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
<TABLE>
<CAPTION>
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,
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 1,606 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.
<PAGE>
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
June 30, December 31,
1997 1996
-------- --------
ASSETS
Current assets:
<S> <C> <C>
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.
<PAGE>
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
------ ------
Operating Activities:
<S> <C> <C>
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 50
------ ------
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.
<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 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 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 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
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.
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.
<PAGE>
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.
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 an 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.
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 $10 million or 4 percent compared to the same period of 1996.
The increase was due 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
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 an 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
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.
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 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.
<PAGE>
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.
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.
<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, 1997
BURLINGTON NORTHERN SANTA FE CORPORATION
EXHIBIT INDEX
11 Computation of earnings per common share.
12 Computation of ratio of earnings to fixed charges.
27 Financial Data Schedule.
E-1
<TABLE>
<CAPTION>
EXHIBIT 11
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,
1997 1996 1997 1996
Net income
Primary:
<S> <C> <C> <C> <C>
Net income available for
common shareholders $ 235 $ 211 $ 385 $ 398
====== ====== ====== ======
Weighted average number of shares
- ---------------------------------
Primary:
Average common shares outstanding 154.3 152.2 154.1 151.2
Common share equivalents resulting
from assumed exercise of stock
options 2.9 3.9 3.1 4.4
------ ------ ------ ------
157.2 156.1 157.2 155.6
====== ====== ====== ======
Net income per common share
- ---------------------------
Primary $ 1.50 $ 1.35 $ 2.45 $ 2.56
<FN>
Primary 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. Fully diluted
earnings per share are not included as the computation results in less than
three percent dilution compared to primary earnings per share.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
Six Months
Ended June 30,
1997 1996
------- -------
Earnings:
<S> <C> <C>
Pre-tax income $ 616 $ 650
Add:
Interest and fixed charges,
excluding capitalized interest 169 148
Portion of rent under long-term
operating leases representative
of an interest factor 94 88
Amortization of capitalized interest 2 1
Less: Undistributed equity in earnings
of investments accounted for
under the equity method 10 6
------- -------
Total earnings available for fixed charges $ 871 $ 881
======= =======
Fixed charges:
Interest and fixed charges $ 177 $ 155
Portion of rent under long-term operating
leases representative of an interest
factor 94 88
------- -------
Total fixed charges $ 271 $ 243
======= =======
Ratio of earnings to fixed charges 3.21x 3.63x
</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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 704
<ALLOWANCES> 49
<INVENTORY> 205
<CURRENT-ASSETS> 1286
<PP&E> 22825
<DEPRECIATION> 4645
<TOTAL-ASSETS> 20355
<CURRENT-LIABILITIES> 1959
<BONDS> 4935
<COMMON> 2
0
0
<OTHER-SE> 6340
<TOTAL-LIABILITY-AND-EQUITY> 20355
<SALES> 0
<TOTAL-REVENUES> 4109
<CGS> 0
<TOTAL-COSTS> 3321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169
<INCOME-PRETAX> 616
<INCOME-TAX> 231
<INCOME-CONTINUING> 385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.45
</TABLE>
