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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, 2001
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
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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 $10.639 billion on January 31, 2002. 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, 384,250,986 shares outstanding as of January 31,
2002.
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 .............................................................................. 7
Item 4. Submission of Matters to a Vote of Security Holders ............................................ 8
EXECUTIVE OFFICERS OF THE REGISTRANT ................................................................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .......................... 9
Item 6. Selected Financial Data ........................................................................ 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................... 22
Item 8. Financial Statements and Supplementary Data .................................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........... 49
PART III
Item 10. Directors and Executive Officers of the Registrant ............................................ 50
Item 11. Executive Compensation ........................................................................ 50
Item 12. Security Ownership of Certain Beneficial Owners and Management ................................ 50
Item 13. Certain Relationships and Related Transactions ................................................ 50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .............................. 51
SIGNATURES ............................................................................................ S-1
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE ............................................................. F-1
EXHIBITS .............................................................................................. E-1
i
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, 2001, BNSF and its subsidiaries had approximately
39,000 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.
Track Configuration
As of December 31, 2001, BNSF Railway operates over a railroad system consisting
of approximately 33,000 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 8,000 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, 2001, the total BNSF Railway system, including first, second,
third and fourth main tracks, yard tracks, and sidings, consists of
approximately 50,000 operated miles of track, all of which are owned by or held
under easement by BNSF Railway except for approximately 8,300 miles operated
under trackage rights agreements with other parties. At December 31, 2001,
approximately 26,600 miles of BNSF Railway's track consists of 112-pound per
yard or heavier rail, including approximately 19,100 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, 2001 2000 1999
- ----------------------------------------------- ------ ------ ------
Diesel Locomotives 4,863 4,966 5,095
====== ====== ======
Locomotives Under Power Purchase Agreements 99 99 99
====== ====== ======
Freight Cars:
Box-general purpose 852 896 913
Box-specially equipped 8,720 9,785 10,111
Open Hopper 9,456 9,984 10,287
Covered Hopper 41,688 44,632 45,463
Gondola 12,158 12,415 12,753
Refrigerator 5,765 6,111 6,236
Autorack 4,673 4,775 4,799
Flat 6,143 6,389 6,468
Tank 477 480 482
Caboose 287 305 319
Other 480 727 728
------ ------ ------
Total Freight Cars 90,699 96,499 98,559
====== ====== ======
Domestic Containers 7,500 10,999 11,019
Trailers 2,200 2,201 2,213
Domestic Chassis 7,300 9,405 9,406
Company Service Cars 4,291 4,334 4,399
Commuter Passenger Cars 141 141 141
- ----------------------------------------------- ------ ------ ------
1
The average age from date of manufacture of the locomotive fleet at December 31,
2001 was 13 years; the average age from date of manufacture or remanufacture of
the freight car fleet at December 31, 2001 was 17 years. These averages are not
weighted to reflect the greater capacities of the newer equipment.
Capital Expenditures and Maintenance
BNSF Railway cash capital expenditures for the periods indicated were as
follows:
Year Ended December 31, 2001 2000 1999
- -------------------------------------------- ------- ------ ------
(in millions)
Maintenance of way
Rail $ 233 $ 210 $ 256
Ties 254 206 170
Surfacing 146 134 130
Other 335 285 254
- -------------------------------------------- ------- ------ ------
Total maintenance of way 968 835 810
Mechanical 183 221 240
Information services 69 66 74
Other 101 144 151
- -------------------------------------------- ------- ------ ------
Total maintenance of business 1,321 1,266 1,275
New locomotives and freight cars - - 261
Terminal and line expansion 126 99 233
Capitalized interest and other 12 34 19
------- ------ ------
Total cash capital expenditures $ 1,459 $1,399 $1,788
- -------------------------------------------- ======= ====== ======
The above table does not include expenditures for equipment financed through
operating leases (principally locomotives and rolling stock). BNSF's planned
2002 cash capital expenditures approximate $1.4 billion. Approximately $1.25
billion of the total planned capital expenditures 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 remainder to be spent on terminal and line expansions and
other projects.
As of December 31, 2001, General Electric Company and the Electro-Motive
Division of General Motors 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, 2001 2000 1999
- -------------------------------------------- ------- ------ ------
Track miles of rail laid (a) 891 738 942
Cross ties inserted (thousands) (a) 2,704 2,527 2,365
Track resurfaced (miles) 11,011 11,228 10,505
- -------------------------------------------- -------- ------ ------
(a) Includes expenditures for both maintenance of existing route system and
expansion projects. These expenditures are primarily capitalized.
BNSF Railway's planned 2002 track maintenance of way program, together with
expansion projects, will result in the installation of approximately 625 track
miles of rail, the replacement of about 2.2 million ties, and the resurfacing of
approximately 12,000 miles of track.
Property and Facilities
BNSF Railway operates various facilities and equipment to support its
transportation system, including its infrastructure and locomotives and freight
cars as described above. It also owns or leases other equipment to support rail
operations, including 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 36 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 2001 volume
were:
2
Intermodal Facilities Units
- -------------------------------------------------------------------
Hobart Yard (California) 1,041,000
Corwith Yard (Illinois) 739,000
Willow Springs (Illinois) 668,000
Chicago Hub Center (Illinois) 410,000
Alliance (Texas) 409,000
San Bernardino (California) 408,000
Argentine (Kansas) 257,000
- -------------------------------------------------------------------
BNSF Railway owns 26 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) 2,050
Galesburg (Illinois) 1,550
Pasco (Washington) 1,450
Barstow (California) 1,275
Memphis (Tennessee) 1,250
- -------------------------------------------------------------------
As of December 31, 2001, certain BNSF Railway properties and other assets are
subject to liens securing $425 million of mortgage debt. Certain locomotives and
rolling stock of BNSF Railway are subject to equipment obligations and leases,
as referred to in Notes 9 and 11 to the Consolidated Financial Statements.
Employees and Labor Relations
Productivity as measured by thousand revenue ton-miles per employee has risen
steadily in the last three years as shown in the table below.
Year Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------- ------ ------ ------
Thousand revenue ton-miles divided by average number of employees 12,796 12,342 11,564
Compensation and benefits expense per thousand revenue ton-miles $ 5.68 $ 5.55 $ 5.62
- ------------------------------------------------------------------- ------ ------ ------
Approximately 88 percent of BNSF Railway's employees are union-represented. BNSF
Railway's union employees 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 have remained in effect
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 (NCCC), BNSF's multi-employer
collective bargaining representative, reached a final agreement with the
Brotherhood of Maintenance of Way Employes (BMWE) resolving wage, work rule and
benefit issues through 2004 which was implemented in July 2001. BMWE represents
BNSF's track, bridge and building maintenance employees, or about one-fourth of
BNSF's unionized workforce. In June 2001, the NCCC reached a tentative agreement
with the International Brotherhood of Electrical Workers (IBEW), which
represents approximately 5 percent of BNSF's unionized workforce, addressing
wage and work rule issues through 2004, but leaving health and welfare benefit
issues for settlement in separate talks with other railroad unions. IBEW members
failed to ratify the tentative agreement. No new talks with IBEW are scheduled.
During the third quarter of 2000, the NCCC 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. This agreement is also
subject to ratification by the UTU's membership. As in the tentative IBEW
agreement, health and welfare benefit issues were not resolved with UTU and
remain the subject of continuing negotiations.
3
Railroad industry personnel are covered by the Railroad Retirement System
instead of Social Security. BNSF Railway's contributions under the Railroad
Retirement System have been approximately triple those in industries covered by
Social Security. The Railroad Retirement System, funded primarily by payroll
taxes on covered employers and employees, includes a benefit roughly equivalent
to Social Security (Tier I), an additional benefit similar to that allowed in
some private defined-benefit plans (Tier II), and other benefits. Investment of
Tier II Railroad Retirement assets has until recently been limited to special
interest-bearing U. S. Treasury securities. The Railroad Retirement and
Survivors' Improvement Act of 2001 (Act) creates a new National Railroad
Retirement Investment Trust to hold Tier II Railroad Retirement assets and
empowers the trustees to invest these assets in the same types of investments
available to private sector retirement plans. In addition to liberalizing
certain retirement benefit requirements for rail employees, the Act reduces Tier
II railroad retirement tax rates on rail employers beginning in 2002 and
eliminates a supplemental annuity tax. The Company expects to realize savings of
approximately $20 million in 2002 and $50 million in 2003. Future adjustments in
the Tier II Railroad Retirement tax rates assessed on both rail employers and
rail employees will depend on Railroad Retirement fund levels, and annual
savings could be as much as $80 million by 2005.
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, the Los Angeles Basin, 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
Bernadino, 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 Canadian National Railway Company
(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, Montana, North Dakota, and Washington, as
well as through interchange with 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.
Consumer Products: The consumer freight business provided approximately 37
percent of freight revenues in 2001 and consisted of the following seven types
of business:
. International. International business consists primarily of container
traffic from steamship companies and accounted for approximately 29 percent
of total Consumer Products revenues.
. Direct Marketing. Direct marketing generated approximately 23 percent of
total Consumer Products revenue. These center around intermodal 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.
4
. Truckload. Truckload traffic represented approximately 14 percent of total
Consumer Products revenue. This traffic is comprised of business through
the joint service arrangement with J.B. Hunt, as well as business from
Schneider National and other truckload carriers.
. 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 13 percent of 2001
total Consumer Products revenue.
. Intermodal Marketing Companies. Approximately 12 percent of total Consumer
Products revenue was generated through intermodal marketing companies,
primarily shipper agents and consolidators.
. Perishables and Dry Boxcar. Perishables and Dry Boxcar represented
approximately 9 percent of total Consumer Products revenue. This group
consists of beverages, canned goods and perishable food items. Other
consumer goods handled include cotton, salt, rubber and tires, and
miscellaneous boxcar shipments.
Industrial Products: Industrial Products' freight business provided
approximately 23 percent of BNSF's freight revenues in 2001 and consists of the
following four business areas:
. Construction Products. The construction products sector represented
approximately 36 percent of total Industrial Products revenue in 2001. This
sector serves virtually all of the commodities included in or resulting
from the production of steel along with mineral commodities such as clays,
sands, cements, aggregates, sodium compounds and other industrial minerals.
Industrial taconite, an iron ore derivative produced in northern Minnesota,
scrap steel and coal coke are BNSF Railway's primary input products
transported, 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. 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, are 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.
. Building Products. This sector includes primary forest product commodities
such as lumber, plywood, oriented strand board, particleboard, paper
products, pulpmill feedstocks, wood pulp and sawlogs, which resulted in
approximately 35 percent of total 2001 Industrial Products revenue. Also,
included in this sector are government, machinery and waste traffic. 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. Shipments of
waste, ranging from municipal waste to contaminated soil, are transported
to landfills and reclamation centers across the country. Government and
machinery business includes aircraft parts, agricultural and construction
machinery, military equipment and large industrial machinery.
. Chemicals and Plastics. The chemicals and plastics sector represents
approximately 16 percent of total 2001 Industrial Products revenue. This
group is composed of industrial chemicals and plastics commodities. These
commodities include caustic soda, chlorine, industrial gases, acids,
polyethylene, polypropylene and polyvinyl chloride. 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. These commodities originate primarily in the Gulf Coast
region for shipment mainly into domestic markets.
. Petroleum. Commodities included in the petroleum sector are liquefied
petroleum gas (LPG), diesel fuels, asphalt, alcohol/solvents, petroleum
coke, lubes/oils/waxes and carbon black, which made up 13 percent of total
Industrial Products revenue for 2001. Product use varies based on
commodity, and includes the use of LPG for heating purposes, diesel fuel
and lubes to run heavy machinery, and asphalt for road projects and
roofing. Products within this group originate and terminate throughout the
BNSF network with the largest areas of activities being the Texas Gulf,
Pacific Northwest, California, Montana and Illinois.
Coal: Based on carloadings and tons hauled, BNSF Railway is the largest
transporter of low-sulfur coal in the United States. The transportation of coal
contributed about 23 percent of 2001 freight 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, 2001. 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.
5
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 causing
power generators 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 Products: The transportation of Agricultural Products provided
approximately 17 percent of 2001 total freight 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, malt, ethanol and
fertilizer. 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, Texas Gulf
and Mexico.
Freight Statistics. The following table sets forth certain freight statistics
relating to rail operations for the periods indicated. Certain prior period
amounts have been restated for current classification.
Year Ended December 31, 2001 2000 1999
- -------------------------------------------------- ------- ------- -------
Revenue ton-miles (millions) 501,829 491,959 493,207
Freight revenue per thousand revenue ton-miles $ 18.11 $ 18.52 $ 18.40
Average length of haul (miles) 992 996 994
- -------------------------------------------------- ------- ------- -------
For revenue, cars/units and average revenue per unit information for the three
years ended December 31, 2001, see the revenue table included as part of Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Government Regulation and Legislation
Rail operations are subject to the regulatory jurisdiction of the Surface
Transportation Board (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
disputes and complaints involving certain rates, routes and services, the sale
or abandonment of rail lines, applications for line extensions and construction,
and consolidation or merger with, or acquisition of control of, rail common
carriers. The outcome of STB proceedings can affect the costs and profitability
of BNSF's business.
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 cleanup 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.
6
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 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.
As a condition to approval of the merger (UP/SP)of rail carriers controlled by
UP and Southern Pacific Transportation Company (SP), 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 UP
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 SP rail line between
Houston and New Orleans which were 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 division 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, CN acquired Illinois Central Corporation (IC). CN
is Canada's largest railroad and reaches the U.S. cities of Detroit and Chicago,
while IC had operations extending from Chicago to the Gulf of Mexico and west
through Iowa. In 2001, CN acquired Wisconsin Central, a regional railroad with
track and trackage rights in Illinois, Wisconsin, Minnesota, Michigan and the
province of Ontario.
ITEM 3. Legal Proceedings
In September 2001, BNSF Railway was notified by the Nebraska Department of
Environmental Quality of alleged environmental violations in connection with a
November 4, 2000, derailment in Scottsbluff, Nebraska, that involved hazardous
commodities. If not resolved, this matter could result in litigation brought by
the Nebraska Attorney General and monetary sanctions exceeding $100 thousand.
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 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.
Reference is made to Note 5 to the Consolidated Financial Statements for
information concerning certain pending administrative appeals with the Internal
Revenue Service.
7
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 2001.
Executive Officers of the Registrant
Listed below are the names, ages, and positions of all executive officers of
BNSF 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.
Matthew K. Rose, 42
President and Chief Executive Officer of BNSF since December 2000. Also,
Chairman, President and Chief Executive Officer of BNSF Railway. Previously,
President and Chief Operating Officer of BNSF from June 1999 to December 2000;
Senior Vice President and Chief Operations Officer from August 1997 to June
1999, and Senior Vice President-Merchandise Business Unit from May 1996 to
August 1997.
Thomas N. Hund, 48
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, 45
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, and Vice President-Chief
Mechanical Officer from December 1996.
Dennis R. Johnson, 40
Vice President and Controller since August 1999. Prior to that, Assistant Vice
President and Assistant Controller from January 1997.
Jeffrey R. Moreland, 57
Executive Vice President Law & Government Affairs and Secretary since December
2001. Prior to that, Executive Vice President-Law and Chief of Staff since
January 2001, 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, 54
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.
8
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, 2001, and the frequency and amount of dividends
declared on such stock during such periods, is set forth in Note 16 to the
Consolidated Financial Statements. The approximate number of holders of record
of the common stock at January 31, 2002, was 41,000.
ITEM 6. Selected Financial Data
The following table presents, as of and for the dates indicated, selected
historical financial information for the Company.
(Dollars in millions, except per share data)
--------------------------------------------------------------------------------------------------
December 31, 2001 2000 1999 1998 1997
-------------------------------------------- ------- ------- ------- ------- -------
FOR THE YEAR ENDED:
Revenues $ 9,208 $ 9,207 $ 9,195 $ 9,057 $ 8,489
Operating income $ 1,755 $ 2,108 $ 2,205 $ 2,158 $ 1,767
Net income $ 731 $ 980 $ 1,137 $ 1,155 $ 885
Basic earnings per share $ 1.89 $ 2.38 $ 2.46 $ 2.45 $ 1.91
Average shares (in millions) 387.3 412.1 463.2 470.5 464.4
Diluted earnings per share $ 1.87 $ 2.36 $ 2.44 $ 2.43 $ 1.88
Average shares (in millions) 390.7 415.2 466.8 476.2 471.1
Dividends declared per common share $ 0.48 $ 0.48 $ 0.48 $ 0.44 $ 0.40
-------------------------------------------- ------- ------- ------- ------- -------
AT YEAR END:
Total assets $24,721 $24,375 $23,700 $22,646 $21,266
Long-term debt and commercial paper,
including current portion $ 6,651 $ 6,846 $ 5,813 $ 5,456 $ 5,289
Stockholders' equity $ 7,849 $ 7,480 $ 8,172 $ 7,784 $ 6,822
Total debt to capital 45.9% 47.8% 41.6% 41.2% 43.7%
-------------------------------------------- ------- ------- ------- ------- -------
FOR THE YEAR ENDED:
Total capital expenditures $ 1,459 $ 1,399 $ 1,788 $ 2,147 $ 2,182
Depreciation and amortization $ 909 $ 895 $ 897 $ 832 $ 773
-------------------------------------------- ------- ------- ------- ------- -------
Certain prior period amounts have been reclassified for current presentation.
Effective September 1, 1998, the Company split its common shares three-for-one
through a stock dividend of two additional shares for each share outstanding
or held in treasury. All share and per share data for periods prior to this
date were adjusted for the stock split.
9
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.
Results of Operations
- ---------------------
Year Ended December 31, 2001 Compared with Year Ended December 31, 2000
BNSF recorded net income for 2001 of $731 million, or $1.87 per share, after a
first-quarter extraordinary charge of $6 million, net of tax, related to the
early extinguishment of a debt obligation, compared with net income for 2000 of
$980 million, or $2.36 per share. The decrease in net income and earnings per
share is primarily due to a $353 million decrease in operating income and $75
million in losses related to non-rail investments. The decrease in operating
income reflects increased compensation and benefits costs, higher fuel expenses
and higher materials and other costs, which included a $66 million
fourth-quarter charge for workforce reduction related costs. The favorable
effect of the common stock repurchase program on earnings per share partially
offset lower earnings in 2001 (see Liquidity and Capital Resources: Common Stock
Repurchase Program).
Revenue Table
The following table presents BNSF's revenue information by commodity for the
years ended December 31, 2001, 2000 and 1999, and includes certain
reclassifications of prior year information to conform to current year
presentation.
Average Revenue
Revenues Cars / Units Per Car / Unit
------------------------ ------------------------ ----------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------ ------ ------ ----- ----- ----- ------ ------ -----
(in millions) (in thousands)
Consumer Products $3,356 $3,405 $3,197 3,752 3,850 3,597 $ 894 $ 884 $ 889
Coal 2,123 2,131 2,226 2,133 2,023 2,123 995 1,053 1,049
Industrial Products 2,080 2,114 2,108 1,442 1,501 1,508 1,442 1,408 1,398
Agricultural Products 1,531 1,462 1,543 828 793 836 1,849 1,844 1,846
------ ------ ------ ----- ----- ----- ------ ------ ------
Total Freight Revenues 9,090 9,112 9,074 8,155 8,167 8,064 $1,115 $1,116 $1,125
===== ===== ===== ====== ====== ======
Other Revenues 118 95 121
- ------------------------------- ------ ------ ------
Total Operating Revenues $9,208 $9,207 $9,195
====== ====== ======
Revenues
Total revenues of $9,208 million for 2001 were essentially flat compared with
2000. In 2001, the sluggish economy hampered BNSF's revenue growth; although,
based on reporting to the Association of American Railroads (AAR), BNSF's share
of the western United States rail traffic market remained essentially unchanged
at approximately 43 percent.
Consumer Products revenues of $3,356 million for 2001 were $49 million, or 1
percent, less than 2000 due to decreased loadings in the LTL sector and the loss
in late 2000 of some automotive contract business as well as decreases in the
automotive sector as a result of sluggish industry-wide sales. Additionally, a
significant automotive contract was lost at the end of the third quarter of 2001
and is expected to affect future automotive revenues. These declines were
partially offset by a ten percent growth in the intermodal truckload business,
increased international revenues, increases in dry boxcar business due to strong
beverage shipments, and a $32 million favorable transportation contract
settlement in automotive revenues.
Coal revenues of $2,123 million for 2001 decreased $8 million from 2000 revenues
of $2,131 million. The decrease in revenues was primarily a result of lower
revenue per car on certain contract renewals, partially offset by a 6 percent
increase in coal tons shipped due to colder weather, tight eastern coal supplies
and high natural gas prices.
Industrial Products revenues of $2,080 million for 2001 were $34 million, or 2
percent, lower than 2000, despite increased revenue per car as a result of
selected price increases and increased length of haul. Revenues for the year
fell due to continued production cutbacks affecting most sectors. These
decreases were partially offset by increases in the petroleum products sector
resulting from increases in LPG and asphalt shipments.
10
Agricultural Products revenues of $1,531 million for 2001 were $69 million, or 5
percent, higher than revenues for 2000 primarily due to an increased demand for
corn, soybean and oilseed/meals, partially offset by a decline in fertilizer
shipments. Additionally, average revenue per car increased due to increases in
length of haul.
Expenses
Year Ended December 31, 2001 2000 1999
- ---------------------------------- -------- -------- --------
(in millions)
Compensation and benefits $ 2,850 $ 2,729 $ 2,772
Purchased services 1,084 1,024 1,051
Depreciation and amortization 909 895 897
Equipment rents 740 742 752
Fuel 973 932 700
Materials and other 897 777 818
- ---------------------------------- -------- -------- --------
Total operating expenses $ 7,453 $ 7,099 $ 6,990
- ---------------------------------- -------- -------- --------
Interest expense $ 463 $ 453 $ 387
- ---------------------------------- -------- -------- --------
Other expense (income), net $ 110 $ 70 $ (1)
- ---------------------------------- -------- -------- --------
Total operating expenses for 2001 were $7,453 million, an increase of $354
million, or 5 percent, over 2000 primarily due to: (i) increased compensation
and benefits of $121 million related to higher wages and increased health and
welfare costs offset by efficiency gains as measured by gross ton-miles (GTM)
per employee and reduced headcounts; (ii) workforce reduction related costs of
$66 million; (iii) higher fuel prices; and (iv) flooding in the upper Midwest
and more severe winter weather conditions early in 2001 which increased expenses
compared to 2000.
Compensation and benefits expenses of $2,850 million were $121 million, or 4
percent, higher than 2000 primarily due to wage rate increases and higher
benefit rates. In addition, scheduled wages were significantly higher in the
first and second quarters as a result of more severe weather conditions
requiring increased maintenance and additional crews. These increases were
partially offset by lower employment levels.
Purchased services of $1,084 million for 2001 were $60 million, or 6 percent,
higher than 2000 due to higher ramping expenses incurred as a result of new
services added which improve efficiency and safety at the intermodal ramp
facilities, decreased recoveries as compared with the prior year, increased
legal expense primarily related to coal rate disputes, higher contract equipment
maintenance costs due to more locomotives under maintenance contracts, increased
haulage expense, and increased other expenses as a result of flooding in the
upper Midwest in the early part of the year.
Depreciation and amortization expenses of $909 million for 2001 were $14
million, or 2 percent, higher than 2000 primarily due to a higher capital base.
Equipment rents expenses for 2001 of $740 million were $2 million lower than
2000 reflecting reduced equipment levels, including cars, trailers, containers
and automotive equipment.
Fuel expenses of $973 million for 2001 were $41 million, or 4 percent, higher
than 2000 primarily as a result of a 3-cent increase in the average all-in cost
per gallon of diesel fuel. Consumption in 2001 was 1,177 million gallons
compared with 1,173 million gallons in 2000. However, GTM per gallon increased
to 762 from 746, or 2 percent, compared with 2000, attributable to newer
locomotive fleet, fuel economy initiatives during the year, and commodity mix.
The 3-cent increase in the average all-in cost per gallon of diesel fuel is net
of a 6-cent decrease in the average purchase price more than offset by a 9-cent
decrease in the hedge benefit per gallon as compared with a 13-cent hedge
benefit in 2000.
Materials and other expenses of $897 million for 2001 were $120 million, or 15
percent, higher than 2000 principally reflecting: (i) workforce reduction costs
of $66 million incurred in the fourth quarter of 2001 for severance, pension,
medical, benefit and other related costs for approximately 400 positions (see
Other Matters: Employee Merger and Separation Costs); (ii) increases in
environmental and casualty expenses compared with 2000; (iii) lower income from
easements; and (iv) increased costs caused by flooding in the upper Midwest and
higher utilities as a result of higher rates and increased consumption due to
more severe winter weather conditions early in 2001. Additionally, during 2000
the Company incurred $42 million of charges due to employee related severance,
medical and other benefit costs and the loss of previously earned state tax
incentives.
Interest expense of $463 million for 2001 was $10 million, or 2 percent, higher
than 2000 reflecting higher average debt levels, partially offset by lower
interest rates.
11
Other expense was $40 million higher compared with 2000 primarily due to $75
million in losses recognized related to non-rail investments and fewer land
sales in 2001. The non-rail investments consisted of FreightWise, Inc., an
Internet transportation exchange; Pathnet Telecommunications, Inc., a
telecommunications venture; a portfolio of other non-core real-estate
investments; and a decline in the cash surrender value of company owned life
insurance policies. Offsetting the above were $20 million of 2000 expenses
related to the termination of the proposed BNSF business combination with
Canadian National Railway Company (CN).
Year Ended December 31, 2000 Compared with Year Ended December 31, 1999
Net income in 2000 was $980 million, or $2.36 per share, compared with $1,137
million, or $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 pretax in connection
with prior period line sales, less costs of $13 million pretax 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 $9,207 million or $12 million higher than 1999
revenues of $9,195 million. The $12 million increase primarily reflects
increases in the Consumer and Industrial Products sectors partially offset by
lower Coal and Agricultural Products 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 continued into 2001. During 2000, based on reporting to the AAR, BNSF's
share of the western United States rail traffic market decreased 0.4 point to
43.1 percent.
Consumer Products revenues of $3,405 million improved $208 million, or 7
percent, compared with 1999 reflecting increases in the automotive,
international, truckload, and perishable 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. The growth in perishables was from the success of new
service offerings and a partial recapture of the truck market. Automotive
revenues increases were reflected by industry-wide automobile production for
most of the year and more profitable longer haul traffic despite essentially
flat volumes year-over-year. Increases in truckload revenues were partially
offset by decreases in the direct marketing sector due to decreased loadings
within the LTL sector and in the IMC sector due to pricing pressures and strong
over the road competition.
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.
Industrial Products revenues of $2,114 million for 2000 were $6 million higher
than 1999 due to increases from the metals and minerals sectors, partially
offset by decreased chemicals, forest products and machinery revenues. The
metals sector increases were a result of a strong market for steel 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.
Agricultural Products revenues of $1,462 million for 2000 were $81 million, or 5
percent, lower than 1999 primarily due 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.
Expenses
Total operating expenses for 2000 were $7,099 million, an increase of $109
million, or 2 percent, compared with operating expenses for 1999 of $6,990
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 $1,024 million for 2000 were $27 million, or 3 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.
12
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 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 increase in hedge benefit 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 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 expense was $71 million higher compared with 1999 primarily due to a $50
million pretax 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 pretax of expenses related to the termination of the
proposed combination with CN.
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, through the leasing of assets, and through the sale
of a portion of its accounts receivable.
OPERATING ACTIVITIES
Net cash provided by operating activities was $2,197 million during 2001
compared with $2,317 million during 2000. The decrease in cash from operations
was primarily due to a decrease in net income and deferred income taxes, and the
receipt of a non-recurring $43 million special dividend from the Company's
equity investment in TTX Company in the first quarter 2000. The decrease was
partially offset by a $105 million increase in cash from operations resulting
from changes in working capital. During 2001, the Company sold an additional $25
million of its accounts receivable under the accounts receivable sales program
(A/R sales program).
INVESTING ACTIVITIES
Net cash used for investing activities was $1,564 million during 2001 compared
with $1,680 million during 2000. The decrease in cash used primarily reflects
the temporary acquisition of equipment in 2000 that the company ultimately sold
and leased back through operating leases in 2001 and 2000 expenditures relating
to FreightWise, Inc. These reductions are partially offset by an increase in
cash capital expenditures.
13
A breakdown of cash capital expenditures during 2001, 2000 and 1999 is set forth
in the following table:
Year Ended December 31, 2001 2000 1999
- ------------------------------------- ------- ------- -------
(in millions)
Maintenance of way $ 968 $ 835 $ 810
Mechanical 183 221 240
Information services 69 66 74
Other 101 144 151
- ------------------------------------- ------- ------- -------
Total maintenance of business $ 1,321 $ 1,266 $ 1,275
New locomotives and freight cars - - 261
Expansion and other 138 133 252
- ------------------------------------- ------- ------- -------
Total $ 1,459 $ 1,399 $ 1,788
- ------------------------------------- ======= ======= =======
BNSF acquired all of the 100 locomotives it committed to acquire in 2001 through
operating leases.
FINANCING ACTIVITIES
Net cash used for financing activities during 2001 was $618 million primarily
related to common stock repurchases of $317 million, a net reduction in
borrowings of $206 million and dividend payments of $190 million, partially
offset by proceeds of $113 million resulting from the exercise of 5.3 million
stock options.
In March 2001, $100 million of 33-year remarketable bonds issued in 1998 were
called by the holder of the call option. BNSF subsequently purchased the option
from the holder and retired the bonds and incurred an extraordinary loss of $6
million, net of tax, due to early retirement. Additionally, in March 2001, BNSF
issued a $12 million, 5.96 percent note due April 2004.
In May 2001, the Company increased the amount of debt securities under its shelf
registration, enabling it to issue debt securities in one or more series at an
aggregate offering price not to exceed $1 billion, and issued $400 million of
6.75 percent notes due July 15, 2011. The net proceeds of the debt issuance were
used for general corporate purposes including the repayment of outstanding
commercial paper. Subsequent to this debt issuance, the Company had $600 million
of capacity under the May 2001 shelf registration statement.
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 7.88 percent notes due April 2007 and
$200 million of 8.13 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 7.88 percent notes
and the $200 million of 8.13 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.
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 has annual maturities through 2015.
In August 2000, BNSF issued $275 million of 7.95 percent debentures due August
2030. 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.
In December 2000, BNSF issued $300 million of 7.13 percent notes due December
2010. 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 notes, 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.
14
Aggregate long-term debt to mature in 2002 is $288 million. BNSF's ratio of
total debt to total capital was 45.9 percent at December 31, 2001, compared with
47.8 percent at December 31, 2000, and 41.6 percent at December 31, 1999.
FREE CASH FLOW
BNSF generated free cash flow (calculated as cash flow from operations less
capital expenditures, other investing activities and dividends paid) of $443
million, $431 million and $260 million during 2001, 2000 and 1999, respectively.
DIVIDENDS
Common stock dividends declared were $0.48 per share annually for 2001, 2000 and
1999. Dividends paid on common stock were $190 million, $206 million and $224
million during 2001, 2000 and 1999, respectively. On January 17, 2002, the Board
of Directors (the Board) declared a quarterly dividend of 12 cents per share on
outstanding shares of common stock, $0.01 par value, payable April 1, 2002, to
stockholders of record on March 11, 2002.
COMMON STOCK REPURCHASE PROGRAM
In July 1997, the Board 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 authorized extensions of the BNSF
share-repurchase program, adding 30 million shares at each date to the total
shares previously authorized bringing BNSF's share-repurchase program to 120
million shares. During 2001, 2000 and 1999, the Company repurchased
approximately 11 million, 65 million, and 22 million shares, respectively, of
its common stock at average prices of $27.76 per share, $23.16 per share, and
$31.08 per share, respectively. Total repurchases through December 31, 2001,
were 103 million shares at a total average cost of $25.74 per share, leaving 17
million shares available for repurchase out of the 120 million shares
authorized.
LONG TERM DEBT AND LEASE OBLIGATIONS
The Company's business is capital intensive. BNSF has historically generated a
significant amount of cash from operating activities which it uses to fund
capital additions, service debt and pay dividends. Additionally, the Company
relies on access to the debt and leasing markets to finance a portion of capital
additions on a long-term basis. Free cash flow has also been used in recent
years to repurchase common stock.
The Company utilizes a commercial paper program backed by bank revolving credit
agreements to manage liquidity needs. The information below summarizes the more
significant obligations of the Company at December 31, 2001. For 2002 and the
foreseeable future, the Company expects that cash flow from operating
activities, access to capital markets and bank revolving credit agreements will
be sufficient to enable the Company to meet its obligations when due. The
Company believes these sources of funds will also be sufficient to fund capital
additions that are necessary to maintain its competitiveness and position the
Company for future revenue growth.
The Company's ratio of earnings to fixed charges was 2.73 times for the year
ended December 31, 2001. Additionally, the Company's ratio of net cash flow
provided by operating activities divided by total average debt was 33 percent
for the year ended December 31, 2001.
The following table summarizes the Company's obligations under long-term debt
and lease obligations at December 31, 2001:
Payments Due By Period
---------------------------------------------------
1 Year 2 - 3 4 - 5
Total or Less Years Years Thereafter
-------- ------- ------- ------- ----------
(in millions)
Long-term debt(a) $ 5,979 $ 221 $ 248 $ 1,132 $ 4,378
Capital lease obligations(b) 856 107 214 205 330
Operating leases(b) 5,187 404 769 668 3,346
-------- ------- ------- ------- ----------
Total $ 12,022 $ 732 $ 1,231 $ 2,005 $ 8,054
======== ======= ======= ======= ==========
(a) Excluding capital lease obligations
(b) Gross payments due which include an interest component
In addition to the obligations described above, the Company acts as guarantor
for certain debt and lease obligations of others. BNSF does not expect to
perform under these guarantees in the foreseeable future. See Notes 9 and 11 to
the Consolidated Financial Statements.
15
In the normal course of business, the Company enters into long-term contractual
requirements for future goods and services needed for the operations of the
business. Such commitments are not in excess of expected requirements and are
not reasonably likely to result in performance penalties or payments that would
have a material adverse affect on the Company's liquidity.
CREDIT AGREEMENTS
BNSF issues commercial paper from time to time which is supported by revolving
credit agreements. At December 31, 2001 and 2000, there were no bank borrowings
against the revolving credit agreements. Outstanding commercial paper balances
are considered as reducing the amount of borrowings available under these
agreements. The bank revolving credit agreements allow borrowings of up to $1.75
billion. 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 borrowing capacity
under these facilities. The commitments of the lenders under the short-term
agreement allow borrowings of up to $1.0 billion and are scheduled to expire in
June 2002. The Company has the ability to have any amounts then outstanding
mature as late as June 2003. The remaining $750 million of commitments of the
lenders under the long-term agreement are scheduled to expire in June 2005.
Annual facility fees for the short-term and long-term facilities 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.
The maturity value of commercial paper outstanding at December 31, 2001, was
$416 million, reducing the total capacity available under the revolving credit
agreements to $1,334 million. BNSF must maintain compliance with certain
financial covenants under its revolving credit agreements.
The revolving credit agreements include covenants and events of default typical
for this type of facility, including a minimum consolidated tangible net worth
test, a maximum debt/capital test, and a $75 million cross-default provision. At
December 31, 2001, the Company was in compliance with its debt covenants. BNSF's
tangible net worth is $3.4 billion greater than the minimum consolidated
tangible net worth required under the agreement, and the maximum debt/capital
test provides approximately $4.6 billion of debt capacity above BNSF's
outstanding debt as of December 31, 2001, before an event of default would occur
under these covenants. With the exception of a voluntary bankruptcy or
insolvency, any event of default has either or both, a cure period or notice
requirement before termination of the agreements. A voluntary bankruptcy or
insolvency would be considered an immediate termination event.
SALE OF ACCOUNTS RECEIVABLE
BNSF's A/R sales program, as described in Note 6 of the Consolidated Financial
Statements, includes a provision that allows the institutions participating in
this program, at their option, to cancel the program if BNSF Railway's senior
unsecured credit rating falls below investment grade. Upon cancellation, BNSF
would not be able to sell additional receivables under this program. If such
event were to occur, BNSF would expect to have sufficient liquidity remaining
under its revolving credit agreements to fund the full amount of securities
outstanding under the sales program. The receivable facility expires in 2002 and
the Company intends to renew this facility under similar terms.
The Company is not aware of any pending significant adverse changes to its
credit rating that would cause it or BNSF Railway to fall below investment
grade.
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 $173 million, $178 million and $179 million in 2001,
2000 and 1999, respectively. At December 31, 2001 and 2000, the Company had
recorded liabilities of $458 million and $436 million, respectively, related to
both asserted and unasserted personal injury claims.
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
16
leased to commercial or industrial companies whose activities may have resulted
in discharges onto the property. As a result, BNSF is subject to environmental
cleanup and enforcement actions. In particular, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also
known as the Superfund law, as well as similar state laws generally impose joint
and several liability for cleanup and enforcement costs 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 cleanup costs at approximately 30 Superfund sites for
which investigation and remediation payments are or will be made or are yet to
be determined (the Superfund sites) and, in many instances, is one of several
PRPs. In addition, BNSF may be considered a PRP under certain other laws.
Accordingly, under CERCLA and other federal and state statutes, BNSF may be held
jointly and severally liable for all environmental costs associated with a
particular site. If there are other PRPs, BNSF generally participates in the
cleanup of these sites through cost-sharing agreements with terms that vary from
site to site. Costs are typically allocated based on relative volumetric
contribution of material, the amount of time the site was owned or operated,
and/or the portion of the total site owned or operated by each PRP.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental cleanup
costs are initially recorded when BNSF's liability for environmental cleanup is
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
cleanup, and historical trend analyses.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory cleanup efforts at approximately 390 sites, including the
Superfund sites, at which it is participating in the study or cleanup, or both,
of alleged environmental contamination. BNSF paid approximately $72 million, $49
million and $67 million during 2001, 2000 and 1999, respectively, for mandatory
and unasserted cleanup efforts, including amounts expended under federal and
state voluntary cleanup programs. BNSF has recorded liabilities for remediation
and restoration of all known sites of $202 million at December 31, 2001,
compared with $223 million at December 31, 2000. BNSF anticipates that the
majority of the accrued costs at December 31, 2001, will be paid over the next
five years. No individual site is considered to be material.
Liabilities recorded for environmental costs represent BNSF's best estimates for
remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's best
estimates of all costs, without reduction for anticipated recoveries from third
parties, BNSF's total cleanup costs at these sites cannot be predicted with
certainty due to various factors such as the extent of corrective actions that
may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other parties' participation in cleanup
efforts, developments in ongoing environmental analyses related to sites
determined to be contaminated, and developments in environmental surveys and
studies of potentially contaminated sites. As a result, future charges to income
for environmental liabilities could have a significant effect on results of
operations in a particular quarter or fiscal year as individual site studies and
remediation and restoration efforts proceed or as new sites arise. However,
management believes it is unlikely any identified matters, either individually
or in the aggregate, will have a material adverse effect on BNSF's 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.
17
EMPLOYEE MERGER AND SEPARATION COSTS
Employee merger and separation costs activity was as follows (in millions):
2001 2000 1999
- ------------------------------------------- ------ ------ ------
Beginning balance at January 1, $ 310 $ 356 $ 474
Accruals 30 22 29
Payments (55) (58) (93)
Other (11) (10) (54)
- ------------------------------------------- ------ ------ ------
Ending balance at December 31, $ 274 $ 310 $ 356
- ------------------------------------------- ====== ====== ======
Employee merger and separation liabilities of $274 million and $310 million are
included in the consolidated balance sheets at December 31, 2001 and 2000,
respectively, and principally represent: (i) employee-related severance costs
for the consolidation of clerical functions, material handlers in mechanical
shops and trainmen on reserve boards; (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 consolidated
income statements. At December 31, 2001, $58 million of the remaining
liabilities are included in current liabilities for anticipated costs to be paid
in 2002.
During the fourth quarter of 2001, the Company recorded a $66 million charge
including $61 million for workforce reduction related costs. Of the $61 million,
$30 million was recorded in Employee Merger and Separation Costs and $31 million
was recorded for benefits to be received under the Company's retirement and
medical plans.
Consolidation of Clerical Functions
Liabilities related to the consolidation of clerical functions were $69 million
and $96 million at December 31, 2001 and 2000, 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 2001, 2000 and 1999, the Company recorded $6 million, $10 million and $54
million, respectively, of reversals for certain liabilities associated with the
consolidation plan. These liabilities related to planned workforce 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, 2001, 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 fourth quarter of 2001, the Company recorded a charge of $9 million of
costs related to the reduction of approximately 40 material handlers and other
clerical positions. 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, 2001, 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 $170
million and $183 million at December 31, 2001 and 2000, 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 2001, the Company recorded a $5 million
reversal of certain deferred benefits payable to reflect a change in estimates.
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 $100 thousand at December 31,
2001, will be paid during the next year 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 fourth quarter 2001 workforce reduction, the
second quarter 1999 reorganization, and the Merger were $35 million and $30
million at December 31, 2001 and 2000, respectively. These costs will be paid
over the next several years based on deferral elections made by the employees.
During the fourth quarter of 2001, the Company reduced 400 positions through
severance, normal attrition and the elimination of contractors. The Company
recorded $21 million of expenses for severance, medical and other benefits
associated with the costs of terminating 360 employees and approximately $31
million for benefits to be received under
18
the Company's retirement and medical plans. Substantially all of these planned
reductions were completed at December 31, 2001.
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. 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. Components of
the costs include approximately $29 million relating to severance costs for
non-union employees and approximately $16 million for benefits to be received
under the Company's retirement and medical plans. Substantially all of the
planned reductions were made by September 30, 1999.
HEDGING ACTIVITIES
On January 1, 2001, BNSF adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
and recorded a cumulative transition benefit of $58 million, net of tax, to
Accumulated Other Comprehensive Income (AOCI). The standard requires that all
derivatives be recorded on the balance sheet at fair value and establishes
criteria for documentation and measurement of hedging activities.
The Company currently uses derivatives to hedge against increases in diesel fuel
prices and interest rates as well as to convert a portion of its fixed-rate
long-term debt to floating-rate debt. The Company formally documents the
relationship between the hedging instrument and the hedged item, as well as the
risk management objective and strategy for the use of the hedging instrument.
This documentation includes linking the derivatives that are designated as fair
value or cash flow hedges to specific assets or liabilities on the balance
sheet, commitments or forecasted transactions. The Company assesses at the time
a derivative contract is entered into, and at least quarterly, whether the
derivative item is effective in offsetting the changes in fair value or cash
flows. Any change in fair value resulting from ineffectiveness, as defined by
SFAS No. 133, is recognized in current period earnings. For derivative
instruments that are designated and qualify as cash flow hedges, the effective
portion of the gain or loss on the derivative instrument is recorded in AOCI as
a separate component of Stockholders' Equity and reclassified into earnings in
the period during which the hedge transaction affects earnings.
BNSF monitors its hedging positions and credit ratings of its counterparties and
does not anticipate losses due to counterparty nonperformance.
Fuel
Fuel costs represented 13 percent of total operating expenses during 2001 and
2000. 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. Based on
annualized fuel consumption during 2001 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.
The fuel-hedging program includes the use of derivatives that are accounted for
as cash flow hedges. As of December 31, 2001, BNSF had entered into fuel swap
agreements utilizing Gulf Coast #2 heating oil to hedge the equivalent of
approximately 296 million gallons of diesel fuel at an average price of
approximately 57 cents per gallon. Additionally, as of December 31, 2001, BNSF
had entered into costless collar agreements effective through 2002 for the
equivalent of approximately 50 million gallons of diesel fuel at an average call
price of approximately 65 cents per gallon and an average put price of
approximately 57 cents per gallon. The above prices 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. At December 31, 2001, BNSF's
fuel-hedging program covered an average of 31 percent of estimated fuel
purchases for 2002. Hedge positions are closely monitored to ensure that they
will not exceed actual fuel requirements in any period.
As a result of adopting SFAS No. 133, the Company recorded a cumulative
transition benefit of $56 million, net of tax, to AOCI related to deferred gains
on transactions as of January 1, 2001. Subsequent changes in fair value for the
effective portion of derivatives qualifying as hedges are recognized in Other
Comprehensive Income (OCI) until the purchase of the related hedged item is
recognized in earnings, at which time changes in fair value previously recorded
in OCI are reclassified to earnings and recognized in fuel expense. During 2001,
the Company recognized a loss of approximately
19
$100 thousand related to the ineffective portion of derivatives in fuel expense.
At December 31, 2001, AOCI includes a pretax loss of $4 million, all of which
relates to derivative transactions that will expire throughout 2002. Settled
fuel hedging contracts are a $3 million payable and a $50 million receivable at
December 31, 2001 and 2000, respectively, and are recorded in working capital.
BNSF measures the fair value of fuel swaps from daily forward price data
provided by various external counterparties. To value a fuel swap, the Company
uses a 3-month average of forward Gulf Coast #2 heating oil prices for the
period hedged. The fair value of fuel costless collars is calculated and
provided by the corresponding counterparty.
Between December 31, 2001 and January 31, 2002, the Company entered into
additional fuel hedge transactions to hedge the equivalent of approximately 54
million gallons of diesel fuel in 2002 at an average price of 55 cents per
gallon. At January 31, 2002, BNSF's fuel hedging program covered approximately
35 percent of estimated fuel purchases for 2002.
In addition, between December 31, 2001 and January 31, 2002, the Company entered
into fuel swap agreements utilizing West Texas Intermediate (WTI) crude oil to
hedge the equivalent of approximately 101 million and 50 million gallons of
diesel fuel for 2003 and 2004, respectively, at an average price of $20.58 per
barrel.
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 as well as
to convert a portion of its fixed-rate long-term debt to floating-rate debt. The
Company uses interest rate swaps as part of its interest rate risk management
strategy.
The cumulative transition benefit of adopting SFAS No. 133 as of January 1,
2001, included $2 million, net of tax, related to deferred gains on closed-out
derivatives which were used to lock the treasury rate on anticipated borrowings.
The deferred gains for cash flow hedges in AOCI are being amortized to interest
expense over the amount remaining in AOCI.
Cash Flow Hedges
- ----------------
The Company uses interest rate swaps to fix the LIBOR component of commercial
paper. These swaps are accounted for as cash flow hedges under SFAS No. 133 and
qualify for the short cut method of recognition. As of December 31, 2001, BNSF
had entered into five separate interest rate swaps to fix the LIBOR component of
$200 million of commercial paper at an average rate of 3.86 percent. The average
floating rate BNSF received on the swaps, which fluctuates monthly, was 1.95
percent as of December 31, 2001. These swaps will expire in 2002 and 2003. As of
December 31, 2001, AOCI included a pretax loss of $2 million related to the fair
value of these interest rate swaps.
Fair Value Hedges
- -----------------
The Company also enters into interest rate swaps to convert fixed-rate debt to
floating-rate debt. These swaps are accounted for as fair value hedges under
SFAS No. 133. These fair value hedges qualify for the short cut method of
recognition and, therefore, no portion of these swaps is treated as ineffective.
As of December 31, 2001, BNSF had entered into five separate swaps on a notional
amount of $500 million in which it pays an average floating rate, which
fluctuates quarterly, based on LIBOR. The average floating rate to be paid by
BNSF as of December 31, 2001, was 4.16 percent and the average fixed rate BNSF
is to receive is 7.13 percent. These swaps expire in 2004, 2005 and 2007. As of
December 31, 2001, BNSF recorded an asset of $2 million in Other Current Assets
for the fair value of these swaps.
BNSF's measurement of the fair value of interest rate swaps is based on
estimates of the mid-market values for the transactions provided by the
counterparties to these agreements.
LABOR
Approximately 88 percent of BNSF Railway's employees are union-represented. BNSF
Railway's union employees 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 have remained in effect
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 (NCCC), BNSF's multi-employer
collective bargaining representative, reached a final agreement with the
Brotherhood of Maintenance of Way Employes (BMWE) resolving wage, work rule and
benefit issues through 2004 which was implemented in July 2001. BMWE represents
BNSF's track, bridge and building maintenance employees, about one-fourth of
BNSF's unionized workforce. In June 2001, the NCCC reached a tentative agreement
20
with the International Brotherhood of Electrical Workers (IBEW), which
represents approximately five percent of BNSF's unionized workforce, addressing
wage and work rule issues through 2004, but leaving health and welfare benefit
issues for settlement in separate talks with other railroad unions. IBEW members
failed to ratify the tentative agreement. No new talks with IBEW are scheduled.
During the third quarter of 2000, the NCCC 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. This agreement is also
subject to ratification by the UTU's membership. As in the tentative IBEW
agreement, health and welfare benefit issues were not resolved with UTU and
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 have been approximately triple those in industries covered by
Social Security. The Railroad Retirement System, funded primarily by payroll
taxes on covered employers and employees, includes a benefit roughly equivalent
to Social Security (Tier I), an additional benefit similar to that allowed in
some private defined-benefit plans (Tier II), and other benefits. Investment of
Tier II Railroad Retirement assets has until recently been limited to special
interest-bearing U. S. Treasury securities. The Railroad Retirement and
Survivors' Improvement Act (Act) of 2001 creates a new National Railroad
Retirement Investment Trust to hold Tier II Railroad Retirement assets and
empowers the trustees to invest these assets in the same types of investments
available to private sector retirement plans. In addition to liberalizing
certain retirement benefit requirements for rail employees, the Act reduces Tier
II railroad retirement tax rates on rail employers beginning in 2002 and
eliminates a supplemental annuity tax. The Company expects to realize savings of
approximately $20 million in 2002 and $50 million in 2003. Future adjustments in
the Tier II Railroad Retirement tax rates assessed on both rail employers and
rail employees will depend on Railroad Retirement fund levels and annual savings
could be as much as $80 million by 2005.
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
The Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business
Combinations, which was effective for all business combinations initiated after
June 30, 2001, and SFAS No. 142, Goodwill and Other Intangible Assets, which was
effective for fiscal years beginning after December 15, 2001. SFAS No. 141
eliminates the pooling method of accounting for a business combination and
requires that all combinations be accounted for using the purchase method. SFAS
No. 142 addresses accounting for identifiable intangible assets, eliminates the
amortization of goodwill, and provides specific steps for testing the impairment
of goodwill. The Company's historical consolidated financial statements will be
unaffected by these new standards.
The FASB also issued SFAS No. 143, Accounting for Asset Retirement Obligations,
and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 143, which is effective for fiscal years beginning after June
15, 2002, addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Company has not yet completed its analysis of SFAS
No. 143, although it does not currently expect implementation to have a
significant effect on its results of operations or financial condition.
SFAS No. 144 addresses financial accounting and reporting for the impairment of
long-lived assets, excluding goodwill and intangible assets, to be held and used
or disposed of. The adoption of SFAS No. 144 during the fourth quarter of 2001
did not have an impact on the consolidated financial statements.
FORWARD-LOOKING INFORMATION
To the extent that statements made by the Company relate to the Company's future
economic performance or business outlook, predictions or expectations of
financial or operational results, or refer to matters which are not historical
facts, such statements are forward-looking statements within the meaning of the
federal securities laws. 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, both within the United States and globally, customer
demand, effects of adverse economic conditions affecting shippers, adverse
economic conditions in the industries and geographic areas that produce and
consume freight, competition and consolidation within the transportation
industry, the extent to which the Company is successful in gaining new long-term
relationships or retaining existing ones, changes in fuel prices, and changes in
labor costs and labor difficulties including stoppages; legal and regulatory
factors: developments and changes
21
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, the Company's
ability to achieve its operational and financial initiatives and to contain
costs, as well as natural events such as severe weather, floods, earthquakes and
other disruptions involving the Company's infrastructure, operating systems, and
equipment.
The Company cautions against placing undue reliance on forward-looking
statements, which reflect its current beliefs and are based on information
currently available to it on the date a forward-looking statement is made. The
Company undertakes no obligation to revise forward-looking statements to reflect
future events, changes in circumstances or changes in beliefs.
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 qualitative and
quantitative information presented in the Management's Discussion and Analysis
of Financial Condition and Results of Operations section and Notes 3 and 9 of
the Consolidated Financial Statements describe significant aspects of BNSF's
financial instrument programs, which have a material market risk.
Interest Rate Sensitivity
From time to time, BNSF enters into various interest rate-hedging transactions
for purposes of managing exposure to fluctuations in interest rates and
establishing rates in anticipation of future debt issuances as well as to
convert a portion of its fixed-rate long-term debt to floating-rate debt to
manage its ratio of fixed-rate debt to floating-rate debt. BNSF's measurement of
fair value of interest rate swaps is based on estimates of the mid-market values
for the transactions provided by the counterparties to these agreements.
As discussed in Note 3 in the Consolidated Financial Statements, the Company
uses several types of interest rate swaps to minimize exposure to risk. These
swaps are accounted for as cash flow or fair value hedges under SFAS No. 133.
All swap transactions outstanding with an interest rate component are reflected
in the table below.
December 31, 2001
-----------------------------------------------------------------------------
Maturity Date
-------------------------------------------------------
There- Fair
2002 2003 2004 2005 2006 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Cash Flow Hedges
- ----------------
Variable to Fixed LIBOR swaps
(in millions) $100 $100 - - - - $200 $(2)
Average Fixed Rate 4.59% 3.14% - - - - 3.86%
Average Floating Rate 1.92% 1.98% - - - - 1.95%
Fair Value Hedges
- -----------------
Fixed to Variable swaps (in
millions) - - $100 $300 - $100 $500 $2
Average Fixed Rate - - 8.63% 6.38% - 7.88% 7.13%
Average Floating Rate - - 6.18% 3.37% - 4.51% 4.16%
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, 2001 and 2000. 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 December 31, 2001. The fair values
presented in the table below do not include the fair value of the swaps.
22
December 31, 2001
---------------------------------------------------------------------------------
Maturity Date
--------------------------------------------------------------
There- Fair
2002 2003 2004 2005 2006 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Fixed-Rate Debt (in millions) $288 $144 $152 $144 $430 $4,577 $5,735 $5,928
Average Interest Rate 7.09% 7.19% 7.02% 7.12% 8.43% 7.07% 7.18%
Variable-Rate Debt (in millions) - - $100 $716 - $100 $916 $ 943
Average Interest Rate - - 8.47% 5.36% - 7.73% 5.96%
December 31, 2000
----------------------------------------------------------------------------------
Maturity Date
-------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Fixed-Rate Debt (in millions) $232 $288 $145 $244 $440 $4,856 $6,205 $6,163
Average Interest Rate 7.69% 7.09% 7.18% 7.70% 6.61% 7.22% 7.19% -
Variable-Rate Debt (in millions) - - - - $641 - $641 $641
Average Interest Rate - - - - 5.99% - 5.99% -
BNSF has included $416 million in 2005 maturities and $641 million in 2005
maturities of commercial paper and bank borrowings in the 2001 and 2000 tables,
respectively.
In addition, maturities in 2003 included in the 2001 and 2000 tables exclude
$175 million of 6.53 percent notes due 2037, which may be redeemed in 2003 at
the option of the holder. Maturities in 2001 included in the 2000 table exclude
$100 million of 6.05 percent notes due 2031 called by the holder of the call
option in March of 2001. BNSF subsequently purchased the option from the holder
and retired the bonds.
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 and bank debt approximates fair value because of the short
maturity of these instruments.
Commodity Price Sensitivity
BNSF has a program to hedge against fluctuations in the price of its diesel fuel
purchases. Swap transactions are typically based on the price of pipeline
delivery of Gulf Coast #2 heating oil. BNSF either pays or receives the
difference between the hedge price and the actual average price of Gulf Coast #2
heating oil during a specified determination period for a specified number of
gallons. 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.
BNSF measures the fair value of Gulf Coast #2 heating oil swaps from daily
forward price data provided by various external counterparties. To value a swap,
the Company uses a 3-month average of forward Gulf Coast #2 heating oil prices
for the period hedged. The fair value of fuel costless collars is calculated and
provided by the corresponding counterparty. The tables below provide information
about BNSF's diesel fuel hedging instruments that are sensitive to changes in
diesel fuel prices. The tables present notional amounts in gallons and the
weighted average contract prices by contractual maturity date. The prices
included in the tables below do not include taxes, transportation costs, certain
other fuel handling costs and any differences which may occur from time to time
between the prices of commodities hedged and the purchase price of BNSF's diesel
fuel.
23
December 31, 2001
--------------------------
2002
Maturity Fair
Date Value
------------ ----------
Diesel Fuel Swaps:
Gallons (in millions) 296 $ (1)
Weighted average price per gallon $0.57 -
Diesel Fuel Costless Collars:
Gallons (in millions) 50 $ (3)
Weighted average price per gallon - calls $0.65 -
Weighted average price per gallon - puts $0.57 -
December 31, 2000
---------------------------------------------
Maturity Date
--------------------
Fair
2001 2002 Total Value
---- ---- ----- -----
Diesel Fuel Swaps:
Gallons (in millions) 277 101 378 $ 74
Weighted average price per gallon $0.49 $0.50 $0.50 -
At December 31, 2001 and 2000, BNSF maintained fuel inventories for use in
normal operations which were not material to BNSF's overall financial position
and, therefore, represent no significant market exposure.
The Company entered into fuel hedge transactions between December 31, 2001 and
January 31, 2002. See Other Matters: Hedging Activities in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
24
ITEM 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of BNSF and subsidiary companies, together
with the report of independent accountants, are included as part of this filing.
The following documents are filed as a part of this report:
1. Consolidated Financial Statements Page
Report of Independent Accountants ......................................................................... 26
Consolidated Statements of Income for the three years ended December 31, 2001 ............................. 27
Consolidated Balance Sheets as of December 31, 2001 and 2000 .............................................. 28
Consolidated Statements of Cash Flows for the three years ended December 31, 2001 ......................... 29
Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 2001 .... 30
Notes to Consolidated Financial Statements ................................................................ 31-48
25
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, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001 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 51 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Fort Worth, Texas
February 6, 2002
26
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------- --------------- -------------- ---------------
Revenues $ 9,208 $ 9,207 $ 9,195
--------------- -------------- ---------------
Operating expenses:
Compensation and benefits 2,850 2,729 2,772
Purchased services 1,084 1,024 1,051
Depreciation and amortization 909 895 897
Equipment rents 740 742 752
Fuel 973 932 700
Materials and other 897 777 818
--------------- -------------- ---------------
Total operating expenses 7,453 7,099 6,990
- --------------------------------------------------------------- --------------- -------------- ---------------
Operating income 1,755 2,108 2,205
Interest expense 463 453 387
Other (income) expense, net 110 70 (1)
--------------- -------------- ---------------
Income before income taxes and extraordinary charge 1,182 1,585 1,819
Income tax expense 445 605 682
--------------- -------------- ---------------
Income before extraordinary charge 737 980 1,137
Extraordinary charge, net 6 - -
--------------- -------------- ---------------
Net income $ 731 $ 980 $ 1,137
- --------------------------------------------------------------- --------------- -------------- ---------------
Earnings per share:
Basic earnings per share $ 1.90 $ 2.38 $ 2.46
(before extraordinary charge)
Basic earnings per share $ 1.89 $ 2.38 $ 2.46
(after extraordinary charge)
Diluted earnings per share $ 1.89 $ 2.36 $ 2.44
(before extraordinary charge)
Diluted earnings per share $ 1.87 $ 2.36 $ 2.44
(after extraordinary charge)
- --------------------------------------------------------------- --------------- -------------- ---------------
Average shares (in millions):
Basic 387.3 412.1 463.2
Dilutive effect of stock awards 3.4 3.1 3.6
--------------- -------------- ---------------
Diluted 390.7 415.2 466.8
- --------------------------------------------------------------- --------------- -------------- ---------------
See accompanying Notes to Consolidated Financial Statements.
27
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, shares in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 2001 2000
- ------------------------------------------------------------------------------------- --------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 26 $ 11
Accounts receivable, net 172 314
Materials and supplies 191 220
Current portion of deferred income taxes 306 299
Other current assets 28 132
--------------- ---------------
Total current assets 723 976
Property and equipment, net 23,110 22,369
Other assets 888 1,030
--------------- ---------------
Total assets $ 24,721 $ 24,375
===================================================================================== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,873 $ 1,954
Long-term debt due within one year 288 232
--------------- ---------------
Total current liabilities 2,161 2,186
Long-term debt and commercial paper 6,363 6,614
Deferred income taxes 6,731 6,422
Casualty and environmental liabilities 423 430
Employee merger and separation costs 216 262
Other liabilities 978 981
--------------- ---------------
Total liabilities 16,872 16,895
- ------------------------------------------------------------------------------------- --------------- ---------------
Commitments and contingencies (see Notes 3, 9 and 11)
Stockholders' equity:
Common stock, $0.01 par value 600,000 shares authorized;
492,818 shares and 486,637 shares issued, respectively 5 5
Additional paid-in-capital 5,584 5,428
Retained earnings 5,048 4,505
Treasury stock, at cost, 107,041 shares and 95,045 shares, respectively (2,745) (2,413)
Unearned compensation (34) (35)
Accumulated other comprehensive loss (9) (10)
--------------- ---------------
Total stockholders' equity 7,849 7,480
--------------- ---------------
Total liabilities and stockholders' equity $ 24,721 $ 24,375
===================================================================================== =============== ===============
See accompanying Notes to Consolidated Financial Statements.
28
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------- ----------- ----------- ----------
OPERATING ACTIVITIES
Net income $ 731 $ 980 $ 1,137
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 909 895 897
Deferred income taxes 302 353 444
Extraordinary charge 9 - -
Employee merger and separation costs paid (55) (58) (93)
Other, net 82 33 (112)
Changes in current assets and liabilities:
Accounts receivable, net 142 83 127
Materials and supplies 29 35 (11)
Other current assets 103 (66) (32)
Accounts payable and other current liabilities (55) 62 67
----------- ----------- ----------
Net cash provided by operating activities 2,197 2,317 2,424
- --------------------------------------------------------------------------------- ----------- ----------- ----------
INVESTING ACTIVITIES
Capital expenditures (1,459) (1,399) (1,788)
Other, net (105) (281) (152)
----------- ----------- ----------
Net cash used for investing activities (1,564) (1,680) (1,940)
- --------------------------------------------------------------------------------- ----------- ----------- ----------
FINANCING ACTIVITIES
Net (decrease) increase in commercial paper and bank borrowings (226) 169 (23)
Proceeds from issuance of long-term debt 400 1,125 679
Payments on long-term debt (380) (260) (293)
Dividends paid (190) (206) (224)
Proceeds from stock options exercised 113 13 121
Purchase of BNSF common stock (317) (1,496) (688)
Other, net (18) 7 (59)
----------- ----------- ----------
Net cash used for financing activities (618) (648) (487)
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents 15 (11) (3)
Cash and cash equivalents:
Beginning of year 11 22 25
----------- ----------- ----------
End of year $ 26 $ 11 $ 22
================================================================================= =========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized $ 494 $ 447 $ 385
Income taxes paid, net of refunds $ 102 $ 304 $ 138
================================================================================= =========== =========== ==========
See accompanying Notes to Consolidated Financial Statements.
29
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Shares in thousands, dollars in millions, except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Stock and Other Total
Common Treasury Paid-in Retained Treasury Unearned Comprehensive Stockholders'
Shares Shares Capital Earnings Stock Compensation Income (Loss) Equity
- --------------------------------- -------- --------- ---------- ---------- -------- ------------ --------------- -------------
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 - 1,137 - - 1 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 of $28 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 - 980 - - (3) 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 of $8.6 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
Comprehensive income:
Net income - 731 - - - 731
Cumulative effect of
adoption of SFAS No. 133,
net of tax expense of $36 - - - - 58 58
Gain on derivative instruments,
included in net income, net
of tax expense of $18 - - - - (30) (30)
Change in fair value of
derivative instruments,
net of tax benefit of $18 - - - - (29) (29)
Minimum pension liability
adjustment, net of tax
expense of $1.3 - - - - 2 2
---------- ---------- -------- ------------ --------------- -------------
Total comprehensive income - 731 - - 1 732
---------- ---------- -------- ------------ --------------- -------------
Common stock dividends,
$0.48 per share - - - (188) - - - (188)
Adjustments associated with
unearned compensation,
restricted stock 899 (86) 15 - - 1 - 16
Exercise of stock options and
related tax benefit of $17 5,282 (478) 141 - (15) - - 126
Purchase of BNSF common stock - (11,432) - - (317) - - (317)
- --------------------------------- -------- --------- ---------- ---------- -------- ------------ --------------- -------------
Balance at December 31, 2001 492,818 (107,041) $ 5,589 $ 5,048 $(2,745) $ (34) $ (9) $ 7,849
================================= ======== ========= ========== ========== ======== ============ =============== =============
See accompanying Notes to Consolidated Financial Statements.
30
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 33,000 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 Consumer and Industrial
Products, Coal, and Agricultural Products, derived from manufacturing,
agricultural and natural resource industries, which constituted 37 percent, 23
percent, 23 percent and 17 percent, respectively, of total revenues for the year
ended December 31, 2001.
2. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BNSF, 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.
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.
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, NET
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 value 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.
The Company self-constructs portions of its track structure and rebuilds certain
classes of rolling stock. In addition to direct labor and material, certain
indirect costs are capitalized. Expenditures which 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.
31
Long-lived assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If impairment indicators are present and the estimated future
undiscounted cash flows are less than the carrying value of the long-lived
assets, the carrying value is reduced to the estimated fair value as measured by
the discounted cash flows.
PERSONAL INJURY CLAIMS
Personal injury liabilities are estimated on an actuarial basis. Incurred but
not reported liabilities are included in the estimates based on historical
experience. Estimates for these liabilities are not discounted.
STOCK OPTIONS
The Company applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense is recognized for its fixed stock option plans as the
exercise price equals the stock price on the date of grant.
RECLASSIFICATIONS
Certain comparative prior year amounts in the consolidated financial statements
and accompanying notes have been reclassified to conform to the current year
presentation. These reclassifications had no effect on previously reported
operating income and net income.
3. HEDGING ACTIVITIES
On January 1, 2001, BNSF adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
and recorded a cumulative transition benefit of $58 million, net of tax, to
Accumulated Other Comprehensive Income (AOCI). The standard requires that all
derivatives be recorded on the balance sheet at fair value and establishes
criteria for documentation and measurement of hedging activities.
The Company currently uses derivatives to hedge against increases in diesel fuel
prices and interest rates as well as to convert a portion of its fixed-rate
long-term debt to floating-rate debt. The Company formally documents the
relationship between the hedging instrument and the hedged item, as well as the
risk management objective and strategy for the use of the hedging instrument.
This documentation includes linking the derivatives that are designated as fair
value or cash flow hedges to specific assets or liabilities on the balance
sheet, commitments or forecasted transactions. The Company assesses at the time
a derivative contract is entered into, and at least quarterly, whether the
derivative item is effective in offsetting the changes in fair value or cash
flows. Any change in fair value resulting from ineffectiveness, as defined by
SFAS No. 133, is recognized in current period earnings. For derivative
instruments that are designated and qualify as cash flow hedges, the effective
portion of the gain or loss on the derivative instrument is recorded in AOCI as
a separate component of Stockholders' Equity and reclassified into earnings in
the period during which the hedge transaction affects earnings.
BNSF monitors its hedging positions and credit ratings of its counterparties and
does not anticipate losses due to counterparty nonperformance.
Fuel
Fuel costs represented 13 percent of total operating expenses during 2001 and
2000. 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. Based on
annualized fuel consumption during 2001 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.
The fuel-hedging program includes the use of derivatives that are accounted for
as cash flow hedges. As of December 31, 2001, BNSF had entered into fuel swap
agreements utilizing Gulf Coast #2 heating oil to hedge the equivalent of
approximately 296 million gallons of diesel fuel at an average price of
approximately 57 cents per gallon. Additionally, as of December 31, 2001, BNSF
had entered into costless collar agreements effective through 2002 for the
equivalent of approximately 50 million gallons of diesel fuel at an average call
price of approximately 65 cents per gallon and an average put price of
approximately 57 cents per gallon. The above prices do not include taxes,
transportation costs,
32
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. At December 31, 2001, BNSF's fuel-hedging program covered an
average of 31 percent of estimated fuel purchases for 2002. Hedge positions are
closely monitored to ensure that they will not exceed actual fuel requirements
in any period.
As a result of adopting SFAS No. 133, the Company recorded a cumulative
transition benefit of $56 million, net of tax, to AOCI related to deferred gains
on transactions as of January 1, 2001. Subsequent changes in fair value for the
effective portion of derivatives qualifying as hedges are recognized in Other
Comprehensive Income (OCI) until the purchase of the related hedged item is
recognized in earnings, at which time changes in fair value previously recorded
in OCI are reclassified to earnings and recognized in fuel expense. During 2001,
the Company recognized a loss of approximately $100 thousand related to the
ineffective portion of derivatives in fuel expense. At December 31, 2001, AOCI
includes a pretax loss of $4 million, all of which relates to derivative
transactions that will expire throughout 2002. Settled fuel hedging contracts
are a $3 million payable and a $50 million receivable at December 31, 2001 and
2000, respectively, and are recorded in working capital.
BNSF measures the fair value of fuel swaps from daily forward price data
provided by various external counterparties. To value a fuel swap, the Company
uses a 3-month average of forward Gulf Coast #2 heating oil prices for the
period hedged. The fair value of fuel costless collars is calculated and
provided by the corresponding counterparty.
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 as well as
to convert a portion of its fixed-rate long-term debt to floating-rate debt. The
Company uses interest rate swaps as part of its interest rate risk management
strategy.
The cumulative transition benefit of adopting SFAS No. 133 as of January 1,
2001, included $2 million, net of tax, related to deferred gains on closed-out
derivatives which were used to lock the treasury rate on anticipated borrowings.
The deferred gains for cash flow hedges in AOCI are being amortized to interest
expense over the amount remaining in AOCI.
As discussed in Note 9, at the time of issuing the $300 million of 7.88 percent
notes and the $200 million of 8.13 percent debentures in April 2000, 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. These gains
have been deferred and are being amortized to interest expense over the lives of
the notes and the debentures, respectively.
Also discussed in Note 9, at the time of issuing the $275 million of 7.95
percent debentures in August 2000 and the $300 million of 7.13 percent notes in
December 2000, the Company closed out two treasury lock transactions, each in an
amount of $100 million, at gains of $8 million and $5 million, respectively.
These gains have been deferred and are being amortized to interest expense over
the lives of the debentures and notes, respectively.
Cash Flow Hedges
- ----------------
The Company uses interest rate swaps to fix the LIBOR component of commercial
paper. These swaps are accounted for as cash flow hedges under SFAS No. 133 and
qualify for the short cut method of recognition. As of December 31, 2001, BNSF
had entered into five separate interest rate swaps to fix the LIBOR component of
$200 million of commercial paper at an average rate of 3.86 percent. The average
floating rate BNSF received on the swaps, which fluctuates monthly, was 1.95
percent as of December 31, 2001. These swaps will expire in 2002 and 2003. As of
December 31, 2001, AOCI included a pretax loss of $2 million related to the fair
value of these interest rate swaps.
Fair Value Hedges
- -----------------
The Company also enters into interest rate swaps to convert fixed-rate debt to
floating-rate debt. These swaps are accounted for as fair value hedges under
SFAS No. 133. These fair value hedges qualify for the short cut method of
recognition and, therefore, no portion of these swaps is treated as ineffective.
As of December 31, 2001, BNSF had entered into five separate swaps on a notional
amount of $500 million in which it pays an average floating rate, which
fluctuates quarterly, based on LIBOR. The average floating rate to be paid by
BNSF as of December 31, 2001, was 4.16 percent and the average fixed rate BNSF
is to receive is 7.13 percent. These swaps expire in 2004, 2005 and 2007. As of
December 31, 2001, BNSF recorded an asset of $2 million in Other Current Assets
for the fair value of these swaps.
BNSF's measurement of the fair value of interest rate swaps is based on
estimates of the mid-market values for the transactions provided by the
counterparties to these agreements.
33
4. OTHER (INCOME) EXPENSE, NET
Other (income) expense, net includes the following (in millions):
Year Ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------- ------------ ------------ ------------
Gain on property dispositions $ (20) $ (29) $ (26)
Write-down of non-rail investments 75 - -
Accounts receivable sale fees 30 40 33
Merger costs - 20 -
Deferred gain on prior period line sale - - (50)
Miscellaneous, net 25 39 42
- -------------------------------------------------------------------------- ------------ ------------ ------------
Total $ 110 $ 70 $ (1)
- -------------------------------------------------------------------------- ============ ============ ============
Losses recognized in 2001 related to non-rail investments consisted primarily of
FreightWise, Inc., an Internet transportation exchange; Pathnet
Telecommunications, Inc., a telecommunications venture; a decline in the cash
surrender value of company owned life insurance policies; and a portfolio of
other non-core real-estate investments.
In 1999, BNSF and Canadian National Railway Company (CN) entered into an
agreement to combine the two companies. In 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 $20 million pretax
in costs related to the combination. 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 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.
5. INCOME TAXES
Income tax expense was as follows (in millions):
Year Ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------- ------------ ------------ ------------
Current:
Federal $ 130 $ 225 $ 213
State 11 27 25
- -------------------------------------------------------------------------- ------------ ------------ ------------
Total current 141 252 238
- -------------------------------------------------------------------------- ------------ ------------ ------------
Deferred:
Federal 260 303 376
State 44 50 68
- -------------------------------------------------------------------------- ------------ ------------ ------------
Total deferred 304 353 444
- -------------------------------------------------------------------------- ------------ ------------ ------------
Total $ 445 $ 605 $ 682
- -------------------------------------------------------------------------- ============ ============ ============
Reconciliation of the federal statutory income tax rate to the effective tax
rate was as follows:
Year Ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------- ------------ ------------ ------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 3.0 3.2 3.3
Other, net (0.3) - (0.8)
- -------------------------------------------------------------------------- ------------ ------------ ------------
Effective tax rate 37.7% 38.2% 37.5%
- -------------------------------------------------------------------------- ============ ============ ============
34
The components of deferred tax assets and liabilities were as follows (in
millions):
December 31, 2001 2000
- -------------------------------------------------------------------------- ------------ ------------
Deferred tax liabilities:
Depreciation and amortization $(6,671) $(6,382)
Other (458) (477)
- -------------------------------------------------------------------------- ------------ ------------
Total deferred tax liabilities (7,129) (6,859)
------------ ------------
Deferred tax assets:
Casualty and environmental 274 273
Employee merger and separation costs 105 119
Post-retirement benefits 99 95
Other 226 249
- -------------------------------------------------------------------------- ------------ ------------
Total deferred tax assets 704 736
- -------------------------------------------------------------------------- ------------ ------------
Net deferred tax liability $(6,425) $(6,123)
============ ============
Noncurrent deferred income tax liability $(6,731) $(6,422)
Current deferred income tax asset 306 299
- -------------------------------------------------------------------------- ------------ ------------
Net deferred tax liability $(6,425) $(6,123)
- -------------------------------------------------------------------------- ============ ============
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 the merger date in September 1995, respectively. All years
prior to 1992 for BNI and 1993 for SFP are closed. Issues relating to the years
1992 through 1994 for BNI and for years 1993 through the merger date September
1995 for SFP are being contested through various stages of administrative
appeal. BNSF is currently under Internal Revenue Service examination for years
1995 through 1999. 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 2001.
6. ACCOUNTS RECEIVABLE, NET
BNSF maintains an allowance for uncollectible accounts receivable. At December
31, 2001 and 2000, $65 million and $49 million, respectively, of such allowances
had been recorded.
BNSF Railway, through a special purpose subsidiary, sells variable rate
certificates that mature in 2002 under its accounts receivable sales program
(A/R sales program). The certificates 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 that are
used to support the certificates. In 2001, BNSF Railway increased capacity to
sell variable rate certificates under the A/R sales program by $100 million to
$700 million.
Certificates outstanding under the A/R sales program were $625 million and $600
million at December 31, 2001 and 2000, respectively, which provided $25 million
of cash for 2001. These certificates were supported by $844 million of
receivables at December 31, 2001, and $882 million of receivables at December
31, 2000. 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 of receivables less an allowance for uncollectible accounts. At December
31, 2001 and 2000, BNSF's retained interest in these receivables totaled $219
million and $282 million, respectively, less the normal allowances for
uncollectible accounts. The retained interest in 2001 and 2000 reflects the
total receivables sold less $625 million and $600 million, respectively, 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 2001 and 2000 were $30
million and $40 million, respectively. These costs were based on weighted
average interest rates of 4.8 percent in 2001 and 6.7 percent in 2000. Proceeds
from collections reinvested in the A/R sales program were approximately $10
billion in both 2001 and 2000.
BNSF's A/R sales program includes a provision that allows the institutions
participating in this program, at their option, to cancel the program if BNSF
Railway's senior unsecured credit rating falls below investment grade. Upon
cancellation, BNSF would not be able to sell additional receivables under this
program. If such event were to occur, BNSF would have sufficient liquidity
remaining under its revolving credit agreements to fund the full amount of
securities outstanding under
35
the A/R sales program at December 31, 2001. The Company is not aware of any
pending significant adverse changes to credit ratings that would cause BNSF
Railway to fall below investment grade.
7. PROPERTY AND EQUIPMENT, NET
Property and equipment, net (in millions), and the weighted average annual
depreciation rate (%) were as follows:
2001
Depreciation
December 31, 2001 2000 Rate
- -------------------------------------------------------------------------- ------------ ------------- ------------
Land $ 1,430 $ 1,420 - %
Track structure 12,455 11,900 3.9
Other roadway 9,426 9,137 2.5
Locomotives 2,759 2,799 5.7
Freight cars and other equipment 1,719 1,821 5.0
Computer hardware and software 266 362 16.2
- -------------------------------------------------------------------------- ------------ -------------
Total cost 28,055 27,439
Less accumulated depreciation and amortization (4,945) (5,070)
- -------------------------------------------------------------------------- ------------ -------------
Property and equipment, net $ 23,110 $ 22,369
- -------------------------------------------------------------------------- ============ =============
The consolidated balance sheets at December 31, 2001 and 2000, included $1,202
million and $1,195 million, respectively, for property and equipment under
capital leases, primarily for locomotives.
8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consisted of the following (in
millions):
December 31, 2001 2000
- -------------------------------------------------------------------------- ------------ ------------
Compensation and benefits payable $ 354 $ 352
Casualty and environmental liabilities 237 229
Tax liabilities 180 143
Rents and leases 166 142
Accounts payable 160 212
Contract allowances 127 109
Accrued interest 118 114
Employee merger and separation costs 58 49
Other 473 604
- -------------------------------------------------------------------------- ------------ -------------
Total $ 1,873 $ 1,954
- -------------------------------------------------------------------------- ============ =============
36
9. DEBT
Debt outstanding was as follows (in millions):
December 31, 2001 2000
- ---------------------------------------------------------------------------------------------- ----------- -----------
Notes and debentures, weighted average rate of 6.8 percent, due 2002 to 2097 $ 4,500 $ 4,294
Equipment obligations, weighted average rate of 7.3 percent, due 2002 to 2016 677 742
Capitalized lease obligations, weighted average rate of 6.6 percent, due 2002 to 2016 672 736
Mortgage bonds, weighted average rate of 7.9 percent, due 2002 to 2047 425 467
Commercial paper, 2.1 percent, variable 416 567
Bank borrowings - 74
Unamortized discount and other, net (39) (34)
- ---------------------------------------------------------------------------------------------- ----------- -----------
Total 6,651 6,846
Less current portion of long-term debt (288) (232)
- ---------------------------------------------------------------------------------------------- ----------- -----------
Long-term debt $ 6,363 $ 6,614
- ---------------------------------------------------------------------------------------------- =========== ===========
Certain BNSF Railway properties and other assets are subject to liens securing
$425 million of mortgage debt. Certain locomotives and rolling stock of BNSF
Railway are subject to equipment obligations and capital leases.
Aggregate long-term debt scheduled maturities for 2002 through 2006 are $288
million, $144 million, $252 million, $860 million (including commercial paper of
$416 million) and $430 million, respectively. Maturities in 2003 exclude $175
million of 6.53 percent notes due 2037, which may be redeemed in 2003 at the
option of the holder. There were no bank borrowings outstanding at December 31,
2001. BNSF had bank borrowings outstanding at December 31, 2000, with maturity
values of $75 million and interest rates similar to commercial paper which, upon
maturity, was replaced with commercial paper or other bank borrowings.
The carrying amounts of BNSF's long-term debt and commercial paper at December
31, 2001 and 2000, were $6,651 million and $6,846 million, respectively, while
the estimated fair values at December 31, 2001 and 2000, were $6,871 million and
$6,804 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 and bank debt approximates
fair value because of the short maturity of these instruments.
NOTES AND DEBENTURES
In March 2001, $100 million of 33-year remarketable bonds issued in 1998 were
called by the holder of the call option. BNSF subsequently purchased the option
from the holder and retired the bonds, and incurred an extraordinary loss of $6
million, net of tax, due to early retirement. Additionally in March 2001, BNSF
issued a $12 million, 5.96 percent note due April 2004.
In May 2001, the Company increased the amount of debt securities under its shelf
registration, enabling it to issue debt securities in one or more series at an
aggregate offering price not to exceed $1 billion, and issued $400 million of
6.75 percent notes due July 15, 2011. The net proceeds of the debt issuance were
used for general corporate purposes including the repayment of outstanding
commercial paper. Subsequent to this debt issuance, the Company had $600 million
of capacity under the May 2001 shelf registration statement.
In December 2001, BNSF entered into five separate interest rate swaps to convert
$500 million of fixed-rate debt to floating-rate debt. The average floating rate
to be paid by BNSF as of December 31, 2001, on the five swaps was 4.16 percent,
and the average fixed rate BNSF is to receive is 7.13 percent. The floating rate
fluctuates quarterly. These swaps expire in 2004, 2005 and 2007.
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 7.88 percent notes due April 2007 and
$200 million of 8.13 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
37
time of issuing the $300 million of 7.88 percent notes and the $200 million of
8.13 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.
In August 2000, BNSF issued $275 million of 7.95 percent debentures due August
2030. 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.
In December 2000, BNSF issued $300 million of 7.13 percent notes due December
2010. 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 notes, 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.
EQUIPMENT OBLIGATIONS
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 has annual maturities through 2015.
COMMERCIAL PAPER AND BANK BORROWINGS
BNSF issues commercial paper from time to time which is supported by bank
revolving credit agreements. At December 31, 2001 and 2000, there were no bank
borrowings against the revolving credit agreements. Outstanding commercial paper
balances are considered as reducing the amount of borrowings available under
these agreements. The bank revolving credit agreements allow borrowings of up to
$1.75 billion. 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
borrowing capacity under these facilities. The commitments of the lenders under
the short-term agreement allow borrowings of up to $1.0 billion and are
scheduled to expire in June 2002. The Company has the ability to have any
amounts then outstanding mature as late as June 2003. The remaining $750 million
of commitments of the lenders under the long-term agreement are scheduled to
expire in June 2005. Annual facility fees for the short-term and long-term
facilities 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.
In April 2001, BNSF entered into an interest rate swap to fix the LIBOR
component of $100 million of commercial paper at 4.59 percent. The effective
date of the swap is April 19, 2001, and it will expire on April 19, 2002.
In September 2001, BNSF entered into three separate interest rate swaps of $25
million each to fix the LIBOR component of $75 million of commercial paper at an
average rate of 3.26 percent. Each swap has a term of 18 months with monthly
resets of the floating interest rate. These swaps will expire in March 2003.
In October 2001, BNSF entered into an interest rate swap to fix the LIBOR
component of $25 million of commercial paper at 2.77 percent. The effective date
of this swap was October 5, 2001, and it will expire on April 7, 2003.
The maturity value of commercial paper outstanding at December 31, 2001 and
2000, was $416 million and $573 million, respectively, leaving a total remaining
capacity available under the revolving credit agreements of $1,334 million and
$1,177 million as of December 31, 2001 and 2000, respectively. BNSF must
maintain compliance with certain financial covenants under its revolving credit
agreements. At December 31, 2001, the Company was in compliance.
OTHER
Santa Fe Pacific Pipelines, Inc., an indirect wholly-owned subsidiary of BNSF,
in connection with its remaining 0.50 percent special limited partner interest
in SFPP, L.P., is contingently liable for $190 million of certain Kinder Morgan
Energy Partners, L.P. debt.
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, operated and used by Kansas City Terminal Railway Company
(KCTRC). BNSF has a 25 percent ownership in KCTRC and accounts for its interest
using the equity method of accounting.
38
During 2001, the Company entered into agreements to form a partnership (the
Partnership) with subsidiaries of three chemical manufacturing companies that
ship their products on the BNSF Railway. The purpose of this Partnership is to
construct and operate a 13-mile railroad which will service several chemical and
plastics manufacturing facilities in the Houston, Texas, area. BNSF owns a 48
percent limited partnership interest and a one percent general partnership
interest in the Partnership and will act as the general partner and operator of
this facility. The Company has agreed to guarantee debt incurred by the
partnership, which is expected to be approximately $85 million in connection
with the construction of this line, and will provide up to $15 million of
interim financing during the construction period. As of December 31, 2001, BNSF
had no guarantees outstanding under this agreement and had advanced
approximately $6 million to the Partnership under the interim financing
arrangement.
In addition, BNSF guarantees $14 million of other debt and leases related to
various facilities.
BNSF does not expect to perform under these guarantees in the foreseeable
future.
10. EMPLOYEE MERGER AND SEPARATION COSTS
Employee merger and separation costs activity was as follows (in millions):
2001 2000 1999
- ------------------------------------------ ------ ------ ------
Beginning balance at January 1, $ 310 $ 356 $ 474
Accruals 30 22 29
Payments (55) (58) (93)
Other (11) (10) (54)
- ------------------------------------------ ------ ------ ------
Ending balance at December 31, $ 274 $ 310 $ 356
- ------------------------------------------ ====== ====== ======
Employee merger and separation liabilities of $274 million and $310 million are
included in the consolidated balance sheets at December 31, 2001 and 2000,
respectively, and principally represent: (i) employee-related severance costs
for the consolidation of clerical functions, material handlers in mechanical
shops and trainmen on reserve boards; (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 consolidated
income statements. At December 31, 2001, $58 million of the remaining
liabilities are included in current liabilities for anticipated costs to be paid
in 2002.
During the fourth quarter of 2001, the Company recorded a $66 million charge
including $61 million for workforce reduction related costs. Of the $61 million,
$30 million was recorded in Employee Merger and Separation Costs and $31 million
was recorded for benefits to be received under the Company's retirement and
medical plans.
Consolidation of Clerical Functions
Liabilities related to the consolidation of clerical functions were $69 million
and $96 million at December 31, 2001 and 2000, 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 2001, 2000 and 1999, the Company recorded $6 million, $10 million and $54
million, respectively, of reversals for certain liabilities associated with the
consolidation plan. These liabilities related to planned workforce 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, 2001, 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 fourth quarter of 2001, the Company recorded a charge of $9 million of
costs related to the reduction of approximately 40 material handlers and other
clerical positions. 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, 2001, 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 $170
million and $183 million at December 31, 2001 and 2000, respectively. These
costs were primarily incurred in connection with labor agreements reached prior
to the Merger which, among other things,
39
reduced train crew sizes and allowed for more flexible work rules. In 2001, the
Company recorded a $5 million reversal of certain deferred benefits payable to
reflect a change in estimates.
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 $100 thousand at December 31,
2001, will be paid during the next year 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 fourth quarter 2001 workforce reduction, the
second quarter 1999 reorganization, and the Merger were $35 million and $30
million at December 31, 2001 and 2000, respectively. These costs will be paid
over the next several years based on deferral elections made by the employees.
During the fourth quarter of 2001, the Company reduced 400 positions through
severance, normal attrition and the elimination of contractors. The Company
recorded $21 million of expense for severance, medical and other benefits
associated with the costs of terminating 360 employees and approximately $31
million for benefits to be received under the Company's retirement and medical
plans. Substantially all of these planned reductions were completed at December
31, 2001.
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. 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. Components of
the costs include approximately $29 million relating to severance costs for
non-union employees and approximately $16 million for benefits to be received
under the Company's retirement and medical plans. Substantially all of the
planned reductions were made by September 30, 1999.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
BNSF has substantial lease commitments for locomotives, freight cars, trailers
and containers, 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, 2001, are summarized as follows (in millions):
Capital Operating
December 31, Leases Leases
- ----------------------------------------------------- ------- ---------
2002 $ 107 $ 404
2003 107 394
2004 107 375
2005 103 344
2006 102 324
Thereafter 330 3,346
- ----------------------------------------------------- ------- ---------
Total 856 $ 5,187
=========
Less amount representing interest 184
- ----------------------------------------------------- -------
Present value of minimum lease payments $ 672
- ----------------------------------------------------- =======
Lease rental expense for all operating leases was $432 million, $424 million and
$435 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Contingent rentals and sublease rentals were not significant.
40
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 $173 million, $178 million and $179 million in 2001,
2000 and 1999, respectively. At December 31, 2001 and 2000, the Company had
recorded liabilities of $458 million and $436 million, respectively, related to
both asserted and unasserted personal injury claims.
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
cleanup and enforcement actions. In particular, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also
known as the Superfund law, as well as similar state laws generally impose joint
and several liability for cleanup and enforcement costs 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 cleanup costs at approximately 30 Superfund sites for
which investigation and remediation payments are or will be made or are yet to
be determined (the Superfund sites) and, in many instances, is one of several
PRPs. In addition, BNSF may be considered a PRP under certain other laws.
Accordingly, under CERCLA and other federal and state statutes, BNSF may be held
jointly and severally liable for all environmental costs associated with a
particular site. If there are other PRPs, BNSF generally participates in the
cleanup of these sites through cost-sharing agreements with terms that vary from
site to site. Costs are typically allocated based on relative volumetric
contribution of material, the amount of time the site was owned or operated,
and/or the portion of the total site owned or operated by each PRP.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental cleanup
costs are initially recorded when BNSF's liability for environmental cleanup is
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
cleanup, and historical trend analyses.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory cleanup efforts at approximately 390 sites, including the
Superfund sites, at which it is participating in the study or cleanup, or both,
of alleged environmental contamination. BNSF paid approximately $72 million, $49
million and $67 million during 2001, 2000 and 1999, respectively, for mandatory
and unasserted cleanup efforts, including amounts expended under federal and
state voluntary cleanup programs. BNSF has recorded liabilities for remediation
and restoration of all known sites of $202 million at December 31, 2001,
compared with $223 million at December 31, 2000. BNSF anticipates that the
majority of the accrued costs at December 31, 2001, will be paid over the next
five years. No individual site is considered to be material.
Liabilities recorded for environmental costs represent BNSF's best estimates for
remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's best
estimates of all costs, without reduction for anticipated recoveries from third
parties, BNSF's total cleanup costs at these sites cannot be predicted with
certainty due to various factors such as the extent of corrective actions that
may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other parties' participation in cleanup
efforts, developments in ongoing environmental analyses related to sites
determined to be contaminated, and developments in environmental surveys and
studies of potentially contaminated sites. As a result, future charges to income
for environmental liabilities could have a significant effect on results of
operations in a particular quarter or fiscal year as individual site studies and
remediation and restoration efforts proceed or as new sites arise. However,
management believes it is unlikely any identified matters, either individually
or in the aggregate, will have a material adverse effect on BNSF's results of
operations, financial position or liquidity.
41
OTHER COMMITMENTS
In the normal course of business, the Company enters into long-term contractual
requirements for future goods and services needed for the operations of the
business. Such commitments are not in excess of expected requirements and are
not reasonably likely to result in performance penalties or payments that would
have a material adverse affect on the Company's 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. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common
shares outstanding. Diluted earnings per share is based on basic earnings per
share adjusted for the effect of potential common shares outstanding that were
dilutive during the period, arising from employee stock awards and incremental
shares calculated using the treasury stock method.
Weighted average stock options totaling 13.3 million, 8.5 million, 26.5 million
and 26.2 million for the first, second, third and fourth quarters of 2001,
respectively, 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.
13. RETIREMENT PLANS AND OTHER POSTEMPLOYMENT BENEFIT PLANS
BNSF sponsors two significant defined benefit pension plans: a funded,
noncontributory qualified BNSF Retirement Plan, which covers substantially all
non-union employees, and an unfunded, 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.
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.
42
Components of the net benefit costs for these plans were as follows (in
millions):
Medical and Life
Pension Benefits Benefits
--------------------- ---------------------
December 31, 2001 2000 1999 2001 2000 1999
- ---------------------------------------- ----- ----- ----- ----- ----- -----
Service cost $ 13 $ 13 $ 15 $ 4 $ 4 $ 5
Interest cost 102 100 100 18 18 17
Expected return on plan assets (136) (129) (126) - - -
Curtailments/settlements 10 - - 3 - -
Special termination benefits 18 - 10 - - 6
Actuarial loss 1 - - - - -
Net amortization and deferred amounts 2 3 3 - 1 1
- ---------------------------------------- ----- ----- ----- ----- ----- -----
Net cost (benefit) $ 10 $ (13) $ 2 $ 25 $ 23 $ 29
- ---------------------------------------- ===== ===== ===== ===== ===== =====
The following tables show the change in benefit obligation and plan assets of
the plans based on a September 30 measurement date (in millions):
Medical and
Pension Benefits Life Benefits
----------------- ---------------
Change in Benefit Obligation 2001 2000 2001 2000
- ------------------------------------------- ------- ------- ------ ------
Benefit obligation at beginning of period $ 1,419 $ 1,387 $ 247 $ 244
Service cost 13 13 4 4
Interest cost 102 100 18 18
Plan participants' contributions - - 5 3
Amendments - - - (7)
Actuarial loss 68 39 60 7
Curtailments/settlements 8 - 3 -
Special termination benefits 18 - - -
Benefits paid (121) (120) (23) (22)
- ------------------------------------------- ------- ------- ------ ------
Benefit obligation at end of period $ 1,507 $ 1,419 $ 314 $ 247
- ------------------------------------------- ======= ======= ====== ======
Medical and
Pension Benefits Life Benefits
----------------- ---------------
Change in Plan Assets 2001 2000 2001 2000
- ------------------------------------------- ------- ------- ------ ------
Fair value of plan assets at beginning of
period $ 1,577 $ 1,530 $ - $ -
Actual return on plan assets (115) 162 - -
Employer contribution 4 5 19 19
Plan participants' contributions - - 4 3
Benefits paid (121) (120) (23) (22)
- ------------------------------------------- ------- ------- ------ ------
Fair value of plan assets at end of
period $ 1,345 $ 1,577 $ - $ -
- ------------------------------------------- ======= ======= ====== ======
43
The following tables show the reconciliation of the funded status of the plans
with amounts recorded in the consolidated balance sheets (in millions):
Medical and
Pension Benefits Life Benefits
---------------- ----------------
December 31, 2001 2000 2001 2000
- ------------------------------------------- ------ ------ ------ ------
Funded status $ (162) $ 158 $ (314) $ (247)
Unrecognized net (gain) loss 169 (146) 60 (1)
Unrecognized prior service cost (6) (6) (1) (1)
Unamortized net transition obligation 3 5 - -
- ------------------------------------------- ------ ------ ------ ------
Net amount recognized $ 4 $ 11 $ (255) $ (249)
- ------------------------------------------- ====== ====== ====== ======
Medical and
Pension Benefits Life Benefits
---------------- ----------------
December 31, 2001 2000 2001 2000
- ------------------------------------------ ------ ------ ------ ------
Amounts recognized in the consolidated
balance sheets consist of:
Prepaid benefit cost $ 42 $ 45 $ - $ -
Accrued benefit liability (50) (50) (255) (249)
Accumulated other comprehensive loss 12 16 - -
------ ------ ----- ------
Net amount recognized $ 4 $ 11 $(255) $ (249)
- ------------------------------------------ ====== ====== ===== ======
The assumptions used in accounting for the BNSF plans were as follows:
Medical and
Pension Benefits Life Benefits
---------------- ----------------
Assumptions 2001 2000 2001 2000
- ---------------------------------------- ------ ------ ------ ------
Discount rate 7.0% 7.5% 7.0% 7.5%
Rate of increase in compensation levels 4.0% 4.0% - -
Expected return on plan assets 9.5% 9.5% - -
- ---------------------------------------- ------ ------ ------ ------
For purposes of the medical and life benefits calculations for 2001, the assumed
health care cost trend rate for both managed care and non-managed care medical
costs is 12 percent and is assumed to decrease 1 percent for each future year
until the ultimate rate of 5 percent is reached in 2008 and remain constant
thereafter. Increasing the assumed health care cost trend rates by 1 percentage
point would increase the accumulated post-retirement benefit obligation by $26
million and the combined service and interest components of net post-retirement
benefit cost recognized in 2001 by $2 million. Decreasing the assumed health
care cost trend rates by 1 percentage point would decrease the accumulated
post-retirement benefit obligation by $22 million and the combined service and
interest components of net post-retirement benefit cost recognized in 2001 by $2
million.
OTHER PLANS
Under collective bargaining agreements, BNSF participates in multi-employer
benefit plans which provide certain post-retirement health care and life
insurance benefits for eligible union employees. Insurance premiums paid
attributable to retirees, which are generally expensed as incurred, were $18
million, $15 million and $14 million, in 2001, 2000 and 1999, 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 6 percent of non-union employees' 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 6 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 $14 million, $16
million and $18 million in 2001, 2000 and 1999, respectively.
44
14. 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. On April 18, 2001, BNSF shareholders approved the amended BNSF 1999 Stock
Incentive Plan, which authorized additional awards not to exceed 29 million
shares of BNSF common stock to be issued in connection with stock options,
restricted stock, restricted stock units and performance stock. Approximately
five million common shares were available for future grant at December 31, 2001.
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. Prior to April 2001, all options generally vested in one year and expired
within ten years after the date of grant. Stock option grants awarded in April
2001 vest ratably over three years and expire within ten 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 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
based on the fair value at grant dates consistent with SFAS No. 123, Accounting
for Stock Based Compensation, the Company's pro forma net income and earnings
per share would have been as follows:
Year Ended December 31, 2001 2000 1999
- ------------------------------------------------------ ---------- ----------- ----------
Net income (in millions) $ 720 $ 933 $ 1,092
Basic earnings per share $ 1.86 $ 2.26 $ 2.36
Diluted earnings per share $ 1.84 $ 2.25 $ 2.34
- ------------------------------------------------------ ---------- ----------- ----------
The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:
Year Ended December 31, 2001 2000 1999
- ------------------------------------------------------ ---------- ----------- ----------
Weighted average expected life (years) 4.0 3.0 3.0
Expected volatility 35.0% 35.0% 30.0%
Annual dividend per share $ 0.48 $ 0.48 $ 0.48
Risk free interest rate 4.21% 5.36% 6.63%
Weighted average fair value of options granted $ 8.44 $ 6.70 $ 8.43
- ------------------------------------------------------ ---------- ----------- ----------
A summary of the status of the stock option plans as of December 31, 2001, 2000
and 1999, and changes during the years then ended, is presented below:
Year Ended December 31, 2001 2000 1999
- ------------------------------------- ---------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Prices Options Prices Options Prices
- ------------------------------------- -------------- ------------ -------------- ------------ -------------- ------------
Balance at beginning of year 38,422,602 $ 27.22 29,808,157 $ 27.37 28,135,869 $ 24.27
Granted 7,423,682 $ 29.02 11,521,045 $ 25.56 9,857,345 $ 32.96
Exercised (5,282,337) $ 23.31 (1,255,643) $ 12.73 (6,315,238) $ 21.24
Cancelled (724,651) $ 30.29 (1,650,957) $ 29.95 (1,869,819) $ 30.94
- ------------------------------------- -------------- ------------ -------------- ------------ -------------- ------------
Balance at end of year 39,839,296 $ 28.02 38,422,602 $ 27.22 29,808,157 $ 27.37
- ------------------------------------- -------------- ------------ -------------- ------------ -------------- ------------
Options exercisable at year end 32,893,456 $ 27.80 26,729,220 $ 27.90 20,710,679 $ 25.00
- ----------------------------------------------------------------------------------------------------------------------------
45
The following table summarizes information regarding stock options outstanding
at December 31, 2001:
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 5,243,810 3.8 Years $19.92 5,243,810 $19.92
$25.66 to $28.73 8,536,930 7.7 Years $25.78 8,486,066 $25.77
$28.76 to $30.98 17,759,722 6.6 Years $29.17 10,883,807 $29.25
$31.00 to $36.73 8,298,834 6.9 Years $32.96 8,279,773 $32.96
- ------------------------------------- -------------- -------------- -------------- -------------- --------------
$ 4.23 to $36.73 39,839,296 6.6 Years $28.02 32,893,456 $27.80
- ------------------------------------- -------------- -------------- -------------- -------------- --------------
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
577 thousand restricted shares related to this award were outstanding as of
December 31, 2001, and most were forfeited on January 18, 2002 as a result of
stock price performance.
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 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 162 thousand, 350 thousand and 400 thousand shares
in 2001, 2000 and 1999, respectively. A total of approximately 1.1 million
shares were outstanding under this and prior programs of this type on December
31, 2001.
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, 2001, 2000 and 1999, approximately 7 thousand, 45 thousand
and 65 thousand shares, respectively, were purchased under this program. As of
December 31, 2001, 117 thousand restricted shares related to these awards were
outstanding.
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 100 thousand and 116
thousand for the years ended December 2001 and 2000, respectively. A total of
476 thousand restricted shares related to these awards were outstanding on
December 31, 2001.
On January 1, 2001, approximately 625 thousand restricted shares were granted.
As of December 31, 2001, 611 thousand restricted shares related to these awards
were outstanding.
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 was recorded under the BNSF Stock
Incentive Plans in accordance with APB Opinion 25 and was not material in 2001,
2000 or 1999.
15. COMMON STOCK AND PREFERRED CAPITAL STOCK
COMMON STOCK
BNSF is authorized to issue 600 million shares of common stock, $0.01 par value.
At December 31, 2001, there were 385.8 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
46
future issuances of preferred stock, each share of common stock is entitled to
receive dividends as may be declared by the Board of Directors (the Board) 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, 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 CN, 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 voted to
redeem all Rights under the Rights Plan. As a result of the redemption, the
Rights could no longer be exercised and shareholders were only entitled to
receive a redemption payment of $0.01 per Right. The redemption payment was
distributed on April 2, 2001, to shareholders of record as of March 12, 2001.
PREFERRED CAPITAL STOCK
At December 31, 2001, BNSF had 50 million shares of Class A Preferred Stock,
$0.01 par value and 25 million shares of Preferred Stock, $0.01 par value
available for issuance. The Board 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 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 authorized extensions of the BNSF
share-repurchase program, adding 30 million shares at each date to the total
shares previously authorized bringing BNSF's share-repurchase program to 120
million shares. During 2001, 2000 and 1999, the Company repurchased
approximately 11 million, 65 million and 22 million shares, respectively, of its
common stock at average prices of $27.76, $23.16 and $31.08 per share,
respectively. Total repurchases through December 31, 2001, were 103 million
shares at a total average cost of $25.74 per share, leaving 17 million shares
available for repurchase out of the 120 million shares authorized.
47
16. QUARTERLY FINANCIAL DATA--UNAUDITED
(Dollars in millions, except per share data) Fourth Third Second First
- ------------------------------------------------------ -------- -------- -------- --------
2001
Revenues $ 2,301 $ 2,343 $ 2,271 $ 2,293
- ------------------------------------------------------ -------- -------- -------- --------
Operating income $ 406 $ 502 $ 428 $ 419
- ------------------------------------------------------ -------- -------- -------- --------
Net income $ 177 $ 225 $ 195 $ 134
- ------------------------------------------------------ -------- -------- -------- --------
Basic earnings per share $ 0.46 $ 0.58 $ 0.50 $ 0.34
Diluted earnings per share $ 0.46 $ 0.58 $ 0.50 $ 0.34
Dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12
Common stock price:
High $ 29.96 $ 31.66 $ 34.00 $ 31.18
Low $ 25.01 $ 22.40 $ 27.81 $ 26.26
- ------------------------------------------------------ -------- -------- -------- --------
2000
Revenues $ 2,339 $ 2,343 $ 2,261 $ 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
- ------------------------------------------------------ -------- -------- -------- --------
Certain amounts in the table above have been reclassified to conform to the
current presentation which is different than previously reported on Form 10-Q.
48
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
49
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 2002 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 is included in Part I of
this Report on Form 10-K.
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 2002 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 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 2001,"
"Aggregated 2001 Stock Option Exercises and Year-End Option Values," "Pension
Plans," "Employment Contracts and Other Arrangements," and "Trust Agreements,"
in BNSF's proxy statement for its 2002 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 2002 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 2002 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.
50
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements--See Item 8
2. Consolidated Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts--See 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 for a description of the exhibits
filed as a part of this Report on Form 10-K.
(b) Reports on Form 8-K
None.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Burlington Northern Santa Fe Corporation has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
BURLINGTON NORTHERN SANTA FE CORPORATION
By: /s/ Matthew K. Rose
----------------------------------------
Dated: February 15, 2002 Matthew K. Rose
President and Chief
Executive Officer
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
--------- -----
/s/ Matthew K. Rose President and Chief Executive Officer
- --------------------------- (Principal Executive Officer), and Director
Matthew K. Rose
/s/ Thomas N. Hund Executive Vice President and Chief Financial
- --------------------------- Officer (Principal Financial Officer)
Thomas N. Hund
/s/ Dennis R. Johnson Vice President and Controller
- --------------------------- (Principal Accounting Officer)
Dennis R. Johnson
/s/ Robert D. Krebs* Chairman of the Board and Director
- ---------------------------
Robert D. Krebs
/s/ Alan L. Boeckmann* Director
- ---------------------------
Alan L. Boeckmann
/s/ John J. Burns, Jr.* Director
- ---------------------------
John J. Burns, Jr.
/s/ Bill M. Lindig* Director
- ---------------------------
Bill M. Lindig
/s/ Vilma S. Martinez* Director
- ---------------------------
Vilma S. Martinez
/s/ Marc F. Racicot* Director
- ---------------------------
Marc F. Racicot
/s/ Roy S. Roberts* Director
- ---------------------------
Roy S. Roberts
/s/ Marc J. Shapiro* Director
- ---------------------------
Marc J. Shapiro
S-1
/s/ Arnold R. Weber* Director
- ---------------------------
Arnold R. Weber
/s/ Robert H. West* Director
- ---------------------------
Robert H. West
/s/ J. Steven Whisler* Director
- ---------------------------
J. Steven Whisler
/s/ Edward E. Whitacre, Jr.* Director
- ---------------------------
Edward E. Whitacre, Jr.
/s/ Michael B. Yanney* Director
- ---------------------------
Michael B. Yanney
*By: /s/ Jeffrey R. Moreland
---------------------------------
Dated: February 15, 2002 Jeffrey R. Moreland
Executive Vice President Law &
Government Affairs and Secretary
S-2
SCHEDULE II
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2001, 2000 and 1999
(in millions)
- ------------------------------------------------------ -------------- -------------- -------------- --------------
Balance at Additions Balance at
Beginning of Charged to End of
Description Period Income Deductions Period
- ------------------------------------------------------ -------------- -------------- -------------- --------------
(a) (b)
December 31, 2001
Personal injury and environmental liabilities $ 659 $ 246 $ 245 $ 660
December 31, 2000
Personal injury and environmental liabilities $ 678 $ 208 $ 227 $ 659
December 31, 1999
Personal injury and environmental liabilities $ 635 $ 295 $ 252 $ 678
(a) Represents cash payments
(b) Classified in the consolidated balance sheets as
follows:
2001 2000 1999
-------------- -------------- --------------
Accounts payable and other current liabilities $ 237 $ 229 $ 255
Casualty and environmental liabilities 423 430 423
-------------- -------------- --------------
$ 660 $ 659 $ 678
============== ============== ==============
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.
Certificate of Elimination of the Designation of the 6-1/4% Cumulative,
Convertible Preferred Stock, Series A, $0.02 Par Value. Certificate of
Designation, Preferences and Rights of Junior Participating Preferred
Stock, Series B, $0.01 Par Value. Incorporated by reference to Exhibit
4.1 of BNSF's Form 8-A 12B filed December 23, 1999. Certificate of
Increase in the Number of Authorized Shares of Junior Participating
Preferred Stock, Series B, $0.01 Par Value.
3.2 By-Laws of BNSF as amended September 20, 2001. Incorporated by
reference to Exhibit 3.1 of BNSF's Form 10-Q for the period
ended September 30, 2001
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 fiscal year ended
December 31, 1998.
4.5 Form of BNSF's 7.875% Note Due April 15, 2007. Incorporated by
reference to Exhibit 4.5 to BNSF's Report on Form 10-K for
the fiscal year ended December 31, 2000.
4.6 Form of BNSF's 8.125% Debenture Due April 15, 2020. Incorporated by
reference to Exhibit 4.6 to BNSF's Report on Form 10-K for the year
ended December 31, 2000.
4.7 Form of BNSF's 7.95% Debenture Due August 15, 2030. Incorporated by
reference to Exhibit 4.7 to BNSF's Report on Form 10-K for the year
ended December 31, 2000.
4.8 Form of BNSF's 6.75% Note due July 15, 2011. Incorporated by reference
to Exhibit 4.1 to BNSF's Report on Form 10-Q for the quarter ended
June 30, 2001.
4.9 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 as
amended January 18, 2001.
10.2* The Burlington Northern and Santa Fe Railway Company Incentive
Compensation Plan as amended effective January 1, 2000.
10.3* 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.
10.4* 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).
10.5* 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.
Amendment of the Burlington Northern Santa Fe Corporation Senior
Management Stock Deferral Plan dated November 19, 2001.
10.6* Burlington Northern Santa Fe Long Term Incentive Stock Plan.
Incorporated by reference to Exhibit 4(c) to BNSF's Registration
Statement on Form S-8 (File No. 33-63247).
10.7* 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.
10.8* 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).
10.9* Burlington Northern Santa Fe Incentive Bonus Stock Program, as amended
and restated January 20, 1999. Incorporated by reference to Exhibit
10.11 to BNSF's Report on Form 10-K for the fiscal year ended December
31, 1999.
10.10* 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).
10.11* 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. Incorporated by
reference to Exhibit 10.13 to BNSF's Report on Form 10-K for the fiscal
year ended December 31, 1999.
10.12* 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.
10.13* 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.
10.14* Change-in-Control 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.
10.15* 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. Amendment dated
December 17, 1998.
10.16* Burlington Northern Santa Fe Corporation Deferred Compensation Plan
for Directors as amended and restated January 1, 2002.
10.17* Burlington Northern Santa Fe Corporation Supplemental Investment and
Retirement Plan. Incorporated by reference to Exhibit 10.20 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 2000.
10.18* 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.
Amendment dated January 6, 1999.
10.19* 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.
10.20* Burlington Northern Santa Fe Salary Exchange Option Program.
Incorporated by reference to Exhibit 10.23 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1999.
10.21* 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.
10.22* The Burlington Northern and Santa Fe Railway Company Severance Plan
as amended and restated October 16, 2001.
10.23* Burlington Northern Santa Fe 1999 Stock Incentive Plan as amended
January 2001. Incorporated by reference to Appendix I to BNSF's Proxy
Statement Pursuant to Rule 14(a) filed March 13, 2001.
10.24* 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.
10.25* 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.
10.26* 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.
10.27* 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.
10.28* 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.
10.29* Burlington Northern Santa Fe Incentive Stock Compensation Plan.
Incorporated by reference to BNSF's Registration Statement on Form
S-8 (File No. 33-63253).
10.30* 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.
10.31* 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.
10.32* 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.
10.33* Board of Directors resolutions (December 7, 2000) with respect to
compensatory arrangements as to Robert D. Krebs. Incorporated by
reference to Exhibit 10.36 to BNSF's Report on Form 10-K for the fiscal
year ended December 31, 2000.
10.34* Burlington Northern Santa Fe Corporation Board of Directors resolution
(December 13, 2001) with respect to a bonus payable to Robert D. Krebs.
10.35* Retirement Benefit Agreement with Robert D. Krebs dated December 12,
2001.
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.
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*Management contract or compensatory plan or arrangement.