<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11535
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, 2000
----- -------------------------------
Common stock, $.01 par value 394,804,373 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,
--------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenues $ 2,315 $ 2,340 $ 6,788 $ 6,712
-------- -------- -------- -------
Operating expenses:
Compensation and benefits 674 701 2,049 2,070
Purchased services 240 226 698 686
Depreciation and amortization 225 227 670 668
Equipment rents 192 190 547 564
Fuel 231 170 661 504
Materials and other 182 195 599 618
-------- -------- -------- -------
Total operating expenses 1,744 1,709 5,224 5,110
-------- -------- -------- -------
Operating income 571 631 1,564 1,602
Interest expense 117 99 336 291
Other income (expense), net (36) 25 (59) 4
-------- -------- -------- -------
Income before income taxes 418 557 1,169 1,315
Income tax expense 159 209 444 493
-------- -------- -------- -------
Net income $ 259 $ 348 $ 725 $ 822
======== ======== ======== =======
Earnings per share:
Basic $ 0.65 $ 0.76 $ 1.72 $ 1.77
======== ======== ======== =======
Diluted $ 0.64 $ 0.75 $ 1.72 $ 1.75
======== ======== ======== =======
Average shares (in millions):
Basic 401.3 460.9 420.9 465.6
Dilutive effect of stock options 1.2 3.2 1.3 3.6
-------- -------- -------- -------
Diluted 402.5 464.1 422.2 469.2
======== ======== ======== =======
Dividends declared per share $ 0.12 $ 0.12 $ 0.36 $ 0.36
</TABLE>
See accompanying notes to consolidated financial statements.
1
<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 2000 1999
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28 $ 22
Accounts receivable, net 354 397
Materials and supplies 202 255
Current portion of deferred income taxes 324 326
Other current assets 108 66
----------------- -----------------
Total current assets 1,016 1,066
Property and equipment, net 22,137 21,681
Other assets 960 953
----------------- -----------------
Total assets $ 24,113 $ 23,700
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,938 $ 1,917
Long-term debt and commercial paper due within one year 191 158
----------------- -----------------
Total current liabilities 2,129 2,075
Long-term debt and commercial paper 6,542 5,655
Deferred income taxes 6,314 6,097
Casualty and environmental liabilities 437 423
Employee merger and separation costs 281 302
Other liabilities 996 976
----------------- -----------------
Total liabilities 16,699 15,528
----------------- -----------------
Commitments and contingencies (see notes 3, 5, and 6)
Stockholders' equity:
Common stock, $.01 par value, 600,000 shares authorized;
485,774 shares and 484,572 shares issued, respectively 5 5
Additional paid-in capital 5,408 5,390
Retained earnings 4,300 3,726
Treasury stock, at cost, 88,899 shares and 30,013 shares, respectively (2,260) (913)
Unearned compensation (32) (29)
Accumulated other comprehensive deficit (7) (7)
----------------- -----------------
Total stockholders' equity 7,414 8,172
----------------- -----------------
Total liabilities and stockholders' equity $ 24,113 $ 23,700
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
2000 1999
----------------- --------------
<S> <C> <C>
Operating Activities:
Net income $ 725 $ 822
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 670 668
Deferred income taxes 218 328
Employee merger and separation costs paid (47) (80)
Other, net 75 (108)
Changes in current assets and liabilities:
Accounts receivable 43 59
Materials and supplies 53 (5)
Other current assets (41) (15)
Accounts payable and other current liabilities 11 60
----------------- --------------
Net cash provided by operating activities 1,707 1,729
----------------- --------------
Investing Activities:
Capital expenditures (990) (1,357)
Other, net (159) (78)
----------------- --------------
Net cash used for investing activities (1,149) (1,435)
----------------- --------------
Financing Activities:
Net increase in commercial paper and bank borrowings 337 (27)
Proceeds from issuance of long-term debt 825 633
Payments on long-term debt (240) (273)
Purchase of BNSF common stock (1,344) (561)
Dividends paid (158) (169)
Proceeds from stock options exercised 5 115
Other, net 23 (13)
----------------- --------------
Net cash used for financing activities ( 552) (295)
----------------- --------------
Increase (decrease) in cash and cash equivalents 6 (1)
Cash and cash equivalents:
Beginning of period 22 25
----------------- --------------
End of period $ 28 $ 24
================= ==============
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 317 $ 292
Income taxes paid, net of refunds 252 52
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND INTERIM RESULTS
The consolidated financial statements should be read in conjunction with the
Burlington Northern Santa Fe Corporation Annual Report on Form 10-K for the year
ended December 31, 1999, including the financial statements and notes thereto
incorporated by reference from the Registrant's 1999 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, 2000 and the consolidated results of operations for
the three and nine month periods ended September 30, 2000 and 1999 have been
included. For the three and nine month periods ended September 30, 2000 and
1999, the Company's comprehensive income approximates net income.
Certain comparative prior year amounts in the consolidated financial statements
have been reclassified to conform to the current year presentation.
2. TERMINATION OF PROPOSED COMBINATION WITH CANADIAN NATIONAL RAILWAY COMPANY
On December 18, 1999, BNSF and Canadian National Railway Company (CN) entered
into an agreement to combine the two companies (Combination). See the
discussion under "Proposed Combination With Canadian National Railway Company"
in Note 1 to the Consolidated Financial Statements on pages 34-35 of BNSF's 1999
Annual Report to Shareholders, which information is hereby incorporated by
reference. On July 20, 2000, BNSF and CN announced their mutual termination of
the Combination Agreement with neither party paying any break-up fees.
The termination followed the imposition by the Surface Transportation Board
(STB) on March 17, 2000 of a 15-month moratorium on major railroad control
transactions (STB Ex Parte No. 582) and the July 14, 2000 decision of the United
States Court of Appeals for the District of Columbia Circuit upholding the STB's
authority to impose the moratorium that precluded BNSF and CN from filing their
control application with the STB during the pendency of the moratorium.
Due to the termination of the Combination in July 2000, the Company recorded to
other income (expense) $20 million (pre-tax) in costs related to the Combination
during the third quarter. These costs would have been included as part of the
purchase price had the Combination been consummated.
3. DEBT
In February 2000, a put option on $100 million of medium-term notes paying
interest of 6.1 percent was exercised by the holders and the Company repaid the
holders primarily with proceeds from the issuance of commercial paper.
In April 2000, BNSF issued $300 million of 7.9 percent notes due April 2007 and
$200 million of 8.1 percent debentures due April 2020. The net proceeds of the
debt issuance were used for general corporate purposes including the repayment
of outstanding commercial paper which increased primarily as a result of higher
share repurchases (see Note 7 to these consolidated financial statements). At
the time of issuing the $300 million of 7.9 percent notes and the $200 million
of 8.1 percent debentures discussed above, the Company closed out two treasury
lock transactions, each in an amount of $100 million, at gains of approximately
$9 million and $13 million, respectively, which have been deferred and are being
amortized to interest expense over the lives of the notes and the debentures,
respectively. Subsequent to this debt issuance, the Company had no remaining
capacity under the February 1999 shelf registration statement.
4
<PAGE>
In April 2000, BNSF issued $50 million of privately placed debt secured by
locomotives that were acquired in 1999. This debt carries an interest rate of
7.8 percent and matures in April 2015.
In May 2000, the Company filed a new shelf registration statement that became
effective during May 2000 for the issuance of debt securities which may be
issued in one or more series at an aggregate offering price not to exceed
$1 billion.
In August 2000, BNSF issued $275 million of 7.9 percent debentures due August
2030 under the May 2000 shelf registration statement. The net proceeds were used
for general corporate purposes including the repayment of outstanding
commercial paper which increased primarily as a result of higher share
repurchases. At the time of issuing these debentures, the Company closed out a
treasury lock transaction in the amount of $100 million at a gain of
approximately $8 million which has been deferred and is being amortized to
interest expense over the life of the debentures. Subsequent to this issuance,
the Company had $725 million available for borrowing under the May 2000 shelf
registration statement.
BNSF issues commercial paper from time to time which is supported by bank
revolving credit agreements. At September 30, 2000, there were no borrowings
against the revolving credit agreements. However, 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 21, 2000, allow borrowings of up to $1.0 billion on a
short-term basis (an increase of $250 million over the prior agreement) and $750
million on a long-term basis. The Company generally classifies commercial paper
as long-term to the extent of its borrowing capacity before reducing the
capacity of its short-term facility. The commitments of the lenders under the
short-term agreement are scheduled to expire in June 2001. The commitments of
the lenders under the long-term agreement are scheduled to expire in June 2005.
The maturity value of commercial paper outstanding as of September 30, 2000 was
$818 million, reducing the total capacity available under the revolving credit
agreements to $932 million. BNSF must maintain compliance with certain
financial covenants under its revolving credit agreements and at September 30,
2000, the Company was in compliance.
4. EMPLOYEE MERGER AND SEPARATION COSTS
Current and long-term employee merger and separation liabilities totaling $332
million are included in the consolidated balance sheet at September 30, 2000,
and principally represent: (i) employee-related severance costs for the
consolidation of clerical functions; (ii) deferred benefits payable upon
separation or retirement to certain active conductors, trainmen and locomotive
engineers; and (iii) certain salaried employee severance costs. During the
first nine months of 2000, the Company made employee merger and separation
payments of $47 million.
During the second quarter of 2000, the Company incurred $22 million of costs for
severance, medical and other benefit costs for approximately 150 involuntarily
terminated employees, primarily material handlers in mechanical shops and
trainmen on reserve boards, as part of the Company's ongoing initiatives to
reduce operating expense by improving its efficiency. The initiative sought to
eliminate approximately 200 positions, with the remaining reductions through the
elimination of contract services. As of September 30, 2000, approximately 100
positions have been eliminated, with the remaining positions to be eliminated by
the first quarter of 2001. The majority of these costs have not been paid as of
September 30, 2000 primarily because most severed employees have elected to
receive payments over the next several years, rather than lump-sum payments.
In the second quarter of 1999, the Company incurred $48 million of
reorganization costs for severance, pension, medical and other benefit costs for
approximately 325 involuntarily terminated non-union employees that were part of
a program that sought to reduce operating expenses by eliminating 1,000 union
and 400 non-union positions through severances, normal attrition and the
elimination of contractors. No significant costs were incurred as a result of
eliminating the 1,000 union positions. Additionally, in 1999 the Company
recorded a $54 million credit for the reversal of certain liabilities associated
with the consolidation of clerical functions.
5
<PAGE>
Liabilities related to the consolidation of clerical functions are paid to
affected union employees in the form of a lump-sum payment or payments made over
five to ten years, or in some cases, through retirement. Liabilities related to
deferred benefits payable to certain active conductors, trainmen and locomotive
engineers are paid upon the employee's separation or retirement. Liabilities
principally related to certain remaining salaried employee severances will be
paid in the form of a lump sum payment or over the next several years based on
deferral elections made by affected employees. At September 30, 2000, $51
million of the remaining liabilities are included within current liabilities for
anticipated costs to be paid over the next twelve months.
5. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. BNSF's operating
procedures include practices to protect the environment from the risks inherent
in railroad operations, which frequently involve transporting chemicals and
other hazardous materials. Additionally, many of BNSF's land holdings are and
have been used for industrial or transportation-related purposes or leased to
commercial or industrial companies whose activities may have resulted in
discharges onto the property. As a result, BNSF is subject to environmental
clean-up and enforcement actions. In particular, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also
known as the "Superfund" law, as well as similar state laws generally impose
joint and several liability for clean-up and enforcement costs without regard to
fault or the legality of the original conduct on current and former owners and
operators of a site. BNSF has been notified that it is a potentially
responsible party (PRP) for study and clean-up costs at approximately 31
Superfund sites for which investigation and remediation payments are or will be
made or are yet to be determined (the Superfund sites) and, in many instances,
is one of several PRPs. In addition, BNSF may be considered a PRP under certain
other laws. Accordingly, under CERCLA and other federal and state statutes,
BNSF may be held jointly and severally liable for all environmental costs
associated with a particular site. If there are other PRPs, BNSF generally
participates in the clean-up of these sites through cost-sharing agreements with
terms that vary from site to site. Costs are typically allocated based on
relative volumetric contribution of material, the amount of time the site was
owned or operated, and/or the portion of the total site owned or operated by
each PRP.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental clean-up
costs are initially recorded when BNSF's liability for environmental clean-up is
both probable and a reasonable estimate of associated costs can be made.
Adjustments to initial estimates are recorded as necessary based upon additional
information developed in subsequent periods. BNSF conducts an ongoing
environmental contingency analysis, which considers a combination of factors
including independent consulting reports, site visits, legal reviews, analysis
of the likelihood of participation in and the ability of other PRPs to pay for
clean-up, and historical trend analyses.
BNSF is involved in a number of administrative and judicial proceedings and
other clean-up efforts at approximately 375 sites, including the Superfund
sites, at which it is participating in the study or clean-up, or both, of
alleged environmental contamination. BNSF paid approximately $34 million during
the first nine months of 2000 for mandatory and unasserted clean-up efforts,
including amounts expended under federal and state voluntary clean-up programs.
BNSF has accruals of approximately $236 million for remediation and restoration
of all known sites. BNSF anticipates that the majority of the accrued costs at
September 30, 2000, will be paid over the next five years. No individual site
is considered to be material.
Liabilities recorded for environmental costs represent BNSF'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,
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.
6
<PAGE>
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 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.
6. HEDGING ACTIVITIES
FUEL
Historically, fuel expenses have approximated 10 percent of total operating
expenses; however, fuel costs during the first nine months of 2000 represent 13
percent of total operating expenses due to significantly higher fuel prices. Due
to the significance of diesel fuel expenses to the operations of BNSF and the
historical volatility of fuel prices, the Company maintains a program to hedge
against fluctuations in the price of its diesel fuel purchases. The intent of
the program is to protect the Company's operating margins and overall
profitability from adverse fuel price changes by entering into fuel hedge
instruments based on management's evaluation of current and expected diesel fuel
price trends. However, to the extent the Company hedges portions of its fuel
purchases, it may not realize the impact of decreases in fuel prices.
Conversely, to the extent the Company does not hedge portions of its fuel
purchases, it may be adversely affected by increases in fuel prices. The fuel-
hedging program includes the use of commodity swap transactions that are
accounted for as hedges. Any gains or losses associated with changes in the
market value of the fuel swaps are deferred and recognized as a component of
fuel expense in the period in which the fuel is purchased and used. Based on
annualized fuel consumption during the first nine months of 2000 and excluding
the impact of the hedging program, each one-cent increase in the price of fuel
would result in approximately $12 million of additional fuel expense on an
annual basis.
As of September 30, 2000, BNSF had entered into fuel swaps for approximately 500
million gallons at an average price of approximately 50 cents per gallon. The
above price does not include taxes, transportation costs, certain other fuel
handling costs, and any differences which may occur from time to time between
the prices of commodities hedged and the purchase price of BNSF's diesel fuel.
Currently, BNSF's fuel hedging program covers approximately 42 percent of
estimated fuel purchases for the remaining three months of 2000, and
approximately 23 percent and 8 percent of estimated annual fuel purchases for
2001 and 2002, respectively. Hedge positions are closely monitored to ensure
that they will not exceed actual fuel requirements in any period. Unrecognized
gains from BNSF's fuel swap transactions were approximately $153 million as of
September 30, 2000, of which $55 million relates to swap transactions that will
expire in 2000. BNSF also monitors its hedging positions and credit ratings of
its counterparties and does not anticipate losses due to counterparty
nonperformance.
INTEREST RATE
As discussed in Note 3 to these consolidated financial statements, at the time
of issuing the $300 million of 7.9 percent notes and the $200 million of 8.1
percent debentures in April 2000, the Company closed out two treasury lock
transactions with expiration dates in 2000, each in an amount of $100 million
(one based on the 10-year and one based on the 30-year rates), at gains of
approximately $9 million and $13 million, respectively, which have been deferred
and are being amortized to interest expense over the lives of the notes and the
debentures, respectively.
Also discussed in Note 3 to these consolidated financial statements, at the time
of issuing the $275 million of 7.9 percent debentures in August 2000, the
Company closed out the 30-year treasury lock expiring in June 2001 at a gain of
$8 million which has been deferred and is being amortized to interest expense
over the 30-year life of the debentures.
As of September 30, 2000, the Company had one outstanding treasury lock
transaction of $100 million, based on the 10-year U.S. treasury rate. This
treasury lock transaction has an average interest rate of approximately 4.6
percent and expires in June 2001. Unrecognized gain on the treasury lock
transaction was approximately $8 million as of September 30, 2000.
7
<PAGE>
7. COMMON STOCK REPURCHASE PROGRAM
During the first nine months of 2000, BNSF repurchased 58.5 million shares of
its common stock at an average price of $22.97 per share under the Company's
share repurchase program amounting to a total cost of $1,344 million. On
September 21, 2000, the Board of Directors authorized the extension of the
current BNSF share repurchase program, adding 30 million shares to the total of
90 million shares previously authorized in equal amounts in July 1997, December
1999, and April 2000. Since the inception of the share repurchase program in
1997, 85.6 million shares have been repurchased, leaving 34.4 million shares
remaining under current authorizations.
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, 2000 compared with three months ended September
30, 1999
BNSF recorded net income for the third quarter of 2000 of $259 million ($0.64
per share), compared with third quarter 1999 net income of $348 million ($0.75
per share). The decrease in earnings per share is primarily due to the effect
on net income of a $61 million increase in fuel expenses, softness in the
agricultural commodities and coal business units and an unfavorable change in
other income (expense), partially offset by the favorable effect of strong
intermodal revenues and the common stock repurchase program (see Note 7 to the
Company's consolidated financial statements).
Revenues
The following table presents BNSF's revenue information by commodity for the
three months ended September 30, 2000 and 1999 and includes certain
reclassifications of prior year information to conform to the current year
presentation:
<TABLE>
<CAPTION>
Average Revenue
Revenues Cars/Units Per Car/Unit
--------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 2000 1999 2000 1999
----------- ----------- ------------- ----------- ------------- ------------
(In Millions) (In Thousands)
Intermodal $ 687 $ 652 906 835 $ 758 $ 781
Carload 652 647 459 447 1,420 1,447
Coal 550 564 518 537 1,062 1,050
Agricultural Commodities 317 371 176 196 1,801 1,893
Automotive 107 99 54 57 1,981 1,737
----------- ----------- ------------- ----------- ------------- ------------
Total Freight Revenues 2,313 2,333 2,113 2,072 1,095 1,126
============= =========== ------------- ------------
Other Revenues 2 7
----------- -----------
Total Operating Revenues $ 2,315 $ 2,340
=========== ===========
</TABLE>
Total revenues for third quarter of 2000 were $2,315 million or 1 percent lower
than revenues of $2,340 million for the third quarter of 1999. The decrease
primarily reflects decreases in the agricultural and coal sectors, partially
offset by higher intermodal, carload, and automotive revenues. Average revenue
per car/unit decreased approximately 3 percent in the third quarter of 2000 to
$1,095 from $1,126 in the third quarter of 1999.
Intermodal revenues of $687 million for the third quarter of 2000 increased $35
million or 5 percent reflecting increases in the International and Truckload
sectors partially offset by decreases in Direct and Intermodal Marketing Company
(IMC) revenues. International revenues were up sharply due to record Trans-
Pacific trade, new customer contracts, and increased loadings from Maersk,
Evergreen, OOCL, and Hyundai, while Truckload revenues benefited from increased
shipments with Schneider National. These increases were partially offset by
decreases in Direct revenues and IMC revenues due to the loss of shipments to
Union Pacific Corporation due to pricing pressure and strong over-the-road
competition.
8
<PAGE>
Carload revenues of $652 million for the third quarter of 2000 were $5 million
or 1 percent higher than the third quarter of 1999 due to increases in the
Metals, Minerals and other Consumer Products sectors, partially offset by
decreases in the Forest Products and Chemicals sectors. Increases were a result
of additional steel and other metal loadings in the Metals sector, increased
loadings of sand and clay in the Minerals sector due to growth in domestic oil
production, and strong increases in perishables and vegetables as well as dry
boxcar shipments in the other Consumer Products sector. These increases were
partially offset by decreased shipments of lumber despite increased printing
paper shipments in the Forest Products sector and decreased shipments of
industrial chemicals and plastics in the Chemicals sector.
Coal revenues continue to be softer than in the third quarter of 1999 and
declined $14 million, or 2 percent, to $550 million due to the effect on demand
of mild weather and high customer stockpiles, particularly across the Midwest.
Agricultural commodities revenues of $317 million for the third quarter of 2000
were $54 million or 15 percent lower than revenues for the third quarter of
1999, due to weak Pacific Northwest and Mexico shipments of corn, and decreased
shipments of Gulf and Pacific Northwest wheat, combined with decreased shipments
of bulk foods and barley due to market pricing issues and decreased shipments of
soybeans due to reduced exports.
Automotive revenues of $107 million for the third quarter of 2000 were $8
million or 8 percent higher than the third quarter of 1999. This increase can
be attributed to increased regional demand for vehicles.
Expenses
Total operating expenses for the third quarter of 2000 were $1,744 million, an
increase of $35 million or 2 percent, over 1999 on a 2 percent increase in cars
and units handled and a $61 million increase in fuel expenses. The operating
ratio of 75.3 percent for the third quarter of 2000 was higher than the 73.0
percent operating ratio for the third quarter 1999 primarily due to
significantly higher fuel costs in the third quarter 2000.
Compensation and benefits expenses of $674 million were $27 million or 4 percent
lower than the third quarter of 1999 primarily due to lower employment levels
and reduced incentive expense offset by increased base wages.
Purchased services of $240 million for the third quarter of 2000 were $14
million or 6 percent higher than the third quarter of 1999 principally due to
increased equipment maintenance costs due to an increase in the number of
locomotives under maintenance contracts, and higher ramping and drayage expenses
consistent with strong intermodal business.
Equipment rents expenses for the third quarter of 2000 of $192 million were $2
million or 1 percent higher than the third quarter of 1999 due to higher
locomotive rental expense partially offset by lower leased equipment rent
expenses resulting from a decrease in the number of leased agricultural
commodity and coal cars.
Fuel expenses of $231 million for the third quarter of 2000 were $61 million or
36 percent higher than the third quarter of 1999, as a result of a 21 cent or 36
percent increase in the average all-in cost per gallon of diesel fuel.
Consumption was slightly lower in the third quarter of 2000 at 293 million
gallons compared to 295 million gallons in the third quarter of 1999. The
increase in the average all-in cost per gallon of diesel fuel includes a 32 cent
increase in the average purchase price, partially offset by a favorable impact
in 2000 from the Company's fuel hedging program of 15 cents per gallon compared
with the hedge benefit of 4 cents per gallon in 1999.
Materials and other expenses of $182 million for the third quarter of 2000 were
$13 million or 7 percent lower than the third quarter of 1999 due in part to
lower locomotive and other materials costs.
Interest expense of $117 million for the third quarter of 2000 was $18 million
or 18 percent higher than in the third quarter of 1999, reflecting increased
debt levels resulting from the Company's share repurchase program and higher
interest rates. Total debt increased to $6,733 million at September 30, 2000
from $5,783 million at September 30, 1999.
Other income (expense) for the third quarter was unfavorable by $61 million
compared to the third quarter of 1999 primarily due to the recognition in the
third quarter of 1999 of a gain of $37 million (pre-tax) in connection with
prior period line sales that was partially offset by costs related to those
sales, and the recognition in the third quarter of 2000 of $20 million (pre-tax)
of expenses relating to the termination of the BNSF/CN Combination Agreement
(see Note 2 to the Company's consolidated financial statements).
9
<PAGE>
Nine months ended September 30, 2000 compared with nine months ended September
30, 1999
BNSF recorded net income for the first nine months of 2000 of $725 million
($1.72 per share), compared with the first nine months of 1999 net income of
$822 million ($1.75 per share). The decrease in earnings per share is primarily
due to the effect on net income of a $157 million increase in fuel expenses and
an unfavorable change in other income (expense), partially offset by the
favorable effect of the common stock repurchase program (see Note 7 to the
Company's consolidated financial statements).
Revenues
The following table presents BNSF's revenue information by commodity for the
nine months ended September 30, 2000 and 1999 and includes certain
reclassifications of prior year information to conform to current year
presentation:
<TABLE>
<CAPTION>
Average Revenue
Revenues Cars/Units Per Car/Unit
--------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 2000 1999 2000 1999
----------- ----------- ------------- ----------- ------------- ------------
(In Millions) (In Thousands)
Intermodal $ 1,959 $ 1,821 2,561 2,338 $ 765 $ 779
Carload 1,955 1,908 1,348 1,327 1,450 1,438
Coal 1,604 1,673 1,512 1,578 1,061 1,060
Agricultural Commodities 902 968 501 522 1,800 1,854
Automotive 365 319 191 183 1,911 1,743
----------- ----------- ------------- ----------- ------------- ------------
Total Freight Revenues 6,785 6,689 6,113 5,948 1,110 1,125
============= =========== ------------- ------------
Other Revenues 3 23
----------- -----------
Total Operating Revenues $ 6,788 $ 6,712
=========== ===========
</TABLE>
Total revenues for the first nine months of 2000 were $6,788 million or 1
percent higher than revenues of $6,712 million for the first nine months of
1999. Increases primarily reflect growth in the intermodal, carload, and
automotive sectors, partially offset by lower coal and agricultural commodities
revenues. Average revenue per car/unit decreased 1 percent in the first nine
months of 2000 to $1,110 from $1,125 in the first nine months of 1999.
Intermodal revenues of $1,959 million for the first nine months of 2000
increased $138 million or 8 percent reflecting increases in the international,
and truckload sectors partially offset by decreases in the IMC sector.
International revenues were up sharply due to increased loadings from Maersk,
NYK, and OOCL, resulting from increased Trans-Pacific trade and new customer
contracts. Truckload revenues benefited from increased shipments with Schneider
National. Revenue increases were partially offset by decreases in the IMC
sector due to the loss of shipments to Union Pacific Corporation due to pricing
pressure and strong over-the-road competition.
Carload revenues of $1,955 million for the first nine months of 2000 were $47
million or 2 percent higher than the first nine months of 1999 due to increases
in all sectors. The increases were a result of increased steel coil and other
metal loadings in the Metals sector, increased loadings of sand and clay in the
Minerals sector due to increased domestic oil production, increased shipments of
pulpboard in the Forest Products sector, strong increases in Perishables and
other Consumer Products sectors due to increased citrus and vegetable shipments,
and increased shipments from beverage and food shippers.
Coal revenues of $1,604 million for the first nine months of 2000 decreased $69
million or 4 percent compared to the first nine months of 1999 due in part to
decreased demand as a result of continued mild weather and high levels of
existing inventory at power plants.
Agricultural commodities revenues of $902 million for the first nine months of
2000 were $66 million or 7 percent lower than revenues for the first nine months
of 1999 due to weak Pacific Northwest and Mexico shipments of corn, and
decreased shipments of Gulf and Pacific Northwest wheat, both caused by
worldwide crop competition, decreased shipments of bulk foods and barley due to
market pricing issues and decreased shipments of soybeans due to reduced
exports.
Automotive revenues of $365 million for the first nine months of 2000 were $46
million or 14 percent higher than the first nine months of 1999. This increase
can be attributed to increased regional demand for vehicles.
10
<PAGE>
Expenses
Total operating expenses for the first nine months of 2000 were $5,224 million,
an increase of $114 million or 2 percent, over 1999 despite a 3 percent increase
in cars and units handled and a $157 million increase in fuel expenses. The
operating ratio of 77.0 percent for the first nine months of 2000 was higher
than the 76.1 percent operating ratio for the same period of 1999 due to
significantly higher fuel costs to date in 2000.
Compensation and benefits expenses of $2,049 million were $21 million or 1
percent lower than the first nine months of 1999 primarily due to lower
employment levels and reduced incentive expense offset by increased base wages.
Purchased services of $698 million for the first nine months of 2000 were $12
million or 2 percent higher than the first nine months of 1999 principally due
to increased equipment maintenance costs due to an increase in the number of
locomotives under maintenance contracts, and higher ramping and drayage expenses
due to increased intermodal volume partially offset by lower joint facility
charges.
Equipment rents expenses for the first nine months of 2000 of $547 million were
$17 million or 3 percent lower than the first nine months of 1999 due to a
decrease in lease rates as well as a decrease in the number of leased
agricultural commodity and coal cars, partially offset by increased locomotive
rental expense.
Fuel expenses of $661 million for the first nine months of 2000 were $157
million or 31 percent higher than the first nine months of 1999, as a result of
a 18 cent or 32 percent increase in the average all-in cost per gallon of diesel
fuel. Consumption was slightly lower in the first nine months of 2000 at 871
million gallons compared to 877 million gallons in the first nine months of
1999. The increase in the average all-in cost per gallon of diesel fuel
includes a 34 cent increase in the average purchase price, partially offset by
the favorable impact in 2000 from the Company's fuel hedging program of 12 cents
per gallon compared with additional expense from hedging of 4 cents per gallon
in 1999.
Materials and other expenses of $599 million for the first nine months of 2000
were $19 million or 3 percent lower than the first nine months of 1999. This
decrease primarily reflects: (i) reorganization costs of $48 million incurred in
the second quarter of 1999 for severance, pension, medical and other benefit
costs for approximately 325 involuntarily terminated salaried employees (see
Note 4 to the Company's consolidated financial statements), (ii) lower current
year environmental expenses and locomotive and other materials costs compared to
1999; and (iii) higher current year gains from easement sales. Offsetting these
decreases were: (i) $22 million of employee related severance, medical and
other benefit costs recorded in the second quarter of 2000 (see Note 4 to the
Company's consolidated financial statements) for approximately 150 involuntarily
terminated employees, primarily material handlers in mechanical shops and
trainmen reserve boards; (ii) the second quarter 1999 $54 million reversal of
certain liabilities associated with the consolidation of clerical functions (see
Note 4 to the Company's consolidated financial statements); (iii) the loss
of previously earned state tax incentives in the second quarter 2000; and (iv)
higher costs in 2000 related to the maintenance of leased equipment.
Interest expense of $336 million for the first nine months of 2000 was $45
million or 15 percent higher than in the first nine months of 1999, reflecting
higher debt levels resulting from the Company's share repurchase program and
higher interest rates. Total debt increased to $6,733 million at September 30,
2000 from $5,783 million at September 30, 1999.
Other income (expense) was unfavorable by $63 million compared to the first nine
months of 1999 primarily due to the recognition in the third quarter of 1999 of
a gain of $37 million (pre-tax) in connection with prior period line sales that
was partially offset by costs related to those sales, recognition in the third
quarter of 2000 of $20 million (pre-tax) of expenses relating to the termination
of the BNSF/CN Combination Agreement (see Note 2 to the Company's consolidated
financial statements).
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.
11
<PAGE>
OPERATING ACTIVITIES
Net cash provided by operating activities was $1,707 million for the nine months
ended September 30, 2000, compared with $1,729 million for the nine months ended
September 30, 1999. The decrease in cash from operations was primarily due to
the decrease in net income and lower deferred income taxes, partially offset by
the receipt of a $43 million dividend from the Company's equity investment in
TTX Company in March 2000 and lower casualty payments.
INVESTING ACTIVITIES
Net cash used for investing activities for the nine months ended September 30,
2000 was $1,149 million consisting of $990 million of capital expenditures, as
discussed below, and $159 million of other investing activities.
A breakdown of cash capital expenditures for the nine months ended September 30,
2000 and 1999, is set forth in the following table (in millions):
<TABLE>
<S> <C> <C>
Nine Months Ended September 30, 2000 1999
--------------------------------------------------------------- --------------- ---------------
Maintenance of Way $ 656 $ 607
Mechanical 144 164
Information Services 43 54
Other 83 90
--------------------------------------------------------------- --------------- ---------------
Total Maintenance of Business 926 915
New Locomotives and Freight Cars - 255
Terminal and Line Expansion 56 178
Other Projects 8 9
--------------------------------------------------------------- --------------- ---------------
Total $ 990 $1,357
--------------------------------------------------------------- =============== ===============
</TABLE>
Maintenance of Way expenditures for the first nine months of 2000 increased
primarily due to an earlier start on projects as a result of a mild winter.
Terminal and Line Expansion expenditures, principally main line track and major
facility construction, decreased primarily due to a reduced capital program in
2000.
Through September 30, 2000, BNSF has acquired 203 of the 246 locomotives it has
committed to acquire in 2000. The increase in locomotive commitments from 196
represents an acceleration of 50 locomotives originally planned for acquisition
in early 2001, due to current favorable market conditions. All locomotive
acquisitions in 2000 are anticipated to be acquired through operating leases.
FINANCING ACTIVITIES
Net cash used for financing activities during the first nine months of 2000 was
$552 million, primarily related to common stock repurchases of $1,344 million
partially offset by net proceeds from total debt of $922 million.
During the first nine months of 2000, BNSF repurchased 58.5 million shares of
its common stock at an average price of $22.97 per share under the Company's
share repurchase program amounting to a total cost of $1,344 million. On
September 21, 2000, the Board of Directors authorized the extension of the
current BNSF share repurchase program, adding 30 million shares to the total of
90 million shares previously authorized in equal amounts in July 1997, December
1999, and April 2000. 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, financial
ratios, and stockholder returns.
In February 2000, a put option on $100 million of medium-term notes paying a
coupon of 6.1 percent was exercised by the holders and the Company repaid the
holders primarily with proceeds from the issuance of commercial paper.
In April 2000, BNSF issued $300 million of 7.9 percent notes due April 2007 and
$200 million of 8.1 percent debentures due April 2020. The net proceeds of the
debt issuance were used for general corporate purposes including the repayment
of outstanding commercial paper which increased primarily as a result of higher
share repurchases, as discussed above. At the time of issuing the $300 million
of 7.9 percent notes and the $200 million of 8.1 percent debentures discussed
above, the Company closed out two treasury lock transactions, each in an amount
of $100 million, at gains of approximately $9 million and $13 million,
respectively, which have been deferred and are being amortized to interest
expense over the lives of the notes and the debentures, respectively. Subsequent
to this debt issuance, the Company had no remaining capacity under the February
1999 shelf registration statement.
12
<PAGE>
In April 2000, BNSF issued $50 million of privately placed debt secured by
locomotives that were acquired in 1999. This debt carries an interest rate of
7.8 percent and matures in April 2015.
In May 2000, the Company filed a new shelf registration statement that became
effective during May 2000 for the issuance of debt securities which may be
issued in one or more series at an aggregate offering price not to exceed $1
billion.
In August 2000, BNSF issued $275 million of 7.9 percent debentures due August
2030 under the May 2000 shelf registration statement. The net proceeds were used
for general corporate purposes including the repayment of outstanding commercial
paper which increased primarily as a result of higher share repurchases. At the
time of issuing these debentures, the Company closed out a treasury lock
transaction in the amount of $100 million at a gain of approximately $8 million
which has been deferred and is being amortized to interest expense over the 30-
year life of the debentures. Subsequent to this issuance, the Company had $725
million available for borrowing under the May 2000 registration statement.
BNSF's ratio of total debt to total capital was 47.6 percent and 41.6 percent at
September 30, 2000 and December 31, 1999, respectively. This increase is
attributable to the increase in debt and lower equity due primarily to higher
share repurchases as discussed above.
CREDIT AGREEMENTS
BNSF issues commercial paper from time to time which is supported by bank
revolving credit agreements. At September 30, 2000, there were no borrowings
against the revolving credit agreements. However, 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 21, 2000, allow borrowings of up to $1.0 billion on a
short-term basis (an increase of $250 million over the prior agreement) and $750
million on a long-term basis. Annual facility fees are currently 0.1 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 determined by 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 2001. The commitments of the lenders under the
long-term agreement are scheduled to expire in June 2005.
The maturity value of commercial paper outstanding as of September 30, 2000 was
$818 million, reducing the total capacity available under the revolving credit
agreements to $932 million. BNSF must maintain compliance with certain
financial covenants under its revolving credit agreements and at September 30,
2000, the Company was in compliance.
DIVIDENDS
Common stock dividends declared for the nine months ended September 30, 2000 and
1999 were 36 cents per share. Dividends paid on common stock during the first
nine months of 2000 and 1999 were $158 million and $169 million, respectively.
On July 20, 2000, 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 October 2, 2000 to shareholders of record on
September 11, 2000. On October 19, 2000, 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 January 2, 2001, to
shareholders of record December 12, 2000.
Other Matters
-------------
Termination of Proposed Combination with Canadian National Railway Company
On December 18, 1999, BNSF and Canadian National Railway Company (CN) entered
into an agreement to combine the two companies (Combination). See the
discussion under "Proposed Combination With Canadian National Railway Company"
in Note 1 to the Consolidated Financial Statements on pages 34-35 of BNSF's 1999
Annual Report to Shareholders, which information is hereby incorporated by
reference. On July 20, 2000, BNSF and CN announced their mutual termination of
the Combination Agreement with neither party paying any break-up fees.
13
<PAGE>
The termination followed the imposition by the Surface Transportation Board
(STB) on March 17, 2000 of a 15-month moratorium on major railroad control
transactions (STB Ex Parte No. 582) and the July 14, 2000 decision of the United
States Court of Appeals for the District of Columbia Circuit upholding the STB's
authority to impose the moratorium that precluded BNSF and CN from filing their
control application with the STB during the pendency of the moratorium.
Due to the termination of the Combination in July 2000, the Company recorded to
other income (expense) $20 million (pre-tax) in costs related to the Combination
during the third quarter. These costs would have been included as part of the
purchase price had the Combination been consummated.
Other Claims and Litigation
BNSF and its subsidiaries are parties to a number of legal actions and claims,
various governmental proceedings and private civil suits arising in the ordinary
course of business, including those related to environmental matters and
personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the financial
position or liquidity of BNSF, although an adverse resolution of a number of
these items in a single period could have a material adverse effect on the
results of operations in a particular quarter or fiscal year.
Labor
The negotiating process for new, major collective bargaining agreements covering
all of BNSF Railway's union employees is underway. Wages, health and welfare
benefits, work rules, and other issues have traditionally been addressed through
industry-wide negotiations. These negotiations have generally taken place over
a number of months and have previously not resulted in any extended work
stoppages. The existing agreements remained in effect on January 1, 2000, and
will continue to remain in effect until new agreements are reached or the
Railway Labor Act's procedures (which include mediation, cooling-off periods,
and the possibility of Presidential intervention) are exhausted. The current
agreements provide for periodic wage increases until new agreements are reached.
The National Carriers' Conference Committee, BNSF's multiemployer collective
bargaining representative, recently reached a tentative agreement with the
United Transportation Union (UTU) covering wage and work rule issues through the
year 2004 for conductors, brakemen, yardmen, yardmasters and firemen
(approximately one third of BNSF's unionized workforce). The agreement is
subject to ratification by the UTU's membership. Health and welfare benefit
issues were not resolved by this agreement, and will remain the subject of
continuing negotiations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." BNSF will be required to adopt FAS 133 as
amended by SFAS No. 138 beginning January 1, 2001. While earlier adoption is
permitted, the Company does not currently intend to adopt the Statement before
the effective date. SFAS No. 133, as amended, 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 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 in earnings in the periods in which earnings are affected by the
variability of the cash flows of the hedged item. The ineffective portion of all
hedges will be recognized in current-period earnings.
Based on interest rate and fuel hedging instruments outstanding at September 30,
2000 and previously deferred net 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, as amended, would result in
a net-of-tax cumulative-effect benefit to accumulated other comprehensive
deficit in the Company's consolidated balance sheet of approximately $78 million
if adopted as of September 30, 2000.
14
<PAGE>
Forward-Looking Information
To the extent that statements made by the Company relate to the Company's future
economic performance or business outlook, predictions or expectations of
financial or operational results, or refer to matters which are not historical
facts, such statements are "forward-looking" statements within the meaning of
the federal securities laws. These forward-looking statements involve a number
of risks and uncertainties, and actual results may differ materially. Factors
that could cause actual results to differ materially include, but are not
limited to, economic and industry conditions: material adverse changes in
economic or industry conditions, customer demand, effects of adverse economic
conditions affecting shippers, adverse economic conditions in the industries and
geographic areas that produce and consume freight, changes in fuel prices,
changes in labor costs, and labor difficulties including strikes; legal and
regulatory factors: changes in and new laws and regulations and the ultimate
outcome of shipper claims, environmental investigations or proceedings and other
types of claims and litigation; and operating factors: technical difficulties,
changes in operating conditions and costs, competition and commodity
concentrations as well as natural events such as severe weather, floods and
earthquakes. The factors noted, individually or in combination could, among
other things, limit demand and pricing, affect costs and the feasibility of
certain operations, or affect traffic and pricing levels.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
In the ordinary course of business, BNSF 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 1999 Annual
Report to Shareholders and in Item 7A of the Company's Annual Report on Form 10-
K for the year ended December 31, 1999, describes significant aspects of BNSF's
financial instrument programs which have material market risk. Presented below
is updated quantitative information for those programs that have changed
significantly from the information reported in BNSF's Form 10-K for the year
ended December 31, 1999.
COMMODITY PRICE SENSITIVITY
As discussed in Note 6 to the Company's consolidated financial statements, BNSF
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, 2000. The prices included in the
table below do not include taxes, transportation costs, certain other fuel
handling costs and any differences which may occur from time to time between the
prices of commodities hedged and the purchase price of BNSF's diesel fuel.
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------
Maturity Date
------------------------------------ Fair
2000 2001 2002 Total Value (1)
---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions) 123 277 101 501 $153
Weighted average price per
gallon $0.50 $0.49 $0.50 $0.50 -
</TABLE>
(1) Represents unrecognized gains (in millions) based on the price of Gulf Coast
#2 heating oil.
15
<PAGE>
TREASURY LOCK TRANSACTIONS
As discussed in Note 6 to the Company's consolidated financial statements, in
anticipation of future debt issuances, BNSF has entered into a treasury lock
transaction, based on the 10-year U.S. treasury rate, as reflected in the
following table as of September 30, 2000. 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.
<TABLE>
<CAPTION>
September 30, 2000
-------------------------------------------
Expiration
Date
---------------
2001 Total Fair Value (1)
--------------- --------- -------------
<S> <C> <C> <C>
Fixed Rate Treasury Locks (in millions) $ 100 $100 $8
Average Pay Rate 4.6% 4.6% -
</TABLE>
(1) Represents unrecognized gains (in millions).
16
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
See Index to Exhibits on page E-1 for a description of the exhibits
filed as part of this report.
B. Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K (Date of earliest
event reported: July 20, 2000) in which it disclosed the mutual
termination by BNSF and CN of their Amended and Restated Combination
Agreement dated as of December 18, 1999. The Registrant filed a
Current Report on Form 8-K (Date of earliest event reported: July 25,
2000) in which it disclosed second quarter earnings and the ratio of
earnings to fixed charges calculation for the six months ended
June 30, 2000.
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 13, 2000
18
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
Exhibit Index
12.1 Computation of Ratio of Earnings to Fixed Charges
13.1 1999 Annual Report to Shareholders of Burlington Northern Santa Fe
Corporation (pages 34-35 only) under the heading "Proposed Combination
with Canadian National Railway Company"
27.1 Financial Data Schedule for the quarter ended September 30, 2000
27.2 Restated Financial Data Schedule for the quarter ended September 30, 1999
E-1
