for fixed charges $ 457 $ 281 $ 879 $ 517
======= ======= ======= =======
Fixed charges:
Interest and fixed charges $ 77 $ 50 $ 155 $ 93
Portion of rent under long-term operating
leases representative of an interest
factor 44 27 88 55
------- ------- ------- -------
Total fixed charges $ 121 $ 77 $ 243 $ 148
======= ======= ======= =======
Ratio of earnings to fixed charges 3.78x 3.65x 3.62x 3.49x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Burlington Northern Santa Fe Corporation's Consolidated Financial Statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 744
<ALLOWANCES> (73)
<INVENTORY> 242
<CURRENT-ASSETS> 1292
<PP&E> 20943
<DEPRECIATION> (4426)
<TOTAL-ASSETS> 18775
<CURRENT-LIABILITIES> 2293
<BONDS> 4170
<COMMON> 2
0
0
<OTHER-SE> 5481
<TOTAL-LIABILITY-AND-EQUITY> 18775
<SALES> 0
<TOTAL-REVENUES> 4063
<CGS> 0
<TOTAL-COSTS> 3260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 650
<INCOME-TAX> 252
<INCOME-CONTINUING> 398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 398
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.56
</TABLE>
