<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 June 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 July 31, 2000
----- ----------------------------
Common stock, $.01 par value 404,244,599 shares
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars In Millions, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
------ ------ ------ -------
<S> <C> <C> <C> <C>
Revenues $2,235 $2,189 $4,473 $4,372
------ ------ ------ ------
Operating expenses:
Compensation and benefits 677 679 1,375 1,369
Purchased services 227 231 458 460
Depreciation and amortization 223 222 445 441
Equipment rents 176 181 355 374
Fuel 219 169 430 334
Materials and other 230 216 417 423
------ ------ ------ ------
Total operating expenses 1,752 1,698 3,480 3,401
------ ------ ------ ------
Operating income 483 491 993 971
Interest expense 115 98 219 192
Other income (expense), net (8) (12) (23) (21)
------ ------ ------ ------
Income before income taxes 360 381 751 758
Income tax expense 137 143 285 284
------ ------ ------ ------
Net income $ 223 $ 238 $ 466 $ 474
====== ====== ====== ======
Earnings per share:
Basic $ 0.53 $ 0.51 $ 1.08 $ 1.01
====== ====== ====== ======
Diluted $ 0.53 $ 0.50 $ 1.08 $ 1.00
====== ====== ====== ======
Average shares (in millions):
Basic 417.1 467.5 430.7 468.4
Dilutive effect of stock options 1.3 4.0 1.3 4.6
------ ------ ------ ------
Diluted 418.4 471.5 432.0 473.0
====== ====== ====== ======
Dividends declared per share $ 0.12 $ 0.12 $ 0.24 $ 0.24
</TABLE>
See accompanying notes to consolidated financial statements.
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BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Shares in thousands. Dollars in millions.)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26 $ 22
Accounts receivable, net 325 397
Materials and supplies 204 255
Current portion of deferred income taxes 316 326
Other current assets 96 66
------- -------
Total current assets 967 1,066
Property and equipment, net 21,959 21,681
Other assets 970 953
------- -------
Total assets $23,896 $23,700
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,832 $ 1,917
Long-term debt due within one year 131 158
------- -------
Total current liabilities 1,963 2,075
Long-term debt and commercial paper 6,565 5,655
Deferred income taxes 6,208 6,097
Casualty and environmental liabilities 434 423
Employee merger and separation costs 290 302
Other liabilities 988 976
------- -------
Total liabilities 16,448 15,528
------- -------
Commitments and contingencies (see Notes 2, 3, 5, and 6)
Stockholders' equity:
Common stock, $.01 par value, 600,000 shares authorized;
485,503 shares and 484,572 shares issued, respectively 5 5
Additional paid-in capital 5,410 5,390
Retained earnings 4,090 3,726
Treasury stock, at cost, 78,441 shares and 30,013 shares, (2,018) (913)
respectively
Unearned compensation (32) (29)
Accumulated other comprehensive deficit (7) (7)
------- -------
Total stockholders' equity 7,448 8,172
------- -------
Total liabilities and stockholders' equity $23,896 $23,700
======= =======
</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>
Six Months Ended
June 30,
--------------------
2000 1999
------- -------
<S> <C> <C>
Operating Activities:
Net income $ 466 $ 474
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 445 441
Deferred income taxes 121 167
Employee merger and separation costs paid (32) (40)
Other, net 48 (65)
Changes in current assets and liabilities:
Accounts receivable 72 108
Materials and supplies 51 -
Other current assets (30) (6)
Accounts payable and other current liabilities (87) (61)
------- -------
Net cash provided by operating activities 1,054 1,018
------- -------
Investing Activities:
Capital expenditures (651) (888)
Other, net (93) (396)
------- -------
Net cash used for investing activities (744) (1,284)
------- -------
Financing Activities:
Net increase in commercial paper and bank borrowings 532 227
Proceeds from issuance of long-term debt 550 629
Payments on long-term debt (198) (227)
Purchase of BNSF common stock (1,103) (334)
Dividends paid (108) (113)
Proceeds from stock options exercised 3 101
Other, net 18 (14)
------- -------
Net cash provided by (used for) financing activities (306) 269
------- -------
Increase in cash and cash equivalents 4 3
Cash and cash equivalents:
Beginning of period 22 25
------- -------
End of period $ 26 $ 28
======= =======
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 211 $ 183
Income taxes paid, net of refunds 203 32
</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, 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 June 30, 2000 and the consolidated results of operations for the
three and six month periods ended June 30, 2000 and 1999 have been included. For
the three and six month periods ended June 30, 2000 and 1999, 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. 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 upholding the STB's
authority to impose the moratorium and to preclude 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 expects to
expense approximately $20 to $25 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 proceeded. At June 30, 2000, the
majority of the costs were deferred in the Company's balance sheet.
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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). 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 (one based on the 10-year and one based on the 30-year U.S. treasury
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. Subsequent to this debt
issuance, the Company had no remaining capacity under the February 1999 shelf
registration statement.
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.
BNSF issues commercial paper from time to time which is supported by bank
revolving credit agreements. At June 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 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 June 30, 2000 was
$1,014 million, reducing the total capacity available under the revolving credit
agreements to $736 million. BNSF must maintain compliance with certain
financial covenants under its revolving credit agreements and at June 30, 2000,
the Company was in compliance.
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 commercial paper. At
the time of issuing these debentures, the Company closed out a treasury lock
transaction in the amount of $100 million (based on the 30-year U.S. treasury
rate) 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 registration statement.
4. EMPLOYEE MERGER AND SEPARATION COSTS
Current and long-term employee merger and separation liabilities totaling $347
million are included in the consolidated balance sheet at June 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 employee-related severance costs for certain trainmen reserve
boards; and (iii) certain salaried employee severance costs. During the first
six months of 2000, the Company made employee merger and separation payments of
$32 million.
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<PAGE>
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 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 June 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 out
as of June 30, 2000.
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.
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 and liabilities
related to severance costs for trainmen are paid in the form of a lump-sum
payment or payments made over one to three years. 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 June 30, 2000, $57 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 370 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 $23 million during
the first six 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 $237 million for remediation and restoration
of all known sites. BNSF anticipates that the majority of the accrued costs at
June 30, 2000, will be paid over the next five years. No individual site is
considered to be material.
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<PAGE>
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.
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 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 six months of 2000 make up 12
percent of total operating expenses due to increased 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 will 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 six 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 June 30, 2000, BNSF had entered into fuel swaps for approximately 623
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 six months of 2000, and approximately
23 percent and 8 percent of estimated annual and quarterly 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 $114 million as of
June 30, 2000, of which $62 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.
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INTEREST RATE
As discussed in Note 3 to the Company's 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 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.
As of June 30, 2000, the Company had two outstanding treasury lock transactions,
based on the 10-year and 30-year U.S. treasury rates, totaling $100 million
each. The 10-year and 30-year treasury lock transactions have average interest
rates of approximately 4.6 percent and 5.1 percent, respectively. Both treasury
lock transactions expire in June 2001. Unrecognized gains on the treasury lock
transactions were approximately $20 million as of June 30, 2000.
As discussed in Note 3 to the Company's 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.
7. COMMON STOCK REPURCHASE PROGRAM
During the first six months of 2000, BNSF repurchased 48.3 million shares of its
common stock at an average price of $22.84 per share under the Company's share
repurchase program amounting to a total cost of $1.1 billion. On April 20,
2000, the Board of Directors authorized the extension of the current BNSF share
repurchase program, adding 30 million shares to the total of 60 million shares
previously authorized in equal amounts in July 1997 and December 1999.
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 June 30, 2000 compared with three months ended June 30, 1999
BNSF recorded net income for the second quarter of 2000 of $223 million ($0.53
per share), compared with second quarter 1999 net income of $238 million ($0.50
per share). The decrease in net income is primarily due to the effect of a $50
million increase in fuel expenses. Earnings per share improved compared to the
same period in 1999 due to the favorable effect of the common stock repurchase
program (see Note 7 to the Company's consolidated financial statements).
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<PAGE>
Revenues
The following table presents BNSF's revenue information by commodity for the
three months ended June 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
--------------------------- ----------------------------- -----------------------------
2000 1999 2000 1999 2000 1999
----------- ----------- ------------- ----------- ------------- ------------
(In Millions) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Carload $ 658 $ 642 450 450 $ 1,462 $ 1,427
Intermodal 654 597 855 765 765 780
Coal 525 544 487 514 1,078 1,058
Agricultural Commodities 263 287 150 158 1,753 1,816
Automotive 134 112 70 63 1,914 1,778
----------- ----------- ------------- ----------- ------------- ------------
Total Freight Revenues 2,234 2,182 2,012 1,950 1,110 1,119
============= =========== ------------- ------------
Other Revenues 1 7
----------- -----------
Total Operating Revenues $ 2,235 $ 2,189
=========== ===========
</TABLE>
Total revenues for second quarter of 2000 were $2,235 million or 2 percent
higher than revenues of $2,189 million for the second quarter of 1999. The
increase primarily reflects increases in the carload, intermodal, and automotive
sectors, partially offset by lower coal and agricultural commodities revenues.
Average revenue per car/unit decreased slightly in the second quarter of 2000 to
$1,110 from $1,119 in the second quarter of 1999.
Carload revenues of $658 million for the second quarter of 2000 were $16 million
or 2 percent higher than the second quarter of 1999 due to increases in the
chemicals, metals, minerals and other consumer products sectors, partially
offset by decreased forest products. The increases were a result of increased
petroleum products and plastics shipments in the chemicals sector due to
increased demand and plant expansions, increased steel and other metal loadings
in the metals sector, increased loadings of sand and clay in the minerals sector
due to increased domestic oil production, and strong increases in perishables
and vegetable 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.
Intermodal revenues of $654 million for the second quarter of 2000 increased $57
million or 10 percent reflecting increases in all sectors lead by the
International sector. International revenues were up due to increased loadings
from Maersk, Evergreen, OOCL, and Hyundai. Direct marketing revenues benefited
from increased units shipped for UPS. Truckload marketing revenues benefited
from increased shipments with Schneider National. Intermodal marketing
companies (IMC) revenues increased due to new marketing initiatives.
Coal revenues of $525 million for the second quarter of 2000 decreased $19
million or 3 percent 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 $263 million for the second quarter of 2000
were $24 million or 8 percent lower than revenues for the second quarter of 1999
due to weak Pacific Northwest and Mexico shipments of corn caused by worldwide
crop competition, decreased shipments of soybeans to Mexico, and decreased
shipments of bulk foods and barley due to market pricing issues.
Automotive revenues of $134 million for the second quarter of 2000 were $22
million or 20 percent higher than the second quarter of 1999. This increase can
be attributed to increased regional demand for General Motors, Nissan, Ford,
Honda, and Mitsubishi vehicles.
Expenses
Total operating expenses for the second quarter of 2000 were $1,752 million, an
increase of $54 million or 3 percent, over 1999 despite a 3 percent increase in
cars and units handled. The operating ratio of 78.4 percent for the second
quarter of 2000 was higher than the 77.6 percent operating ratio for the second
quarter 1999 primarily due to higher fuel costs in the second quarter 2000.
Compensation and benefits expenses of $677 million were $2 million or less than
1 percent lower than the second quarter of 1999 primarily due to lower
employment levels offsetting increased wages and benefits levels.
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Purchased services of $227 million for the second quarter of 2000 were $4
million or 2 percent lower than the second quarter of 1999 principally due to
lower joint facility charges, contract switching and professional services
partially offset by increased equipment maintenance costs due to an increase in
the number of locomotives under maintenance contracts.
Equipment rents expenses for the second quarter of 2000 of $176 million were $5
million or 3 percent lower than the second quarter of 1999 due to a decrease in
lease rates as well as a decrease in the number of leased agricultural commodity
and coal cars.
Fuel expenses of $219 million for the second quarter of 2000 were $50 million or
30 percent higher than the second quarter of 1999, as a result of a 18 cent or
31 percent increase in the average all-in cost per gallon of diesel fuel.
Consumption was slightly lower in the second quarter of 2000 at 286 million
gallons compared to 289 million gallons in the second quarter 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 9 cents per gallon compared
with additional expense from hedging of 6 cents per gallon in 1999.
Materials and other expenses of $230 million for the second quarter of 2000 were
$14 million or 6 percent higher than the second quarter of 1999. The increase
primarily reflects: (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); and (iii) the loss
of previously earned state tax incentives. Offsetting these increases were the
following: (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) and (ii) lower current year
environmental expenses and locomotive and freight car material costs compared to
second quarter 1999.
Interest expense of $115 million for the second quarter of 2000 was $17 million
or 17 percent higher than in the second quarter of 1999, reflecting higher debt
levels resulting from the Company's share repurchase program and higher interest
rates. Total debt increased to $6,696 million at June 30, 2000 from $6,080
million at June 30, 1999.
Six months ended June 30, 2000 compared with six months ended June 30, 1999
BNSF recorded net income for the first six months of 2000 of $466 million ($1.08
per share), compared with the first six months of 1999 net income of $474
million ($1.00 per share). The decrease in net income is primarily due to the
effect of a $96 million increase in fuel expenses. Earnings per share improved
compared to the first six months of 1999 due to 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 six
months ended June 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/Unit
---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 2000 1999 2000 1999
------ ------ ----- ----- ------ ------
(In Millions) (In Thousands)
Carload $1,303 $1,261 889 880 $1,466 $1,433
Intermodal 1,272 1,169 1,655 1,503 769 778
Coal 1,054 1,109 994 1,041 1,060 1,065
Agricultural Commodities 585 597 325 326 1,800 1,831
Automotive 258 220 137 126 1,883 1,746
------ ------ ----- ----- ------ ------
Total Freight Revenues 4,472 4,356 4,000 3,876 1,118 1,124
===== ===== ------ ------
Other Revenues 1 16
------ ------
Total Operating Revenues $4,473 $4,372
====== ======
</TABLE>
-10-
<PAGE>
Total revenues for the first six months of 2000 were $4,473 million or 2 percent
higher than revenues of $4,372 million for the first six months of 1999. The
increase primarily reflects increases in the carload, intermodal, and automotive
sectors, partially offset by lower coal and agricultural commodities revenues.
Average revenue per car/unit decreased slightly in the first six months of 2000
to $1,118 from $1,124 in the first six months of 1999.
Carload revenues of $1,303 million for the first six months of 2000 were $42
million or 3 percent higher than the first six months of 1999 due to increases
in most sectors. The increases were a result of increased plastics shipments in
the chemicals sector due to plant expansions, 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 and printing paper in the forest products sector, and strong increases
in perishables and vegetable shipments in the other consumer products sector.
Intermodal revenues of $1,272 million for the first six months of 2000 increased
$103 million or 9 percent reflecting increases in the international, direct, and
truckload sectors. International revenues were up due to increased loadings
from Maersk, Evergreen, OOCL, and Hyundai. Direct marketing revenues benefited
from increased units shipped for UPS. Truckload marketing revenues benefited
from increased shipments with Schneider National. These revenue increases were
partially offset by decreases in the intermodal marketing companies (IMC) sector
due to Union Pacific Corporation/CSX Intermodal, Inc. pricing pressures and
increased trucking capacity. In addition, IMC has been negatively affected by
eastern railroad service issues, which has resulted in some intermodal rail
traffic converting to highway service.
Coal revenues of $1,054 million for the first six months of 2000 decreased $55
million or 5 percent compared to the first six 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 $585 million for the first six months of
2000 were $12 million or 2 percent lower than revenues for the first six months
of 1999 due to weak Pacific Northwest shipments of corn caused by worldwide crop
competition, and decreased shipments of bulk foods and barley due to market
pricing issues. These decreases were partially offset by increased domestic
wheat and soybean exports.
Automotive revenues of $258 million for the first six months of 2000 were $38
million or 17 percent higher than the first six months of 1999. This increase
can be attributed to increased regional demand for General Motors, Nissan, Ford,
Honda, and Mitsubishi vehicles.
Expenses
Total operating expenses for the first six months of 2000 were $3,480 million,
an increase of $79 million or 2 percent, over 1999 despite a 3 percent increase
in cars and units handled. For the first six months of 2000 and 1999, the
operating ratio was 77.8 percent.
Compensation and benefits expenses of $1,375 million were $6 million or less
than 1 percent higher than the first six months of 1999 primarily due to
increased wages and benefits levels.
Purchased services of $458 million for the first six months of 2000 were $2
million or less than 1 percent lower than the first six months of 1999
principally due to lower joint facility charges, contract switching and
professional services partially offset by increased equipment maintenance costs
due to an increase in the number of locomotives under maintenance contracts.
Equipment rents expenses for the first six months of 2000 of $355 million were
$19 million or 5 percent lower than the first six 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.
Fuel expenses of $430 million for the first six months of 2000 were $96 million
or 29 percent higher than the first six months of 1999, as a result of a 17 cent
or 30 percent increase in the average all-in cost per gallon of diesel fuel.
Consumption was slightly lower in the first six months of 2000 at 578 million
gallons compared to 582 million gallons in the first six months of 1999. The
increase in the average all-in cost per gallon of diesel fuel includes a 36 cent
increase in the average purchase price, partially offset by the favorable impact
in 2000 from the Company's fuel hedging program of 10 cents per gallon compared
with additional expense from hedging of 9 cents per gallon in 1999.
-11-
<PAGE>
Materials and other expenses of $417 million for the first six months of 2000
were $6 million or 1 percent lower than the first six 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 freight car material 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); and
(iii) the loss of previously earned state tax incentives.
Interest expense of $219 million for the first six months of 2000 was $27
million or 14 percent higher than in the first six months of 1999, reflecting
higher debt levels resulting from the Company's share repurchase program and
higher interest rates. Total debt increased to $6,696 million at June 30, 2000
from $6,080 million at June 30, 1999.
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.
OPERATING ACTIVITIES
Net cash provided by operating activities was $1,054 million for the six months
ended June 30, 2000, compared with $1,018 million for the six months ended June
30, 1999. The increase in cash from operations was primarily due to the receipt
of a $43 million dividend from the Company's equity investment in TTX Company in
March 2000.
INVESTING ACTIVITIES
Net cash used for investing activities for the six months ended June 30, 2000
was $744 million consisting of $651 million of capital expenditures, as
discussed below, and $93 million of other investing activities. The decrease in
the use of cash for other investing activities compared to 1999, reflects the
timing of current year temporary equipment acquisitions and the Company's
ultimate sale and lease back of the equipment through operating leases, as
compared with the timing of such transactions in the first six months of 1999.
A breakdown of cash capital expenditures for the six months ended June 30, 2000
and 1999, is set forth in the following table (in millions):
<TABLE>
<S> <C> <C>
Six Months Ended June 30, 2000 1999
-------------------------------- ----- -----
Maintenance of Way $ 435 $ 371
Mechanical 90 107
Information Services 27 37
Other 54 52
-------------------------------- ----- -----
Total Maintenance of Business 606 567
New Locomotives and Freight Cars - 202
Terminal and Line Expansion 26 114
Other Projects 19 5
-------------------------------- ----- -----
Total $ 651 $ 888
-------------------------------- ===== =====
</TABLE>
Maintenance of Way expenditures for the first half 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 due to a reduced capital program in 2000 and timing of
scheduled projects.
Through June 30, 2000, BNSF has received 160 of the 196 locomotives it has
committed to acquire in 2000. Locomotive acquisitions in 2000 are expected to
ultimately be acquired through operating leases rather than a mix of capital and
operating leases as in the prior year.
-12-
<PAGE>
FINANCING ACTIVITIES
Net cash used for financing activities during the first six months of 2000 was
$306 million, primarily related to common stock repurchases of $1.1 billion and
dividend payments of $108 million partially offset by net proceeds from total
debt of $884 million.
During the first six months of 2000, BNSF repurchased 48.3 million shares of its
common stock at an average price of $22.84 per share under the Company's share
repurchase program amounting to a total cost of $1.1 billion. On April 20,
2000, the Board of Directors authorized the extension of the current BNSF share
repurchase program, adding 30 million shares to the total of 60 million shares
previously authorized in equal amounts in July 1997 and December 1999. 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 (one based on the 10-year and one based on the 30-year U.S.
treasury 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. Subsequent
to this debt issuance, the Company had no remaining capacity under the February
1999 shelf registration statement.
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 commercial paper. At
the time of issuing these debentures, the Company closed out a treasury lock
transaction in the amount of $100 million (based on the 30-year U.S. treasury
rate) 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 47.3 percent and 41.6 percent at
June 30, 2000 and December 31, 1999, respectively. This increase is
attributable to the increase in debt 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 June 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.
-13-
<PAGE>
The maturity value of commercial paper outstanding as of June 30, 2000 was
$1,014 million, reducing the total capacity available under the revolving credit
agreements to $736 million. BNSF must maintain compliance with certain
financial covenants under its revolving credit agreements and at June 30, 2000,
the Company was in compliance.
As discussed in Note 3 to the Company's consolidated financial statements, in
April and August 2000 the Company issued $500 million and $275 million,
respectively, of debt, and the proceeds were used for general corporate purposes
including the repayment of commercial paper.
DIVIDENDS
Common stock dividends declared for the six months ended June 30, 2000 and 1999
were 24 cents per share. Dividends paid on common stock during the first six
months of 2000 and 1999 were $108 million and $113 million, respectively. On
April 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 July 3, 2000 to shareholders of record on June 14,
2000. 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.
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.
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 upholding the STB's
authority to impose the moratorium and to preclude 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 expects to
expense approximately $20 to $25 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 proceeded. At June 30, 2000, the
majority of the costs were deferred in the Company's balance sheet.
-14-
<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.
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.
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 June 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 of
approximately $78 million if adopted as of June 30, 2000. The Company is
presently evaluating the impact SFAS No. 133, as amended, will have on its
ongoing results of operations.
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, and
labor difficulties including strikes; legal and regulatory factors: change in
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.
-15-
<PAGE>
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 June 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>
June 30, 2000
----------------------------------------------------------------
Maturity Date
------------------------------------ Fair
2000 2001 2002 Total Value (1)
---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions) 245 277 101 623 $114
Weighted average price per $0.50 $0.49 $0.50 $0.50 -
gallon
</TABLE>
(1) Represents unrecognized gains (in millions) based on the price of Gulf Coast
#2 heating oil.
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 treasury lock
transactions, based on the 10-year and 30-year U.S. treasury rates, as reflected
in the following table as of June 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>
June 30, 2000
--------------------------------------------------------
Expiration Date
--------------------------
Fair
2000 2001 Total Value (1)
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Fixed Rate Treasury Locks (in millions) $ - $ 200 $ 200 $ 20
Average Pay Rate N/A 4.84% 4.84% -
</TABLE>
(1) Represents unrecognized gains (in millions).
At the time of issuing the $300 million of notes and the $200 million of
debentures in April 2000 and the $275 million of debentures in August 2000 as
discussed in Note 3 to the Company's consolidated financial statements, the
Company closed out $200 million of treasury lock transactions with expiration
dates in 2000 (one based on the 10-year and one based on the 30-year U.S.
treasury rates) and $100 million of treasury lock transactions shown above with
an expiration date in 2001 (based on the 30-year U.S. treasury rate), at gains
of approximately $9 million, $13 million and $8 million, respectively, which
have been deferred and are being amortized to interest expense over the lives of
the notes and the debentures, respectively.
-16-
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the discussion in the Company's Form 10-K for the
year ended December 31, 1999, and its Form 10-Q for the quarter ended
March 31, 2000, of the petitions for expedited review filed with the
United States Court of Appeals for the District of Columbia with
respect to the United States Surface Transportation Board's decision
to impose a 15-month moratorium on the filing of railroad merger
applications (Burlington Northern Santa Fe Corporation and The
Burlington Northern and Santa Fe Railway Company v. Surface
Transportation Board and Untied States of America, No. 00-1120) On
July 14, 2000, the court issued its decision denying BNSF's petition
for review and upholding the STB's authority to impose the moratorium.
On July 20, 2000, BNSF and CN mutually agreed to terminate their
proposed combination and their amended and restated Combination
Agreement dated as of December 18, 1999. This matter is now considered
terminated.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
See Index to Exhibits on page E-1 for a description of the exhibits
filed as part of this report.
B. Reports on Form 8-K
The Registrant filed 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
August 14, 2000
-18-
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
Exhibit Index
<TABLE>
<CAPTION>
<S> <C>
4.1 Form of BNSF's 7.95% Debentures due August 15, 2030
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)
27.1 Financial Data Schedule for the quarter ended June 30, 2000
27.2 Restated Financial Data Schedule for the quarter ended June 30, 1999
</TABLE>
E-1
