<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 October 31, 1999
----- -------------------------------
Common stock, $.01 par value 456,948,832 shares
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars In Millions, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 2,346 $ 2,294 $ 6,730 $ 6,647
Operating expenses:
Compensation and benefits 701 695 2,070 2,087
Purchased services 232 230 704 666
Depreciation and amortization 227 211 668 618
Equipment rents 190 203 564 597
Fuel 170 177 504 539
Materials and other 195 164 624 550
Reorganization costs - - 48 -
Merger severance adjustment - - (54) -
---------- ----------- ---------- ---------------
Total operating expenses 1,715 1,680 5,128 5,057
---------- ----------- ---------- ---------------
Operating income 631 614 1,602 1,590
Interest expense 99 91 291 264
Other income (expense), net 25 (19) 4 54
---------- ---------- ---------- ---------------
Income before income taxes 557 504 1,315 1,380
Income tax expense 209 187 493 521
---------- ----------- ---------- ---------------
Net income $ 348 317 $ 822 $ 859
========== =========== ========== ===============
Earnings per share:
Basic $ 0.76 $ 0.67 $ 1.77 $ 1.82
========== ========== ========== ===============
Diluted $ 0.75 $ 0.66 $ 1.75 $ 1.80
========== ========== ========== ===============
Average shares (in millions):
Basic 460.9 471.7 465.6 470.9
Dilutive effect of stock options 3.2 5.3 3.6 5.9
---------- ----------- ---------- ---------------
Diluted 464.1 477.0 469.2 476.8
========== =========== ========== ===============
Dividends declared per share $ 0.12 $ 0.12 $ 0.36 $ 0.32
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Shares in thousands. Dollars in millions.)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24 $ 25
Accounts receivable, net 465 524
Materials and supplies 249 244
Current portion of deferred income taxes 328 335
Other current assets 49 34
------------ ------------
Total current assets 1,115 1,162
Property and equipment, net 21,457 20,662
Other assets 835 822
------------ ------------
Total assets $ 23,407 $ 22,646
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,906 $ 1,885
Long-term debt and commercial paper due within one year 164 268
------------ ------------
Total current liabilities 2,070 2,153
Long-term debt and commercial paper 5,619 5,188
Deferred income taxes 5,984 5,662
Casualty and environmental liabilities 419 389
Employee merger and separation costs 313 409
Other liabilities 985 1,075
------------ ------------
Total liabilities 15,390 14,876
------------ ------------
Commitments and contingencies (See notes 4 and 5)
Stockholders' equity:
Common stock, $.01 par value, 600,000 shares authorized;
483,875 shares and 477,436 shares issued, respectively 5 5
Additional paid-in capital 5,348 5,177
Retained earnings 3,465 2,811
Treasury stock, at cost, 25,417 shares and 6,961 shares, (792) (213)
respectively
Accumulated other comprehensive deficit (8) (8)
Other (1) (2)
------------ ------------
Total stockholders' equity 8,017 7,770
------------ ------------
Total liabilities and stockholders' equity $ 23,407 $ 22,646
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating Activities:
Net income $ 822 $ 859
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 668 618
Deferred income taxes 328 309
Employee merger and separation costs paid (80) (63)
Other, net (108) (125)
Changes in current assets and liabilities:
Accounts receivable 59 19
Materials and supplies (5) (7)
Other current assets (15) (36)
Accounts payable and other current liabilities 60 (22)
--------- -----------
Net cash provided by operating activities 1,729 1,552
--------- -----------
Investing Activities:
Capital expenditures (1,388) (1,558)
Other, net (47) (240)
--------- -----------
Net cash used for investing activities (1,435) (1,798)
Financing Activities:
Net decrease in commercial paper and bank borrowings (27) (17)
Proceeds from issuance of long-term debt 633 507
Payments on long-term debt (273) (92)
Dividends paid (169) (141)
Proceeds from stock options exercised 115 94
Purchase of BNSF common stock (561) (110)
Other, net (13) (9)
--------- -----------
Net cash provided by (used in) financing activities (295) 232
--------- -----------
Decrease in cash and cash equivalents (1) (14)
Cash and cash equivalents:
Beginning of period 25 31
--------- -----------
End of period $ 24 $ 17
========= ===========
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 292 $ 267
Income taxes paid, net of refunds 52 164
</TABLE>
See accompanying notes to consolidated financial statements.
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<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, 1998, as amended, including the financial statements and
notes thereto incorporated by reference from the Registrant's 1998 Annual Report
to Shareholders. The consolidated financial statements include the accounts of
Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries,
all of which are separate legal entities (collectively, BNSF or Company). BNSF
was incorporated in Delaware on December 16, 1994. 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 September 30, 1999 and December 31, 1998 and the consolidated
results of operations for the three and nine month periods ended September 30,
1999 and 1998 have been included. For the three and nine month periods ended
September 30, 1999 and 1998, the Company's comprehensive income was equal to net
income.
Certain comparative prior year amounts in the consolidated financial statements
have been reclassified to conform to the current year presentation.
2. DEBT
In February 1999, the Company filed a new shelf registration statement that
became effective in March 1999 for the issuance of debt securities, including
medium-term notes, which may be issued in one or more series at an aggregate
offering price not to exceed $750 million. Additionally, in February 1999, prior
to the effective date of the new shelf registration, the Company amended its
March 1998 shelf registration to combine it with the February 1999 shelf
registration. Subsequently, the Company had $1.1 billion of borrowing capacity
available under its shelf registration statement.
In March 1999, BNSF issued $200 million of 6.125 percent notes due March 2009
and $200 million of 6.75 percent debentures due March 2029 under the February
1999 shelf registration statement. The net proceeds were used for general
corporate purposes including the repayment of commercial paper. At the time of
issuing the $400 million of debt discussed above, the Company closed out a $100
million treasury lock transaction at a gain of approximately $8 million which
has been deferred and is being amortized to interest expense over the 10-year
life of the debt.
On April 29, 1999, the holder of a call option on $200 million of the Company's
puttable reset debentures due 2029 exercised the call option. As a result, on
May 13, 1999, the holder repurchased the debentures which were subsequently
resold to investors. The interest rate on the debentures was reset to a fixed
interest rate of 7.082 percent. The Company did not receive any proceeds from
the resale of these debentures; however, the resale of these debentures reduced
the amount available for borrowing under the Company's February 1999 shelf
registration statement to $500 million.
During the second quarter of 1999, BNSF Railway entered into $212 million of
equipment secured debt. The equipment secured debt has payments scheduled in
2000 to 2016 and interest rates ranging from 5.38 percent to 6.96 percent.
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<PAGE>
3. EMPLOYEE MERGER AND SEPARATION COSTS
During the second quarter of 1999, the Company incurred $48 million of
reorganization costs for severance, pension, medical and other benefit costs for
approximately 325 involuntarily terminated salaried employees that were part of
the program announced in May 1999 to reduce operating expenses. Components of
the charge include approximately $29 million relating to estimated severance
costs for salaried employees, approximately $16 million for special termination
benefits to be received under the Company's retirement and medical plans, and
approximately $3 million of costs incurred for relocating approximately 60
salaried employees as a result of the reorganization. The program sought to
eliminate approximately 400 salaried and 1,000 scheduled (union) positions
through employee severances, normal attrition, and the elimination of
contractors. Substantially all of the planned position reductions were made by
September 30, 1999. No significant costs were incurred as a result of
eliminating the 1,000 scheduled positions.
Additionally, in the second quarter the Company recorded a $54 million credit
for the reversal of certain liabilities associated with its clerical
consolidation plan. These liabilities were related to planned work-force
reductions that are no longer anticipated due to the Company's ability to
utilize a series of job swaps between certain locations to achieve the
advantages of functional work consolidation. This change in the clerical
consolidation plan was communicated to Company employees in May 1999.
Current and long-term employee merger and separation liabilities totaling $369
million are included in the consolidated balance sheet at September 30, 1999,
and principally represent: (i) employee-related severance costs for the
consolidation of clerical functions; (ii) deferred benefits payable upon
separation or retirement to certain active conductors, trainmen and locomotive
engineers; and (iii) certain salaried employee severance costs. During the first
nine months of 1999, the Company made employee merger and separation payments of
$80 million.
Liabilities related to the consolidation of clerical functions are paid to
affected union employees in the form of a lump-sum payment or payments made over
five to ten years, or in some cases, through retirement. Liabilities related to
deferred benefits payable to certain active conductors, trainmen and locomotive
engineers are paid upon the employee's separation or retirement. Liabilities
principally related to certain remaining salaried employee severances will be
paid in the form of a lump sum payment or over the next several years based on
deferral elections made by affected employees. At September 30, 1999, $56
million of the remaining liabilities are included within current liabilities for
anticipated costs to be paid over the next twelve months.
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 risks inherent
in railroad operations, which include 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 cleanup 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 cleanup 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
cleanup costs at approximately 33 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 cleanup 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 cleanup
costs are initially recorded when BNSF's liability for environmental cleanup is
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 cleanup,
and historical trend analyses. During the first nine months of 1999, BNSF
recorded total environmental expense of $79 million. This includes $37 million
of
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<PAGE>
additional expense as a result of significant second quarter developments at
certain existing sites, primarily related to new information on the extent of
contamination and other related developments.
BNSF is involved in a number of administrative and judicial proceedings and
other cleanup efforts at approximately 400 sites, including the Superfund sites,
at which it is participating in the study or cleanup, or both, of alleged
environmental contamination. BNSF paid approximately $52 million during the
first nine months of 1999 for mandatory and unasserted cleanup efforts,
including amounts expended under federal and state voluntary cleanup programs.
BNSF has accruals of approximately $212 million for remediation and restoration
of all known sites. BNSF anticipates that the majority of the accrued costs at
September 30, 1999, 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 cleanup 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 cleanup
efforts, developments in ongoing environmental analyses related to sites
determined to be contaminated, and developments in environmental surveys and
studies of potentially contaminated sites. As a result, future charges to income
for environmental liabilities could have a significant effect on results of
operations in a particular quarter or fiscal year as individual site studies and
remediation and restoration efforts proceed or as new sites arise. However,
management believes that it is unlikely that any identified matters, either
individually or in the aggregate, will have a material adverse effect on BNSF's
consolidated financial position or liquidity.
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.
5. HEDGING ACTIVITIES AND OTHER COMMITMENTS
FUEL
During the current year, fuel expense is approximately 10 percent of total
operating expenses. Due to the significance of diesel fuel expenses to the
operations of BNSF and the historical volatility of fuel prices, the Company has
established a program to hedge against fluctuations in the price of its diesel
fuel purchases. The intent of the program is to protect the Company's operating
margins and overall profitability from adverse fuel price changes. However, to
the extent the Company hedges portions of its fuel purchases, it may not realize
the impact of decreases in fuel prices. The fuel-hedging program includes the
use of commodity swap transactions that are accounted for as hedges. Any gains
or losses associated with changes in the market value of the fuel swaps are
deferred and recognized as a component of fuel expense in the period in which
the fuel is purchased and used. Based on an annualization of fuel consumption
during the first nine months of 1999 and excluding the impact of the hedging
program, each one-cent increase in the price of fuel would result in
approximately $12 million of additional fuel expense on an annual basis. As of
September 30, 1999, BNSF had entered into fuel swaps for approximately 1,096
million gallons at an average price of approximately 49 cents per gallon. The
above price does not include taxes, transportation costs, certain other fuel
handling costs, and any differences which may occur from time to time between
the prices of commodities hedged and the purchase price of BNSF's diesel fuel.
Currently, BNSF's fuel hedging program covers approximately 76 percent of
estimated fuel purchases for the remaining three months of 1999, and
approximately 40 percent, 22 percent and 7 percent of estimated annual and
quarterly fuel purchases for 2000, 2001, and 2002, respectively. Hedge positions
are closely monitored to ensure that they will not exceed actual fuel
requirements in any period. Unrecognized gains from BNSF's fuel swap
transactions were approximately $34 million as of September 30, 1999, of which
$25 million relates to swap transactions that will expire in 1999. BNSF also
monitors its hedging positions and credit ratings of its counterparties and does
not anticipate losses due to counterparty nonperformance.
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INTEREST RATE
As of September 30, 1999, the Company has outstanding treasury lock
transactions, based on the 10-year and 30-year U.S. treasury rates, totaling
$200 million and $200 million, respectively. The 10-year and 30-year treasury
lock transactions have average interest rates of approximately 4.6 percent and
5.0 percent, respectively, and expire between 2000 and 2001. Unrecognized gains
on the treasury lock transactions were approximately $49 million as of September
30, 1999.
6. SHARE REPURCHASE PROGRAM
During the first nine months of 1999, the Company repurchased 17.7 million
shares of its common stock at an average price of $31.68 per share under the
Company's share repurchase program. During the fourth quarter, the Company has
repurchased 2.5 million shares of its common stock at an average price of $28.26
per share. Since commencing its share repurchase program in January 1998, the
Company has repurchased 25.2 million shares at an average cost of $31.15 per
share. In connection with its share repurchase program, BNSF sold equity put
options in April 1999 for 0.1 million shares of BNSF common stock to an
independent third party and received cash proceeds of $0.1 million. The third
party excercised the options on October 12, 1999, which resulted in the Company
purchasing 0.1 million shares of its common stock at $29 per share.
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
principal operating subsidiary of BNSF is The Burlington Northern and Santa Fe
Railway Company (BNSF Railway). All earnings per share information is stated on
a diluted basis.
Results of Operations
- ---------------------
Three months ended September 30, 1999 compared with three months ended September
30, 1998
BNSF recorded net income for the third quarter of 1999 of $348 million ($0.75
per share), compared with third quarter 1998 net income of $317 million ($0.66
per share). The increase in net income is primarily due to an increase in
operating income of $17 million and a $44 million increase in other income
(expense), net resulting from the Company's recognition of a pre-tax gain of $50
million ($31 million after-tax) in connection with the sale of rail lines in
Southern California in 1992 and 1993, partially offset by additional income tax
expense.
Revenues
The following table presents BNSF's revenue information by commodity for the
three months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Average Revenue
Revenues Cars/Units Per Car/Unit
---------------------------- --------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
-------------- ----------- ------------ ------------ -------------- ------------
(In Millions) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Carload $ 647 $ 668 447 466 $ 1,447 $ 1,433
Intermodal 658 651 835 828 788 786
Coal 564 566 537 520 1,050 1,088
Agricultural Commodities 371 318 196 173 1,893 1,838
Automotive 99 85 57 51 1,737 1,667
-------------- ------------- ----------- ----------- ------------ ------------
Total Freight Revenues 2,339 2,288 2,072 2,038 $ 1,129 $ 1,123
=========== =========== ============ ============
Other Revenues 7 6
------------- -------------
Total Operating Revenues $ 2,346 $ 2,294
============= =============
</TABLE>
Total revenues of $2,346 million for the third quarter of 1999 were $52 million
higher than revenues of $2,294 million for the third quarter of 1998. The
increase primarily reflects increases in agricultural commodities, automotive,
and intermodal revenues, partially offset by lower carload and coal revenues.
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<PAGE>
Carload revenues of $647 million for the third quarter of 1999 were $21 million
or 3 percent lower than the third quarter of 1998 due to decreases in the
chemicals, minerals and machinery, and metals sectors, partially offset by
increased forest product revenues. The decreases were a result of weaknesses in
the chemicals sector due to soft fertilizer markets, weaknesses in the metals
sector due to increased steel imports, and a decrease in special train movements
of heavy machinery. These decreases were partially offset by increased inland
shipments of forest products.
Intermodal revenues of $658 million for the third quarter of 1999 increased $7
million or 1 percent reflecting increases in the direct marketing, international
and truckload sectors, partially offset by a decline in the intermodal marketing
companies (IMC) sector. Direct marketing revenues benefited from year over year
growth of units shipped for UPS and Roadway. International revenues were up due
to growth in trade from Far Eastern countries to the United States. Truckload
revenues were up due to stronger Swift, Hunt, and Triple Crown loadings. These
revenue increases were partially offset by losses in the IMC sector due to Union
Pacific Corporation (UP) pricing pressures, an overall softening in the IMC
market, and increased over the road capacity.
Coal revenues of $564 million for the third quarter of 1999 decreased $2 million
or less than 1 percent primarily due to lower revenue per car.
Agricultural commodities revenues of $371 million for the third quarter of 1999
were $53 million or 17 percent higher than revenues for the third quarter of
1998 due primarily to stronger Pacific Northwest corn exports, Mexico soybean
exports, and Texas gulf wheat exports.
Automotive revenues of $99 million for the third quarter of 1999 were $14
million or 16 percent higher than the third quarter of 1998 reflecting growth in
vehicle shipments.
Expenses
Total operating expenses for the third quarter of 1999 were $1,715 million, an
increase of $35 million or 2 percent, over third quarter 1998.
Compensation and benefits expenses of $701 million were $6 million or 1 percent
higher than the third quarter of 1998 primarily due to increased wage rates and
benefit costs offset by a lower number of employees in part due to the second
quarter 1999 reorganization discussed in Note 3 to the Company's consolidated
financial statements.
Purchased services of $232 million for the third quarter of 1999 were $2 million
or 1 percent higher than the third quarter of 1998 principally due to increased
contract equipment maintenance.
Equipment rents expenses for the third quarter of 1999 of $190 million were $13
million or 6 percent lower than the third quarter of 1998 reflecting lower
intermodal equipment expenses due to a reduction in time and mileage, trailer,
and container expenses.
Fuel expenses of $170 million for the third quarter of 1999 were $7 million or 4
percent lower than the third quarter of 1998, as a result of a 4 cent or 7
percent decrease in the average all-in cost per gallon of diesel fuel, partially
offset by a 3 percent volume driven increase in consumption from 285 million to
295 million gallons. The decrease in the average all-in cost per gallon of
diesel fuel includes a 12-cent per gallon favorable effect from the Company's
fuel hedging program, partially offset by an 8-cent increase in the average
purchase price.
Materials and other expenses of $195 million for the third quarter of 1999 were
$31 million or 19 percent higher than the third quarter of 1998 principally
reflecting higher expenses for personal injury, environmental, and property and
other taxes.
Interest expense of $99 million for the third quarter of 1999 was $8 million or
9 percent higher than in the third quarter of 1998, reflecting higher debt
levels which increased to $5,783 million at September 30, 1999 from $5,415
million at September 30, 1998.
Other income (expense), net was favorable $44 million compared to third quarter
1998 primarily due to the recognition of a gain of $50 million in connection
with the sale of rail lines in Southern California in 1992 and 1993.
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<PAGE>
Nine months ended September 30, 1999 compared with nine months ended September
30, 1998
BNSF recorded net income for the first nine months of 1999 of $822 million
($1.75 per share), compared with the first nine months of 1998 net income of
$859 million ($1.80 per share). The decrease in net income is primarily the
result of a decrease in other income (expense), net of $50 million and an
increase in interest expense of $27 million, partially offset by a $12 million
increase in operating income and lower income tax expense.
Revenues
The following table presents BNSF's revenue information by commodity for the
nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Average Revenue
Revenues Cars/Units Per Car/Unit
---------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
------------- ----------- ----------- --------- ----------- ------------
(In Millions) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Carload $ 1,908 $ 1,960 1,327 1,364 $ 1,438 $ 1,437
Intermodal 1,839 1,800 2,338 2,276 787 791
Coal 1,673 1,679 1,578 1,542 1,060 1,089
Agricultural Commodities 968 917 522 500 1,854 1,834
Automotive 319 279 183 169 1,743 1,651
------------- ----------- ----------- ----------- ------------ -------------
Total Freight Revenues 6,707 6,635 5,948 5,851 $ 1,128 $ 1,134
=========== =========== ============ =============
Other Revenues 23 12
------------- -----------
Total Operating Revenues $ 6,730 $ 6,647
============= ===========
</TABLE>
Total revenues for the first nine months of 1999 were $6,730 million or 1
percent higher compared with revenues of $6,647 million for the first nine
months of 1998. The increase primarily reflects increases in the agricultural
commodities, intermodal and automotive sectors, partially offset by lower
carload and coal revenues. Average revenue per car/unit decreased in the first
nine months of 1999 to $1,128 from $1,134 in the first nine months of 1998.
Carload revenues of $1,908 million for the first nine months of 1999 were $52
million or 3 percent lower than the first nine months of 1998 due to decreases
in the chemicals, minerals and machinery, metals, and perishable sectors,
partially offset by increased forest product revenues. The decreases were a
result of weaknesses in the chemicals sector due to soft fertilizer markets, a
decrease in special train movements of heavy machinery, weaknesses in the metals
sector due to increased steel imports, and decreased shipments of perishables.
These decreases were partially offset by increased inland shipments of forest
products.
Intermodal revenues of $1,839 million for the first nine months of 1999
increased $39 million or 2 percent compared with the first nine months of 1998
reflecting increases in the direct marketing, international and truckload
sectors, partially offset by decreases in the IMC sector. Direct marketing
revenues benefited from increased units shipped for UPS, less than truckload
(LTL) customers and the United States Postal Service. International revenues
were up due to new business established with Sealand, NYK, Maersk and K-Line.
Truckload revenues were driven primarily by year over year growth in J.B Hunt,
Swift and Triple Crown loadings. These revenue increases were partially offset
by decreases in the IMC sector due to UP pricing pressures, an overall softening
in the IMC market, and increased over the road capacity.
Coal revenues of $1,673 million for the first nine months of 1999 were $6
million or less than 1 percent lower than the first nine months of 1998
primarily due to lower revenue per car.
Agricultural commodities revenues of $968 million for the first nine months of
1999 were $51 million or 6 percent higher than revenues for the first nine
months of 1998 due to the increase in volume of corn and soybeans exports,
partially offset by fewer shipments of oils.
Automotive revenues of $319 million for the first nine months of 1999 were $40
million or 14 percent higher than the first nine months of 1998 reflecting
growth in both vehicle and parts shipments.
-9-
<PAGE>
Expenses
Total operating expenses for the first nine months of 1999 were $5,128 million,
an increase of $71 million or slightly over 1 percent, over the first nine
months of 1998.
Compensation and benefits expenses of $2,070 million were $17 million or 1
percent lower than the first nine months of 1998 primarily caused by lower
employment levels due in part to the second quarter reorganization discussed in
Note 3 to the Company's consolidated financial statements.
Purchased services of $704 million for the first nine months of 1999 were $38
million or 6 percent higher than the first nine months of 1998 principally due
to increased contract equipment maintenance, ramping, and other costs.
Equipment rents expenses for the first nine months of 1999 of $564 million were
$33 million or 6 percent lower than the first nine months of 1998 reflecting
lower intermodal equipment expenses due to a reduction in time and mileage,
private lease car, and container expenses.
Fuel expenses of $504 million for the first nine months of 1999 were $35 million
or 6 percent lower than the first nine months of 1998, due to a 5 cent or 9
percent decrease in the average all-in cost per gallon of diesel fuel, partially
offset by a 2 percent volume driven increase in consumption from 857 million to
877 million gallons. The decrease in the average all-in cost per gallon of
diesel fuel includes a 4-cent decrease in the average purchase price and a 1-
cent per gallon favorable effect from the Company's fuel hedging program.
Materials and other expenses of $624 million for the first nine months of 1999
were $74 million or 13 percent higher than the first nine months of 1998
principally reflecting additional environmental expense accruals of $37 million,
as discussed in Note 4 to the Company's consolidated financial statements, and
higher personal injury and property and other tax expenses.
As discussed in Note 3 to the Company's consolidated financial statements,
reorganization costs of $48 million were incurred during the second quarter of
1999 for severance, pension, medical and other benefit costs for approximately
325 involuntarily terminated salaried employees that were part of the program
announced in May 1999 to reduce operating expenses.
Merger severance adjustment of $54 million (credit) was recorded during the
second quarter of 1999 to reverse certain liabilities associated with the
Company's clerical consolidation plan. These liabilities were related to planned
work-force reductions that are no longer anticipated due to the Company's
ability to utilize a series of job swaps between certain locations to achieve
the advantages of functional work consolidation.
Interest expense of $291 million for the first nine months of 1999 was $27
million or 10 percent higher than in the first nine months of 1998, reflecting
higher debt levels which increased to $5,783 million at September 30, 1999 from
$5,415 million at September 30, 1998.
Other income (expense), net was unfavorable by $50 million compared to the first
nine months of 1998 primarily due to the $67 million pre-tax gain on the sale of
substantially all of the Company's interest in Santa Fe Pacific Pipeline
Partners, L.P. in the first quarter of 1998 and gains of $26 million from the
sale of a real estate portfolio during the first nine months of 1998. This was
partially offset by the recognition in the third quarter of 1999 of the gain of
$50 million (pre-tax) in connection with the sale of rail lines in Southern
California in 1992 and 1993.
Capital Resources and Liquidity
- -------------------------------
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional liquidity requirements through debt issuance,
including commercial paper, or leasing of assets.
BNSF issues commercial paper from time to time, which is 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, which were renewed and
extended effective June 28, 1999, allow borrowings of up to $750 million on a
short-term basis and $750 million on a long-term basis. Annual facility fees are
currently 0.10 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 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 under the short-term
agreement are scheduled to expire in June 2000. The commitments of the lenders
under the long-term agreement are scheduled to expire in June 2004.
-10-
<PAGE>
At September 30, 1999, there were no borrowings against the revolving credit
agreements and the maturity value of commercial paper outstanding was $474
million, leaving a total remaining capacity of $1,026 million available under
the bank revolving credit agreements.
OPERATING ACTIVITIES
Net cash provided by operating activities was $1,729 million for the nine months
ended September 30, 1999, compared with $1,552 million for the nine months ended
September 30, 1998.
INVESTING ACTIVITIES
Net cash used for investing activities for the nine months ended September 30,
1999, was $1,435 million, primarily reflecting $1,388 million of cash capital
expenditures.
A breakdown of cash capital expenditures for the nine months ended September 30,
1999 and 1998, is set forth in the following table (in millions):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
-------------------------------------------------- ----------- -----------
<S> <C> <C>
Maintenance of Way $ 640 $ 758
Mechanical 164 158
Information Services 54 47
Other 66 48
-------------------------------------------------- ----------- ----------
Total Maintenance of Business 924 1,011
New Locomotives 286 216
Terminal and Line Expansion 178 331
-------------------------------------------------- ----------- ----------
Total $ 1,388 $ 1,558
-------------------------------------------------- =========== ==========
</TABLE>
BNSF reduced planned 1999 cash capital expenditures by approximately $250
million to $1.85 billion. The reductions primarily relate to various terminal
and line expansion projects and new locomotive acquisitions that were deferred
beyond 1999. The Company generated free cash flow (cash from operations less
capital expenditures and other investing activities) of $294 million for the
nine months ended September 30, 1999.
FINANCING ACTIVITIES
Net cash used by financing activities during the first nine months of 1999 was
$295 million, primarily related to common stock repurchases of $561 million and
dividend payments of $169 million, partially offset by net proceeds from total
debt of $333 million and proceeds from stock options exercised of $115 million.
In February 1999, the Company filed a new shelf registration statement that
became effective in March 1999 for the issuance of debt securities, including
medium-term notes, which may be issued in one or more series at an aggregate
offering price not to exceed $750 million. Additionally, in February 1999, prior
to the effective date of the new shelf registration, the Company amended its
March 1998 shelf registration to combine it with the February 1999 shelf
registration. Subsequently, the Company had $1.1 billion of borrowing capacity
available under its shelf registration statement.
In March 1999, BNSF issued $200 million of 6.125 percent notes due March 2009
and $200 million of 6.75 percent debentures due March 2029 under the February
1999 shelf registration statement. The net proceeds were used for general
corporate purposes including the repayment of commercial paper.
During March 1999, at the time of issuing $400 million of debt as discussed
above, the Company closed out a $100 million treasury lock transaction at a gain
of approximately $8 million which has been deferred and is being amortized to
interest expense over the 10-year life of the debt.
-11-
<PAGE>
On April 29, 1999, the holder of a call option on $200 million of the Company's
puttable reset debentures due 2029 exercised the call option. As a result, on
May 13, 1999, the holder repurchased the debentures which were subsequently
resold to investors. The interest rate on the debentures was reset to a fixed
interest rate of 7.082 percent. The Company did not receive any proceeds from
the resale of these debentures; however, the resale of these debentures reduced
the amount available for borrowing under the Company's February 1999 shelf
registration statement to $500 million.
During the second quarter of 1999, BNSF Railway entered into $212 million of
equipment secured debt. The equipment secured debt has payments scheduled in
2000 to 2016 and interest rates ranging from 5.38 percent to 6.96 percent.
BNSF's ratio of total debt to total capital was 41.9 percent and 41.3 percent at
September 30, 1999 and December 31, 1998, respectively.
During the first nine months of 1999, the Company repurchased 17.7 million
shares of its common stock at an average price of $31.68 per share. During the
fourth quarter, the Company has repurchased 2.5 million shares of its common
stock at an average price of $28.26 per share. Since commencing its share
repurchase program in January 1998, the Company has repurchased 25.2 million
shares at an average cost of $31.15 per share. Repurchased shares are available
to satisfy future requirements of various stock-based employee compensation
programs. In evaluating the timing of share repurchases, management considers
many factors including, among other things, economic, market and business
conditions and outlook, alternative uses of cash and debt, balance sheet ratios,
and stockholder returns. In connection with its share repurchase program, BNSF
sold equity put options in April 1999 for 0.1 million shares of BNSF common
stock to an independent third party and received cash proceeds of $0.1 million.
The third party exercised the options on October 12, 1999, which resulted in the
Company purchasing 0.1 million shares of its common stock at $29 per share.
DIVIDENDS
Common stock dividends declared for the nine months ended September 30, 1999 and
1998 were $0.36 and $0.32 per share, respectively. Dividends paid on common
stock during the first nine months of 1999 and 1998 were $169 million and $141
million, respectively. On July 15, 1999, the Board of Directors declared a
regular quarterly common stock dividend of 12 cents per share upon its
outstanding shares of common stock, $0.01 par value, payable on October 1, 1999,
to shareholders of record on September 10, 1999.
Other Matters
- -------------
Reorganization Costs
As discussed in Note 3 to the Company's consolidated financial statements,
reorganization costs of $48 million were incurred during the second quarter of
1999 for severance, pension, medical and other benefit costs for approximately
325 involuntarily terminated salaried employees that were part of the program
announced in May 1999 to reduce operating expenses. The program sought to
eliminate approximately 400 salaried and 1,000 scheduled (union) positions
through employee severances, normal attrition, and the elimination of
contractors. Substantially all of the planned position reductions were made by
September 30, 1999. No significant costs have been or are anticipated to be
incurred as a result of eliminating the 1,000 scheduled positions. Total savings
related to the reorganization are expected to be approximately $40 million in
1999 and to approximate $100 million on an annual basis.
Year 2000
BACKGROUND
The Company has established a committee of managers and employees, chaired by
the Company's Chief Information Officer, to evaluate and manage the costs and
risks associated with becoming Year 2000 compliant and to minimize the impact of
the Year 2000 problem on the Company. Because many existing computer programs
and microprocessors recognize only the last two digits of years (and not the
century designation), they may be unable to accurately recognize and process
dates beyond December 31, 1999, and consequently may fail or produce erroneous
data. The Year 2000 problem may adversely affect the Company's operations and
financial performance if its remediation efforts are not successfully
implemented or if the railroads with which the Company connects, critical
customers or suppliers fail to become Year 2000 compliant.
-12-
<PAGE>
STATE OF READINESS
Year 2000 issues were reviewed in September 1995 following the approval of the
merger of the two railroads that now constitute BNSF Railway. The core mainframe
systems for the merged railroad were selected in part because they were
substantially Year 2000 compliant. These systems integrate all transportation-
related activities and computer systems that support BNSF's transportation
network, including operations, customer information, and revenue data. This
merger-related information systems integration and upgrade activity was
substantially completed by July 1997.
Following this systems integration, BNSF adopted a three-phase approach to Year
2000: Inventory and Assessment; Remediation; and Certification Testing. Separate
teams address technologies administered or maintained by the Information Systems
Services department (ISS technologies) and other enterprise-wide products and
technologies used by the Company, including embedded microprocessor technology
(Enterprise technologies). BNSF has completed the Inventory and Assessment phase
for both ISS and Enterprise technologies. During this phase, BNSF inventoried
all ISS-administered source code, hardware, software and communications
equipment that could be affected by the Year 2000 problem, and identified items
potentially needing remediation. In addition, the Enterprise team completed a
company-wide audit of Enterprise technologies and associated suppliers and
service providers for potential Year 2000 problems.
The Remediation phase is more than 99 percent complete. Remediation includes
converting source code and replacing or upgrading purchased software and
hardware. Remediation is complete for ISS technologies and all critical
Enterprise technologies. Remediation for all non-critical Enterprise
technologies will continue through November 1999.
The Certification Testing phase addresses validating the performance of ISS and
Enterprise technologies in a Year 2000 test environment. The Certification
Testing phase also includes validating Year 2000 compliance for critical third
party suppliers and service providers. This phase, which is ongoing, overlaps
with the Remediation phase. Certification testing for ISS technologies began in
November 1998, with critical applications receiving priority. Certification
testing for existing ISS critical applications was completed in July 1999.
Testing for all ISS applications was completed by the end of September 1999.
Certification testing of all critical and non-critical Enterprise technologies
began in May 1998. Testing for all critical Enterprise technologies is complete.
Testing for all non-critical Enterprise technologies is scheduled for completion
in November 1999. Certification of new systems and recent enhancements to
existing systems, as well as the re-certification of all ISS critical systems is
underway and will continue through December 3, 1999, which is the end of the
last planned testing cycle.
Beginning in late September 1999, BNSF along with the other three major US
railroads underwent a Federal Railroad Association sponsored Year 2000 readiness
review, conducted by a firm called CACI. Through this assessment, BNSF received
a weighted numeric rating placing the Company in the "very low risk" category.
COSTS
As a result of its merger-related systems integration that was completed in
1997, BNSF achieved substantial Year 2000 compliance on its core mainframe
systems. Additionally, spending on Year 2000 activities approximates $13 million
to date. The current estimate of the total cost of achieving Year 2000
compliance for the Company's ISS and Enterprise technologies is estimated to be
approximately $16 million.
YEAR 2000 RISKS AND CONTINGENCY PLANS
Certain BNSF business processes rely on third parties for the efficient
functioning of its transportation network. The Association of American Railroads
(AAR) administers systems that benefit all North American railroads and their
customers, including interline settlement, shipment tracing and waybill
processing. BNSF and other AAR-member railroads are participating in a process
to test and certify these systems for Year 2000 compliance. Pilot testing for
these systems is complete. Open carrier testing will continue through November
1999. BNSF has developed contingency plans for critical business processes
supported by AAR systems.
-13-
<PAGE>
Certain BNSF routes and resulting revenues are dependent on the use of trackage
rights over other railroads, including Union Pacific Corporation, Montana Rail
Link and the Arizona and California Railroad. Other BNSF traffic may originate
or terminate on other carriers' lines or may otherwise involve use of a foreign
connection en route. Approximately 60 percent of units handled by BNSF run over
BNSF facilities only. BNSF's traffic levels and revenues could be significantly
reduced and/or its operational network significantly impaired through congestion
and other factors if other railroads are not able to accommodate BNSF trains or
interchange traffic for any extended period of time due to Year 2000 problems.
However, as a result of its work with other railroads to address Year 2000
problems on an industry-wide basis, management believes that the possibility of
extended failures on other railroads is not significant. During the third
quarter, the Company completed an initial evaluation to determine if any of its
larger customers have potential Year 2000 problems that could result in reduced
traffic for BNSF. Although the initial evaluation did not uncover any material
issues, the Company is in the process of reevaluating its larger customers to
provide further assurance of their Year 2000 compliance. This process is
scheduled for completion in early December 1999.
It is the opinion of management that Year 2000 problems in BNSF's internal
information systems and technology infrastructure will not have a materially
adverse effect on the results of operations, liquidity or financial position of
the Company. However, there can be no assurance that the systems or equipment of
other parties which interact with BNSF's systems will be compliant on a timely
basis. BNSF believes that the failure of systems or equipment of one or more of
its key third parties or customers is the most reasonably likely worst case Year
2000 scenario, and that an extended failure could have a material adverse effect
on the results of operations, liquidity or financial position of the Company.
Where appropriate, BNSF has developed contingency plans in the event that BNSF's
key third parties do not become Year 2000 compliant on a timely basis, which
effort includes the formalization of existing disaster recovery plans.
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
The negotiating process for new, major collective bargaining agreements covering
all of BNSF Railway's union employees has begun. As before, wages, health and
welfare benefits, work rules, and other issues have traditionally been addressed
through industry-wide negotiations. These negotiations have traditionally taken
place over a number of months and have previously not resulted in any extended
work stoppages. The existing agreements are not amendable until January 1, 2000,
and will remain in effect until new agreements are reached or the Railway Labor
Act's procedures are exhausted.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The Statement is effective for the
Company's fiscal year 2001; however, early adoption is permitted. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. For fair value hedge transactions in which the Company is
hedging changes in the fair value of an asset, liability or an unrecognized firm
commitment, changes in the fair value of the derivative instrument will
generally be offset in the income statement by changes in the hedged item's fair
value. For cash flow hedge transactions in which the Company is hedging the
variability of cash flows related to a variable rate asset, liability, or a
forecasted transaction, changes in the fair value of the derivative instrument
will be
-14-
<PAGE>
reported in other comprehensive income to the extent it offsets changes in the
cash flows related to the variable rate asset, liability or forecasted
transaction, with the difference reported in current period earnings. The gains
and losses on the derivative instrument that are reported in other comprehensive
income will be reclassified to earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
ineffective portion of all hedges will be recognized in current period earnings.
The Company is currently evaluating SFAS No. 133 and whether it will adopt this
pronouncement prior to the effective date. Based on interest rate and fuel
hedging instruments outstanding at September 30, 1999, and previously deferred
gains and losses from past interest rate hedging transactions, all of which are
cash flow hedge transactions, the Company currently estimates that the impact of
SFAS No. 133 would result in a net of tax cumulative-effect credit to
accumulated other comprehensive deficit of approximately $32 million if adopted
September 30, 1999. The Company is presently evaluating the impact SFAS No. 133
will have on its ongoing results of operations.
Forward-Looking Information
The Year 2000 discussion above contains forward-looking statements, including
those concerning the Company's plans and estimated completion dates, cost
estimates, assessments of Year 2000 readiness of BNSF Railway and third parties,
and possible consequences of any failure on the part of the Company or third
parties to be Year 2000 compliant on a timely basis. Forward-looking statements
involve a number of risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements. Such
factors include, but are not limited to, the following: continued availability
of qualified personnel to assess, remediate, and test ISS and Enterprise
technologies at current estimated costs; emergence of unforeseen software or
hardware problems, including where applications interact with each other in ways
not anticipated, which could delay or hinder commercial transactions or other
operations; the ability to locate and remediate Year 2000 problems with software
source code and embedded computer chips in equipment; the failure, in whole or
in part, of other railroads or AAR-supported systems to be Year 2000 compliant;
the Year 2000 compliance of its business partners and customers and reduced
traffic levels due to their failure, in whole or part, to be Year 2000
compliant; business interruption due to delays in obtaining supplies, parts, or
equipment from key vendors or suppliers that are affected by Year 2000 problems;
the ripple effect of Year 2000-related failures in industries supporting the
nation's basic infrastructure, including fuel vendors and pipelines, gas,
electric, and water utilities, communications companies, banks and financial
institutions, and highway, water, and air transportation systems; and any
significant downturn in the general economy, and adverse industry-specific
economic conditions at the international, national, and regional levels, wholly
or partially caused by Year 2000 problems.
To the extent that all other statements made by the Company relate to the
Company's future economic performance or business outlook, predictions or
expectations of financial or operational results, or refer to matters which are
not historical facts, such statements are "forward-looking" statements within
the meaning of the federal securities laws. Forward-looking statements involve a
number of risks and uncertainties, and actual results may differ materially.
Factors that could cause actual results to differ materially include, but are
not limited to, general economic downturns, which may limit demand and pricing;
labor matters and stoppages, which may affect the costs and feasibility of
certain operations; competition and commodity concentrations, which may affect
traffic and pricing levels; and severe weather conditions and natural
occurrences such as floods and earthquakes.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
In the ordinary course of business, BNSF utilizes various financial instruments
which inherently have some degree of market risk. The qualitative and
quantitative information presented in the Management's Discussion and Analysis
of Financial Condition and Results of Operations section of the 1998 Annual
Report to Shareholders and in Item 7A of the Company's Annual Report on
Form 10-K, as amended, for the year ended December 31, 1998, describes
significant aspects of BNSF's financial instrument programs which have material
market risk. Presented below is updated quantitative information for those
programs that have changed significantly from the information reported in BNSF's
Form 10-K, as amended, for the year ended December 31, 1998.
-15-
<PAGE>
COMMODITY PRICE SENSITIVITY
As discussed in Note 5 to the Company's consolidated financial statements, BNSF
has a program to hedge against fluctuations in the price of its diesel fuel
purchases. The table below provides information about BNSF's diesel fuel hedging
instruments that are sensitive to changes in diesel fuel prices. The table
presents notional amounts in gallons and the weighted average contract price by
contractual maturity date as of September 30, 1999. The prices included in the
table below do not include taxes, transportation costs, certain other fuel
handling costs and any differences which may occur from time to time between the
prices of commodities hedged and the purchase price of BNSF's diesel fuel.
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------------------------------
Maturity Date Fair
-------------------------------------------
1999 2000 2001 2002 Total Value (1)
---- ---- ---- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions) 227 491 277 101 1,096 $34
Weighted average price per $0.48 $0.50 $0.49 $0.50 $ 0.49 -
gallon
</TABLE>
(1) Represents unrecognized gain (in millions) based on the price of Gulf Coast
#2 heating oil.
TREASURY LOCK TRANSACTIONS
As discussed in Note 5 to the Company's consolidated financial statements, in
anticipation of future debt issuances, BNSF has entered into treasury lock
transactions, based on the 10-year and 30-year U.S. treasury rates, as reflected
in the following table as of September 30, 1999. The interest rates in the table
below exclude a credit spread which will be determined at the time of the actual
debt issuance and will be included in the all-in interest rate. Components of
the Company's total cost of borrowing include the all-in interest rate and any
debt issuance costs.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------
Maturity Date
--------------------
Fair
2000 2001 Total Value (1)
----- ------- --------- -----------
<S> <C> <C> <C> <C>
Fixed Rate Treasury Locks (in millions) $ 200 $ 200 $ 400 $49
Average Pay Rate 4.80% 4.84% 4.82% -
</TABLE>
(1) Represents unrecognized gain (in millions).
-16-
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
See Index to Exhibits on page E-1 for a description of the exhibits
filed as part of this report.
B. Reports on Form 8-K
The Registrant has filed one Current Report on Form 8-K since those
reported in its Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999:
On August 18, 1999, the Registrant filed a Current Report on Form 8-K
(Date of earliest event reported: August 16, 1999), which referenced
under Item 5, Other Events, the Company's repurchase of 4,345,000
shares of its common stock from Alleghany Corporation as part of its
previously announced share repurchase program.
-17-
<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/ Dennis R. Johnson
----------------------
Dennis R. Johnson
Vice President and Controller
(On behalf of the Registrant and as principal
accounting officer)
Fort Worth, Texas
November 15, 1999
-18-
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
Exhibit Index
10.1 Resignation and Release Agreement
12 Computation of Ratio of Earnings to Fixed Charges
27.1 Financial Data Schedule for the quarter ended September 30, 1999
27.2 Restated Financial Data Schedule for the year ended December 31, 1998
E-1
<PAGE>
Exhibit 10.1
RESIGNATION AND RELEASE AGREEMENT
This Resignation and Release Agreement ("Agreement") is entered into this 27th
day of July, 1999 between Denis E. Springer ("Employee") and The Burlington
Northern and Santa Fe Railway Company.
WHEREAS, Employee desires to settle fully and finally any differences that may
have arisen or might arise out of his employment and resignation of service with
Burlington Northern Santa Fe Corporation, The Burlington Northern and Santa Fe
Railway Company, The Atchison, Topeka and Santa Fe Railway Company or any of
their affiliated companies, predecessors or successors (hereinafter collectively
referred to as "Company") and his separation therefrom, including his
entitlement to severance benefits.
NOW, THEREFORE, in consideration for the mutual benefits described below, the
Company and Employee agree as follows:
1. Employee resigns effective July 31, 1999, from his position with the
Company, and from membership on any and all boards and committees of Burlington
Northern Santa Fe Corporation or any of its affiliated companies, and will begin
an immediate unpaid leave of absence until February 28, 2001. Employee shall
cooperate with the Company and take all steps reasonably deemed necessary to
effect the foregoing resignation. During the leave of absence, the Employee will
continue to receive Company pension credits but will not be eligible for stock
or bonus plan participation, except as described herein. After July 31, 1999,
Employee shall not be entitled to any benefits under any benefit plans except as
provided in paragraph 2 herein, or pursuant to any vested benefits under any
Company sponsored retirement plan.
2. The Company and Employee agree that Employee shall be entitled to the
following benefits:
(a) Employee is eligible for a total severance amount of $1,913,400,
less applicable legal deductions. Of this amount, $1,793,400 will be
credited to the BNSF Deferred Compensation Plan (with interest to
accrue on the unpaid balance over the payout period based on the
rate method currently set forth in such plan) and to be paid out in
equal annual installments over a period of ten (10) years, beginning
January, 2002. The remaining $120,000.00, minus a deduction for
applicable Medicare taxes payable on the entire deferral amount, and
subject to all other legal deductions, will be paid to the Employee
in equal monthly installments from August 1, 1999 to February 28,
2001.
(b) All options granted under the Santa Fe Pacific Long Term Incentive
Stock Plan and the Burlington Northern Santa Fe 1996 Stock Incentive
Plan other than options granted under the Salary Exchange Program
are vested upon Employee's termination of employment. Employee will
have to the date his leave terminates to exercise all vested stock
options in accordance with the applicable plan, but in no event
shall the option
<PAGE>
exercise period extend beyond the original option expiration date
set forth in the applicable award agreement and all unexercised
options will be cancelled on February 28, 2001.
(c) All options granted under the Burlington Northern Santa Fe 1999
Stock Incentive Plan other than options granted under the Salary
Exchange Program shall be ratably vested based upon the plan and
upon Employee's termination date from active employment of July 31,
1999. Employee will have to the date his leave terminates to
exercise all vested stock options in accordance with applicable
plans, but in no event shall the option exercise period extend
beyond the original option expiration date set forth in the
applicable award agreement and all unexercised options will be
cancelled on February 28, 2001.
(d) Employee will have to February 28, 2001 to exercise vested options
granted through the Salary Exchange Option Program which are
exercisable as of July 31, 1999. All other options under the Salary
Exchange Program are forfeited.
(e) The Restricted Stock award granted to Employee on January 18, 1996
shall remain in effect until the end of Employee's leave, which is
February 28, 2001, in respect to that one-third portion of the award
that was eligible to vest on January 18, 1999; and Employee waives
any rights in respect to unvested shares as of February 28, 2001. As
of July 31, 1999 Employee waives any rights in respect to that
portion of the Restricted Stock Award that was first scheduled to
vest on January 18, 2000 and January 18, 2001. Notwithstanding the
foregoing, if the first one-third of the January 18, 1996 grant does
not vest by February 28, 2001, then Employee shall be eligible for
and receive a cash payment equal to the value of the first one-third
of the award based upon the Fair Market Value of the stock on the
date of the attainment of the price goal as set forth in the BNSF
1996 Stock Incentive Plan if such price goal is attained within the
time period established in the award agreement.
(f) Employee will be placed on an unpaid leave of absence from August 1,
1999 to February 28, 2001, during which period of leave Employee
will continue to accrue benefit and vesting service under the BNSF
Retirement Plan, to the extent consistent with applicable IRS
requirements; provided that in the event of a limitation on benefit
service accrual, Employee will be entitled to a lump sum payment
equal to the present value of the retirement benefit reduction based
upon the actuarial assumptions set forth in the BNSF Retirement
Plan.
(g) Life, accident and group health insurance coverage, substantially
similar to those Employee was receiving, shall be provided for a
twenty-four (24) month period after termination as an employee.
Disability insurance shall be provided until the first day of the
month immediately after Employee attains age 55. These benefits
shall be reduced to the extent comparable employer provided benefits
are actually received, such benefits to be
<PAGE>
reported by Employee to the Company. Employee shall be eligible for
retiree medical and life insurance upon attaining age 55 in
accordance with the applicable plan terms.
(h) Employee is eligible to participate in the BNSF Incentive
Compensation Program for the full calendar year of 1999 and shall
receive a payment to the extent such a payment is earned by Company
performance and other established goals.
(i) Employee will be paid for earned but unused 1999 and 2000 vacation.
(j) Upon request, Employee will receive outplacement assistance for a
period of one-year following termination from the Company.
(k) Employee understands that execution of this Agreement will not
deprive him of any existing benefits under the Company's Investment
and Retirement Plan, Burlington Northern Santa Fe Supplemental
Investment and Retirement Plan, Burlington Northern Santa Fe
Retirement Plan and the Burlington Northern Santa Fe Supplemental
Retirement Plan where applicable.
3. Employee agrees not to disclose to or discuss with any person (except as
permitted in the next sentence) the substance of this Resignation and Release
Agreement, provided that Employee may discuss this agreement with any person
where such disclosure is in furtherance of a legitimate business or career
objective. The preceding sentence shall not be applicable to disclosure and/or
discussion with representatives of the Internal Revenue Service, with immediate
family members and with professionals from whom legal, tax and/or financial
advice is sought, provided they are instructed to keep the information
confidential. Any willful and material breach of this requirement will subject
Employee to forfeiture of any remaining outstanding rights under paragraphs
2(b)-2(e) payable hereunder.
4. During the term of Employee's leave of absence,
(a) Employee further agrees that he will not perform, whether as an
employee, consultant or advisor, any services for a Class I Railroad
unless prior written approval has been obtained from the Chief Legal
Officer of the Company, said approval not to be unreasonably withheld.
(b) Employee further agrees that he shall not without prior approval of
the Chief Legal Officer, which approval shall not be unreasonably
withheld, hold any position or perform any services for any third
party, where such services may conflict with the interests of the
Company, in the reasonable judgment of the Chief Legal Officer. It is
agreed this paragraph 4(b) will have no application to Employee's
rights or benefits under this Agreement unless the interest referred
to in the preceding sentence can reasonably be valued at $1 million or
more. In the event of a breach of this paragraph 4(b), the Company
shall provide the Employee notice of such breach and Employee shall
have thirty (30) days during which period his remaining outstanding
<PAGE>
rights under paragraphs 2(b) through 2(e) under this Agreement shall
remain suspended to permit Employee to remedy such breach to the
satisfaction of the Company. If such breach is remedied to the
reasonable satisfaction of the Company, all such rights that have been
suspended shall be reinstated in full.
(c) Company agrees that any information received from Employee in
connection with his seeking approval to perform services for a third
party under paragraphs 4(a) and (b) above shall remain strictly
confidential and that only employees of the Company directly involved
in such approval process on behalf of the Company shall be privy to
any such information. Company further agrees that its determinations
regarding any such approval shall be made and communicated to Employee
as promptly as is reasonably practicable.
(d) If Employee violates paragraphs (a) or (b) above, then Employee loses
the right to exercise any unexercised options under paragraphs 2(b)
through 2(d), and any remaining outstanding benefits under 2(e) of
this Agreement.
5. Except as specifically provided in section 2 above, Employee hereby
expressly releases and relinquishes unto the Company, all his rights as an
employee, effective close of business on July 31, 1999. This relinquishment of
all employment rights includes, but is not limited to, seniority in any
scheduled employee craft or class, and, except as explicitly provided herein,
coverage under any and all employee benefit plans which Employee was eligible to
participate in heretofore. Employee hereby releases and discharges the Company,
its affiliated corporations, their successors and assigns, and these companies'
directors, officers, agents, servants, and their successors and assigns, from
any and all liability, causes of action, claims or rights, known or unknown,
arising from his employment or his separation from employment with the Company,
which Employee, his heirs or assigns, might otherwise claim or assert. Claims
which Employee relinquishes under this Resignation and Release Agreement
include, but are not limited to, personal injury claims, contract claims,
employment claims, labor and labor protection claims, claims arising under
federal, state or local common law or statute, including without limitation
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S) 2000 et
--
seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C.
- ---
(S) 621 et seq., the Worker Adjustment and Retraining Notification Act or any
-- ---
collective bargaining agreement, the Americans with Disabilities Act, 42 U.S.C.
(S) 12101 et seq., the Family and Medical Leave Act, 29 U.S.C. (S) 2601 et seq.,
-- --- -- ---
The Employee Retirement Income Security Act of 1974, 29 U.S.C. (S) 1001 et seq.,
-- ---
and claims arising out of any legal restrictions on the Company's right to
terminate its employees.
<PAGE>
6. Employee understands and agrees that his employment with the Company has
terminated and he will not apply for or otherwise seek re-employment with the
Company, or its successors, at any time. The Company shall have the absolute
right, without incurring liability of any kind, to refuse to consider Employee
for employment and he agrees that he shall not authorize any person or agency to
pursue any claim for such refusal of employment.
7. As further consideration for the covenants set forth above, Employee
hereby agrees to make himself reasonably available and to reasonably cooperate
with the Company's Law Department and/or any lawyer, law firm, or consultant
that the Company designates with respect to any litigation, deposition, hearing,
arbitration, or other proceeding where the Company's legal or financial
interests are at issue. Employee shall not seek any compensation or fee in
excess of the actual and necessary expenses incurred with respect to such
testimony or appearance, provided that if the time expended is in excess of
three days in a three month period, Employee shall receive a per diem fee based
upon his previous base salary, provided that such payments shall not be in
conflict with applicable federal, state or local law. Employee further covenants
that he will contact the Company's Law Department in the event that there is any
subpoena, notice or other instruction directing the Employee to appear in any
legal proceeding involving the Company.
8. To the maximum extent permitted by law, the Company shall indemnify
Employee against all expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement actually incurred by him in connection with
any claim, action, suit or proceeding, whether civil, criminal, administrative
or investigative, to which Employee becomes a party or in which Employee becomes
otherwise involved by reason of the fact that Employee was a director, officer,
employee or agent of the Company or of any subsidiary or affiliate of the
Company. In addition, the Company shall continue to include Employee among those
individuals covered by the Company's director and officer liability insurance,
as long as such insurance is available and the Company elects to maintain such
insurance; provided, however, that the unavailability of such insurance coverage
or the Company's discontinuance of such insurance shall in no way limit, reduce
or otherwise affect Employee's rights to indemnification by the Company under
the first sentence of this paragraph or his indemnification agreement with the
Company. This paragraph shall remain in full force and effect indefinitely with
respect to any claims based upon events occurring on or prior to July 31, 1999
and with respect to any services provided the Company by Employee under
paragraphs 7 and 9.
9. In consideration for the benefits provided in this agreement,
(a) Employee agrees to serve as a consultant to the Company for a period
of one-year ending August 1, 2000. Employee agrees to make himself
available to the Chief Executive Officer and the Board of Directors
(including any committee thereof) of the Company to consult with them
and to render such advice and services as may be reasonably required
by such individuals; provided that in no event shall Employee be
required to consult for more than 45 days during the 12-month term
and
<PAGE>
Employee's obligations under this paragraph shall be limited to the
extent necessary to accommodate any other outside employment.
(b) Employee shall be reimbursed for necessary and reasonable business
expenses incurred in connection with the performance of his duties
hereunder.
10. Employee also promises neither to contest the validity of this
Resignation and Release Agreement, nor sue Company concerning any claim he may
have relating to his employment with Company or the termination of that
employment. If Employee should pursue litigation against the Company regarding
the validity of this Agreement or in respect to any claims for stock options
or restricted stock rights or benefits in addition to those provided under
paragraphs 2(b)-2(e), Employee agrees, before filing any suit, to return to
Company the value received under paragraphs 2(b) - 2(e) under this Agreement,
including any taxes withheld on his behalf, with interest at the post-judgment
rate of interest for the state in which his suit was filed, provided that no
repayment of benefits shall be required under paragraph 2(e) in respect to any
claim under 2(e) for the first one-third of the January 18, 1996 grant if
other employees have received a payment under the January 18, 1996 award based
upon attainment of the price goals set forth in the award. Employee further
agrees that in the event that the Company successfully defends any claims
brought by Employee (other than Employee counterclaims in litigation initiated
by the Company) he shall pay all Company costs and reasonable attorney's fees
incurred in defending against his legal action. The Company further agrees
that in the event that the Employee successfully defends any claims brought by
the Company (other than counterclaims in litigation initiated by Employee) the
Company shall pay all Employee costs and reasonable attorney fees incurred in
defending the legal action.
11. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators in Chicago, Illinois, in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
12. EMPLOYEE ALSO ACKNOWLEDGES THAT HE HAS BEEN GIVEN AT LEAST FORTY-FIVE (45)
DAYS TO REVIEW THIS RESIGNATION AND RELEASE AGREEMENT OR EMPLOYEE HAS
KNOWINGLY AND VOLUNTARILY AGREED TO WAIVE HIS RIGHT TO THE FULL FORTY-FIVE
(45) DAYS. EMPLOYEE HAS CAREFULLY READ AND FULLY UNDERSTANDS ALL THE
PROVISIONS OF THIS RELEASE INCLUDING THE RELEASE OF ALL CLAIMS AND HAS HAD
SUFFICIENT TIME AND OPPORTUNITY TO CONSULT WITH HIS PERSONAL FINANCIAL, TAX,
AND LEGAL ADVISORS PRIOR TO EXECUTING THIS AGREEMENT. EMPLOYEE UNDERSTANDS
THAT HE MAY REVOKE THIS RELEASE AGREEMENT WITHIN SEVEN (7) DAYS OF EXECUTION
AND THAT SUCH REVOCATION MUST BE IN WRITING AND ACCOMPANIED BY ALL SUMS
RECEIVED HEREUNDER AND RECEIVED BY THE VICE PRESIDENT-HUMAN RESOURCES BY THE
END OF THE SEVEN (7) DAY PERIOD.
13. If any portion or aspect to any promise, covenant or understanding
contained in this Resignation and Release Agreement is or shall become invalid
or unenforceable by
<PAGE>
operation of law, such enforceability shall not in any way limit or otherwise
affect the validity and enforceability of any promise, covenant, understanding,
or any aspect thereof, in this Resignation and Release Agreement which would
otherwise be valid and enforceable by itself. The Resignation and Release
Agreement and the obligations of the Company will survive the death of the
Employee and in the event of Employee's death, all benefits hereunder shall be
payable to the trust entitled Denis E. Springer as trustee of the Denis E.
Springer Revocable Trust dated 2-14-95.
14. Employee has read and understands all of the foregoing, and agrees to all
the provisions contained herein.
/s/ Denis E. Springer XXX-XX-XXXX
- ---------------------------------------- -------------------------------
Denis E. Springer Employee Social Security Number
/s/ Jeffrey R. Moreland July 27, 1999
- ---------------------------------------- -------------------------------
Witness Date
THE BURLINGTON NORTHERN AND
SANTA FE RAILWAY COMPANY
/s/ Ricci L. Gardner July 27, 1999
- ---------------------------------------- -------------------------------
Ricci L. Gardner Date
Vice President Human Resources
<PAGE>
EXHIBIT 12
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
COMPUTATION of RATIO of EARNINGS to FIXED CHARGES
(In Millions, Except Ratio Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Earnings:
Pre-tax income $1,315 $1,380
Add:
Interest and fixed charges,
excluding capitalized interest 291 264
Portion of rent under long-term
operating leases representative
of an interest factor 139 144
Amortization of capitalized interest 4 3
Less: Undistributed equity in earnings
of investments accounted for
under the equity method 9 12
------------- -------------
Total earnings available for fixed charges $1,740 $1,779
============= =============
Fixed charges:
Interest and fixed charges $ 301 $ 276
Portion of rent under long-term operating
leases representative of an interest factor 139 144
------------- -------------
Total fixed charges $ 440 $ 420
============= =============
Ratio of earnings to fixed charges 3.95x 4.24x
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 532
<ALLOWANCES> 67
<INVENTORY> 249
<CURRENT-ASSETS> 1,115
<PP&E> 26,903
<DEPRECIATION> 5,446
<TOTAL-ASSETS> 23,407
<CURRENT-LIABILITIES> 2,070
<BONDS> 5,619
0
0
<COMMON> 5
<OTHER-SE> 8,012
<TOTAL-LIABILITY-AND-EQUITY> 23,407
<SALES> 0
<TOTAL-REVENUES> 6,730
<CGS> 0
<TOTAL-COSTS> 5,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> 1,315
<INCOME-TAX> 493
<INCOME-CONTINUING> 822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 822
<EPS-BASIC> 1.77
<EPS-DILUTED> 1.75
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA 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>
<CIK> 0000934612
<NAME> BURLINGTON NORTHERN SANTA FE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 595<F1>
<ALLOWANCES> 71<F1>
<INVENTORY> 244
<CURRENT-ASSETS> 1,162<F1>
<PP&E> 25,701
<DEPRECIATION> 5,039
<TOTAL-ASSETS> 22,646<F1>
<CURRENT-LIABILITIES> 2,153<F1>
<BONDS> 5,188
0
0
<COMMON> 5
<OTHER-SE> 7,765
<TOTAL-LIABILITY-AND-EQUITY> 22,646<F1>
<SALES> 0
<TOTAL-REVENUES> 8,941
<CGS> 0
<TOTAL-COSTS> 6,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354
<INCOME-PRETAX> 1,849
<INCOME-TAX> 694
<INCOME-CONTINUING> 1,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,155
<EPS-BASIC> 2.45
<EPS-DILUTED> 2.43
<FN>
<F1>Restatement reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
