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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
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Burlington Northern Santa Fe Corporation
(Exact name of registrant as specified in its charter)
Delaware 41-1804964
(State of Incorporation) (I.R.S. Employer Identification
No.)
2650 Lou Menk Drive
Second Floor
Fort Worth, Texas 76131-2830
(Address of principal executive offices, including zip code)
817/333-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $0.01 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Exchange
----------------
Securities registered pursuant to Section 12(g) of the Act: None
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 requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $11.616 billion on January 31, 2001. For purposes
of this calculation only, the registrant has excluded stock beneficially owned
by directors and officers. By doing so, the registrant does not admit that such
persons are affiliates within the meaning of Rule 405 under the Securities Act
of 1933 or for any other purpose.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, $0.01 par value, 392,452,205 shares outstanding as of January
31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents from which parts thereof have been incorporated
by reference and the part of the Form 10-K into which such information is
incorporated:
Burlington Northern Santa Fe Corporation's definitive Proxy
Statement, to be filed not later than 120 days after the end of
the fiscal year covered by this report.......................... PART III
TABLE OF CONTENTS
Page
----
PART I
Items 1 and 2. Business and Properties.................................... 1
Item 3. Legal Proceedings................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............... 9
EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................. 10
Item 6. Selected Financial Data........................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 24
Item 8. Financial Statements and Supplementary Data....................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 52
PART III
Item 10. Directors and Executive Officers of the Registrant............... 52
Item 11. Executive Compensation........................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and Management... 53
Item 13. Certain Relationships and Related Transactions................... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 54
SIGNATURES................................................................ S-1
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE................................. F-1
EXHIBITS.................................................................. E-1
PART I
ITEMS 1 and 2. Business and Properties
Burlington Northern Santa Fe Corporation (BNSF) was incorporated in the
State of Delaware on December 16, 1994. On September 22, 1995, the stockholders
of Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) became
the stockholders of BNSF pursuant to a business combination of the two
companies. To effect the combination, BNSF was formed to act as the parent
holding company of BNI and SFP. BNI and SFP each owned a large, Class I
railroad: Burlington Northern Railroad Company (BNRR) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF), respectively.
On December 30, 1996, BNI merged with and into SFP. On December 31, 1996,
ATSF merged with and into BNRR, and BNRR changed its name to The Burlington
Northern and Santa Fe Railway Company (BNSF Railway). On January 2, 1998, SFP
merged with and into BNSF Railway.
Through its subsidiaries, BNSF is engaged primarily in the rail
transportation business. At December 31, 2000, BNSF and its subsidiaries had
approximately 39,600 employees. The rail operations of BNSF Railway, BNSF's
principal operating subsidiary, comprise one of the largest railroad systems in
the United States. BNSF Railway's business and operations are described below.
On December 18, 1999, BNSF and Canadian National Railway Company (CN)
entered into an agreement to combine their companies. Pursuant to the Amended
and Restated Combination Agreement dated as of December 18, 1999 by and among
BNSF, CN, North American Railways, Inc. (North American Railways) and Western
Merger Sub, Inc. (the Combination Agreement), the combined enterprise was to
consist of two public companies--North American Railways and CN--to comply with
Canadian requirements prohibiting any person and that person's associates from
owning more than 15 percent of the voting rights in CN and to ensure that the
combination would be tax-efficient for each company's shareholders. Upon
completion of the combination, BNSF was to be a wholly owned subsidiary of
North American Railways, and all shareholders were to have voting interests in
both North American Railways and CN and economic interests in the combined
companies. Completion of the combination required approval of the shareholders
of BNSF and CN. The combination was also subject to approval of the U. S.
Surface Transportation Board (STB), compliance with the Competition Act
(Canada), and approval by the Quebec Superior Court.
On March 17, 2000, the STB served a Decision (STB Ex Parte No. 582)
directing Class I railroads to suspend activity relating to any railroad
transaction that would be deemed a "major transaction" under STB regulations,
"pending development of new rules" by the STB governing merger transactions.
The Decision followed a four-day hearing that ended March 10, 2000, which the
STB held to discuss the impact of future rail consolidations on the present and
future structure of the rail industry and what the evolving structure of the
North American railroad industry should be. The Decision stated that no filings
relating to a major railroad transaction would be accepted for 15 months. The
Decision also suspended the Notice of Intent to File Railroad Control
Application that had been filed by BNSF and CN on December 20, 1999, giving
notice of their intent to file a joint application for STB approval of their
proposed rail combination on or after March 20, 2000.
On March 17, 2000, BNSF, CN, and the Western Coal Traffic League filed
petitions for review of the STB's March 17, 2000 Decision in the United States
Court of Appeals for the District of Columbia Circuit. On March 29, 2000, BNSF
filed a petition for stay of the STB's decision pending judicial review with
the United States Court of Appeals for the District of Columbia Circuit.
On July 14, 2000, the United States Court of Appeals for the District of
Columbia Circuit ruled and upheld 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. On July 20, 2000, BNSF and CN announced
their mutual termination of the Combination Agreement with neither party paying
any break-up fees.
1
Track Configuration
BNSF Railway operates over a railroad system consisting of, at December 31,
2000, approximately 33,500 route miles of track (excluding second, third and
fourth main tracks, yard tracks, and sidings), approximately 25,000 miles of
which are owned route miles, including easements, through 28 states and two
Canadian provinces. Approximately 7,500 route miles of BNSF Railway's system
consist of trackage rights that permit BNSF Railway to operate its trains with
its crews over another railroad's tracks. BNSF Railway operates over other
trackage through lease or contractual arrangements.
As of December 31, 2000, the total BNSF Railway system, including first,
second, third and fourth main tracks, yard tracks, and sidings, consisted of
approximately 51,000 operated miles of track, all of which were owned by or
held under easement by BNSF Railway except for approximately 8,200 miles
operated under trackage rights agreements with other parties. At December 31,
2000, approximately 26,700 miles of BNSF Railway's track consisted of 112-pound
per yard or heavier rail, including approximately 18,900 track miles of 131-
pound per yard or heavier rail.
Equipment Configuration
BNSF Railway owned or had under non-cancelable leases exceeding one year the
following units of railroad rolling stock as of the dates shown below:
At December 31, 2000 1999 1998
--------------- ------ ------ ------
Diesel Locomotives...................................... 4,966 5,095 4,992
====== ====== ======
Locomotives Under Power Purchase Agreements............. 99 99 99
====== ====== ======
Freight Cars:
Box-general purpose................................... 896 913 948
Box-specially equipped................................ 9,785 10,111 10,295
Open Hopper........................................... 9,984 10,287 10,772
Covered Hopper........................................ 44,632 45,463 44,643
Gondola............................................... 12,415 12,753 12,427
Refrigerator.......................................... 6,111 6,236 6,476
Autorack.............................................. 4,775 4,799 3,304
Flat.................................................. 6,389 6,468 6,289
Tank.................................................. 480 482 489
Caboose............................................... 305 319 351
Other................................................. 727 728 729
------ ------ ------
Total Freight Cars.................................... 96,499 98,559 96,723
====== ====== ======
Domestic Containers..................................... 10,999 11,019 9,849
Trailers................................................ 2,201 2,213 2,410
Domestic Chassis........................................ 9,405 9,406 9,409
Company Service Cars.................................... 4,334 4,399 4,685
Commuter Passenger Cars................................. 141 141 141
In addition to the chassis, containers, trailers, and freight cars shown
above, BNSF Railway had under short-term leases 18,844 chassis, 13,692
containers, 2,675 trailers, and 2,270 freight cars at December 31, 2000. The
average age from date of manufacture of the locomotive fleet at December 31,
2000 was 11.863 years; the average age from date of manufacture or
remanufacture of the freight car fleet at December 31, 2000 was 17.24 years.
These averages are not weighted to reflect the greater capacities of the newer
equipment.
2
Capital Expenditures and Maintenance
BNSF Railway cash capital expenditures for the periods indicated were as
follows:
Year Ended December 31, 2000 1999 1998
----------------------- ------ ------ ------
(in millions)
Maintenance of Way
Rail................................................. $ 210 $ 256 $ 238
Ties................................................. 206 170 220
Surfacing............................................ 134 130 136
Other................................................ 285 254 205
------ ------ ------
Total Maintenance of Way........................... 835 810 799
Mechanical............................................. 221 240 243
Information Services................................... 66 74 76
Other.................................................. 144 151 185
------ ------ ------
Total Maintenance of Business...................... 1,266 1,275 1,303
New Locomotives and Freight Cars....................... -- 261 340
Terminal and Line Expansion............................ 99 233 487
Other Projects......................................... 34 19 17
------ ------ ------
Total Capital Expenditures............................. $1,399 $1,788 $2,147
====== ====== ======
The above table does not include expenditures for equipment financed through
operating leases (principally, locomotives and rolling stock). BNSF's planned
2001 cash capital commitments approximate $1.5 billion. Approximately $1.3
billion of the total planned capital commitments will be for maintenance of
business activities, primarily consisting of expenditures to maintain BNSF's
track, signals, bridges and tunnels, as well as to overhaul locomotives and
freight cars with the remaining to be spent on terminal and line expansions and
other projects.
As of December 31, 2000, General Electric Company, the Electro-Motive
Division of General Motors Corporation, and Boise Locomotive Corporation
performed locomotive maintenance and overhauls for BNSF Railway under various
maintenance agreements that covered approximately 3,000 locomotives. These
agreements require the work to be done at BNSF Railway's facilities using BNSF
Railway employees.
The majority of maintenance of way expenditures for track has been for rail
and tie refurbishment and track resurfacing. The extent of the BNSF Railway
track maintenance program is depicted in the following table:
Year Ended December 31, 2000 1999 1998
----------------------- ------ ------ ------
Track miles of rail laid (1)............................ 732 926 1,029
Cross ties inserted (thousands)(1)...................... 2,527 2,365 2,452
Track resurfaced (miles)................................ 11,228 10,505 12,383
- --------
(1) Includes expenditures for both maintenance of existing route system and
expansion projects. These expenditures are primarily capitalized.
BNSF Railway planned 2001 track maintenance of way program, together with
expansion projects, will result in the installation of approximately 816 track
miles of rail, the replacement of about 2.6 million ties and the resurfacing of
approximately 11,500 miles of track.
3
Property and Facilities
BNSF Railway operates facilities and equipment to maintain its track,
locomotives and freight cars. It also owns or leases other equipment to support
rail operations, such as highway trailers, containers and vehicles. Support
facilities for rail operations include yards and terminals throughout its rail
network, system locomotive shops to perform locomotive servicing and
maintenance, a centralized network operations center for train dispatching and
network operations monitoring and management in Fort Worth, Texas, computers,
telecommunications equipment, signal systems, and other support systems.
Transfer facilities are maintained for rail-to-rail as well as intermodal
transfer of containers, trailers and other freight traffic. These facilities
include 37 major intermodal hubs located across the system and three intermodal
hub centers off-line used in connection with haulage agreements with other
railroads. BNSF Railway's largest intermodal facilities in terms of 2000 volume
are:
Intermodal Facilities Units
--------------------- ---------
Hobart Yard (Los Angeles)...................................... 1,057,000
Corwith Yard (Chicago)......................................... 755,000
Willow Springs (Illinois)...................................... 697,000
Chicago Hub Center............................................. 446,000
Alliance (Texas)............................................... 412,000
San Bernardino (California).................................... 388,000
Argentine (Kansas)............................................. 249,000
BNSF Railway owns 27 automotive distribution facilities where automobiles
are loaded or unloaded from multi-level rail cars and serves eight port
facilities in the United States and Canada.
BNSF Railway's largest freight car classification yards based on the average
daily number of cars processed (excluding cars that do not change trains at the
terminal and intermodal and coal cars) are shown below:
Daily Average
Classification Yard Cars Processed
------------------- --------------
Argentine (Kansas)........................................ 2,046
Galesburg (Illinois)...................................... 1,553
Pasco (Washington)........................................ 1,443
Barstow (California)...................................... 1,281
Memphis (Tennessee)....................................... 1,242
Certain BNSF Railway properties and other assets are subject to liens
securing, as of December 31, 2000, $467 million of mortgage debt. Certain
locomotives and rolling stock of BNSF Railway are subject to equipment
obligations and leases, as referred to in Note 8 to the Consolidated Financial
Statements included in this filing.
Employees and Labor Relations
Productivity as measured by revenue ton miles per employee has risen
steadily in the last three years, while compensation and benefits expense per
revenue ton mile decreased over the same period, as shown in the table below.
Year Ended December 31, 2000 1999 1998
----------------------- ------ ------ ------
Thousand revenue ton miles divided by average number of
Employees............................................. 12,342 11,564 10,576
Compensation and benefits expense per thousand revenue
ton miles............................................. $5.55 $5.62 $6.00
4
Approximately 89 percent of BNSF Railway employees are union-represented.
They work under collective bargaining agreements with 13 different labor
organizations. The negotiating process for new, major collective bargaining
agreements covering all of BNSF Railway's union employees has been underway
since the bargaining round was initiated November 1, 1999. 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 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 multi-employer 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.
Railroad industry personnel are covered by the Railroad Retirement System
instead of Social Security. BNSF Railway's contributions under the Railroad
Retirement System are approximately triple those in industries covered by
Social Security.
Railroad industry personnel are also covered by the Federal Employers'
Liability Act (FELA) rather than by state workers' compensation systems. FELA
is a fault-based system, with compensation for injuries settled by negotiation
and litigation, not subject to specific statutory limitations on the amount of
recovery. By contrast, most other industries are covered under state, no-fault
workers' compensation plans with standard compensation schedules. BNSF Railway
believes it has adequate recorded liabilities for its FELA claims. However, the
ultimate costs of these FELA claims are uncertain and the actual costs could be
significantly higher than anticipated.
Business Mix
In serving the Midwest, Pacific Northwest and the Western, Southwestern, and
Southeastern regions and ports of the country, BNSF Railway transports, through
one operating transportation services segment, a wide range of products and
commodities derived from manufacturing, agricultural, and natural resource
industries. Accordingly, its financial performance is influenced by, among
other things, general and industry economic conditions at the international,
national, and regional levels.
Major markets served directly by BNSF Railway include Albuquerque, Amarillo,
Billings, Birmingham, Bismarck/Mandan, Cheyenne, Chicago, Corpus Christi,
Council Bluffs, Dallas, Denver, Des Moines, Duluth/Superior, El Paso,
Eugene/Salem, Fargo/Moorhead, Fort Worth, Fresno/Bakersfield, Galesburg,
Galveston, Grand Forks, Helena, Houston, Kansas City, Lake Charles, Lincoln,
Little Rock/Pine Bluff, Los Angeles, Lubbock, Memphis, Minot, Mobile, New
Orleans, Oklahoma City, Olympia, Omaha, Peoria, Phoenix, Portland, the Quad
Cities, Reno/Sparks, Sacramento, Salt Lake City/Ogden, San Antonio, San Diego,
the San Francisco Bay area, the San Joaquin Valley area, St. Louis/East St.
Louis, St. Paul/Minneapolis, Seattle, Sioux City, Sioux Falls, Spokane,
Springfield (Missouri), Stockton, Tacoma, Topeka, Tulsa, Waco, Wichita,
Vancouver (British Columbia), Wenatchee, Winnipeg (Manitoba) and Yakima. BNSF
serves Cedar Rapids through a "Voluntary Coordination Agreement" with the Cedar
Rapids and Iowa City Railway Company and Iowa Interstate Railroad, and through
a haulage agreement with CN. Other major cities are served through Intermodal
Market Extension terminals located at various off-line points. Major ports
served include Beaumont, Bellingham, Brownsville, Corpus Christi, Everett,
Galveston, Houston, Kalama, Long Beach, Longview, Los Angeles, Mobile, New
Orleans, Portland, Richmond (Oakland), San Diego, Seattle, Duluth/Superior,
Tacoma, Vancouver (Washington), and Vancouver (British Columbia). Canadian
traffic is accessed through border crossings in Minnesota, North Dakota,
Montana, and Washington, as well as through interchange with
5
Canadian railroads at Chicago, Minneapolis/St. Paul, and other gateways. BNSF
Railway also accesses markets in Mexico through United States/Mexico crossings
at Brownsville, Eagle Pass and El Paso, Texas and San Diego, California and,
through an interline agreement with the Texas Mexican Railway Company, BNSF
Railway reaches Laredo, Texas, a major rail gateway between the U.S. and
Mexico.
Carload. The carload freight business provided approximately 28 percent of
revenues in 2000. Carload revenue comes from five types of business:
. Chemicals. The chemicals business is composed of fertilizer, petroleum,
plastics and chemical commodities. Industrial chemicals and plastics
resins are used by the automotive, housing, and packaging industries, as
well as for feedstocks to produce other chemical and plastic products.
Agricultural chemicals and minerals include sulphur that generally moves
to the Gulf Coast and from there via vessels to Florida and overseas
markets for use in making phosphatic fertilizers. Potash is transported
to domestic markets and to export points for markets in South America
and Asia.
. Forest Products. The primary forest product commodities transported are
lumber, plywood, oriented strand board, particle board, paper products,
pulpmill feedstocks, wood pulp and sawlogs. This diverse commodities
group primarily originates from the Pacific Northwest, Western Canada,
upper Midwest, and the Southeast for shipment mainly into domestic
markets. Industries served include construction, furniture, photography,
publishing, newspaper, and industrial packaging.
. Metals. The Metals business serves virtually all of the commodities
included in or resulting from the production of steel. Taconite, an iron
ore derivative produced in northern Minnesota, scrap steel, and coal
coke are BNSF Railway's primary input products, while finished steel
products range from structural beams and steel coils to wire and nails.
BNSF Railway links the integrated steel mills in the East with
fabricators in the West and Southwest. Service is also provided to
various mini-mills in the Southwest that produce rebar, beams, and
coiled rod to the construction industry. Various non-ferrous products
such as copper, lead, and aluminum are transported for the beverage,
automotive, and telecommunications industries.
. Minerals and Machinery. Mineral commodities include clays, sands,
cements, aggregates, sodium compounds, waste and other industrial
minerals. Both the oil and the construction industries are served.
Industrial minerals include various mined and processed commodities such
as cement and aggregates (construction sand, gravel and crushed stone)
that generally move to domestic markets for use in general construction
and public work projects, including highways. Borates and clays move to
domestic points as well as to export markets primarily through West
Coast ports. Sodium compounds, primarily soda ash, is moved to domestic
markets for use in the manufacturing of glass and other industrial
products. Sand is utilized in the manufacturing of glass and for use in
foundry and oil drilling applications. Shipments of waste, ranging from
municipal waste to contaminated soil, are transported to landfills and
reclamation centers across the country. Machinery includes aircraft
parts, agricultural and construction machinery, military equipment and
large industrial machinery.
. Consumer Goods (Perishables and Dry Boxcar). Beverages, canned goods,
and perishables are the principal food commodities moved by BNSF
Railway. Other consumer goods handled include cotton, salt, rubber and
tires, and miscellaneous boxcar shipments.
6
Intermodal. The intermodal freight business provided approximately 29
percent of revenues in 2000 and consists of the hauling of freight, usually in
containers or truck trailers, through a combination of different modes of
transportation such as rail, truck or water carriers. The intermodal business
is highly service-driven, and in many cases truck carriers and railroads work
jointly to provide intermodal service.
Intermodal 2000 results include revenue from four types of business:
. Direct Marketing. Direct marketing efforts resulted in approximately 32
percent of total intermodal revenue. These center around traffic
contracted from United Parcel Service and the United States Postal
Service, and service for nationwide LTL (Less-Than-Truckload) carriers
including Yellow Freight, Roadway Express, and Consolidated Freightways.
. International. International business consists primarily of traffic from
steamship companies and accounted for approximately 35 percent of
intermodal revenues.
. Intermodal Marketing Companies. Approximately 17 percent of total
intermodal revenue was generated through intermodal marketing companies,
primarily shipper agents and consolidators.
. Truckload. Truckload traffic represented approximately 16 percent of
total intermodal revenue. The joint service arrangement with J.B. Hunt,
referred to as Quantum, represented the largest truckload component,
while Schneider National was the next largest.
Coal. Based on carloadings and tons hauled, BNSF Railway is the largest
transporter of western low-sulfur coal in the United States, and the
transportation of coal contributed about 23 percent to 2000 revenues.
Approximately 90 percent of BNSF Railway's coal traffic originated in the
Powder River Basin of Wyoming and Montana during the three years ended December
31, 2000. These coal shipments were destined for coal-fired electric generating
stations located primarily in the North Central, South Central and Mountain
regions of the United States.
BNSF Railway also transports increasing amounts of low-sulfur coal from the
Powder River Basin for delivery to markets in the eastern and southeastern
portions of the United States. The low-sulfur coal from the Powder River Basin
is abundant, inexpensive to mine, clean-burning, and has a low delivered-cost
to power plants. Also, deregulation in the electric utility industry is
expected to cause utilities to seek lower cost fuel sources and boost demand
for Powder River Basin coal.
Other coal shipments originate principally in Colorado, Illinois, New
Mexico, and North Dakota and are moved to electrical generating stations and
industrial plants in the Mountain and North Central regions.
Agricultural Commodities. The transportation of agricultural commodities
provided approximately 14 percent of 2000 revenues and includes wheat, corn,
bulk foods, soybeans, oil seeds and meals, feeds, barley, oats and rye, flour
and mill products, milo, oils, specialty grains, and malt. The BNSF Railway
system is strategically located to serve the grain-producing regions of the
Midwest and Great Plains. In addition to serving most grain-producing areas,
BNSF Railway serves most major terminal, storage, feeding and food-processing
locations. Furthermore, BNSF Railway has access to major export markets in the
Pacific Northwest, western Great Lakes, and Texas Gulf regions, and in Mexico.
Automotive. The transportation of both assembled motor vehicles and
shipments of vehicle parts to numerous destinations throughout the Midwest,
Southwest, West and Pacific Northwest provided about five percent of 2000
revenues.
7
Freight Statistics. The following tables set forth certain freight
statistics relating to rail operations for the periods indicated. Certain
amounts have been reclassified to reflect changes in the business groups for
years prior to 2000 and to conform to current year presentation.
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
Revenue ton miles (millions)......................... 491,959 493,207 469,045
Freight revenue per thousand revenue ton miles....... $18.52 $18.40 $19.08
Average haul per ton (miles)......................... 996 994 970
For revenue, cars/units and average revenue per unit information for the
three years ended December 31, 2000, see the revenue table included as part of
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations in this filing.
Government Regulation and Legislation
Rail operations are subject to the regulatory jurisdiction of the STB of the
United States Department of Transportation (DOT), the Federal Railroad
Administration of DOT, the Occupational Safety and Health Administration
(OSHA), and state regulatory agencies. The STB, which is the successor to the
Interstate Commerce Commission (ICC), has jurisdiction over certain rates,
routes, and services, the extension, sale, or abandonment of rail lines, and
consolidation or merger with, or acquisition of control of, rail common
carriers. On October 3, 2000, the STB issued a Notice of Proposed Rulemaking
relating to standards to be used in evaluating applications for authority to
engage in certain railroad mergers, consolidations, and changes in control that
are deemed "major transactions" under STB regulations. The proposed new
standards are designed to increase the burden on applicants to demonstrate that
a proposed merger is in the public interest. The rulemaking is expected to be
completed in June 2001.
DOT and OSHA have jurisdiction under several federal statutes over a number
of safety and health aspects of rail operations. State agencies regulate some
aspects of rail operations with respect to health and safety in areas not
otherwise preempted by federal law.
BNSF Railway's rail operations, as well as those of its competitors, are
subject to extensive federal, state and local environmental regulation. These
laws cover discharges to waters, air emissions, toxic substances, and the
generation, handling, storage, transportation, and disposal of waste and
hazardous materials. This regulation has the effect of increasing the cost and
liabilities associated with rail operations. Environmental risks are also
inherent in rail operations which frequently involve transporting chemicals and
other hazardous materials.
Many of BNSF Railway'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 Railway is now subject and will from time to time continue to
be subject to environmental cleanup and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), also known as the "Superfund" law, generally imposes joint and
several liability for cleanup and enforcement costs, without regard to fault or
the legality of the original conduct, on current and former owners and
operators of a site. Accordingly, BNSF Railway may be responsible under CERCLA
and other federal and state statutes for all or part of the costs to clean up
sites at which certain substances may have been released by BNSF Railway, its
current lessees, former owners or lessees of properties, or other third
parties. For further discussion, see Note 11 to the Consolidated Financial
Statements included in this filing.
Competition
The business environment in which BNSF Railway operates remains highly
competitive. Depending on the specific market, deregulated motor carriers,
other railroads and river barges may exert pressure on price and
8
service levels. The presence of advanced, high service truck lines with
expedited delivery, subsidized infrastructure and minimal empty mileage
continues to affect the market for non-bulk, time sensitive freight. The
potential expansion of longer combination vehicles could further encroach upon
markets traditionally served by railroads. In order to remain competitive, BNSF
Railway and other railroads strive to develop and implement operating
efficiencies to improve productivity.
As railroads streamline, rationalize and otherwise enhance their franchises,
competition among rail carriers intensifies. BNSF Railway's primary rail
competitor in the western region of the United States is Union Pacific Railroad
Company (UP). Other Class I railroads and numerous regional railroads and motor
carriers also operate in parts of the same territories served by BNSF Railway.
Coal, one of BNSF Railway's primary commodities, continues to be subject to
various types of competitive pressures.
As a condition to approval of the merger of rail carriers controlled by
Union Pacific and Southern Pacific, the STB in its 1996 decision required the
grant to BNSF Railway of trackage rights over approximately 4,000 miles of
UP/SP track. BNSF Railway also purchased over 335 miles of track from UP/SP as
a result of the STB's decision. BNSF Railway and Union Pacific compete head-to-
head in Gulf Coast, Intermountain and West Coast markets served by these lines.
In 1998, BNSF Railway and UP entered into an agreement to exchange half
interests in the two pieces of the former Southern Pacific Transportation
Company ("SP") rail line between Houston and New Orleans which are separately
owned by the two railroads. Both railroads now have access to all customers,
including chemical, steel, gas and other companies, along the entire line,
including on former SP branch lines.
The STB approved the carve-up of Consolidated Rail Corporation (Conrail)
between CSX Corporation and Norfolk Southern Corporation which was implemented
in 1999. CSX and Norfolk Southern operate the two largest rail systems in the
eastern United States. Also, in 1999, Canadian National Railway Company (CN)
acquired Illinois Central Corporation (IC). CN is Canada's largest railroad and
reaches the U.S. cities of Detroit and Chicago, while IC has operations
extending from Chicago to the Gulf of Mexico, and west through Iowa. In January
2001, CN announced its intention to acquire the Wisconsin Central, a regional
railroad with track and trackage rights in Illinois, Wisconsin, Minnesota,
Michigan, and the province of Ontario.
ITEM 3. Legal Proceedings
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 matters cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of BNSF 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.
Reference is made to Note 4 to the Consolidated Financial Statements
included in this filing for information concerning certain pending
administrative appeals with the Internal Revenue Service.
ITEM 4. Submission Of Matters To a Vote Of Security Holders
No matters were submitted by BNSF to a vote of its securities holders during
the fourth quarter of 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages, and positions of all executive officers of
BNSF (excluding Robert D. Krebs and Matthew K. Rose, executive officers who are
also directors of BNSF, information as to whom will
9
be included in BNSF's Proxy Statement for its 2001 annual meeting of
shareholders which will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year) and their business
experience during the past five years. Executive officers hold office until
their successors are elected or appointed, or until their earlier death,
resignation, or removal.
Thomas N. Hund, 47
Executive Vice President and Chief Financial Officer since January 2001.
Prior to that, Senior Vice President and Chief Financial Officer and Treasurer
from August 1999, and Vice President and Controller from September 1995.
Carl R. Ice, 44
Executive Vice President and Chief Operations Officer since January 2001.
Prior to that, Senior Vice President-Operations from June 1999, Vice President-
Operations North from January 1999, Vice President-Chief Mechanical Officer
from December 1996, Vice President-Chief Mechanical Officer of ATSF from
January 1996 and Vice President-Executive of ATSF from May 1995.
Dennis R. Johnson, 39
Vice President and Controller since August 1999. Prior to that, Assistant
Vice President and Assistant Controller from January 1997, and Assistant Vice
President and Assistant Controller for ATSF from January 1992 to December 1996.
Jeffrey R. Moreland, 56
Executive Vice President-Law and Chief of Staff since January 2001. Prior to
that, Senior Vice President-Law and Chief of Staff since February 1998, and
Senior Vice President-Law and General Counsel from September 1995.
Charles L. Schultz, 53
Executive Vice President and Chief Marketing Officer since June 1999. Prior
to that, Senior Vice President-Intermodal and Automotive Business Unit since
February 1996, and Vice President-Intermodal of ATSF and BNRR from September
1995.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
BNSF's common stock is listed on the New York Stock Exchange under the
symbol "BNI." The common stock is also listed on the Chicago Stock Exchange and
Pacific Exchange. Information as to the high and low sales prices of such stock
for the two years ending December 31, 2000 and the frequency and amount of
dividends declared on such stock during such period, is set forth in Note 15 to
the Consolidated Financial Statements included in this filing. The approximate
number of record holders of the common stock at January 31, 2001 was 44,000.
10
ITEM 6. Selected Financial Data
The following table presents, as of and for the dates indicated, selected
historical financial information for the Company.
December 31,
-------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(Dollars in millions, except per share
data)
FOR THE YEAR ENDED:
Revenues.......................... $ 9,205 $ 9,189 $ 9,054 $ 8,489 $ 8,192
Operating income.................. $ 2,108 $ 2,205 $ 2,158 $ 1,767 $ 1,748
Net income........................ $ 980 $ 1,137 $ 1,155 $ 885 $ 889
Basic earnings per share.......... $ 2.38 $ 2.46 $ 2.45 $ 1.91 $ 1.95
Average shares (in millions)...... 412.1 463.2 470.5 464.4 456.3
Diluted earnings per share........ $ 2.36 $ 2.44 $ 2.43 $ 1.88 $ 1.91
Average shares (in millions)...... 415.2 466.8 476.2 471.1 464.4
Dividends declared per common
share............................ $ 0.48 $ 0.48 $ 0.44 $ 0.40 $ 0.40
------- ------- ------- ------- -------
AT YEAR END:
Total assets...................... $24,375 $23,700 $22,646 $21,266 $19,693
Long-term debt and commercial
paper, including current portion. $ 6,846 $ 5,813 $ 5,456 $ 5,289 $ 4,711
Stockholders' equity.............. $ 7,480 $ 8,172 $ 7,784 $ 6,822 $ 5,994
Total debt to capital............. 47.8% 41.6% 41.2% 43.7% 44.0%
------- ------- ------- ------- -------
FOR THE YEAR ENDED:
Capital expenditures.............. $ 1,399 $ 1,788 $ 2,147 $ 2,182 $ 2,234
Depreciation and amortization..... $ 895 $ 897 $ 832 $ 773 $ 760
======= ======= ======= ======= =======
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Santa Fe Corporation and its
majority-owned subsidiaries (collectively, BNSF or Company). The principal
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.
Revenue Table
The following table presents BNSF's revenue information by commodity for the
years ended December 31, 2000, 1999 and 1998 and includes certain
reclassifications of prior year information to conform to current year
presentation.
Average Revenue
Revenues Cars/Units Per Car/Unit
-------------------- ----------------- --------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
------ ------ ------ ----- ----- ----- ------ ------ ------
(In Millions) (In Thousands)
Intermodal.............. $2,654 $2,507 $2,451 3,441 3,203 3,086 $ 771 $ 783 $ 794
Carload................. 2,577 2,561 2,593 1,774 1,773 1,801 1,453 1,444 1,440
Coal.................... 2,131 2,226 2,239 2,023 2,123 2,078 1,053 1,049 1,077
Agricultural
Commodities............ 1,257 1,337 1,280 680 715 689 1,849 1,870 1,858
Automotive.............. 493 443 388 249 250 230 1,980 1,772 1,687
------ ------ ------ ----- ----- ----- ------ ------ ------
Total Freight Revenues.. 9,112 9,074 8,951 8,167 8,064 7,884 $1,116 $1,125 $1,135
====== ====== ====== ===== ===== ===== ====== ====== ======
Other Revenues.......... 93 115 103
------ ------ ------
Total Revenues.......... $9,205 $9,189 $9,054
====== ====== ======
11
Results of Operations
Year Ended December 31, 2000 Compared with Year Ended December 31, 1999
Net income in 2000 was $980 million ($2.36 per share) compared with $1,137
million ($2.44 per share) for 1999. The decrease in earnings per share is
primarily due to the effect on net income of a $232 million increase in fuel
expenses and recognition in 1999 of a gain of $50 million (pre-tax) in
connection with prior period line sales, less costs of $13 million (pre-tax)
related to those sales, partially offset by the favorable effect of the common
stock repurchase program (see Liquidity and Capital Resources: Common Stock
Repurchase Program).
Revenues
Total revenues for 2000 were $9,205 million or $16 million higher than 1999
revenues of $9,189 million. The $16 million increase primarily reflects
increases in the intermodal, carload and automotive sectors, partially offset
by lower coal and agricultural revenues. Average revenue per car/unit decreased
in 2000 to $1,116 from $1,125 in 1999. Volumes increased for the year but
experienced a general slowing late in 2000 based on economic conditions which
have continued in January 2001. During 2000, based on reporting to the
Association of American Railroads (AAR), BNSF's share of the western United
States rail traffic market decreased 0.4 points to 43.1 percent.
Intermodal revenues of $2,654 million improved $147 million, or 6 percent,
compared with 1999 reflecting increases in the international and truckload
sectors, partially offset by decreases in the intermodal marketing companies
(IMC) and direct marketing sectors. International revenues were up due to high
levels of Trans-Pacific trade as well as market share gains with Mitsui, Yang
Ming and Hapag Lloyd. Truckload revenues benefited from strong Schneider
National loadings. These revenue increases were partially offset by decreases
in the direct marketing sector due to decreased loadings within the less than
truckload segment and in the IMC sector due to pricing pressures, and strong
over the road competition.
Carload revenues, which include revenues from the chemicals, forest
products, metals, minerals and machinery, perishable and dry boxcar sectors, of
$2,577 million for 2000 were $16 million, or 1 percent, higher than 1999 due to
increases from the metals, perishables, and minerals sectors, partially offset
by decreased chemicals, forest products, and machinery revenues. The metals
increases were a result of a strong market for steel; the growth in perishables
was from the success of new service offerings and a partial recapture of the
truck market; and increases in minerals were due to higher demand for clay and
sand used in domestic oil production. These increases were partially offset by
decreased shipments of industrial chemicals, softness in the forest products
sector, and lower shipments of heavy machinery.
Coal revenues of $2,131 million for 2000 decreased $95 million, or 4
percent, as a result of volume decreases due to a decrease in demand as a
result of milder weather and high customer inventories that affected shipments
for most of the year, while 1999 benefited from an inventory build up in
preparation for possible Year 2000 outages.
Agricultural commodities revenues of $1,257 million for 2000 were $80
million, or 6 percent, lower than 1999 due primarily to weaker corn export
shipments to the Pacific Northwest and Mexico, and decreased shipments of Gulf
and Pacific Northwest wheat, both caused by worldwide crop competition.
Revenues were also lower as a result of decreased shipments of bulk foods due
to an oversupply of sugar and supplier price competition in the syrup market
which resulted in less traffic.
Automotive revenues of $493 million for 2000 were $50 million, or 11
percent, higher than 1999 reflecting increased industry-wide automobile
production for most of the year and more profitable longer haul traffic despite
essentially flat volumes year-over-year.
12
Expenses
Total operating expenses for 2000 were $7,097 million, an increase of $113
million or 2 percent, compared with operating expenses for 1999 of $6,984
million, despite a $232 million increase in fuel expenses.
Compensation and benefits expenses of $2,729 million were $43 million, or 2
percent, lower than 1999 primarily due to lower employment levels and reduced
incentive expense partially offset by increased base wages.
Purchased services of $1,022 million for 2000 were $23 million, or 2
percent, lower than 1999 primarily as a result of decreased joint facility and
contract switching charges as well as recoveries related to prior periods. This
decrease was partially offset by increased contract equipment maintenance costs
due to an increase in the number of locomotives under maintenance contracts and
volume-related increases in ramping expenses.
Equipment rents expenses of $742 million were $10 million, or 1 percent,
lower than 1999 as a result of lower lease rates on rail cars 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 $932 million for 2000 were $232 million, or 33 percent,
higher than 1999, as a result of a 20 cent, or 35 percent, increase in the
average all-in cost per gallon of diesel fuel, partially offset by a 1 percent
decrease in consumption from 1,187 million gallons to 1,173 million gallons.
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 13 cents per gallon
compared with additional expense from hedging of 1 cent per gallon in 1999.
Materials and other expenses of $777 million for 2000 were $41 million, or 5
percent, lower than 1999 principally reflecting: (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 Other Matters: Employee Merger and Separation Costs);
(ii) lower current year environmental expenses and other materials costs
compared with 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
Other Matters: Employee Merger and Separation Costs) for approximately 150
involuntarily terminated employees, primarily material handlers in mechanical
shops and trainmen reserve boards; (ii) $54 million credit for the reversal of
certain liabilities associated with the consolidation of clerical functions in
the second quarter 1999 (see Other Matters: Employee Merger and Separation
Costs); (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 for 2000 of $453 million increased $66 million, or 17
percent, principally reflecting higher debt levels resulting from the Company's
share repurchase program and higher interest rates. Total debt increased to
$6,846 million at December 31, 2000, from $5,813 million at December 31, 1999.
Other income (expense), net was unfavorable by $71 million compared with
1999 primarily due to a $50 million (pre-tax) deferred gain recognized during
1999 in connection with the sale of rail lines in Southern California in 1992
and 1993, and the recognition in 2000 of $20 million (pre-tax) of expenses
related to the termination of the proposed combination with Canadian National
Railway Company (see Note 3 to the Company's consolidated financial
statements).
13
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Earnings per share increased to $2.44 per share for 1999 from $2.43 per
share for 1998, although net income was slightly lower for 1999 at $1,137
million compared with 1998 net income of $1,155 million. The slight decrease in
net income is primarily due to a 1998 gain of $67 million on the sale of
substantially all of the Company's interest in Santa Fe Pacific Pipeline
Partners, L.P., along with 1998 gains on real estate portfolio sales and higher
interest expense in 1999 incurred on borrowings to fund the share repurchase
program (see Liquidity and Capital Resources: Common Stock Repurchase Program),
and increased 1999 environmental expenses. These decreases in net income were
partially offset by increased operating revenues in 1999 due to volume gains in
most sectors.
Revenues
Total revenues for 1999 were $9,189 million, or 1 percent, higher compared
with revenues of $9,054 million for 1998. The $135 million increase primarily
reflects increases in the intermodal, agricultural commodities and automotive
sectors, partially offset by lower carload and coal revenues. Average revenue
per car/unit decreased slightly in 1999 to $1,125 from $1,135 in 1998. During
1999, BNSF's share of the Western United States rail traffic market, based on
reporting to the AAR, decreased 0.8 points to 43.5 percent. This decrease in
market share was primarily due to Union Pacific regaining market share as a
result of its recovery from operating difficulties experienced in the prior
year.
Carload revenues of $2,561 million for 1999 were $32 million, or 1 percent,
lower than 1998 due to decreases in the chemicals, minerals and machinery, and
metals sectors, partially offset by increased forest product revenues. The
decreases were a result of weaknesses in the chemicals sector due to soft
fertilizer markets, weaknesses in the metals sector due to increased steel
imports, and a decrease in dedicated train movements of heavy machinery. These
decreases were partially offset by increased inland shipments of forest
products.
Intermodal revenues of $2,507 million improved $56 million, or 2 percent,
compared with 1998 reflecting increases in the direct marketing, international
and truckload sectors, partially offset by decreases in the intermodal
marketing companies (IMC) sector. Direct marketing revenues benefited from
year-over-year growth of units shipped for UPS and Roadway Express.
International revenues were up due to market share gains and new business with
Sealand, NYK, Maersk and K-Line. Truckload revenues were driven primarily by
year-over-year growth in J.B. Hunt, Swift and Triple Crown loadings. These
revenue increases were partially offset by decreases in the IMC sector due to
competitive pricing pressures, an overall softening in the IMC market, and
increased trucking capacity.
Coal revenues of $2,226 million for 1999 decreased $13 million, or 1
percent, as a result of a decrease in average revenue per car due to a decline
in coal shipping rates on contracts renewed beginning in late 1998 at the lower
1998 and 1999 market based rates. Operating difficulties early in the year at
the Powder River Basin mines, and a decrease in the demand for coal due to
milder weather for most of the year, contributed to the year-over-year
decrease, which was partially offset by an inventory build-up in 1999 to
prepare for possible Year 2000 outages. The total number of rail cars shipped
increased by 45,000, or 2 percent, over 1998 volumes.
Agricultural commodities revenues of $1,337 million for 1999 were $57
million, or 4 percent, higher than 1998 due primarily to increased demand for
soybean exports and Pacific Northwest corn. The increase in soybean revenue was
fueled by favorable pricing and an increased supply of soybeans that was
sufficient to meet the higher demand. Increases in revenue were slightly offset
by lower wheat revenue per car and fewer soybean oil shipments in 1999 compared
with 1998.
Automotive revenues of $443 million for 1999 were $55 million, or 14
percent, higher than 1998 reflecting growth in vehicle shipments due to both a
record year of new vehicle production coupled with an increase in revenue per
unit as a result of a favorable change in the mix of vehicles transported.
Expenses
Total operating expenses for 1999 were $6,984 million, an increase of $88
million or 1 percent, compared with operating expenses for 1998 of $6,896
million.
14
Compensation and benefits expenses of $2,772 million were $40 million, or 1
percent, lower than 1998 primarily due to lower employment levels resulting
from the second quarter 1999 reorganization discussed in Other Matters:
Employee Merger and Separation Costs partially offset by increased base wage
rates.
Purchased services of $1,045 million for 1999 were $25 million, or 2
percent, higher than 1998 due primarily to increased contract equipment
maintenance costs as well as ramping and other transportation service
contracts, partially offset by lower haulage expenses.
Equipment rents expenses of $752 million were $52 million, or 6 percent,
lower than 1998 as a result of lower intermodal equipment costs due to a
reduction in time and mileage, and trailer and container expenses. Lower
agricultural leased car expense due to improved cycle times also contributed to
the decrease.
Fuel expenses of $700 million for 1999 were $21 million, or 3 percent, lower
than 1998, as a result of a 3 cent, or 6 percent, decrease in the average all-
in cost per gallon of diesel fuel, partially offset by a 3 percent volume-
driven increase in consumption from 1,155 million gallons to 1,187 million
gallons. The average all-in cost per gallon of diesel fuel decreased year-over-
year due to current year fuel hedge losses of 1 cent per gallon compared to 7
cents per gallon in the prior year, which were partially offset by a 3 cent
increase in the average purchase price.
Materials and other expenses of $818 million for 1999 were $111 million, or
16 percent, higher than 1998 principally reflecting higher environmental,
personal injury, property and other tax expenses. As discussed in Other
Matters: Employee Merger and Separation Costs, reorganization costs of $45
million were incurred during the second quarter of 1999 for severance, pension,
medical and other benefit costs for approximately 325 involuntarily terminated
salaried employees that were part of a reorganization program announced in May
1999 to reduce operating expenses and an additional $3 million of costs
incurred for relocating approximately 60 non-union employees as a result of the
reorganization. In addition, the Company also reversed during the second
quarter certain merger severance liabilities of $54 million associated with the
Company's clerical consolidation plan. These liabilities related to planned
work-force reductions which were no longer needed due to the Company's ability
to utilize a series of job swaps between certain locations to achieve the
advantages of functional work consolidation.
Interest expense for 1999 of $387 million increased $33 million, or 9
percent, principally reflecting higher debt levels resulting from the Company's
share repurchase program. Total debt increased to $5,813 million at December
31, 1999, from $5,456 million at December 31, 1998.
Other income (expense), net was unfavorable by $44 million compared with
1998 primarily due to the $67 million gain (pre-tax) on the sale of
substantially all of the Company's interest in Santa Fe Pacific Pipeline
Partners, L.P. in 1998 and gains of $26 million (pre-tax) from the sale of a
real estate portfolio in 1998. This was partially offset by the recognition in
1999 of a $50 million (pre-tax) deferred gain in connection with the sale of
rail lines in Southern California in 1992 and 1993.
Liquidity and Capital Resources
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.
During 2000, BNSF generated free cash flow after dividends paid (calculated
as cash flow from operations less capital expenditures, other investing
activities and dividends paid) of $431 million, an improvement of $171 million
from free cash flow of $260 million in 1999. This increase was due primarily to
reduced capital spending partially offset by reduced cash flow from operating
activities.
15
Operating Activities
Net cash provided by operating activities was $2,317 million during 2000
compared with $2,424 million during 1999. The decrease in cash from operations
was primarily due to a decrease in net income and lower deferred taxes
partially offset by the receipt of a $43 million dividend from the Company's
equity investment in TTX Company in March 2000 as well as lower merger,
separation and environmental clean-up payments.
Investing Activities
Net cash used for investing activities during 2000 was $1,680 million
consisting of $1,399 million in capital expenditures as described below, and
$281 million of other investing activities which primarily include retired
track structure removal costs, participation in joint investment projects and
advances for future investment transactions. The increase in other investing
activities compared to 1999 was principally due to an increase in joint
investment projects and advances for future investment transactions.
A breakdown of cash capital expenditures is set forth in the following table
(in millions):
Year ended December 31, 2000 1999 1998
----------------------- ------ ------ ------
Maintenance of way..................................... $ 835 $ 810 $ 799
Mechanical............................................. 221 240 243
Information services................................... 66 74 76
Other.................................................. 144 151 185
------ ------ ------
Total maintenance of business.......................... 1,266 1,275 1,303
New locomotives and freight cars....................... -- 261 340
Expansion and other.................................... 133 252 504
------ ------ ------
Total.................................................. $1,399 $1,788 $2,147
====== ====== ======
BNSF reduced 2000 cash capital expenditures compared with 1999 by
approximately $389 million to $1,399 million. Cash used for new locomotives was
lower in 2000 reflecting a decrease in the number of locomotives purchased. In
2000, 246 new locomotives were delivered to BNSF under long-term operating
leases compared with 476 locomotives in 1999. Expansion projects, principally
main line track and major facility construction, decreased due a reduced
capital program in 2000.
BNSF has entered into commitments to acquire 100 locomotives in 2001. The
locomotives will be financed from one or a combination of sources including,
but not limited to, cash from operations, capital or operating leases, and debt
issuances. The decision on the method used will depend upon then current market
conditions and other factors.
Financing Activities
Net cash used for financing activities during 2000 was $648 million,
principally consisting of share repurchases of $1,496 million and dividend
payments of $206 million partially offset by net debt borrowings of $1,034
million.
In February 2000, a put option on $100 million of medium-term notes paying a
coupon of 6.10 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 7.875 percent notes due April
2007 and $200 million of 8.125 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. At the time of issuing the
$300 million of 7.875 percent notes and the $200 million of 8.125 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.
16
In April 2000, BNSF Railway issued $50 million of privately placed debt
collateralized by locomotives that were acquired in 1999. This debt carries an
interest rate of 7.77 percent and matures from April 2001 to 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 7.95 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.
In December 2000, BNSF issued $300 million of 7.125 percent notes due
December 2010 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 $5 million which has been deferred and is being amortized to
interest expense over the 10-year life of the notes. Subsequent to this
issuance, the Company had $425 million available for borrowing under the May
2000 registration statement.
In March 1999, BNSF issued $200 million of 6.125 percent notes due March
2009 and $200 million of 6.750 percent debentures due March 2029 under the
February 1999 shelf registration statement. The net proceeds were used for
general corporate purposes including the repayment of commercial paper. At the
time of issuing the $200 million of 6.125 percent notes discussed above, the
Company closed out a $100 million treasury lock transaction at a gain of
approximately $8 million which has been deferred and is being amortized to
interest expense over the 10-year life of the notes.
In April 1999, the holder of a call option on $200 million of the Company's
puttable reset debentures due 2029 exercised the call option. As a result, on
May 13, 1999, the holder repurchased the debentures which were subsequently
resold to investors. The interest rate on the debentures was reset to a fixed
interest rate of 7.082 percent. The Company did not receive any proceeds from
the resale of these debentures.
Aggregate long-term debt scheduled to mature in 2001 is $232 million. BNSF's
ratio of total debt to total capital was 47.8 percent at the end of 2000, 41.6
percent at the end of 1999, and 41.2 percent at the end of 1998. The increase
in 2000 over the prior year is attributable to the increase in debt and lower
equity due primarily to higher share repurchases, as discussed below.
Credit Agreements
BNSF issues commercial paper from time to time which is supported by bank
revolving credit agreements. Outstanding commercial paper balances are
considered as reducing the amount of borrowings available under these
agreements. The bank revolving credit agreements, which were renewed and
extended effective June 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 Company generally classifies commercial paper as long-term to
the extent of its commitments available under the revolving credit agreements.
The commitments of the lenders under the short-term agreement are scheduled to
17
expire in June 2001, with the ability for any amounts then outstanding to
mature as late as June 2002. The commitments of the lenders under the long-term
agreement are scheduled to expire in June 2005.
BNSF also had outstanding bank borrowings at December 31, 2000, with
maturity values of $75 million and interest rates similar to commercial paper
which, upon maturity, may be replaced with commercial paper or other bank
borrowings. There were no bank borrowings outstanding at December 31, 1999.
At December 31, 2000 there were no borrowings against the revolving credit
agreements and the maturity value of commercial paper outstanding was $573
million, leaving a total capacity of $1,177 million available under the
revolving credit agreements. BNSF must maintain compliance with certain
financial covenants under its revolving credit agreements and at December 31,
2000, the Company was in compliance.
Common Stock Repurchase Program
In July 1997, the Board of Directors of BNSF authorized the repurchase of up
to 30 million shares of the Company's common stock from time to time in the
open market. In December 1999, April 2000 and September 2000, the Board of
Directors authorized extensions of the BNSF share repurchase program, adding 30
million shares at each date to the total shares previously authorized. During
2000, 1999 and 1998, the Company repurchased approximately 65 million, 22
million, and 5 million shares, respectively, of its common stock at average
prices of $23.16 per share, $31.08 per share, and $30.75 per share,
respectively. There were no repurchases under this program in 1997. Total
repurchases through January 31, 2001, were 92 million shares at a total average
cost of $25.51 per share, leaving 28 million shares available for repurchase
out of the 120 million shares authorized.
In connection with its share repurchase program, in April 1999, BNSF sold
equity put options for 0.1 million shares of common stock to an independent
third party and received cash proceeds of $0.1 million. The third party
exercised the options on October 12, 1999, which resulted in the Company
purchasing 0.1 million shares of its common stock at $29 per share. The Company
accounts for the effects of equity put option transactions within stockholders'
equity. During 2000, there were no sales of equity put options.
An equity put option is a financial instrument whereby BNSF receives an
upfront cash premium for granting another party the option to sell a defined
number of BNSF shares to the Company at a fixed price on a specified future
date. The Company considers the sale of equity put options as a method to
acquire its common stock at a share price consistent with its share repurchase
strategy and potentially reduce the all-in cost of the program. The Company's
risk is that it may be required to purchase shares at a specified price that is
higher than the common stock price at the exercise date of the equity put
option. The Company has the ability to settle its equity put option
transactions on a net share or net cash basis and accounts for the effects of
these transactions within stockholders' equity. The number of shares subject to
outstanding put options sold by the Company cannot exceed the amount of
remaining shares the Board of Directors has authorized for repurchase. As of
January 31, 2001, there were no equity put options outstanding.
Common Stock Split
On July 16, 1998, the Board of Directors approved a three-for-one common
stock split, which was effected in the form of a stock dividend of two
additional shares of BNSF common stock payable for each share outstanding or
held in treasury on September 1, 1998, to stockholders of record on August 17,
1998. All equity-based benefit plans reflect the issuance of additional shares
or options due to the declaration of the stock split. All share and per share
data were restated to reflect the stock split.
Dividends
Common stock dividends declared were $0.48 per share annually for 2000 and
1999 and $0.44 per share annually in 1998. Dividends paid on common stock were
$206 million, $224 million and $197 million during
18
2000, 1999 and 1998, respectively. On January 18, 2001, the Board of Directors
declared a quarterly dividend of 12 cents per share upon outstanding shares of
common stock, $.01 par value, payable April 2, 2001, to stockholders of record
on March 12, 2001.
Other Matters
Casualty and Environmental
Personal injury claims, including work-related injuries to employees, are a
significant expense for the railroad industry. Employees of BNSF are
compensated for work-related injuries according to the provisions of the
Federal Employers' Liability Act (FELA). FELA's system of requiring the finding
of fault, coupled with unscheduled awards and reliance on the jury system,
contributed to significant increases in expense in past years. BNSF has
implemented a number of safety programs to reduce the number of personal
injuries as well as the associated claims and personal injury expense. BNSF
made payments for personal injuries of approximately $178 million, $179
million, and $193 million in 2000, 1999 and 1998, respectively. At December 31,
2000 and 1999, the Company had recorded liabilities of $436 million and $446
million related to both asserted and unasserted personal injury claims.
As discussed in more detail in Note 11 to the Company's consolidated
financial statements, 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 on current and former owners and operators of a site
without regard to fault or the legality of the original conduct. 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 mandatory clean-up efforts at approximately 385 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 $49
million, $67 million and $64 million during 2000, 1999 and 1998, respectively,
for mandatory and unasserted clean-up efforts, including amounts expended under
federal and state voluntary clean-up programs. The Company had recorded
19
liabilities for remediation and restoration of all known sites of approximately
$223 million at December 31, 2000, compared with $232 million at December 31,
1999. BNSF anticipates that the majority of the accrued costs at December 31,
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 results of operations, 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 results of
operations, financial position or liquidity of BNSF, although an adverse
resolution of a number of these items could have a material adverse effect on
the results of operations in a particular quarter or fiscal year.
Employee Merger and Separation Costs
Employee merger and separation liabilities of $310 million and $356 million
are included in the consolidated balance sheet at December 31, 2000 and 1999,
respectively, 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 non-union employee severance costs.
Employee merger and separation expenses are recorded to Materials and Other in
the Company's consolidated income statement.
Consolidation of Clerical Functions
Liabilities related to the consolidation of clerical functions were $96
million and $119 million at December 31, 2000 and 1999, respectively, and
primarily provide for severance costs associated with the clerical
consolidation plan adopted in 1995 upon consummation of the business
combination of BNSF's predecessor companies Burlington Northern, Inc. and Santa
Fe Pacific Corporation (the Merger). The consolidation plan resulted in the
elimination of approximately 1,500 permanent positions and was substantially
completed during 1999.
In the fourth quarter of 2000 and the second quarter of 1999, the Company
recorded a $10 million and $54 million, respectively, reversal of certain
liabilities associated with the consolidation plan. These liabilities related
to planned work force reductions that are no longer required due to the
Company's ability to place certain identified employees in alternate positions.
The remaining liability balance at December 31, 2000 represents benefits to be
paid to affected employees who did not receive lump-sum payments, but instead
will be paid over five to ten years or in some cases through retirement.
20
In the second quarter of 2000, the Company recorded a charge of $17 million
for severance, medical and other benefit costs related to approximately 140
material handlers in mechanical shops. Liabilities remaining at December 31,
2000 related to this program reflect elections to receive payments over the
next several years rather than lump sum payments.
Conductors, Trainmen and Locomotive Engineers
Liabilities related to deferred benefits payable upon separation or
retirement to certain active conductors, trainmen and locomotive engineers were
$183 million and $193 million at December 31, 2000 and 1999, respectively.
These costs were primarily incurred in connection with labor agreements reached
prior to the Merger which, among other things, reduced train crew sizes and
allowed for more flexible work rules.
In the second quarter of 2000, the Company incurred $3 million of costs for
severance, medical and other benefit costs for approximately 50 trainmen on
reserve boards. The remaining reserve of less than $1 million at December 31,
2000 will be paid over the next two years to severed employees who elected to
receive their payments over time.
Non-Union Employee Severance
Liabilities principally related to certain remaining non-union employee
severances resulting from the May 1999 reorganization and from the Merger were
$30 million and $44 million at December 31, 2000 and 1999, respectively. These
costs will be paid over the next several years based on deferral elections made
by the employees.
In the second quarter of 2000, the Company incurred $2 million of costs for
severance, medical and other benefit costs for ten involuntarily terminated
non-union positions. All of these planned reductions were completed at December
31, 2000.
In the second quarter of 1999, the Company incurred $45 million of
reorganization costs for severance, pension, medical and other benefit costs
for approximately 325 involuntarily terminated non-union employees that were
part of the program announced in May 1999 that sought to reduce operating
expenses by eliminating approximately 400 non-union and 1,000 scheduled (union)
positions through severances, normal attrition and the elimination of
contractors. Components of the charge include approximately $29 million
relating to severance costs for non-union employees, and approximately $16
million for special termination benefits to be received under the Company's
retirement and medical plans. Substantially all of the planned reductions were
made by September 30, 1999. No significant costs were incurred as a result of
eliminating the 1,000 scheduled positions.
During 2000, 1999 and 1998, BNSF made employee merger and separation
payments of $58 million, $93 million and $77 million, respectively. At December
31, 2000, $49 million of the remaining liabilities are included within current
liabilities for anticipated costs to be paid in 2001.
Hedging Activities
Fuel
Historically, fuel expenses have approximated 10 percent of total operating
expenses; however, fuel costs during 2000 represented 13 percent of total
operating expenses due to significantly higher than historical fuel prices
which have continued to date into 2001. 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
21
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 2000 fuel consumption 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 January 31, 2001, BNSF had entered into fuel swaps for approximately
378 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 24
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 $74 million as of December 31,
2000, of which $60 million relates to swap transactions that will expire in
2001. BNSF also monitors its hedging positions and credit ratings of its
counterparties and does not anticipate losses due to counterparty
nonperformance. Receivables from fuel hedging activities of $50 million and $29
million at December 31, 2000 and 1999, respectively, are recorded in the
Company's consolidated balance sheet as part of Other Current Assets and
represent settled fuel hedging contracts.
Interest Rate
From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuations in interest
rates and establishing rates in anticipation of future debt issuances. Swaps
totaling $125 million which were used to fix the interest rate on commercial
paper debt expired in December 1999. While the swaps were outstanding, BNSF
recognized, on an accrual basis, a fixed rate of interest on the principal
amount of commercial paper hedged over the term of the swap agreements. As of
January 31, 2001, BNSF had no interest rate swap instruments in place.
At the time of issuing the $300 million of 7.875 percent notes and the $200
million of 8.125 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 30-year and
10-year lives of the notes and the debentures, respectively.
At the time of issuing the $275 million of 7.95 percent debentures in August
2000 and the $300 million of 7.125 percent notes in December 2000, the Company
closed out two treasury lock transactions, each in an amount of $100 million
(one based on the 30-year and one based on the 10-year rates and both with
expiration dates in June 2001), at gains of $8 million and $5 million,
respectively, which have been deferred and are being amortized to interest
expense over the 30-year and 10-year lives of the debentures and notes,
respectively.
In 1999, at the time of issuing $200 million of debt, the Company closed out
$100 million of treasury lock transactions at a gain of $8 million. During
1998, at the time of issuing $400 million of debt, the Company closed out $400
million of treasury lock transactions at a loss of approximately $18 million.
In each case, the gain or loss has been deferred and is being amortized to
interest expense over the life of the debt.
As of December 31, 2000, the Company had no outstanding treasury lock
transactions.
22
Labor
Labor unions represent approximately 89 percent of BNSF Railway's employees
under collective bargaining agreements with 13 different labor organizations.
The negotiating process for new, major collective bargaining agreements
covering all of BNSF Railway's union employees has been underway since the
bargaining round was initiated November 1, 1999. 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 through the end of
the year, 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
multi-employer collective bargaining representative, during the third quarter
of 2000 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.
Inflation
Due to the capital intensive nature of BNSF's business, the full effect of
inflation is not reflected in operating expenses because depreciation is based
on historical cost. An assumption that all operating assets were depreciated at
current price levels would result in substantially greater expense than
historically reported amounts.
Accounting Pronouncements
BNSF adopted Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 138, beginning January 1, 2001. 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 and qualifies for hedge accounting and, if it does, the type of
hedge transaction.
For qualifying 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 impacted by the variability of the cash flows of the hedged item.
The ineffective portion of all hedges will be recognized in current-period
earnings.
Based on fuel hedging instruments outstanding at January 1, 2001 and
previously deferred net gains from past interest rate hedging transactions, all
of which are cash-flow hedge transactions, the Company will record a net-of-tax
cumulative-effect benefit to accumulated other comprehensive deficit in the
Company's consolidated balance sheet of approximately $58 million on adoption
in the first quarter 2001. Because the Company's derivative instruments
historically have been highly effective in hedging the exposure to changes in
cash flows associated with forecasted purchases of diesel fuel and changes in
the risk-free rate of interest on anticipated issuances of long-term debt, we
do not expect the adoption of SFAS 133, as amended, to have a material impact
on our future results of operations.
23
Although BNSF expects the derivative instruments it currently uses to hedge
to continue to be highly effective, if they are determined not to be highly
effective in the future, or if the Company uses derivative instruments that do
not meet the stringent requirements for hedge accounting under SFAS 133, as
amended, then future earnings could reflect greater volatility. Additionally,
if a cash flow hedge is discontinued because the forecasted transaction is no
longer expected to occur, any gain or loss in accumulated comprehensive income
associated with the hedged transaction will be immediately recognized in net
income.
Forward-Looking Information
To the extent that the statements made by the Company in this annual report
or otherwise 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.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
In the ordinary course of business, BNSF utilizes various financial
instruments, which inherently have some degree of market risk. The quantitative
information presented below and the additional qualitative information
presented in the Management's Discussion and Analysis of Financial Condition
and Results of Operations section and Notes 8, 10, and 14 of the Consolidated
Financial Statements included in this filing describe significant aspects of
BNSFs financial instrument programs which have a material market risk.
Interest Rate Sensitivity
The tables below provide information about BNSF's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates as of December 31, 2000 and 1999. For debt obligations, the
tables present principal cash flows and related weighted average interest rates
by contractual maturity dates. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
Current and Long-term Debt
December 31, 2000
-------------------------------------------------------
Maturity Date
---------------------------------------- Fair
2001 2002 2003 2004 2005 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ------ ------
Fixed Rate Debt (in
millions).............. $232 $288 $145 $244 $440 $4,856 $6,205 $6,163
Average Interest Rate... 7.7% 7.1% 7.2% 7.7% 6.6% 7.2% 7.2% --
Variable Rate Debt (in
millions).............. -- -- -- -- $641 -- $ 641 $ 641
Average Interest Rate... -- -- -- -- 6.0% -- 6.0% --
24
December 31, 1999
-------------------------------------------------------
Maturity Date
---------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ------ ------
Fixed Rate Debt (in
millions).............. $158 $233 $285 $141 $241 $4,282 $5,340 $5,159
Average Interest Rate... 6.5% 7.7% 7.1% 7.2% 7.7% 7.0% 7.1% --
Variable Rate Debt (in
millions).............. -- -- -- -- $473 -- $ 473 $ 473
Average Interest Rate... -- -- -- -- 7.0% -- 7.0% --
BNSF has included $641 million in 2005 maturities and $473 million in 2004
maturities of commercial paper and bank borrowings in the 2000 and 1999 tables,
respectively. The commercial paper program is supported by bank revolving
credit agreements. Outstanding commercial paper balances are considered as
reducing the amount of borrowings available under these agreements. The bank
revolving credit agreements which were renewed and extended effective June 21,
2000, allow borrowings of up to $1.0 billion on a short-term basis 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 with the ability for any
amounts then outstanding to mature as late as June 2002. The commitments of the
lenders under the long-term agreement are scheduled to expire in June 2005.
BNSF classified commercial paper and bank borrowings as long-term debt in the
consolidated balance sheet at December 31, 2000 and 1999. The bank borrowings
have maturities and interest rates similar to commercial paper, which upon
maturity, may be replaced with commercial paper or other bank borrowings.
In addition, maturities in 2001 included in the 2000 table exclude $100
million of 6.050 percent notes due 2031 which will either be remarketed by the
holder of a call option on the debt and mature in 2031 or will otherwise be
repurchased by the Company in March 2001. Maturities in 2003 exclude $175
million of 6.530 percent notes due 2037, which may be redeemed in 2003 at the
option of the holder.
In February 2000, a put option on $100 million of medium-term notes paying a
coupon of 6.10 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 7.875 percent notes due April
2007 and $200 million of 8.125 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 7.875 percent notes and the $200 million of
8.125 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.
In April 2000, BNSF Railway issued $50 million of privately placed debt
collateralized by locomotives that were acquired in 1999. This debt carries an
interest rate of 7.77 percent and matures from April 2001 to 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.
25
In August 2000, BNSF issued $275 million of 7.950 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
registration statement.
In December 2000, BNSF issued $300 million of 7.125 percent notes due
December 2010 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 $5 million which has been deferred and is being amortized to
interest expense over the life of the notes. Subsequent to this issuance, the
Company had $425 million available for borrowing under the May 2000
registration statement.
Treasury Locks
In anticipation of future debt issuances, BNSF entered into treasury lock
transactions, based on the 10-year and 30-year U.S. treasury rates. Treasury
locks outstanding as of December 31, 1999, are summarized in the table below.
There were no treasury locks outstanding at December 31, 2000. Additionally, as
discussed above, at the time of the debt issuances in April, August, and
December of 2000, BNSF closed out the $400 million of treasury lock
transactions scheduled to expire in 2000 and 2001 at a total gain of
approximately $35 million.
Maturity
December 31, 1999 Date
----------------- ---------- Fair
2000 2001 Total Value(1)
---- ---- ----- --------
Fixed Rate Treasury Locks (in millions).......... $200 $200 $400 $62
Average Pay Rate................................. 4.80% 4.84% 4.82% --
- --------
(1) Represents unrecognized gains in millions.
Commodity Price Sensitivity
Historically, fuel expenses have approximated 10 percent of total operating
expenses; however, fuel costs during 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.
Swap transactions are typically based on the price of pipeline delivery of
Gulf Coast #2 heating oil and require BNSF to purchase a defined quantity at a
defined price. Swap transactions are generally settled with the counterparty in
cash. Based on historical information, BNSF believes there is a significant
correlation between the market prices of diesel fuel and Gulf Coast #2 heating
oil.
26
The tables below provide information about BNSF's diesel fuel hedging
instruments that are sensitive to changes in commodity prices. The tables
present notional amounts in gallons and the weighted average contract price by
contractual maturity date. The prices included in the tables 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.
Maturity
December 31, 2000 Date
----------------- ----------- Fair
2001 2002 Total Value(1)
----- ----- ----- --------
Diesel Fuel Swaps:
Gallons (in millions)........................... 277 101 378 $74
Weighted average price per gallon............... $0.49 $0.50 $0.50 --
December 31, 1999 Maturity Date
----------------- ----------------- Fair
2000 2001 2002 Total Value(1)
----- ----- ----- ----- --------
Diesel Fuel Swaps:
Gallons (in millions)..................... 491 277 101 869 $37
Weighted average price per gallon......... $0.50 $0.49 $0.50 $0.50 --
- --------
(1) Represents unrecognized gains (in millions) based on the price of Gulf
Coast #2 heating oil.
Additionally, at December 31, 2000 and 1999, BNSF maintained fuel
inventories for use in normal operations which were not material to BNSFs
overall financial position and therefore represent no significant market
exposure.
Equity Price Sensitivity
In April 1999, BNSF sold equity put options for 0.1 million shares of BNSF
common stock to an independent third party and received cash proceeds of $0.1
million. The third party exercised the options on October 12, 1999, which
resulted in the Company purchasing 0.1 million shares of its common stock at
$29 per share. As of December 31, 2000 there were no equity put options
outstanding.
An equity put option is a financial instrument whereby BNSF receives an
upfront cash premium for granting another party the option to sell a defined
number of BNSF shares to the Company at a fixed price on a specified future
date. The Company considers the sale of equity put options as a method to
acquire its common stock at a share price consistent with its share repurchase
strategy and potentially reduce the all-in cost of the program. The Company's
risk is that it may be required to purchase shares at a specified price that is
higher than the common stock price at the exercise date of the equity put
option. The Company has the ability to settle its equity put option
transactions on a net share or net cash basis and accounts for the effects of
these transactions within stockholders' equity. The number of shares subject to
outstanding put options sold by the Company cannot exceed the amount of
remaining shares the Board of Directors has authorized for repurchase.
27
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements of BNSF and subsidiary companies,
together with the report thereon, are included as part of this filing.
(a) The following documents are filed as a part of this report:
Page
-------
1. Consolidated Financial Statements:
Report of PricewaterhouseCoopers LLP................................. [29]
Consolidated Statement of Income for the three years ended December
31, 2000............................................................ [30]
Consolidated Balance Sheet at December 31, 2000 and 1999............. [31]
Consolidated Statement of Cash Flows for the three years ended
December 31, 2000................................................... [32]
Consolidated Statement of Changes In Stockholders' Equity for the
three years ended December 31, 2000................................. [33]
Notes to Consolidated Financial Statements........................... [34-53]
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Burlington
Northern Santa Fe Corporation
and Subsidiaries
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Burlington Northern Santa Fe Corporation and subsidiary companies
at December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
appearing under Item 14 (a)(2) on page 54 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Fort Worth, Texas
February 2, 2001
29
CONSOLIDATED STATEMENT OF INCOME
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
(Dollars in millions, except per share data)
---------------------
Year Ended December 31, 2000 1999 1998
- ----------------------- ------ ------ ------
Revenues................................................. $9,205 $9,189 $9,054
Operating expenses:
Compensation and benefits.............................. 2,729 2,772 2,812
Purchased services..................................... 1,022 1,045 1,020
Depreciation and amortization.......................... 895 897 832
Equipment rents........................................ 742 752 804
Fuel................................................... 932 700 721
Materials and other.................................... 777 818 707
------ ------ ------
Total operating expenses............................. 7,097 6,984 6,896
------ ------ ------
Operating income......................................... 2,108 2,205 2,158
Interest expense......................................... 453 387 354
Other income (expense), net.............................. (70) 1 45
------ ------ ------
Income before income taxes............................... 1,585 1,819 1,849
Income tax expense....................................... 605 682 694
------ ------ ------
Net income............................................... $ 980 $1,137 $1,155
------ ------ ------
Earnings per share:
Basic.................................................. $ 2.38 $ 2.46 $ 2.45
Diluted................................................ $ 2.36 $ 2.44 $ 2.43
Average shares (in millions):
Basic.................................................. 412.1 463.2 470.5
Dilutive effect of stock awards........................ 3.1 3.6 5.7
------ ------ ------
Diluted................................................ 415.2 466.8 476.2
====== ====== ======
See accompanying notes to consolidated financial statements.
30
CONSOLIDATED BALANCE SHEET
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
(Shares in thousands, Dollars in millions)
December 31, 2000 1999
- ------------ ------- -------
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 11 $ 22
Accounts receivable, net................................... 314 397
Materials and supplies..................................... 220 255
Current portion of deferred income taxes................... 299 326
Other current assets....................................... 132 66
------- -------
Total current assets..................................... 976 1,066
Property and equipment, net.................................. 22,369 21,681
Other assets................................................. 1,030 953
------- -------
Total assets............................................. $24,375 $23,700
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities............. $ 1,954 $ 1,917
Long-term debt due within one year......................... 232 158
------- -------
Total current liabilities................................ 2,186 2,075
Long-term debt and commercial paper.......................... 6,614 5,655
Deferred income taxes........................................ 6,422 6,097
Casualty and environmental liabilities....................... 430 423
Employee merger and separation costs......................... 262 302
Other liabilities............................................ 981 976
------- -------
Total liabilities........................................ 16,895 15,528
------- -------
Commitments and contingencies (see Notes 8, 10 and 11)
Stockholders'equity:
Common stock, $.01 par value 600,000 shares authorized;
486,637 shares and 484,572 shares issued, respectively.... 5 5
Additional paid-in-capital................................. 5,428 5,390
Retained earnings.......................................... 4,505 3,726
Treasury stock, at cost, 95,045 shares and 30,013 shares,
respectively.............................................. (2,413) (913)
Unearned compensation...................................... (35) (29)
Accumulated other comprehensive deficit.................... (10) (7)
------- -------
Total stockholders' equity............................... 7,480 8,172
------- -------
Total liabilities and stockholders' equity............... $24,375 $23,700
======= =======
See accompanying notes to consolidated financial statements
31
CONSOLIDATED STATEMENT OF CASH FLOWS
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
(Dollars in millions)
Year Ended December 31, 2000 1999 1998
- ----------------------- ------- ------- -------
OPERATING ACTIVITIES
Net income........................................ $ 980 $ 1,137 $ 1,155
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 895 897 832
Deferred income taxes............................. 353 444 489
Employee merger and separation costs paid......... (58) (93) (77)
Other, net........................................ 33 (112) (243)
Changes in current assets and liabilities:
Accounts receivable:
Sale of accounts receivable....................... -- -- 19
Other changes..................................... 83 127 20
Materials and supplies............................ 35 (11) (39)
Other current assets.............................. (66) (32) (4)
Accounts payable and other current liabilities.... 62 67 66
------- ------- -------
Net cash provided by operating activities....... 2,317 2,424 2,218
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures.............................. (1,399) (1,788) (2,147)
Other, net........................................ (281) (152) (271)
------- ------- -------
Net cash used for investing activities.......... (1,680) (1,940) (2,418)
------- ------- -------
FINANCING ACTIVITIES
Net increase (decrease) in commercial paper and
bank borrowings.................................. 169 (23) (242)
Proceeds from issuance of long-term debt.......... 1,125 679 794
Payments on long-term debt........................ (260) (293) (112)
Dividends paid.................................... (206) (224) (197)
Proceeds from stock options exercised............. 13 121 111
Purchase of BNSF common stock..................... (1,496) (688) (153)
Other, net........................................ 7 (59) (7)
------- ------- -------
Net cash provided by (used for) financing
activities..................................... (648) (487) 194
------- ------- -------
Decrease in cash and cash equivalents............. (11) (3) (6)
Cash and cash equivalents:
Beginning of year................................. 22 25 31
------- ------- -------
End of year....................................... $ 11 $ 22 $ 25
------- ------- -------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized......... $ 437 $ 382 $ 354
Income taxes paid, net of refunds................. $ 296 $ 142 $ 220
======= ======= =======
See accompanying notes to consolidated financial statements
32
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
(Shares in thousands, Dollars in millions, except per share data)
Common
Shares of Stock and Accumulated
Common Shares of Additional Other
Stock Treasury Paid-in Retained Treasury Unearned Comprehensive
Issued Stock Capital Earnings Stock Compensation Deficit Total
--------- --------- ---------- -------- -------- ------------ ------------- ------
Balance at December 31,
1997................... 470,240 (1,329) $5,033 $1,863 $ (36) $(31) $ (7) $6,822
Comprehensive income:
Net income............. 1,155 1,155
Minimum pension
liability adjustment
(net of tax benefit of
$0.5)................. (1) (1)
------
Total comprehensive
income................ 1,154
------
Common stock dividends,
$0.44 per share........ (207) (207)
Adjustments associated
with unearned
compensation,
restricted stock....... 527 (132) 15 2 17
Exercise of stock
options and related tax
benefit................ 6,669 (537) 167 (17) 150
Purchase of BNSF common
stock.................. (4,963) (153) (153)
Other................... 3 (2) 1
------- ------- ------ ------ ------- ---- ---- ------
Balance at December 31,
1998................... 477,436 (6,961) 5,218 2,811 (206) (31) (8) 7,784
Comprehensive income:
Net income............. 1,137 1,137
Minimum pension
liability adjustment
(net of tax expense of
$0.5)................. 1 1
------
Total comprehensive
income................ 1,138
------
Common stock dividends,
$0.48 per share........ (222) (222)
Adjustments associated
with unearned
compensation,
restricted stock....... 811 (332) 14 2 16
Exercise of stock
options and related tax
benefit................ 6,325 (600) 163 (19) 144
Purchase of BNSF common
stock.................. (22,120) (688) (688)
------- ------- ------ ------ ------- ---- ---- ------
Balance at December 31,
1999................... 484,572 (30,013) 5,395 3,726 (913) (29) $ (7) $8,172
Comprehensive income:
Net income............. 980 980
Minimum pension
liability adjustment
(net of tax benefit of
$1.5)................. (3) (3)
------
Total comprehensive
income................ 977
------
Common stock dividends,
$0.48 per share........ (197) (197)
Adjustments associated
with unearned
compensation,
restricted stock....... 808 (297) 14 (6) 8
Exercise of stock
options and related tax
benefit................ 1,257 (154) 24 (4) 20
Shares issued from
treasury............... 2
Shareholder rights
redemption............. (4) (4)
Purchase of BNSF common
stock.................. (64,583) (1,496) (1,496)
------- ------- ------ ------ ------- ---- ---- ------
Balance at December 31,
2000................... 486,637 (95,045) $5,433 $4,505 $(2,413) $(35) $(10) $7,480
======= ======= ====== ====== ======= ==== ==== ======
See accompanying notes to consolidated financial statements
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
1. The Company
Burlington Northern Santa Fe Corporation including its majority-owned
subsidiaries (collectively, BNSF or Company) is engaged primarily in railroad
transportation through its principal subsidiary, The Burlington Northern and
Santa Fe Railway Company (BNSF Railway), which operates one of the largest
railroad networks in North America with approximately 33,500 route miles
covering 28 states and two Canadian provinces. Through one operating
transportation services segment, BNSF Railway transports a wide range of
products and commodities including the transportation of containers and
trailers (intermodal), coal and agricultural commodities which constituted 29
percent, 23 percent and 14 percent, respectively, of total revenues for the
year ended December 31, 2000. Other significant aspects of BNSF's business
include the transportation of chemicals, forest products, consumer goods,
metals, minerals, automobiles and automobile parts. Revenues derived from other
sources are not significant.
2. Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Burlington
Northern Santa Fe Corporation and its majority-owned subsidiaries, including
its principal subsidiary BNSF Railway, all of which are separate legal
entities. All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Reclassifications
Certain comparative prior year amounts in the consolidated financial
statements and accompanying notes have been reclassified to conform with the
current year presentation. These reclassifications had no effect on previously
reported operating income and net income.
Cash and Cash Equivalents
All short-term investments with original maturities of less than 90 days are
considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value because of the short maturity of these instruments.
Materials and Supplies
Materials and supplies, which consist mainly of rail, ties and other items
for construction and maintenance of property and equipment, as well as diesel
fuel, are valued at the lower of average cost or market.
Property and Equipment
Property and equipment are depreciated and amortized on a straight-line
basis over their estimated useful lives. Upon normal sale or retirement of
depreciable railroad property, cost less net salvage is charged to accumulated
depreciation and no gain or loss is recognized. Significant premature
retirements and the disposal of land and non-rail property are recorded as
gains or losses at the time of their occurrence. Expenditures which
34
significantly increase asset values or extend useful lives are capitalized.
Repair and maintenance expenditures are charged to operating expense when the
work is performed. Property and equipment are stated at cost.
The Company incurs certain direct labor, contract service and other costs
associated with the development and installation of internal-use computer
software. Costs for newly developed software or significant enhancements to
existing software are typically capitalized. Research, preliminary project,
operations, maintenance and training costs are charged to operating expense
when the work is performed.
Revenue Recognition
Transportation revenues are recognized based upon the proportion of service
provided as of the balance sheet date. Revenues from ancillary services are
recognized when performed.
The Company adopted Emerging Issues Task Force Issue No. 99-19, Reporting
Revenue Gross as a Principal Versus Net as an Agent, beginning in the fourth
quarter of 2000. Accordingly, reclassifications were made between revenue and
operating expense for all periods presented. These reclassifications had no
effect on previously reported operating income and net income.
3. Other Income (Expense), Net
Other income (expense), net includes the following (in millions):
Year ended December 31, 2000 1999 1998
----------------------- -------- -------- -------
Gain on property dispositions...................... $ 29 $ 26 $ 48
Deferred gain on prior period line sale............ -- 50 --
Gain on sale of Pipeline Partnership............... -- -- 67
Equity in earnings of Pipeline Partnership......... -- -- 4
Accounts receivable sale fees...................... (40) (33) (34)
Merger costs....................................... (20) -- --
Miscellaneous, net................................. (39) (42) (40)
---- ---- ----
Total............................................ $(70) $ 1 $ 45
==== ==== ====
On December 18, 1999, BNSF and Canadian National Railway Company (CN)
entered into an agreement to combine the two companies. On July 20, 2000, BNSF
and CN announced their mutual termination of the combination agreement with
neither party paying any break-up fees. Due to the termination, 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.
BNSF recognized a $50 million deferred gain in the third quarter of 1999 in
connection with the sale of rail lines in Southern California in 1992 and 1993
that was partially offset by $13 million of costs related to those sales.
Santa Fe Pacific Pipelines, Inc. (SFP Pipelines), an indirect, wholly-owned
subsidiary of BNSF, served as the general partner of Santa Fe Pacific Pipeline
Partners, L.P. (Pipeline Partnership) and of its operating partnership
subsidiary, SFPP, L.P. SFP Pipelines owned a two percent interest as the
Pipeline Partnership's and SFPP, L.P.'s general partner and an approximate 42
percent interest in partnership units of the Pipeline Partnership. SFP Pipeline
Holdings, Inc., an indirect, wholly-owned subsidiary of BNSF (SFP Holdings),
had outstanding $219 million principal amount of Variable Rate Exchangeable
Debentures due 2010 (VREDs) at December 31, 1997.
35
On March 6, 1998, Kinder Morgan Energy Partners, L.P. (Kinder Morgan)
acquired substantially all of SFP Pipelines' interest in the Pipeline
Partnership and SFPP, L.P. for approximately $84 million in cash. The Pipeline
Partnership was liquidated as part of the transaction and SFP Pipelines'
partnership units were converted into the right to receive Kinder Morgan common
units. Consummation of the transaction caused an "Exchange Event" under the
VRED agreement and in June 1998 all VRED holders received either partnership
units of Kinder Morgan or cash equal to the par value of the VREDs. In
addition, the agreement called for SFP Pipelines' interest in SFPP, L.P. to be
partially redeemed for a cash distribution of $5.8 million, with SFP Pipelines
retaining only a 0.5 percent special limited partnership interest in SFPP, L.P.
As a result of the transaction, the Company recognized a $67 million gain and
substantially all of the Company's investment in the Pipeline Partnership and
SFPP, L. P. and the VREDs were removed from the consolidated balance sheet.
4. Income Taxes
Income tax expense was as follows (in millions):
Year ended December 31, 2000 1999 1998
----------------------- ---- ---- ----
Current:
Federal.................................................. $225 $213 $191
State.................................................... 27 25 14
---- ---- ----
252 238 205
---- ---- ----
Deferred:
Federal.................................................. 303 376 410
State.................................................... 50 68 79
---- ---- ----
353 444 489
---- ---- ----
Total...................................................... $605 $682 $694
==== ==== ====
Reconciliation of the federal statutory income tax rate to the effective tax
rate was as follows:
Year ended December 31, 2000 1999 1998
----------------------- ---- ---- ----
Federal statutory income tax rate.......................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit............. 3.2 3.3 3.3
Other, net................................................. -- (0.8) (0.7)
---- ---- ----
Effective tax rate....................................... 38.2% 37.5% 37.6%
==== ==== ====
36
The components of deferred tax assets and liabilities were as follows (in
millions):
December 31, 2000 1999
------------ ------- -------
Deferred tax liabilities:
Depreciation and amortization........................... $(6,382) $(6,106)
Other................................................... (477) (441)
------- -------
Total deferred tax liabilities........................ (6,859) (6,547)
------- -------
Deferred tax assets:
Casualty and environmental.............................. 273 272
Employee merger and separation costs.................... 119 137
Postretirement benefits................................. 95 93
Other................................................... 249 274
------- -------
Total deferred tax assets............................. 736 776
------- -------
Net deferred tax liability............................ $(6,123) $(5,771)
------- -------
Noncurrent deferred income tax liability.................. $(6,422) $(6,097)
Current deferred income tax asset......................... 299 326
------- -------
Net deferred tax liability............................ $(6,123) $(5,771)
======= =======
The federal income tax returns of BNSF's predecessor companies, Burlington
Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) have been examined
through 1994 and merger date September 1995, respectively. All years prior to
1992 for BNI and 1993 for SFP are closed. Issues relating to the years 1992-
1994 for BNI and for years 1993 through merger date September 1995 for SFP are
being contested through various stages of administrative appeal. BNSF is
currently under IRS examination for years 1995-1997. In addition, BNSF and its
subsidiaries have various state income tax returns in the process of
examination, administrative appeal or litigation. Management believes that
adequate provision has been made for any adjustment that might be assessed for
open years through 2000.
5. ACCOUNTS RECEIVABLE, NET
BNSF Railway, through a special purpose subsidiary, has an account
receivable sales agreement which allows it to sell up to $600 million of
variable rate certificates that mature in 2002 and evidence undivided interests
in an accounts receivable master trust. The master trust's assets include an
ownership interest in a revolving portfolio of BNSF Railway's accounts
receivable which are used to support the certificates.
At both December 31, 2000 and 1999, $600 million of certificates were
outstanding. These certificates were supported by $882 million of receivables
at December 31, 2000 and $972 million of receivables at December 31, 1999. When
BNSF sells these receivables to the master trust it retains an undivided
interest in the receivables sold. Due to a relatively short collection cycle,
the fair value of this undivided interest is calculated as the gross amount
receivable less an allowance for uncollectible accounts. At December 31, 2000
and 1999, BNSF's retained interest in these receivables totaled $282 million
and $372 million, respectively, less the normal allowances for uncollectible
accounts. The retained interest in both years reflects the total receivables
sold less $600 million of receivables derecognized in connection with the sale
of the certificates. The investors in the master trust have no recourse to BNSF
Railway's other assets.
BNSF Railway has retained the collection responsibility with respect to the
accounts receivable. The costs of the sales of receivables to the master trust
vary monthly relative to certain interest rates. These costs are included in
Other Income (Expense), Net. The costs of these sales in 2000 and 1999 were $40
million and $33 million, respectively. These costs were based on weighted
average interest rates of 6.7% in 2000 and 5.5% in 1999. Proceeds from
collections reinvested in the securitization were approximately $10 million in
2000 and in 1999.
37
BNSF maintains an allowance for uncollectible accounts receivable. At
December 31, 2000 and 1999, $45 million and $50 million, respectively, of such
allowances had been recorded.
6. Property and Equipment, Net
Property and equipment, net (in millions), and the weighted average annual
depreciation rate (%) were as follows:
2000
Depreciation
December 31, 2000 1999 Rate
------------ ------- ------- ------------
Land......................................... $ 1,420 $ 1,430 --
Track structure.............................. 11,900 11,322 4.0%
Other roadway................................ 9,137 8,884 2.5
Locomotives.................................. 2,799 2,602 5.0
Freight cars and other equipment............. 1,821 1,838 3.8
Computer hardware and software............... 362 448 14.7
------- -------
Total cost................................... 27,439 26,524
Less accumulated depreciation and
amortization................................ (5,070) (4,843)
------- -------
Property and equipment, net.................. $22,369 $21,681
======= =======
The consolidated balance sheet at December 31, 2000 and 1999 included $1,195
million and $1,218 million, respectively, for property and equipment under
capital leases.
7. Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of the following
(in millions):
December 31, 2000 1999
------------ ------ ------
Compensation and benefits payable............................. $ 352 $ 376
Casualty and environmental liabilities........................ 229 255
Accounts payable.............................................. 212 161
Tax liabilities............................................... 143 201
Rents and leases.............................................. 142 160
Accrued interest.............................................. 114 98
Contract allowances........................................... 109 96
Employee merger and separation costs.......................... 49 54
Other......................................................... 604 516
------ ------
Total......................................................... $1,954 $1,917
====== ======
38
8. Debt
Debt outstanding was as follows (in millions):
December 31, 2000 1999
------------ ------ ------
Notes and debentures, weighted average rate of 7.2%, due
2001 to 2097............................................... $4,294 $3,321
Capitalized lease obligations, weighted average rate of
6.6%, due 2001 to 2016..................................... 736 791
Equipment obligations, weighted average rate of 7.3%, due
2001 to 2016............................................... 742 755
Mortgage bonds, weighted average rate of 7.9%, due 2001 to
2047....................................................... 467 503
Commercial paper, 7.0% (variable)........................... 567 473
Bank borrowings, 6.9%....................................... 74 --
Unamortized discount and other, net......................... (34) (30)
------ ------
Total....................................................... 6,846 5,813
Less: current portion of long-term debt..................... (232) (158)
------ ------
Long-term debt.............................................. $6,614 $5,655
====== ======
BNSF issues commercial paper from time to time which is supported by bank
revolving credit agreements. Outstanding commercial paper balances are
considered as reducing the amount of borrowings available under these
agreements. The bank revolving credit agreements, which were renewed and
extended effective June 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 Company generally classifies commercial paper as long-term to
the extent of its commitments available under the revolving credit agreements.
The commitments of the lenders under the short-term agreement are scheduled to
expire in June 2001 with the ability for any amounts then outstanding to mature
as late as June 2002. The commitments of the lenders under the long-term
agreement are scheduled to expire in June 2005.
At December 31, 2000, there were no borrowings against the revolving credit
agreements and the maturity value of commercial paper outstanding was $573
million, leaving a total remaining capacity of $1,177 million available under
the revolving credit agreements. BNSF must maintain compliance with certain
financial covenants under its revolving credit agreements and at December 31,
2000, the Company was in compliance.
In February 2000, a put option on $100 million of medium-term notes paying a
coupon of 6.10 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 7.875 percent notes due April
2007 and $200 million of 8.125 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. At the time of issuing the
$300 million of 7.875 percent notes and the $200 million of 8.125 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.
39
In April 2000, BNSF Railway issued $50 million of privately placed debt
collateralized by locomotives that were acquired in 1999. This debt carries an
interest rate of 7.77 percent and matures from April 2001 to 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 7.950 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.
In December 2000, BNSF issued $300 million of 7.125 percent notes due
December 2010 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 $5 million which has been deferred and is being amortized to
interest expense over the 10-year life of the notes. Subsequent to this
issuance, the Company had $425 million available for borrowing under the May
2000 registration statement.
In March 1999, BNSF issued $200 million of 6.125 percent notes due March
2009 and $200 million of 6.750 percent debentures due March 2029 under the
February 1999 shelf registration statement. The net proceeds were used for
general corporate purposes including the repayment of commercial paper. At the
time of issuing the $200 million of 6.125 percent notes discussed above, the
Company closed out a $100 million treasury lock transaction at a gain of
approximately $8 million which has been deferred and is being amortized to
interest expense over the 10-year life of the notes.
In April 1999, the holder of a call option on $200 million of the Company's
puttable reset debentures due 2029 exercised the call option. As a result, on
May 13, 1999, the holder repurchased the debentures which were subsequently
resold to investors. The interest rate on the debentures was reset to a fixed
interest rate of 7.082 percent. The Company did not receive any proceeds from
the resale of these debentures.
Most BNSF Railway properties and certain other assets are pledged as
collateral to, or are otherwise restricted under, the various BNSF Railway
long-term debt agreements. Equipment obligations and capital leases are
collateralized by the underlying equipment.
SFP Pipelines, Inc., in connection with its remaining 0.5 percent special
limited partner interest in SFPP, L.P., is contingently liable for $190 million
of certain Kinder Morgan debt pursuant to the sale discussed in Note 3: Other
Income (Expense), Net. In addition, BNSF and another major railroad jointly and
severally guarantee $75 million of debt of KCT Intermodal Transportation
Corporation, the proceeds of which were used to finance the construction of a
double track grade separation bridge in Kansas City, Missouri, to be operated
and used by Kansas City Terminal Railway Company.
Aggregate long-term debt scheduled maturities are $232 million, $288
million, $145 million, $244 million and $1,081 million for 2001 through 2005,
respectively. Maturities in 2001 exclude $100 million of 6.050 percent notes
due 2031, which will either be remarketed by the holder of a call option on the
debt and mature in 2031 or will otherwise be repurchased by the Company in
March 2001. Maturities in 2003 exclude $175 million of 6.530 percent notes due
2037, which may be redeemed in 2003 at the option of the holder. In addition,
commercial paper and bank borrowings of $641 million are included in maturities
for 2005. BNSF
40
had bank borrowings outstanding at December 31, 2000, with maturity values of
$75 million and interest rates similar to commercial paper which, upon
maturity, may be replaced with commercial paper or other bank borrowings. There
were no bank borrowings outstanding at December 31, 1999.
The carrying amounts of BNSF's long-term debt and commercial paper at
December 31, 2000 and 1999 were $6,846 million and $5,813 million,
respectively, while the estimated fair values at December 31, 2000 and 1999
were $6,804 million and $5,632 million, respectively. The fair value of BNSF's
long-term debt is primarily based on quoted market prices for the same or
similar issues, or on the current rates that would be offered to BNSF for debt
of the same remaining maturities. The carrying amount of commercial paper
approximates fair value because of the short maturity of these instruments.
9. Employee Merger and Separation Costs
Employee merger and separation liabilities of $310 million and $356 million
are included in the consolidated balance sheet at December 31, 2000 and 1999,
respectively, 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 non-union employee severance costs.
Employee merger and separation expenses are recorded in Materials and Other in
the Company's consolidated income statement.
Consolidation of Clerical Functions
Liabilities related to the consolidation of clerical functions were $96
million and $119 million at December 31, 2000 and 1999, respectively, and
primarily provide for severance costs associated with the clerical
consolidation plan adopted in 1995 upon consummation of the business
combination of BNSF's predecessor companies Burlington Northern, Inc. and Santa
Fe Pacific Corporation (the Merger). The consolidation plan resulted in the
elimination of approximately 1,500 permanent positions and was substantially
completed during 1999.
In the fourth quarter of 2000 and the second quarter of 1999, the Company
recorded a $10 million and $54 million, respectively, reversal of certain
liabilities associated with the consolidation plan. These liabilities related
to planned work-force reductions that are no longer required due to the
Company's ability to place certain identified employees in alternate positions.
The remaining liability balance at December 31, 2000 represents benefits to be
paid to affected employees who did not receive lump-sum payments, but instead
will be paid over five to ten years or in some cases through retirement.
In the second quarter of 2000, the Company recorded a charge of $17 million
for severance, medical and other benefit costs related to approximately 140
material handlers in mechanical shops. Liabilities remaining at December 31,
2000 related to this program reflect elections to receive payments over the
next several years, rather than lump sum payments.
Conductors, Trainmen and Locomotive Engineers
Liabilities related to deferred benefits payable upon separation or
retirement to certain active conductors, trainmen and locomotive engineers were
$183 million and $193 million at December 31, 2000 and 1999, respectively.
These costs were primarily incurred in connection with labor agreements reached
prior to the Merger which, among other things, reduced train crew sizes and
allowed for more flexible work rules.
In the second quarter of 2000, the Company incurred $3 million of costs for
severance, medical and other benefit costs for approximately 50 trainmen on
reserve boards. The remaining reserve of less than $1 million will be paid over
the next two years to severed employees who elected to receive their payments
over time.
41
Non-Union Employee Severance
Liabilities principally related to certain remaining non-union employee
severances resulting from the May 1999 reorganization and from the Merger were
$30 million and $44 million at December 31, 2000 and 1999, respectively. These
costs will be paid over the next several years based on deferral elections made
by the employees.
In the second quarter of 2000, the Company incurred $2 million of costs for
severance, medical and other benefit costs for ten involuntarily terminated
non-union positions. All of these planned reductions were completed at December
31, 2000.
In the second quarter of 1999, the Company incurred $45 million of
reorganization costs for severance, pension, medical and other benefit costs
for approximately 325 involuntarily terminated non-union employees that were
part of the program announced in May 1999 that sought to reduce operating
expenses by eliminating approximately 400 non-union and 1,000 scheduled (union)
positions through severances, normal attrition and the elimination of
contractors. Components of the charge include approximately $29 million
relating to severance costs for non-union employees, and approximately $16
million for special termination benefits to be received under the Company's
retirement and medical plans. Substantially all of the planned reductions were
made by September 30, 1999. No significant costs were incurred as a result of
eliminating the 1,000 scheduled positions.
During 2000, 1999 and 1998, BNSF made employee merger and separation
payments of $58 million, $93 million and $77 million, respectively. At December
31, 2000, $49 million of the remaining liabilities are included within current
liabilities for anticipated costs to be paid in 2001.
10. Hedging Activities
Fuel
Historically, fuel expenses have approximated 10 percent of total operating
expenses; however, fuel costs during 2000 represent 13 percent of total
operating expenses due to significantly higher than historical 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
2000 fuel consumption 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 January 31, 2001, BNSF had entered into fuel swaps for approximately
378 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 24
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 $74 million as of
42
December 31, 2000, of which $60 million relates to swap transactions that will
expire in 2001. BNSF also monitors its hedging positions and credit ratings of
its counterparties and does not anticipate losses due to counterparty
nonperformance. Receivables from fuel hedging activities of $50 million and $29
million at December 31, 2000 and 1999, respectively, are recorded in the
Company's consolidated balance sheet as part of Other Current Assets and
represent settled fuel hedging contracts.
Interest Rate
From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuations in interest
rates and establishing rates in anticipation of future debt issuances. Swaps
totaling $125 million which were used to fix the interest rate on commercial
paper debt expired in December 1999. While the swaps were outstanding, BNSF
recognized, on an accrual basis, a fixed rate of interest on the principal
amount of commercial paper hedged over the term of the swap agreements. As of
January 31, 2001, BNSF had no interest rate swap instruments in place.
As discussed in Note 8 to these consolidated financial statements, at the
time of issuing the $300 million of 7.875 percent notes and the $200 million of
8.125 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. These gains have
been deferred and are being amortized to interest expense over the 30-year and
10-year lives of the notes and the debentures, respectively.
Also discussed in Note 8 to these consolidated financial statements, at the
time of issuing the $275 million of 7.95 percent debentures in August 2000 and
the $300 million of 7.125 percent notes in December 2000, the Company closed
out two treasury lock transactions each in an amount of $100 million (one based
on the 30-year and one based on the 10-year rates and both with expiration
dates in June 2001), at gains of $8 million and $5 million, respectively. These
gains have been deferred and are being amortized to interest expense over the
30-year and 10-year lives of the debentures and notes, respectively.
In 1999, at the time of issuing $200 million of debt, the Company closed out
$100 million of treasury lock transactions at a gain of $8 million. During
1998, at the time of issuing $400 million of debt, the Company closed out $400
million of treasury lock transactions at a loss of approximately $18 million.
In each case, the gain or loss has been deferred and is being amortized to
interest expense over the life of the debt.
As of December 31, 2000, the Company had no outstanding treasury lock
transactions.
43
11. Commitments and Contingencies
Lease Commitments
BNSF has substantial lease commitments for locomotives, freight cars,
trailers, office buildings and other property, and many of these leases provide
the option to purchase the leased item at fair market value at the end of the
lease. However, some provide fixed price purchase options. Future minimum lease
payments (which reflect leases having non-cancelable lease terms in excess of
one year) as of December 31, 2000 are summarized as follows (in millions):
Capital Operating
Year ended December 31, Leases Leases
----------------------- ------- ---------
2001....................................................... $112 $ 345
2002....................................................... 106 311
2003....................................................... 106 299
2004....................................................... 106 294
2005....................................................... 97 275
Thereafter................................................. 434 3,082
---- ------
Total...................................................... 961 $4,606
======
Less amount representing interest.......................... 225
----
Present value of minimum lease payments.................... $736
====
Lease rental expense for all operating leases was $424 million, $435 million
and $466 million for the years ended December 31, 2000, 1999, and 1998,
respectively. Contingent rentals and sublease rentals were not significant.
Other Commitments
BNSF has entered into commitments to acquire 100 locomotives in 2001. The
locomotives will be financed from one or a combination of sources including,
but not limited to, cash from operations, capital or operating leases, and debt
issuances. The decision on the method used will depend upon then current market
conditions and other factors.
Environmental
BNSF's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. BNSF's operating
procedures include practices to protect the environment from the 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 on current and
former owners and operators of a site without regard to fault or the legality
of the original conduct. 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
44
generally participates in the clean-up of these sites through cost-sharing
agreements with terms that vary from site to site. Costs are typically
allocated based on relative volumetric contribution of material, the amount of
time the site was owned or operated, and/or the portion of the total site owned
or operated by each PRP.
Environmental costs include initial site surveys and environmental studies
of potentially contaminated sites as well as costs for remediation and
restoration of sites determined to be contaminated. Liabilities for
environmental clean-up costs are initially recorded when BNSF's liability for
environmental clean-up is both probable and a reasonable estimate of associated
costs can be made. Adjustments to initial estimates are recorded as necessary
based upon additional information developed in subsequent periods. BNSF
conducts an ongoing environmental contingency analysis, which considers a
combination of factors including independent consulting reports, site visits,
legal reviews, analysis of the likelihood of participation in and the ability
of other PRPs to pay for clean-up, and historical trend analyses.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 385 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 $49
million, $67 million and $64 million during 2000, 1999 and 1998, respectively,
for mandatory and unasserted clean-up efforts, including amounts expended under
federal and state voluntary clean-up programs. The Company had recorded
liabilities for remediation and restoration of all known sites of approximately
$223 million at December 31, 2000 compared to $232 million at December 31,
1999. BNSF anticipates that the majority of the accrued costs at December 31,
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.
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 results of
operations, financial position or liquidity of BNSF, although an adverse
resolution of a number of these items could have a material adverse effect on
the results of operations in a particular quarter or fiscal year.
12. Retirement Plans and Other Postemployment Benefit Plans
BNSF sponsors two significant defined benefit pension plans: the
noncontributory qualified BNSF Retirement Plan, which covers substantially all
non-union employees, and the nonqualified BNSF Supplemental Retirement Plan,
which covers certain officers and other employees. The benefits under BNSF's
plans are based on years of credited service and the highest five year average
compensation levels. BNSF's funding policy is to contribute annually not less
than the regulatory minimum and not more than the maximum amount deductible for
income tax purposes.
45
Certain salaried employees of BNSF that have met certain age and years of
service requirements are eligible for medical benefits and life insurance
coverage during retirement. The retiree medical plan is contributory and
provides benefits to retirees, their covered dependents and beneficiaries.
Retiree contributions are adjusted annually. The plan also contains fixed
deductibles, coinsurance and out-of-pocket limitations. The life insurance plan
is noncontributory and covers retirees only. BNSF's policy is to fund benefits
payable under the medical and life insurance plans as they come due. Employees
beginning salaried employment with BNSF subsequent to September 22, 1995 are
not eligible for benefits under these plans.
Components of the net benefit costs for these plans were as follows (in
millions):
Medical and
Year ended December 31, Pension Benefits Life Benefits
----------------------- ------------------- --------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ---- ---- ----
Service cost............................. $ 13 $ 15 $ 15 $ 4 $ 5 $ 4
Interest cost............................ 100 100 101 18 17 16
Expected return on plan assets........... (129) (126) (117) -- -- --
Special termination benefits............. -- 10 -- -- 6 --
Net amortization and deferred amounts.... 3 3 4 1 1 --
----- ----- ----- --- --- ---
Net benefit cost......................... $ (13) $ 2 $ 3 $23 $29 $20
===== ===== ===== === === ===
The following tables show the change in benefit obligation and plan assets
of the plans (in millions):
Pension Medical and Life
Benefits Benefits
-------------- ------------------
Change in benefit obligation 2000 1999 2000 1999
---------------------------- ------ ------ -------- --------
Benefit obligation at beginning of year. $1,387 $1,487 $ 244 $ 249
Service cost............................ 13 15 4 5
Interest cost........................... 100 100 18 17
Plan participants' contributions........ -- -- 3 4
Amendments.............................. -- -- (7) --
Actuarial (gain) loss................... 39 (115) 7 (17)
Special termination benefits............ -- 10 -- 6
Curtailment loss........................ -- 7 -- --
Benefits paid........................... (120) (117) (22) (20)
------ ------ -------- --------
Benefit obligation at end of year....... $1,419 $1,387 $ 247 $ 244
====== ====== ======== ========
Pension Medical and Life
Benefits Benefits
-------------- ------------------
Change in plan assets 2000 1999 2000 1999
--------------------- ------ ------ -------- --------
Fair value of plan assets at beginning
of year................................ $1,530 $1,469 $ -- $ --
Actual return on plan assets............ 162 174 -- --
Employer contribution................... 5 4 19 16
Plan participants' contributions........ -- -- 3 4
Benefits paid........................... (120) (117) (22) (20)
------ ------ -------- --------
Fair value of plan assets at end of
year................................... $1,577 $1,530 $ -- $ --
====== ====== ======== ========
46
The following table shows the reconciliation of the funded status of the
plans with amounts recorded in the consolidated balance sheet (in millions):
Pension Medical and Life
Benefits Benefits
---------- ------------------
December 31, 2000 1999 2000 1999
------------ ---- ---- -------- --------
Funded status.............................. $158 $143 $ (247) $ (244)
Unrecognized net (gain) loss............... (146) (151) (1) (7)
Unrecognized prior service cost............ (6) (7) (1) 7
Unamortized net transition obligation...... 5 9 -- --
---- ---- -------- --------
Net amount recognized...................... $ 11 $ (6) $ (249) $ (244)
==== ==== ======== ========
Pension Medical and Life
Benefits Benefits
---------- ------------------
December 31, 2000 1999 2000 1999
------------ ---- ---- -------- --------
Amounts recognized in the consolidated
balance sheet consist of:
Prepaid benefit cost....................... $ 45 $ 24 $ -- $ --
Accrued benefit liability.................. (50) (44) (249) (244)
Intangible asset........................... -- 2 -- --
Accumulated other comprehensive deficit.... 16 12 -- --
---- ---- -------- --------
Net amount recognized...................... $ 11 $ (6) $ (249) $ (244)
==== ==== ======== ========
BNSF uses a September 30 measurement date. The assumptions used in
accounting for the BNSF plans were as follows:
Medical
Pension and Life
Benefits Benefits
---------- ---------
Assumptions 2000 1999 2000 1999
----------- ---- ---- ---- ----
Discount rate.......................................... 7.5% 7.5% 7.5% 7.5%
Rate of increase in compensation levels................ 4.0% 4.0% N/A N/A
Expected return on plan assets......................... 9.5% 9.5% N/A N/A
For purposes of the medical and life benefits calculations for 2000, the
assumed health care cost trend rate for both managed care and non-managed care
medical costs is 9.5 percent and is assumed to decrease gradually to five
percent by 2006 and remain constant thereafter. Increasing the assumed health
care cost trend rates by one percentage point would increase the accumulated
postretirement benefit obligation by $19 million and the combined service and
interest components of net postretirement benefit cost recognized in 2000 by $2
million. Decreasing the assumed health care cost trend rates by one percentage
point would decrease the accumulated postretirement benefit obligation by $16
million and the combined service and interest components of net postretirement
benefit cost recognized in 2000 by $2 million.
Other Plans
Under collective bargaining agreements, BNSF participates in multi-employer
benefit plans which provide certain postretirement health care and life
insurance benefits for eligible union employees. Insurance premiums paid
attributable to retirees, which are generally expensed as incurred, were $15
million, $14 million and $18 million, in 2000, 1999 and 1998, respectively.
Defined Contribution Plans
BNSF sponsors 401(k) thrift and profit sharing plans which cover
substantially all non-union employees and certain union employees. BNSF matches
50 percent of the first six percent of non-union employees'
47
contributions, which are subject to certain percentage limits of the employees'
earnings, at each pay period. Depending on BNSF's performance, an additional
matching contribution of up to 30 percent of the first six percent can be made
at the end of the year. Employer contributions for all non-union employees are
subject to a five year length of service vesting schedule. BNSF's 401(k)
matching expense was $16 million, $18 million and $16 million in 2000, 1999 and
1998, respectively.
13. Stock Options and Other Incentive Plans
On April 15, 1999, BNSF shareholders approved the BNSF 1999 Stock Incentive
Plan and authorized 20 million shares of BNSF common stock to be issued in
connection with stock options, restricted stock, restricted stock units and
performance stock. Total shares authorized under 1999 and 1996 stock incentive
plans and the non-employee directors' stock plan are up to 50 million and 0.9
million shares of BNSF common stock, respectively. Approximately five million
common shares were available for future grant at December 31, 2000.
Stock Options
Under BNSF's stock option plans, options may be granted to officers and
salaried employees at the fair market value of the Company's common stock on
the date of grant. All options generally vest in one year and expire within 10
years after the date of grant. Shares issued upon exercise of options may be
issued from treasury shares or from authorized but unissued shares.
The Company applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its fixed stock option plans as
the exercise price equals the stock price on the date of grant. Had
compensation expense been determined for stock options granted in 2000, 1999
and 1998 based on the fair value at grant dates consistent with Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock Based
Compensation," the Company's pro forma net income and earnings per share would
have been as follows:
2000 1999 1998
----- ------ ------
Net income (in millions)................................ $ 933 $1,092 $1,124
Basic earnings per share................................ $2.26 $ 2.36 $ 2.39
Diluted earnings per share.............................. $2.25 $ 2.34 $ 2.36
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions:
2000 1999 1998
----- ----- -----
Weighted average expected life (years)..................... 3.0 3.0 3.0
Expected volatility........................................ 35% 30% 20%
Annual dividend per share.................................. $0.48 $0.48 $0.48
Risk free interest rate.................................... 5.36% 6.63% 5.11%
Weighted average fair value of options granted............. $6.70 $8.43 $5.13
48
A summary of the status of the stock option plans as of December 31, 2000,
1999 and 1998, and changes during the years then ended, is presented below:
2000 1999 1998
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Prices Options Prices Options Prices
---------- -------- ---------- -------- ---------- --------
Balance at beginning of
year................... 29,808,157 $27.37 28,135,869 $24.27 25,761,369 $20.98
Granted................. 11,521,045 25.56 9,857,345 32.96 9,587,926 29.33
Exercised............... (1,255,643) 12.73 (6,315,238) 21.24 (6,666,864) 18.66
Cancelled............... (1,650,957) 29.95 (1,869,819) 30.94 (546,562) 26.25
---------- ------ ---------- ------ ---------- ------
Balance at end of year.. 38,422,602 $27.22 29,808,157 $27.37 28,135,869 $24.27
========== ====== ========== ====== ========== ======
Options exercisable at
year end............... 26,729,220 $27.90 20,710,679 $25.00 17,763,770 $21.45
The following table summarizes information regarding stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------ --------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Range of Exercise Prices Outstanding Life Prices Exercisable Prices
- ------------------------ ----------- --------- -------- ----------- --------
$ 4.23 to $24.83........... 7,000,483 4.5 Years $19.17 6,196,614 $18.50
$25.66 to $28.73........... 11,227,022 8.7 Years $25.75 708,115 $27.15
$28.76 to $30.97........... 11,577,288 6.6 Years $29.24 11,206,682 $29.26
$31.17 to $36.73........... 8,617,809 7.9 Years $32.96 8,617,809 $32.96
---------- --------- ------ ---------- ------
$ 4.23 to $36.73........... 38,422,602 7.1 Years $27.22 26,729,220 $27.90
========== ========= ====== ========== ======
Weighted average stock options totaling 25.0 million, 35.6 million, 35.3
million and 31.6 million for the first, second, third and fourth quarters of
2000, respectively, and 8.9 million and 21.4 million for the third and fourth
quarters of 1999, respectively, were not included in the computation of
diluted earnings per share, because the options' exercise price exceeded the
average market price of the Company's stock for those periods.
Other Incentive Plans
BNSF has other long-term incentive programs in addition to stock options
which are administered separately on behalf of employees.
BNSF awarded a total of approximately 1.2 million shares of restricted
stock subject to performance periods to eligible employees and directors
during 1996. No cash payment is required by the individuals. The restrictions
will be lifted in thirds over three years beginning on the third anniversary
of the grant date if certain stock price-based performance goals are met. If,
however, the performance goals are not met, the restricted shares will be
forfeited. All shares still subject to restrictions are generally forfeited
and returned to the plan if the employee's or director's relationship is
terminated. Approximately 616 thousand restricted shares related to this award
were outstanding as of December 31, 2000.
Under the BNSF 1999 and 1996 Stock Incentive Plans certain eligible
employees may defer through the BNSF Incentive Bonus Stock Program (IBSP) the
cash payment of their bonus paid under the Incentive Compensation Plan (ICP)
and receive restricted stock for which restrictions lapse in three years (or
in two years if certain performance goals are met). The number of restricted
shares awarded are based on the amount of bonus deferred, plus incremental
shares, using the market price of BNSF common stock on the date of grant.
Restricted awards granted under this program totaled approximately 350
thousand, 400 thousand and 380 thousand shares in 2000, 1999 and 1998,
respectively. A total of approximately 1.1 million shares were outstanding
under this and prior programs of this type on December 31, 2000.
49
In addition, all regularly-assigned salaried employees not eligible to
participate in the IBSP are eligible to participate in the BNSF Discounted
Stock Purchase Program. This program allows employees to use their bonus earned
under the ICP to purchase BNSF common stock at a discount from the market price
and requires that the stock be restricted for a three year period. During the
years ended December 31, 2000, 1999 and 1998, approximately 45 thousand, 65
thousand and 55 thousand shares, respectively, were purchased under this
program.
Additionally, the Company periodically issues time vesting restricted
shares, which generally vest ratably over three to five years. Restricted stock
awards under these plans, net of forfeitures, were approximately 116 thousand,
and 330 thousand for the years ended December 2000 and 1999, respectively. A
total of 408 thousand restricted shares related to these awards were
outstanding on December 31, 2000.
On January 1, 2001, approximately 625 thousand restricted shares were
granted. These shares have a value of $28.49 per share which is equal to the
fair market value of BNSF common stock on the date of grant and the
restrictions will lapse at the end of three years. Total compensation expense
of $17.8 million will be recognized ratably over the three year vesting period.
Shares awarded under the plans may not be sold or used as collateral, and
are generally not transferable, by the holder until the shares awarded become
free of restrictions. Compensation expense is recorded under the BNSF Stock
Incentive Plans in accordance with APB Opinion 25 and was not material in 2000,
1999 or 1998.
14. Common Stock and Preferred Capital Stock
Common Stock
BNSF is authorized to issue 600 million shares of common stock, $.01 Par
Value. At December 31, 2000, there were 391.6 million shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
stockholders. Subject to the rights and preferences of any future issuances of
preferred stock, each share of common stock is entitled to receive dividends as
may be declared by the Board of Directors out of funds legally available and to
share ratably in all assets available for distribution to stockholders upon
dissolution or liquidation. No holder of common stock has any preemptive right
to subscribe for any securities of BNSF.
Shareholder Rights Plan
In December 1999, BNSF's Board of Directors (the Board) approved a
shareholder rights plan (Rights Plan). In connection with the Rights Plan, the
Board declared a dividend of one Preferred Stock Purchase Right (Right or
Rights) for each outstanding share of BNSF common stock to shareholders of
record on December 31, 1999. Shareholders were automatically entitled to the
Rights corresponding to their shares owned. The distribution was not taxable to
shareholders under current United States tax laws. Adoption of the Rights Plan
was required by the terms of the proposed combination between BNSF and Canadian
National which was terminated on July 20, 2000.
Under the Rights Plan, Rights were redeemable for $0.01 per Right, subject
to adjustment, before the acquisition of control, by a person or group, of 15
percent or more of BNSF common stock. On December 7, 2000, the Board of
Directors voted to redeem all Rights under the Rights Plan. As a result of the
redemption, the Rights may no longer be exercised and shareholders are only
entitled to receive a redemption payment of $0.01 per Right. The redemption
payment will be distributed on April 2, 2001 to shareholders of record as of
March 12, 2001. Each Right would have expired on December 18, 2009.
50
Preferred Capital Stock
At December 31, 2000, BNSF had 50 million shares of Class A Preferred Stock,
$.01 Par Value and 25 million shares of Preferred Stock, $.01 Par Value
available for issuance. The Board of Directors has the authority to issue such
stock in one or more series, to fix the number of shares and to fix the
designations and the powers, rights, and qualifications and restrictions of
each series.
Share Repurchase Program
In July 1997, the Board of Directors of BNSF authorized the repurchase of up
to 30 million shares of the Company's common stock from time to time in the
open market. In December 1999, April 2000, and September 2000, the Board of
Directors authorized extensions of the BNSF share repurchase program, adding 30
million shares at each date to the total shares previously authorized. During
2000, 1999, and 1998, the Company repurchased approximately 65 million, 22
million, and 5 million shares, respectively, of its common stock at average
prices of $23.16 per share, $31.08 per share, and $30.75 per share,
respectively. There were no repurchases under this program in 1997. Total
repurchases through January 31, 2001, were 92 million shares at a total average
cost of $25.51 per share, leaving 28 million shares available for repurchase
under the authorization.
During the second and third quarters of 1998, BNSF sold equity put options
for 3 million shares of the Company's common stock to an independent third
party and received cash proceeds of $2.2 million. The option contracts had
exercise prices ranging from $29.00 to $30.00 per share with expiration dates
ranging from November 1998 to February 1999. The option contracts permitted a
net-share or net-cash settlement method at BNSF's election. These options
expired unexercised. In April 1999, BNSF sold equity put options for 0.1
million shares of BNSF common stock to an independent third party and received
cash proceeds of $0.1 million. The third party exercised the options on October
12, 1999, which resulted in the company purchasing 0.1 million shares of its
common stock at $29 per share. The Company accounts for the effects of equity
put option transactions within stockholders' equity.
An equity put option is a financial instrument whereby BNSF receives an
upfront cash premium for granting another party the option to sell a defined
number of BNSF shares to the Company at a fixed price on a specified future
date. The Company considers the sale of equity put options as a method to
acquire its common stock at a share price consistent with its share repurchase
strategy and potentially reduce the all-in cost of the program. The Company's
risk is that it may be required to purchase shares at a specified price that is
higher than the common stock price at the exercise date of the equity put
option. The Company has the ability to settle its equity put option
transactions on a net share or net cash basis and accounts for the effects of
these transactions within stockholders' equity. The number of shares subject to
outstanding put options sold by the Company cannot exceed the amount of
remaining shares the Board of Directors has authorized for repurchase. As of
January 31, 2001 there were no equity put options outstanding.
51
15. Quarterly Financial Data--Unaudited
(Dollars in millions, except per share data) Fourth Third Second First
- -------------------------------------------- ------ ------ ------ ------
2000
Revenues (1)....................................... $2,339 $2,342 $2,260 $2,264
Operating income................................... $ 544 $ 571 $ 483 $ 510
------ ------ ------ ------
Net income......................................... $ 255 $ 259 $ 223 $ 243
------ ------ ------ ------
Basic earnings per share........................... $ 0.65 $ 0.65 $ 0.53 $ 0.55
Diluted earnings per share......................... $ 0.65 $ 0.64 $ 0.53 $ 0.55
Dividends declared per share....................... $ 0.12 $ 0.12 $ 0.12 $ 0.12
Common stock price:
High.............................................. $29.56 $27.44 $26.25 $27.50
Low............................................... $20.88 $20.38 $21.63 $19.06
1999
Revenues (1)....................................... $2,390 $2,367 $2,219 $2,213
------ ------ ------ ------
Operating income................................... $ 603 $ 631 $ 491 $ 480
------ ------ ------ ------
Net income......................................... $ 315 $ 348 $ 238 $ 236
------ ------ ------ ------
Basic earnings per share........................... $ 0.69 $ 0.76 $ 0.51 $ 0.50
Diluted earnings per share......................... $ 0.69 $ 0.75 $ 0.50 $ 0.50
Dividends declared per share....................... $ 0.12 $ 0.12 $ 0.12 $ 0.12
Common stock price:
High.............................................. $32.75 $33.38 $37.94 $36.44
Low............................................... $22.88 $25.63 $29.75 $31.56
- --------
(1) All periods have been reclassified to conform with the current year
presentation (see Note 2 to these consolidated financial statements).
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information concerning the directors of BNSF will be provided under the
heading "NOMINEES FOR DIRECTORS" in BNSF's proxy statement for its 2001 annual
meeting of shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year, and the
information under that heading is hereby incorporated by reference.
Information concerning the executive officers of BNSF (excluding two
executive officers who are also directors of BNSF) is included in Part I of
this Report.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 will be under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in BNSF's proxy statement for its 2001 annual
meeting of shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year, and the
information under that heading is hereby incorporated by reference.
52
ITEM 11. Executive Compensation
Information concerning the compensation of directors and executive officers
of BNSF will be provided under the heading "Directors' Compensation" and under
the headings "Summary Compensation Table," "Stock Option Grants in 2000,"
"Aggregated 2000 Stock Option Exercises and Year-End Option Values," "Pension
Plans," "Employment Contracts and Change in Control Arrangements," "Trust
Agreements," and "New Plan Benefits" in BNSF's proxy statement for its 2001
annual meeting of shareholders which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of the fiscal year,
and the information under those headings is hereby incorporated by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning the ownership of BNSF equity securities by certain
beneficial owners and by management will be provided under the heading "Certain
Beneficial Owners" and "Ownership of Management" in BNSF's proxy statement for
its 2001 annual meeting of shareholders which will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal
year, and the information under that heading is hereby incorporated by
reference.
ITEM 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions will
be provided under the heading "Certain Relationships" of BNSF's proxy statement
for its 2001 annual meeting of shareholders which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
fiscal year, and the information under that heading is hereby incorporated by
reference.
53
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1.Consolidated Financial Statements--See Item 8......................
2.Consolidated Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts..................... page F-1
Schedules other than those listed above are omitted because they are not
required or applicable, or the required information is included in the
consolidated financial statements or related notes.
3.Exhibits:
See Index to Exhibits on pages [E-1 to E-4] for a description of the
exhibits filed as a part of this Report.
(b) Reports on Form 8-K
BNSF filed the following Current Report on Form 8-K during the quarter
ended December 31, 2000, or subsequently:
Current Report on Form 8-K (Date of earliest event reported: December 7,
2000) which referenced under Item 5, Other Events, and filed as exhibits under
Item 7, Financial Statements, Pro Forma Financial Information and Exhibits the
following: press release announcing and notice of redemption of all outstanding
rights to purchase Series B Junior Participating Preferred Stock of BNSF
previously issued pursuant to the Rights Agreement, dated as of December 18,
1999, between Burlington Northern Santa Fe Corporation and First Chicago Trust
Company of New York, as Rights Agent; and the announcement that Matthew K. Rose
was elected President and Chief Executive Officer, with Robert D. Krebs
remaining Chairman of the Board in the press release dated December 7, 2000.
54
SIGNATURES
Burlington Northern Santa Fe Corporation, pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BURLINGTON NORTHERN SANTA FE
CORPORATION
/s/Matthew K. Rose
By: _________________________________
Matthew K. Rose
President and Chief Executive
Officer
Dated: February 9, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Burlington
Northern Santa Fe Corporation and in the capacities and on the date indicated.
Signature Title
President and Chief Executive
- ------------------------------------- Officer (Principal Executive
Matthew K. Rose Officer), and Director
Executive Vice President and
- ------------------------------------- Chief Financial Officer
Thomas N. Hund (Principal Financial Officer)
Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
Dennis R. Johnson
Chairman of the Board and Director
- -------------------------------------
Robert D. Krebs
Director
- -------------------------------------
Joseph F. Alibrandi
Director
- -------------------------------------
John J. Burns, Jr.
Director
- -------------------------------------
George Deukmejian
Director
- -------------------------------------
Bill M. Lindig
Director
- -------------------------------------
Vilma S. Martinez
S-1
Signature Title
Director
- -------------------------------------
Roy S. Roberts
Director
- -------------------------------------
Marc J. Shapiro
Director
- -------------------------------------
Arnold R. Weber
Director
- -------------------------------------
Robert H. West
Director
- -------------------------------------
J. Steven Whisler
Director
- -------------------------------------
Edward E. Whitacre, Jr.
Director
- -------------------------------------
Ronald B. Woodard
Director
- -------------------------------------
Michael B. Yanney
Dated: February 9, 2001
*By: /s/ Jeffrey R. Moreland
---------------------------------
Jeffrey R. Moreland
Executtive Vice President-Law and
Chief of Staff
S-2
SCHEDULE II
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2000, 1999 and 1998
(In Millions)
Column A Column B Column C Column D Column E
-------- --------- --------- -------------- ----------
Balance Additions
at Charged Balance at
Beginning to End of
Description of Period Income Deductions (1) Period (2)
----------- --------- --------- -------------- ----------
December 31, 2000
Personal injury and environmental
liabilities..................... $678 $208 $227 $659
==== ==== ==== ====
December 31, 1999
Personal injury and environmental
liabilities..................... $635 $295 $252 $678
==== ==== ==== ====
December 31, 1998
Personal injury and environmental
liabilities..................... $711 $177 $253 $635
==== ==== ==== ====
- --------
(1) Principally represents cash payments
(2) Classified in the consolidated balance sheet as follows:
2000 1999 1998
---- ---- ----
Accounts payable and other current liabilities............... $229 $255 $246
Casualty and environmental liabilities....................... 430 423 389
---- ---- ----
$659 $678 $635
==== ==== ====
F-1
INDEX OF EXHIBITS
Exhibit
Number Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of BNSF (amended
as of April 21, 1998). Incorporated by reference to Exhibit 3.1 to
BNSF's Report on Form 10-Q for the quarter ended June 30, 1998.
3.2 By-Laws of BNSF as amended December 7, 2000.
4.1 Indenture, dated as of December 1, 1995, between BNSF and The First
National Bank of Chicago, as Trustee. Incorporated by reference to
Exhibit 4 to BNSF's Registration Statement on Form S-3 (No. 333-
72013).
4.2 Form of BNSF's 6 1/8% Notes Due 2009. Incorporated by reference to
Exhibit 4.2 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1998.
4.3 Form of BNSF's 6 3/4% Debentures Due 2029. Incorporated by reference
to Exhibit 4.3 to BNSF's Report on Form 10-K for the fiscal year
ended December 31, 1998.
4.4 Form of BNSF's 6.70% Debenture Due August 1, 2028. Incorporated by
reference to BNSF's Report on Form 10-K for the year ended December
31, 1998.
4.5 Form of BNSF's 7.875% Note Due April 15, 2007.
4.6 Form of BNSF's 8.125% Debenture Due April 15, 2020.
4.7 Form of BNSF's 7.95% Debenture Due August 15, 2030.
4.8 Certain instruments evidencing long-term indebtedness of BNSF are
not being filed as exhibits to this Report because the total amount
of securities authorized under any single such instrument does not
exceed 10% of BNSF's total assets. BNSF will furnish copies of any
material instruments upon request of the Securities and Exchange
Commission.
10.1* Burlington Northern Santa Fe Non-Employee Directors' Stock Plan.
Incorporated by reference to Appendix A to BNSF's Proxy Statement
dated March 5, 1996. Amendment to Burlington Northern Santa Fe Non-
Employee Directors' Stock Plan dated January 16, 1997 is
incorporated by reference to Exhibit 10.1 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1996.
10.2* Burlington Northern Santa Fe Corporation 1987 Stock Option Incentive
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62833).
10.3* Burlington Northern Santa Fe Incentive Compensation Plan.
Incorporated by reference to BNSF's Registration Statement on Form
S-8 (File No. 33-62835).
10.4* Burlington Northern Inc. Senior Executive Survivor Benefit Plan as
of April 1, 1986. Incorporated by reference to Amendment No. 1 to
BNI's Report on Form 10-K for the fiscal year ended December 31,
1987.
10.5* Burlington Northern Santa Fe Corporation Deferred Compensation Plan,
as amended and restated effective September 16, 1998. Incorporated
by reference to Exhibit 10.1 to BNSF's Report on Form 10-Q for the
quarter ended September 30, 1998 (formerly, Burlington Northern Inc.
Deferred Compensation Plan).
10.6* Burlington Northern Santa Fe Corporation Senior Management Stock
Deferral Plan. Incorporated by reference to Exhibit 10.37 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1999.
10.7* Burlington Northern Santa Fe 1993 Long Term Incentive Compensation
Plan. Incorporated by reference to Exhibit 10(s) to BNSF's
Registration Statement on Form S-8 (File No. 33-63247).
10.8* Burlington Northern Inc. Supplemental Benefits Plan (as amended and
restated effective September 21, 1995). Incorporated by reference to
Exhibit 10.8 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
Exhibit
Number Description
------- -----------
10.9* 1989 Burlington Northern Inc. Restricted Stock Incentive Plan.
Incorporated by reference to BNI's Report on Form 10-K for the
fiscal year ended December 31, 1990.
10.10* Burlington Northern Santa Fe Corporation 1990 Directors Stock Option
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62825).
10.11* Burlington Northern Santa Fe Incentive Bonus Stock Program.
Incorporated by reference to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1999.
10.12* Burlington Northern Santa Fe Corporation 1992 Stock Option Incentive
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62839).
10.13* Burlington Northern Santa Fe 1996 Stock Incentive Plan. Incorporated
by reference to Appendix B to BNSF's Proxy Statement dated March 5,
1996. Amendment of Burlington Northern Santa Fe 1996 Stock Incentive
Plan dated January 15, 1998 is incorporated by reference to Exhibit
10.13 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1997. Amendment dated December 3, 1998.
10.14* Burlington Northern Santa Fe Supplemental Retirement Plan.
Incorporated by reference to Exhibit 10.1 to BNSF's Report on Form
10-Q for the quarter ended September 30, 1996.
10.15* Burlington Northern Santa Fe Estate Enhancement Program, as amended
and restated effective October 1, 1996. Incorporated by reference to
Exhibit 10.15 to BNSF's Report on Form 10-K for the fiscal year
ended December 31, 1996. Amendment to Burlington Northern Santa Fe
Estate Enhancement Program is incorporated by reference to Exhibit
10.2 to BNSF's Form 10-Q for the quarter ended June 30, 1999.
10.16* Agreement between BNSF and Robert D. Krebs dated as of January 30,
1997. Incorporated by reference to Exhibit 10.16 to BNSF's Report on
Form 10-K for the fiscal year ended December 31, 1996.
10.17* Form of BNSF Change-in-Control Agreement (applicable to Messrs. Ice,
Hund, Moreland, and Schultz, and one other executive officer).
Incorporated by reference to Exhibit 10.17 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1996.
10.18* Burlington Northern Santa Fe Incentive Stock Compensation Plan.
Incorporated by reference to BNSF's Registration Statement on Form
S-8 (File No. 33-63253).
10.19* Burlington Northern Santa Fe Deferred Compensation Plan for
Directors as amended January 16, 1997. Incorporated by reference to
Exhibit 10.19 to BNSF's Report on Form 10-K for the fiscal year
ended December 31, 1996.
10.20* Burlington Northern Santa Fe Corporation Supplemental Investment and
Retirement Plan.
10.21* Burlington Northern Inc. Form of Severance Agreement and amendments
through September 18, 1995 (applicable to Mr. Rose). Incorporated by
reference to Exhibit 10.21 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1995. Amendment to Form of Severance
Agreement dated December 3, 1997 is incorporated by reference to
Exhibit 10.21 to BNSF's Report on Form 10-K for the fiscal year
ended December 31, 1997.
10.22* Burlington Northern Inc. Director's Charitable Award Program.
Incorporated by reference to Exhibit 10.22 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995.
10.23* Burlington Northern Santa Fe Salary Exchange Option Program.
Incorporated by reference to Exhibit 23 to BNSF's Report on Form 10-
K for the fiscal year ended December 31, 1999.
Exhibit
Number Description
------- -----------
10.24* Santa Fe Pacific Corporation Supplemental Retirement Plan
(Supplemental Plan). Incorporated by reference to Exhibit 10(d) to
SFP's Report on Form 10-K for the fiscal year ended December 31,
1984. Supplemental Plan as amended October 1, 1989, and Amendment to
Supplemental Plan dated February 27, 1990, are incorporated by
reference to Exhibit 10(d) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1989. Amendment to Supplemental Plan
dated March 22, 1994, and effective January 1, 1994, is incorporated
by reference to Exhibit 10.24 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1995.
10.25* The Burlington Northern and Santa Fe Railway Company Severance Plan
as amended effective June 1, 1999. Incorporated by reference to
Exhibit 10.1 to BNSF's Report on Form 10-Q for the quarter ended
June 30, 1999.
10.26* Burlington Northern Santa Fe 1999 Stock Incentive Plan. Incorporated
by reference to Appendix to BNSF's Proxy Statement dated March 8,
1999.
10.27* Burlington Northern Santa Fe Directors' Retirement Plan.
Incorporated by reference to Exhibit 10.29 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995.
10.28* Benefits Protection Trust Agreement dated as of January 22, 1996 by
and between BNSF and Bankers Trust Company. Incorporated by
reference to Exhibit 10.28 to BNSF's Report on
Form 10-K for the fiscal year ended December 31, 1996.
10.29* Retirement Benefit Agreement dated February 26, 1992 between SFP and
R. D. Krebs. Incorporated by reference to Exhibit 10(l) to SFP's
Report on Form 10-K for the fiscal year ended December 31, 1991.
10.30* Amended and Restated Trust Agreement dated as of April 1, 1994 by
and between SFP and The Bank of New York. Incorporated by reference
to Exhibit 10.30 to BNSF's Report on Form 10-K for the fiscal year
ended December 31, 1995.
10.31* Trust Agreement dated as of July 26, 1994 by and between SFP and The
Bank of New York. Incorporated by reference to Exhibit 10.31 to
BNSF's Report on Form 10-K for the fiscal year ended December 31,
1995.
10.32* Burlington Northern Santa Fe 1993 Long Term Incentive Stock Plan.
Incorporated by reference to BNSF's Registration Statement on Form
S-8 (File No. 33-63247).
10.33* Santa Fe Pacific Corporation Supplemental Retirement and Savings
Plan. Incorporated by reference to Exhibit 10(s) to SFP's Report on
Form 10-K for the fiscal year ended December 31, 1993.
10.34* Form of indemnification agreement dated as of September 17, 1998
between BNSF and directors. Incorporated by reference to Exhibit
10.37 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1998.
10.35* Form of indemnification agreement dated as of September 17, 1998
between BNSF and certain officers. Incorporated by reference to
Exhibit 10.38 to BNSF's Report on Form 10-K for the fiscal year
ended December 31, 1998.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of BNSF.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney.
- --------
*Management contract or compensatory plan or arrangement.