Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - BURLINGTON NORTHERN SANTA FE, LLC | llc-12312014x10kax2ex321.htm |
| EX-31.2 - EXHIBIT 31.2 - BURLINGTON NORTHERN SANTA FE, LLC | llc-12312014x10kax2ex312.htm |
| EX-31.1 - EXHIBIT 31.1 - BURLINGTON NORTHERN SANTA FE, LLC | llc-12312014x10kax2ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 2
[x]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
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
(Exact name of registrant as specified in its charter)
Burlington Northern Santa Fe, LLC | |
State of Organization Delaware | I.R.S. Employer Identification No. 27-1754839 |
Address of principal executive offices, including zip code 2650 Lou Menk Drive, Fort Worth, Texas 76131-2830 Registrant’s telephone number, including area code (800) 795-2673 | |
Securities registered pursuant to Section 12(b) of the Act: | |
Title of each class None | Name of each exchange on which registered None |
Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Membership Interest | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | Yes [x] No [ ] |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. | Yes [ ] No [x] |
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). | Yes [x] No [ ] |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) 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. | [x] |
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company (as defined in Rule 12b-2 of the Act). | |
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [x] Smaller reporting company [ ] | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | Yes [ ] No [x] |
Burlington Northern Santa Fe, LLC is an indirect, wholly-owned subsidiary of Berkshire Hathaway Inc.; as a result, there is no market data with respect to registrant’s membership interests. | |
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: | |
100% of the membership interests of Burlington Northern Santa Fe, LLC outstanding as of February 28, 2014 is held by National Indemnity Company, a wholly-owned subsidiary of Berkshire Hathaway Inc. | |
DOCUMENTS INCORPORATED BY REFERENCE
None
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
i
Burlington Northern Santa Fe, LLC
Form 10-K/A Amendment No. 2
Explanatory Note
This Amendment No. 2 on Form 10-K/A to the Annual Report on Form 10-K of Burlington Northern Santa Fe, LLC (the “Company”) for the year ended December 31, 2014, which Form 10-K was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 27, 2015 and subsequently amended, is being filed to further amend the Form 10-K/A Amendment No. 1, filed with the SEC on March 3, 2015, to include updated principal officers' certification exhibits pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002.
Except for the foregoing amended information, this Form 10-K/A does not amend or update any other information contained in the Form 10-K, as amended.
ii
Part II
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of BNSF and subsidiary companies, together with the report of the Company’s independent registered public accounting firm, are included as part of this filing.
The following documents are filed as a part of this report:
Consolidated Financial Statements
1
Report of Independent Registered Public Accounting Firm
To the Board of Managers and Member of
Burlington Northern Santa Fe, LLC
We have audited the accompanying consolidated balance sheets of Burlington Northern Santa Fe, LLC and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Burlington Northern Santa Fe, LLC and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Fort Worth, Texas
February 27, 2015
2
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Income
In millions
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Revenues | $ | 23,239 | $ | 22,014 | $ | 20,835 | ||||||
Operating expenses: | ||||||||||||
Compensation and benefits | 5,023 | 4,651 | 4,505 | |||||||||
Fuel | 4,478 | 4,503 | 4,459 | |||||||||
Purchased services | 2,592 | 2,418 | 2,374 | |||||||||
Depreciation and amortization | 2,123 | 1,973 | 1,889 | |||||||||
Equipment rents | 867 | 822 | 810 | |||||||||
Materials and other | 1,143 | 980 | 786 | |||||||||
Total operating expenses | 16,226 | 15,347 | 14,823 | |||||||||
Operating income | 7,013 | 6,667 | 6,012 | |||||||||
Interest expense | 833 | 729 | 623 | |||||||||
Other expense, net | 11 | 10 | 12 | |||||||||
Income before income taxes | 6,169 | 5,928 | 5,377 | |||||||||
Income tax expense | 2,300 | 2,135 | 2,005 | |||||||||
Net income | $ | 3,869 | $ | 3,793 | $ | 3,372 | ||||||
See accompanying Notes to Consolidated Financial Statements.
3
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Comprehensive Income
In millions
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Net income | $ | 3,869 | $ | 3,793 | $ | 3,372 | ||||||
Other comprehensive income: | ||||||||||||
Change in Pension and Retiree Health and Welfare benefits, net of tax benefit of $156 million, tax expense of $305 million and tax benefit of $16 million, respectively | (251 | ) | 492 | (28 | ) | |||||||
Change in fuel hedge mark-to-market, net of tax benefit of $0 million, $0 million and $7 million, respectively | — | — | (11 | ) | ||||||||
Change in accumulated other comprehensive income of equity method investees | 4 | (2 | ) | (3 | ) | |||||||
Other comprehensive income (loss), net of tax | (247 | ) | 490 | (42 | ) | |||||||
Total comprehensive income | $ | 3,622 | $ | 4,283 | $ | 3,330 | ||||||
See accompanying Notes to Consolidated Financial Statements.
4
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Balance Sheets
In millions
December 31, 2014 | December 31, 2013 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,384 | $ | 2,225 | ||||
Accounts receivable, net | 1,386 | 1,298 | ||||||
Materials and supplies | 795 | 835 | ||||||
Current portion of deferred income taxes | 355 | 358 | ||||||
Other current assets | 232 | 87 | ||||||
Total current assets | 5,152 | 4,803 | ||||||
Property and equipment, net of accumulated depreciation of $3,550 and $2,232, respectively | 55,806 | 52,363 | ||||||
Goodwill | 14,819 | 14,819 | ||||||
Intangible assets, net | 512 | 821 | ||||||
Other assets | 1,914 | 2,224 | ||||||
Total assets | $ | 78,203 | $ | 75,030 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and other current liabilities | $ | 3,435 | $ | 3,206 | ||||
Long-term debt due within one year | 366 | 645 | ||||||
Total current liabilities | 3,801 | 3,851 | ||||||
Long-term debt | 18,914 | 16,361 | ||||||
Deferred Income Taxes | 18,001 | 17,224 | ||||||
Intangible liabilities, net | 782 | 961 | ||||||
Casualty and environmental liabilities | 639 | 677 | ||||||
Pension and retiree health and welfare liability | 385 | 362 | ||||||
Other liabilities | 947 | 982 | ||||||
Total liabilities | 43,469 | 40,418 | ||||||
Commitments and contingencies (see Notes 11 and 12) | ||||||||
Equity: | ||||||||
Member's equity | 34,736 | 34,367 | ||||||
Accumulated other comprehensive income (loss) | (2 | ) | 245 | |||||
Total equity | 34,734 | 34,612 | ||||||
Total liabilities and equity | $ | 78,203 | $ | 75,030 | ||||
See accompanying Notes to Consolidated Financial Statements.
5
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Cash Flows
In millions
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Operating Activities | ||||||||||||
Net income | $ | 3,869 | $ | 3,793 | $ | 3,372 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 2,123 | 1,973 | 1,889 | |||||||||
Deferred income taxes | 941 | 583 | 660 | |||||||||
Long-term casualty and environmental liabilities, net | (43 | ) | (98 | ) | (190 | ) | ||||||
Contributions to qualified pension plan | — | (25 | ) | (36 | ) | |||||||
Other, net | (310 | ) | (88 | ) | (314 | ) | ||||||
Changes in current assets and liabilities: | ||||||||||||
Accounts receivable, net | (88 | ) | (130 | ) | (6 | ) | ||||||
Materials and supplies | 40 | (35 | ) | (61 | ) | |||||||
Other current assets | (36 | ) | (6 | ) | 14 | |||||||
Accounts payable and other current liabilities | 85 | (205 | ) | 105 | ||||||||
Net cash provided by operating activities | 6,581 | 5,762 | 5,433 | |||||||||
Investing Activities | ||||||||||||
Capital expenditures excluding equipment | (3,734 | ) | (2,975 | ) | (2,596 | ) | ||||||
Acquisition of equipment | (1,509 | ) | (943 | ) | (952 | ) | ||||||
Partnership investment | — | — | (130 | ) | ||||||||
Other, net | (6 | ) | 55 | (158 | ) | |||||||
Net cash used for investing activities | (5,249 | ) | (3,863 | ) | (3,836 | ) | ||||||
Financing Activities | ||||||||||||
Proceeds from issuance of long-term debt | 3,000 | 3,000 | 2,500 | |||||||||
Payments on long-term debt | (641 | ) | (440 | ) | (482 | ) | ||||||
Cash distributions | (3,500 | ) | (4,000 | ) | (3,750 | ) | ||||||
Other, net | (32 | ) | (28 | ) | (31 | ) | ||||||
Net cash used for financing activities | (1,173 | ) | (1,468 | ) | (1,763 | ) | ||||||
Increase (decrease) in cash and cash equivalents | 159 | 431 | (166 | ) | ||||||||
Cash and cash equivalents: | ||||||||||||
Beginning of period | 2,225 | 1,794 | 1,960 | |||||||||
End of period | $ | 2,384 | $ | 2,225 | $ | 1,794 | ||||||
Supplemental Cash Flow Information | ||||||||||||
Interest paid, net of amounts capitalized | $ | 859 | $ | 772 | $ | 707 | ||||||
Capital investments accrued but not yet paid | $ | 293 | $ | 224 | $ | 123 | ||||||
Income taxes paid, net of refunds | $ | 1,366 | $ | 1,752 | $ | 1,194 | ||||||
See accompanying Notes to Consolidated Financial Statements.
6
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Changes in Equity
In millions
Member's Equity | Accumulated Other Comprehensive (Loss) Income | Total Equity | ||||||||||||||||
Balance at December 31, 2011 | $ | 34,952 | $ | (203 | ) | $ | 34,749 | |||||||||||
Comprehensive income, net of tax | 3,372 | (42 | ) | 3,330 | ||||||||||||||
Cash distributions to Parent | (3,750 | ) | — | (3,750 | ) | |||||||||||||
Balance at December 31, 2012 | 34,574 | (245 | ) | 34,329 | ||||||||||||||
Comprehensive income, net of tax | 3,793 | 490 | 4,283 | |||||||||||||||
Cash distributions to Parent | (4,000 | ) | — | (4,000 | ) | |||||||||||||
Balance at December 31, 2013 | 34,367 | 245 | 34,612 | |||||||||||||||
Comprehensive income, net of tax | 3,869 | (247 | ) | 3,622 | ||||||||||||||
Cash distributions to Parent | (3,500 | ) | — | (3,500 | ) | |||||||||||||
Balance at December 31, 2014 | $ | 34,736 | $ | (2 | ) | $ | 34,734 | |||||||||||
See accompanying Notes to Consolidated Financial Statements.
7
Burlington Northern Santa Fe, LLC and Subsidiaries
Notes to Consolidated Financial Statements
1. The Company
Burlington Northern Santa Fe, LLC (BNSF or the Company) is a holding company that conducts no operating activities and owns no significant assets other than through its interests in its subsidiaries. BNSF’s principal, wholly-owned subsidiary is BNSF Railway Company (BNSF Railway), which operates one of the largest railroad networks in North America with approximately 32,500 route miles (excluding multiple main tracks, yard tracks and sidings) in 28 states and also operates in three Canadian provinces. Through one operating transportation services segment, BNSF Railway transports a wide range of products and commodities including the transportation of Consumer Products, Industrial Products, Coal and Agricultural Products, derived from manufacturing, agricultural and natural resource industries, which constituted 31 percent, 28 percent, 22 percent and 19 percent, respectively, of total freight revenues for the year ended December 31, 2014. These Consolidated Financial Statements include BNSF, BNSF Railway and other majority-owned subsidiaries, all of which are separate legal entities.
Burlington Northern Santa Fe Corporation was incorporated in the State of Delaware on December 16, 1994. On February 12, 2010, Berkshire Hathaway Inc., a Delaware corporation (Berkshire), acquired 100% of the outstanding shares of Burlington Northern Santa Fe Corporation common stock that it did not already own. The acquisition was completed through the merger (Merger) of a Berkshire wholly-owned merger subsidiary and Burlington Northern Santa Fe Corporation with the surviving entity renamed Burlington Northern Santa Fe, LLC. Berkshire’s cost of acquiring BNSF was pushed-down to establish a new accounting basis for BNSF beginning as of February 13, 2010. Earnings per share data is not presented because BNSF has no outstanding issued stock or membership interests to the public.
2. Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of BNSF, including its principal subsidiary BNSF Railway. All intercompany accounts and transactions have been eliminated. The Company evaluates its less than majority-owned investments for consolidation pursuant to authoritative accounting guidance related to the consolidation of variable interest entities (VIEs). The Company consolidates a VIE when it possesses both the power to direct the activities of the VIE that most significantly impact its economic performance and when the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially be significant to the VIE.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America (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. These estimates and assumptions are periodically reviewed by management. 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, with related expenses recognized as incurred. Revenues from ancillary services are recognized when performed. Customer incentives, which are primarily provided for shipping a specified cumulative volume or shipping to/from specific locations, are recorded as a reduction to revenue on a pro-rata basis based on actual or projected future customer shipments. When using projected shipments, the Company relies on historic trends as well as economic and other indicators to estimate the liability for customer incentives.
Accounts Receivable, Net
Accounts receivable, net includes accounts receivable reduced by an allowance for bill adjustments and uncollectible accounts. The allowance for bill adjustments and uncollectible accounts is based on historical experience as well as any known trends or uncertainties related to customer billing and account collectibility. Allowances for uncollectible accounts are charged off when it is determined that the counterparty will be unable to pay based on the contractual terms of the receivables.
8
Cash and Cash Equivalents
All short-term investments with original maturities of 90 days or less 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.
Goodwill and Other Intangible Assets and Liabilities
Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed.
Goodwill is tested for impairment annually or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. The impairment test involves a two-step process. The first step is to estimate the fair value of the reporting unit through discounting projected future net cash flows. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, a second step is performed. Under the second step, the identifiable assets and liabilities, including identifiable intangible assets and liabilities, of the reporting unit are estimated at fair value as of the current testing date. The excess of the estimated fair value of the reporting unit over the estimated fair value of net assets establishes the implied value of goodwill. If the carrying amount of goodwill exceeds the implied value of goodwill, an impairment loss is recognized in an amount equal to that excess.
Other intangible assets and liabilities are amortized based on the estimated pattern in which the economic benefits are expected to be consumed or on a straight-line basis over their estimated economic lives. Other intangible assets and liabilities are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable or realized.
See Note 8 to the Consolidated Financial Statements for further information related to goodwill and other intangible assets and liabilities.
Property and Equipment, Net
BNSF’s railroad operations are highly capital intensive and its large base of homogeneous, network-type assets turns over on a continuous basis. Each year BNSF develops a capital program for the replacement of assets and for the acquisition or construction of assets that enables BNSF to enhance the efficiency of operations, gain strategic benefit or provide new service offerings to customers. Assets purchased or constructed throughout the year are capitalized if they meet applicable minimum units of property criteria.
Normal repairs and maintenance are charged to operating expense as incurred, while costs incurred that extend the useful life of an asset, improve the safety of BNSF’s operations, or improve operating efficiency are capitalized.
Property and equipment are stated at cost and are depreciated and amortized on a straight-line basis over their estimated useful lives. The Company uses the group method of depreciation in which a single depreciation rate is applied to the gross investment in a particular class of property, despite differences in the service life or salvage value of individual property units within the same class. The Company conducts studies of depreciation rates and the required accumulated depreciation balance as required by the Surface Transportation Board (STB), which is generally every three years for equipment property and every six years for track structure and other roadway property. These detailed studies form the basis for the Company's depreciation methods used in accordance with GAAP. There are no differences between assumptions used in determining average service lives between STB reporting and GAAP.
Depreciation studies take into account the following factors:
• | Statistical analysis of historical patterns of use and retirements of each of BNSF’s asset classes; |
• | Evaluation of any expected changes in current operations and the outlook for continued use of the assets; |
• | Evaluation of technological advances and changes to maintenance practices; and |
• | Expected salvage to be received upon retirement. |
Changes in the estimated service lives of the assets and their related depreciation rates are implemented prospectively. Currently, BNSF is not aware of any specific factors that would cause significant changes in average useful service lives.
9
Under group depreciation, the historical cost net of salvage of depreciable property that is retired or replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is recognized. This historical cost of certain assets is estimated as it is impracticable to track individual, homogeneous network-type assets. Historical costs are estimated by deflating current costs using the Producer Price Index (PPI). The PPI was selected because it closely correlates with the major costs of the items comprising the asset classes. Because of the number of estimates inherent in the depreciation and retirement processes and because it is impossible to precisely estimate each of these variables until a group of property is completely retired, BNSF continually monitors the estimated service lives of its assets and the accumulated depreciation associated with each asset class to ensure its depreciation rates are appropriate.
For retirements of depreciable asset classes that do not occur in the normal course of business, a gain or loss may be recognized in operating expense if the retirement meets each of the following conditions: (i) is unusual, (ii) is material in amount, and (iii) varies significantly from the retirement profile identified through BNSF’s depreciation studies. During the three fiscal years presented, no such gains or losses were recognized due to the retirement of depreciable assets. Gains or losses from disposals of land and non-rail property are recorded at the time of their occurrence.
When BNSF purchases an asset, all costs necessary to make the asset ready for its intended use are capitalized. BNSF self-constructs portions of its track structure and rebuilds certain classes of rolling stock. Expenditures that significantly increase asset values or extend useful lives are capitalized. In addition to direct labor and material, certain indirect costs such as materials, small tools and project supervision are capitalized. Annually, a study is performed for the purpose of identifying indirect costs that clearly relate to capital projects. From those studies, an overhead application rate is developed. Indirect projects costs are then allocated to capital projects using this overhead application rate.
BNSF 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.
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or at the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the asset or the period of the related lease.
Leasehold improvements that meet capitalization criteria are capitalized and amortized on a straight-line basis over the lesser of their estimated useful lives or the remaining lease term.
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.
Planned Major Maintenance Activities
BNSF utilizes the deferral method of accounting for leased locomotive overhauls, which includes the refurbishment of the engine and related components. Accordingly, BNSF has established an asset for overhauls that have been performed. This asset, which is included in property and equipment, net in the Consolidated Balance Sheets, is amortized to expense using the straight-line method until the next overhaul is performed or the end of the lease, whichever comes first, typically between six and eight years.
Rail Grinding Costs
BNSF uses the direct expense method of accounting for rail grinding costs, under which the Company expenses rail grinding costs as incurred.
Environmental Liabilities
Liabilities for environmental cleanup costs are initially recorded when BNSF’s liability for environmental cleanup is both probable and reasonably estimable. Subsequent adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Estimates for these liabilities are undiscounted.
Personal Injury Claims
Liabilities for personal injury claims are initially recorded when the expected loss is both probable and reasonably estimable. Subsequent adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Liabilities recorded for unasserted personal injury claims, including those related to asbestos, are based on information currently available. Estimates of liabilities for personal injury claims are undiscounted.
10
Income Taxes
Deferred tax assets and liabilities are measured using the tax rates that apply to taxable income in the period in which the deferred tax asset or liability is expected to be realized or paid. Changes in the Company’s estimates regarding the statutory tax rate to be applied to the reversal of deferred tax assets and liabilities could materially affect the effective tax rate. Valuation allowances are established to reduce deferred tax assets if it is more likely than not that some or all of the deferred tax asset will not be realized. BNSF has not recorded a valuation allowance, as it believes that the deferred tax assets will be fully realized in the future. Investment tax credits are accounted for using the flow-through method.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
BNSF is included in the U.S. consolidated federal income tax return of Berkshire. BNSF’s tax expense and liabilities have been computed on a stand alone basis, and substantially all of its current federal income taxes payable is remitted each quarter to Berkshire.
Employment Benefit Plans
The Company estimates liabilities and expenses for pension and retiree health and welfare plans. Estimated amounts are based on historical information, current information and estimates regarding future events and circumstances. Significant assumptions used in the valuation of pension and/or retiree health and welfare liabilities include the expected return on plan assets, discount rate, rate of increase in compensation levels and the health care cost trend rate.
Fair Value Measurements
As defined under authoritative accounting guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Different valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not under duress. Nonperformance or credit risk is considered in determining the fair value of liabilities. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.
The authoritative accounting guidance specifies a three-level hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures.
• | Level 1–Quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. |
• | Level 2–Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable market data. |
• | Level 3–Valuations derived from valuation techniques in which one or more significant inputs are unobservable. |
11
3. Accounting Pronouncements
In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-01 (ASU 2014-01), Investments - Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects. This standard permits an entity to elect the proportional amortization method of accounting for limited liability investments in qualified affordable housing projects if certain criteria are met. Under the proportional amortization method, the investment is amortized in proportion to the tax benefits received and the net investment performance is reported as a component of income tax expense. ASU 2014-01 is effective for fiscal years beginning after December 15, 2014, with early adoption permitted. If elected, the proportional amortization method is required to be applied retrospectively. The Company has assessed the effects of this standard and it does not have an impact to the Consolidated Financial Statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606). The guidance in ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition. ASU 2014-09 applies to most contracts with customers. Insurance and leasing contracts are excluded from the scope. ASU 2014-09 prescribes a five step framework in accounting for revenues from contracts within its scope, including (a) identification of the contract, (b) identification of the performance obligation under the contract, (c) determination of the transaction price, (d) allocation of the transaction price to the identified performance obligation and (e) recognition of revenue as the identified performance obligation is satisfied. ASU 2014-09 also prescribes additional disclosures and financial statement presentations. ASU 2014-09 is effective for public companies in annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. ASU 2014-09 may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. The Company has assessed the effects of this standard and does not expect it to have a material impact to the Consolidated Financial Statements. The Company will adopt the guidance and include appropriate disclosures related to revenue recognition in accordance with ASU 2014-09 in its interim report on Form 10-Q for the period ending March 31, 2017.
4. Derivative Activities
Fuel
Fuel costs represented 28 percent, 29 percent and 30 percent of total operating expenses during the years ended December 31, 2014, 2013 and 2012, respectively. The Company may enter into fuel hedge instruments from time to time; however, the Company had no unexpired hedge positions as of December 31, 2014, 2013 and 2012.
Derivative Activities
The Company had formally documented 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 included linking the derivatives that were designated as fair value or cash flow hedges to specific assets or liabilities on the balance sheet, commitments or forecasted transactions. The Company assessed at the time a derivative contract was entered into, and at least quarterly thereafter, whether the derivative item was effective in offsetting the changes in fair value or cash flows. Any change in fair value resulting from ineffectiveness, as defined by authoritative accounting guidance related to derivatives and hedging, was recognized in current period earnings. For derivative instruments that were designated and qualified as cash flow hedges, the effective portion of the gain or loss on the derivative instrument was recorded in accumulated other comprehensive income / (loss) (AOCI) as a separate component of equity and reclassified into earnings in the period during which the hedge transaction affected earnings. Cash flows related to fuel derivatives were classified as operating activities in the Consolidated Statements of Cash Flows.
The effects of derivative instrument gains and losses for the years ended December 31, 2014, 2013 and 2012, were as follows (in millions):
Derivatives in ASC 815-20 Cash Flow Hedging Relationships | ||||||||||||
Amount of Gain Recognized in OCI on Derivatives (Effective Portion) | ||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Fuel Contracts | $ | — | $ | — | $ | 7 | ||||||
Total derivatives | $ | — | $ | — | $ | 7 | ||||||
12
Amount of Gain Recognized from AOCI into Income (Effective Portion) | ||||||||||||||
Location of Gain Recognized from AOCI into Income | Year Ended | Year Ended | Year Ended | |||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||||
Fuel Contracts | Fuel expense | $ | — | $ | — | $ | 25 | |||||||
Total derivatives | $ | — | $ | — | $ | 25 | ||||||||
Amount of Loss Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)a | ||||||||||||||
Location of Loss Recognized in Income on Derivatives | Year Ended | Year Ended | Year Ended | |||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||||
Fuel Contracts | Fuel expense | $ | — | $ | — | $ | (3 | ) | ||||||
Total derivatives | $ | — | $ | — | $ | (3 | ) | |||||||
a No portion of the loss was excluded from the assessment of hedge effectiveness for the periods then ended.
5. Income Taxes
Income tax expense was as follows (in millions):
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Current: | ||||||||||||
Federal | $ | 1,190 | $ | 1,346 | $ | 1,204 | ||||||
State | 169 | 206 | 141 | |||||||||
Total current | 1,359 | 1,552 | 1,345 | |||||||||
Deferred: | ||||||||||||
Federal | 852 | 609 | 591 | |||||||||
State | 89 | (26 | ) | 69 | ||||||||
Total deferred | 941 | 583 | 660 | |||||||||
Total | $ | 2,300 | $ | 2,135 | $ | 2,005 | ||||||
Reconciliation of the U.S. federal statutory income tax rate to the effective tax rate was as follows:
Year Ended | Year Ended | Year Ended | |||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | |||||||
U.S. Federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
State income taxes, net of federal tax benefit | 2.7 | 2.0 | 2.5 | ||||||
Other, net | (0.4 | ) | (1.0 | ) | (0.2 | ) | |||
Effective tax rate | 37.3 | % | 36.0 | % | 37.3 | % | |||
13
The components of deferred tax assets and liabilities were as follows (in millions):
December 31, 2014 | December 31, 2013 | |||||||
Deferred tax liabilities: | ||||||||
Property and equipment | $ | (18,624 | ) | $ | (17,727 | ) | ||
Hedging | (10 | ) | (11 | ) | ||||
Pension and retiree health and welfare benefits | — | (13 | ) | |||||
Other | (353 | ) | (347 | ) | ||||
Total deferred tax liabilities | (18,987 | ) | (18,098 | ) | ||||
Deferred tax assets: | ||||||||
Compensation and benefits | 335 | 371 | ||||||
Casualty and environmental | 307 | 273 | ||||||
Intangible assets and liabilities | 132 | 190 | ||||||
Long-term debt fair value adjustment under acquisition method accounting | 117 | 141 | ||||||
Pension and retiree health and welfare benefits | 202 | — | ||||||
Other | 248 | 257 | ||||||
Total deferred tax assets | 1,341 | 1,232 | ||||||
Net deferred tax liability | $ | (17,646 | ) | $ | (16,866 | ) | ||
Non-current deferred income tax liability | $ | (18,001 | ) | $ | (17,224 | ) | ||
Current portion of deferred income taxes | 355 | 358 | ||||||
Net deferred tax liability | $ | (17,646 | ) | $ | (16,866 | ) | ||
BNSF is included in the consolidated U.S. federal income tax return of Berkshire. BNSF’s tax expense and liabilities have been computed on a stand alone basis, and substantially all of its currently payable income taxes are remitted each quarter to Berkshire. See Note 14 to the Consolidated Financial Statements for information related to income taxes paid to Berkshire during 2014.
All U.S. federal income tax returns of BNSF are closed through the tax period ending February 12, 2010. BNSF is currently under examination for the period February 13 - December 31, 2010 and the year 2011.
BNSF and its subsidiaries have various state income tax returns in the process of examination, administrative appeal or litigation. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.
Uncertain Tax Positions
The amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 was $78 million, $56 million, and $48 million, respectively. The amount of unrecognized tax benefits at December 31, 2014 that would affect the Company’s effective tax rate if recognized was $43 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Beginning balance | $ | 56 | $ | 48 | $ | 110 | ||||||
Additions for tax positions related to current year | 16 | 16 | 12 | |||||||||
Additions (reductions) for tax positions taken in prior years | 13 | 1 | (2 | ) | ||||||||
Additions (reductions) for tax positions as a result of: | ||||||||||||
Settlements | (1 | ) | 1 | (53 | ) | |||||||
Lapse of statute of limitations | (6 | ) | (10 | ) | (19 | ) | ||||||
Ending balance | $ | 78 | $ | 56 | $ | 48 | ||||||
14
It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, BNSF does not expect the change to have a significant impact on the results of operations, the financial position or the cash flows of the Company.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in income tax expense in the Consolidated Statements of Income, which is consistent with the recognition of these items in prior reporting periods. The Company had recorded a liability of approximately $8 million and $6 million for interest and penalties for the years ended December 31, 2014 and 2013, respectively. For the years ended December 31, 2014, 2013 and 2012, the Company recognized an increase of approximately $3 million and a reduction of approximately $1 million and $8 million in interest and penalty expense, respectively.
6. Accounts Receivable, Net
Accounts receivable, net consists of freight and other receivables, reduced by an allowance for bill adjustments and uncollectible accounts, based upon expected collectibility. At December 31, 2014 and 2013, $56 million and $54 million, respectively, of such allowances had been recorded.
At December 31, 2014 and 2013, $35 million and $50 million, respectively, of accounts receivable were greater than 90 days old.
7. Property and Equipment, Net
Property and equipment, net (in millions), and the corresponding ranges of estimated useful lives were as follows:
2014 | |||||||||||
December 31, 2014 | December 31, 2013 | Range of Estimated Useful Life | |||||||||
Land for transportation purposes | $ | 5,983 | $ | 5,973 | — | ||||||
Track structure | 19,562 | 18,207 | 15 – 50 years | ||||||||
Other roadway | 23,026 | 21,891 | 5 – 100 years | ||||||||
Locomotives | 6,621 | 5,241 | 5 – 33 years | ||||||||
Freight cars and other equipment | 2,350 | 2,053 | 8 – 40 years | ||||||||
Computer hardware, software and other | 522 | 257 | 5 – 9 years | ||||||||
Construction in progress | 1,292 | 973 | — | ||||||||
Total cost | 59,356 | 54,595 | |||||||||
Less accumulated depreciation and amortization | (3,550 | ) | (2,232 | ) | |||||||
Property and equipment, net | $ | 55,806 | $ | 52,363 | |||||||
The Consolidated Balance Sheets at December 31, 2014 and 2013, included $854 million, net of $374 million of amortization, and $910 million, net of $366 million of amortization, respectively, for property and equipment under capital leases, primarily for rolling stock.
The Company capitalized $30 million, $29 million and $24 million of interest for the years ended December 31, 2014, 2013 and 2012, respectively.
8. Goodwill and Other Intangible Assets and Liabilities
During the years ended December 31, 2014, 2013 and 2012, no impairment losses related to goodwill were incurred. As of December 31, 2014 and 2013, there were no accumulated impairment losses related to goodwill. For both the years ended
December 31, 2014 and 2013, the carrying values were $14,819 million and no additional goodwill was recognized.
15
Intangible assets and liabilities were as follows (in millions):
As of December 31, 2014 | As of December 31, 2013 | |||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
Intangible assets | $ | 2,031 | $ | 1,519 | $ | 2,030 | $ | 1,209 | ||||||||
Intangible liabilities | $ | 2,056 | $ | 1,274 | $ | 2,056 | $ | 1,095 | ||||||||
Intangible assets primarily consisted of internally developed software and franchise and customer assets. Intangible liabilities primarily consisted of customer and shortline contracts which were in an unfavorable position at the date of Merger.
Amortizable intangible assets and liabilities are amortized based on the estimated pattern in which the economic benefits are expected to be consumed or on a straight-line basis over their estimated economic lives.
Amortization of intangible assets and liabilities was as follows (in millions):
December 31, 2014 | December 31, 2013 | |||||||
Amortization of intangible assets | $ | 310 | $ | 310 | ||||
Amortization of intangible liabilities | $ | 179 | $ | 253 | ||||
Amortization of intangible assets and liabilities for the next five years is expected to approximate the following (in millions):
Amortization of intangible assets | Amortization of intangible liabilities | |||||||
2015 | $ | 56 | $ | 115 | ||||
2016 | $ | 33 | $ | 101 | ||||
2017 | $ | 33 | $ | 96 | ||||
2018 | $ | 31 | $ | 90 | ||||
2019 | $ | 31 | $ | 27 | ||||
16
9. Other Assets
In July 2010, the Company entered into a low-income housing partnership (the Partnership) as the limited partner, holding a 99.9% interest in the Partnership. The Partnership is a VIE, with the purpose of developing and operating low-income housing rental properties. Recovery of the Company’s investment is accomplished through the utilization of low-income housing tax credits and the tax benefits of Partnership losses. The general partner, who holds a 0.1% interest in the Partnership, is an unrelated third party and is responsible for controlling and managing the business and financial operation of the Partnership. As the Company does not have the power to direct the activities that most significantly impact the Partnership’s economic performance, the Company is not the primary beneficiary and therefore, does not consolidate the Partnership. As of December 31, 2014 and 2013, the assets of the unconsolidated Partnership totaled approximately $330 million and $410 million, respectively. The Company does not provide financial support to the Partnership that it was not previously contractually obligated to provide.
The Company has accounted for its investment in the Partnership using the effective yield method. The risk of loss of the Company's investment in the Partnership is considered low as an affiliate of the general partner has provided certain guarantees of tax credits and minimum annual returns. The Company’s maximum exposure to loss related to the Partnership is the unamortized investment balance. The following table summarizes information related to this Partnership (in millions):
Year Ended | Year Ended | ||||||
December 31, 2014 | December 31, 2013 | ||||||
Unamortized investment balance classified as Other Assets | $ | 314 | $ | 376 | |||
Remaining commitment classified as Other Liabilities | $ | 18 | $ | 18 | |||
Maximum exposure to loss | $ | 314 | $ | 376 | |||
The remaining commitment of $18 million is expected to be paid in 2015.
10. Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of the following (in millions):
December 31, 2014 | December 31, 2013 | |||||||
Compensation and benefits payable | $ | 789 | $ | 821 | ||||
Accounts payable | 344 | 311 | ||||||
Property and income tax liabilities | 330 | 290 | ||||||
Accrued interest | 265 | 243 | ||||||
Rents and leases | 158 | 161 | ||||||
Customer incentives | 151 | 151 | ||||||
Casualty and environmental liabilities | 140 | 145 | ||||||
Other | 1,258 | 1,084 | ||||||
Total | $ | 3,435 | $ | 3,206 | ||||
17
11. Debt
Debt outstanding was as follows (in millions):
December 31, 2014 a | December 31, 2013 a | |||||||||||||
Notes and debentures, due 2015 to 2097 | $ | 17,838 | 5.0 | % | $ | 15,344 | 5.2 | % | ||||||
Equipment obligations, due 2015 to 2027 | 96 | 5.5 | 122 | 5.7 | ||||||||||
Capitalized lease obligations, due 2015 to 2029 | 745 | 6.1 | 854 | 6.0 | ||||||||||
Mortgage bonds, due 2020 to 2047 | 81 | 4.5 | 82 | 4.5 | ||||||||||
Financing obligations, due 2015 to 2028 | 251 | 6.3 | 266 | 6.3 | ||||||||||
Unamortized fair value adjustment under acquisition method accounting, discount and other, net | 269 | 338 | ||||||||||||
Total | 19,280 | 17,006 | ||||||||||||
Less current portion of long-term debt | (366 | ) | 5.2 | % | (645 | ) | 6.8 | % | ||||||
Long-term debt | $ | 18,914 | $ | 16,361 | ||||||||||
a Amounts represent debt outstanding and weighted average effective interest rates for 2014 and 2013, respectively. Maturities are as of December 31, 2014.
As of December 31, 2014, certain BNSF Railway properties and other assets were subject to liens securing $81 million of mortgage debt. Certain locomotives and rolling stock of BNSF Railway were subject to equipment obligations and capital leases.
The Company is required to maintain certain financial covenants in conjunction with $500 million of certain issued and outstanding junior subordinated notes. As of December 31, 2014, the Company was in compliance with these covenants. In the event of non-compliance, the Company would be required to pay any accrued and unpaid interest.
The fair value of BNSF’s long-term debt is primarily based on market value price models using observable market-based data for the same or similar issues, or on the estimated rates that would be offered to BNSF for debt of the same remaining maturities (Level 2 inputs). Capital leases, interest rate hedges and unamortized gains on interest rate swaps have been excluded from the calculation of fair value for both 2014 and 2013.
The following table provides fair value information for the Company’s debt obligations including principal cash flows, related weighted average interest rates by contractual maturity dates and fair value. The Company had no outstanding variable rate debt at December 31, 2014.
December 31, 2014 | ||||||||||||||||||||||||||||||||||||
Maturity Date | Total Including Capital Leases | Total Excluding Capital Leases a,b | Fair Value Excluding Capital Leases b | |||||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | |||||||||||||||||||||||||||||||
Fixed-rate debt (in millions) | $ | 366 | $ | 376 | $ | 715 | $ | 720 | $ | 816 | $ | 16,287 | $ | 19,280 | $ | 18,471 | $ | 20,543 | ||||||||||||||||||
Average interest rate | 5.2 | % | 6.6 | % | 5.7 | % | 5.8 | % | 4.8 | % | 5.0 | % | 5.0 | % | ||||||||||||||||||||||
a Amount also excludes unamortized fair value adjustment under acquisition method accounting related to capital leases.
b Amount also excludes unamortized gains on interest rate swaps.
As of December 31, 2013, the fair value of fixed-rate debt excluding capital leases and unamortized gains on interest rate swaps was $16,507 million.
Notes and Debentures
2014
In August 2014, BNSF issued $700 million of 3.400 percent debentures due September 1, 2024 and $800 million of 4.550 percent debentures due September 1, 2044. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness, and distributions.
18
In April 2014, the Board of Managers (the Board) of the Company authorized an additional $3 billion of debt securities that may be issued pursuant to the debt shelf registration statement filed with the SEC. As of December 31, 2014, $1.75 billion remained authorized by the Board to be issued through the SEC debt shelf offering process.
In March 2014, BNSF issued $500 million of 3.750 percent debentures due April 1, 2024 and $1 billion of 4.900 percent debentures due April 1, 2044. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness, and distributions.
2013
In August 2013, BNSF issued $800 million of 3.850 percent debentures due September 1, 2023 and $700 million of 5.150 percent debentures due September 1, 2043. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness, and distributions.
In March 2013, BNSF issued $700 million of 3.000 percent debentures due March 15, 2023 and $800 million of 4.450 percent debentures due March 15, 2043. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness, and distributions.
2012
In August 2012, BNSF issued $600 million of 3.050 percent debentures due September 1, 2022 and $650 million of 4.375 percent debentures due September 1, 2042. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness, and distributions.
In March 2012, BNSF issued $625 million of 3.050 percent debentures due March 15, 2022 and $625 million of 4.400 percent debentures due March 15, 2042. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness, and distributions.
Capital Leases
During the years 2014, 2013 and 2012, additions to capital leases were not material.
Guarantees
As of December 31, 2014, BNSF has not been called upon to perform under the guarantees specifically disclosed in this footnote and does not anticipate a significant performance risk in the foreseeable future.
Debt and other obligations of non-consolidated entities guaranteed by the Company as of December 31, 2014, were as follows (dollars in millions):
Guarantees | ||||||||||||||||||||||
BNSF Ownership Percentage | Principal Amount Guaranteed | Maximum Future Payments | Maximum Recourse Amount | a | Remaining Term (in years) | Capitalized Obligations | ||||||||||||||||
Kinder Morgan Energy Partners, L.P. | 0.5 | % | $ | 190 | $ | 190 | $ | — | Termination of Ownership | $ | 2 | b | ||||||||||
Chevron Phillips Chemical Company LP | — | % | N/A | d | N/A | d | N/A | d | 3 | $ | 4 | c | ||||||||||
a Reflects the maximum amount the Company could recover from a third party other than the counterparty.
b Reflects capitalized obligations that are recorded on the Company’s Consolidated Balance Sheet.
c Reflects the asset and corresponding liability for the fair value of these guarantees required by authoritative accounting guidance related to guarantees.
d There is no cap to the liability that can be sought from BNSF for BNSF’s negligence or the negligence of the indemnified party. However, BNSF could receive reimbursement from certain insurance policies if the liability exceeds a certain amount.
Kinder Morgan Energy Partners, L.P.
Santa Fe Pacific Pipelines, Inc., an indirect, wholly-owned subsidiary of BNSF, has a guarantee in connection with its remaining special limited partnership interest in Santa Fe Pacific Pipeline Partners, L.P. (SFPP), a subsidiary of Kinder Morgan Energy Partners, L.P., to be paid only upon default by the partnership. All obligations with respect to the guarantee will cease upon termination of ownership rights, which would occur upon a put notice issued by BNSF or the exercise of the call rights by the general partners of SFPP.
19
Chevron Phillips Chemical Company LP
In 2007, BNSF entered into an indemnity agreement with Chevron Phillips Chemical Company LP (Chevron Phillips), granting certain rights of indemnity from BNSF, in order to facilitate access to a new storage facility. Under certain circumstances, payment under this obligation may be required in the event Chevron Phillips were to incur certain liabilities or other incremental costs resulting from trackage access.
Indemnities
In the ordinary course of business, BNSF enters into agreements with third parties that include indemnification clauses. The Company believes that these clauses are generally customary for the types of agreements in which they are included. At times, these clauses may involve indemnification for the acts of the Company, its employees and agents, indemnification for another party’s acts, indemnification for future events, indemnification based upon a certain standard of performance, indemnification for liabilities arising out of the Company’s use of leased equipment or other property, or other types of indemnification. Despite the uncertainty whether events which would trigger the indemnification obligations would ever occur, the Company does not believe that these indemnity agreements will have a material adverse effect on the Company’s results of operations, financial position or liquidity. Additionally, the Company believes that, due to lack of historical payment experience, the fair value of indemnities cannot be estimated with any amount of certainty. However, the fair value of any such amount would be immaterial to the Consolidated Financial Statements. Agreements that reflect unique circumstances, particularly agreements that contain guarantees that indemnify for another party’s acts are disclosed separately if appropriate. Unless separately disclosed above, no fair value liability related to indemnities has been recorded in the Consolidated Financial Statements.
Variable Interest Entities - Leases
BNSF Railway has entered into various equipment lease transactions in which the structure of the lease contains VIEs. These VIEs were created solely for the lease transactions and have no other activities, assets or liabilities outside of the lease transactions. In some of the arrangements, BNSF Railway has the option to purchase some or all of the equipment at a fixed-price, thereby creating variable interests for BNSF Railway in the VIEs. The future minimum lease payments associated with the VIE leases were approximately $3 billion as of December 31, 2014. The future minimum lease payments are included in future operating lease payments disclosed in Note 12.
In the event the leased equipment is destroyed, BNSF Railway is obligated to either replace the equipment or pay a fixed loss amount. The inclusion of the fixed loss amount is a standard clause within equipment lease arrangements. Historically, BNSF Railway has not incurred significant losses related to this clause. As such, it is not anticipated that the maximum exposure to loss would materially differ from the future minimum lease payments.
BNSF Railway does not provide financial support to the VIEs that it was not previously contractually obligated to provide.
BNSF Railway maintains and operates the equipment based on contractual obligations within the lease arrangements, which set specific guidelines consistent within the industry. As such, BNSF Railway has no control over activities that could materially impact the fair value of the leased equipment. BNSF Railway does not hold the power to direct the activities of the VIEs and therefore does not control the ongoing activities that have a significant impact on the economic performance of the VIEs. Additionally, BNSF Railway does not have the obligation to absorb losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs. Depending on market conditions, the fixed-price purchase options could potentially provide benefit to the Company; however, any benefits potentially received from a fixed-price purchase option are expected to be minimal. Based on these factors, BNSF Railway is not the primary beneficiary of the VIEs. As BNSF Railway is not the primary beneficiary and the VIE leases are classified as operating leases, there are no assets or liabilities related to the VIEs recorded in the Company's Consolidated Balance Sheet.
20
12. Commitments and Contingencies
Lease Commitments
BNSF has substantial lease commitments for locomotives, freight cars, trailers and containers, office buildings, operating facilities 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 as of December 31, 2014, are summarized as follows (in millions):
December 31, | Capital Leases | Operating Leases | a | ||||||
2015 | $ | 116 | $ | 562 | |||||
2016 | 194 | 562 | |||||||
2017 | 76 | 507 | |||||||
2018 | 73 | 449 | |||||||
2019 | 71 | 421 | |||||||
Thereafter | 430 | 1,882 | |||||||
Total | 960 | $ | 4,383 | ||||||
Less amount representing interest | (215 | ) | |||||||
Present value of minimum lease payments | $ | 745 | |||||||
a Excludes leases having non-cancelable lease terms of less than one year and per diem leases.
Lease rental expense for all operating leases, excluding per diem leases, was $628 million, $594 million and $629 million for the years ended December 31, 2014, 2013 and 2012, respectively. When rental payments are not made on a straight-line basis, the Company recognizes rental expense on a straight-line basis over the lease term. Contingent rentals and sublease rentals were not significant.
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 effect on the Company’s liquidity.
Personal Injury and Environmental Costs
Personal Injury
Personal injury claims, including asbestos claims and employee work-related injuries and third-party injuries (collectively, other personal injury), are a significant expense for the railroad industry. Personal injury claims by BNSF Railway employees are subject to the provisions of the Federal Employers’ Liability Act (FELA) rather than state workers’ compensation laws. FELA’s system of requiring the finding of fault, coupled with unscheduled awards and reliance on the jury system, contributed to increased expenses in past years. Other proceedings include claims by non-employees for punitive as well as compensatory damages. A few proceedings purport to be class actions. The variability present in settling these claims, including non-employee personal injury and matters in which punitive damages are alleged, could result in increased expenses in future years. BNSF has implemented a number of safety programs designed to reduce the number of personal injuries as well as the associated claims and personal injury expense.
BNSF records an undiscounted liability for personal injury claims when the expected loss is both probable and reasonably estimable. The liability and ultimate expense projections are estimated using standard actuarial methodologies. Liabilities recorded for unasserted personal injury claims are based on information currently available. Due to the inherent uncertainty involved in projecting future events such as the number of claims filed each year, developments in judicial and legislative standards and the average costs to settle projected claims, actual costs may differ from amounts recorded. Expense accruals and any required adjustments are classified as materials and other in the Consolidated Statements of Income.
Asbestos
The Company is party to a number of personal injury claims by employees and non-employees who may have been exposed to asbestos. The heaviest exposure for certain BNSF employees was due to work conducted in and around the use of steam locomotive engines that were phased out between the years of 1950 and 1967. However, other types of exposures, including exposure from locomotive component parts and building materials, continued after 1967 until they were substantially eliminated at BNSF by 1985.
21
BNSF assesses its unasserted asbestos liability exposure on an annual basis during the third quarter. BNSF determines its asbestos liability by estimating its exposed population, the number of claims likely to be filed, the number of claims that will likely require payment and the estimated cost per claim. Estimated filing and dismissal rates and average cost per claim are determined utilizing recent claim data and trends.
Key elements of the assessment include:
• | Because BNSF did not have detailed employment records in order to compute the population of potentially exposed employees, it computed an estimate using Company employee data from 1970 forward and estimated the BNSF employee base from 1938-1969 using railroad industry historical census data and estimating BNSF’s representation in the total railroad population. |
• | The projected incidence of disease was estimated based on epidemiological studies using employees’ age, duration and intensity of exposure while employed. |
• | An estimate of the future anticipated claims filing rate by type of disease (non-malignant, cancer and mesothelioma) was computed using the Company’s average historical claim filing rates observed in 2011-2014. |
• | An estimate of the future anticipated dismissal rate by type of claim was computed using the Company’s historical average dismissal rates observed in 2010-2014. |
• | An estimate of the future anticipated settlement by type of disease was computed using the Company’s historical average of dollars paid per claim for pending and future claims using the average settlement by type of incidence observed during 2010-2014. |
From these assumptions, BNSF projected the incidence of each type of disease to the estimated population to arrive at an estimate of the total number of employees that could potentially assert a claim. Historical claim filing rates were applied for each type of disease to the total number of employees that could potentially assert a claim to determine the total number of anticipated claim filings by disease type. Historical dismissal rates, which represent claims that are closed without payment, were then applied to calculate the number of future claims by disease type that would likely require payment by the Company. Finally, the number of such claims was multiplied by the average settlement value to estimate BNSF’s future liability for unasserted asbestos claims.
The most sensitive assumptions for this accrual are the estimated future filing rates and estimated average claim values. Asbestos claim filings are typically sporadic and may include large batches of claims solicited by law firms. To reflect these factors, BNSF used a multi-year calibration period (i.e., average historical filing rates observed in 2011-2014) because it believed it would be most representative of its future claim experience. In addition, for non-malignant claims, the number of future claims to be filed against BNSF declines at a rate consistent with both mortality and age as there is a decreasing propensity to file a claim as the population ages. BNSF believes the average claim values by type of disease from the historical period 2010-2014 are most representative of future claim values. Non-malignant claims, which represent approximately 90 percent of the total number and 60 percent of the cost of estimated future asbestos claims, were priced by age of the projected claimants. Historically, the ultimate settlement value of these types of claims is most sensitive to the age of the claimant.
During the third quarters of 2014, 2013 and 2012, the Company analyzed recent filing and payment trends to ensure the assumptions used by BNSF to estimate its future asbestos liability were reasonable. In 2014, management recorded a decrease in expense of $2 million. In 2013, management determined that the liability remained appropriate and no change was recorded. In 2012, management recorded a decrease in expense of $15 million due primarily to favorable settlements. The Company plans to update its study again in the third quarter of 2015.
Throughout the year, BNSF monitors actual experience against the number of forecasted claims and expected claim payments and will record adjustments to the Company’s estimates as necessary.
Based on BNSF’s estimate of the potentially exposed employees and related mortality assumptions, it is anticipated that unasserted asbestos claims will continue to be filed through the year 2050. The Company recorded an amount for the full estimated filing period through 2050 because it had a relatively finite exposed population (former and current employees hired prior to 1985), which it was able to identify and reasonably estimate and about which it had obtained reliable demographic data (including age, hire date and occupation) derived from industry or BNSF specific data that was the basis for the study. BNSF projects that approximately 60, 80 and 95 percent of the future unasserted asbestos claims will be filed within the next 10, 15 and 25 years, respectively.
22
Other Personal Injury
BNSF estimates its other personal injury liability claims and expense quarterly based on the covered population, activity levels and trends in frequency and the costs of covered injuries. Estimates include unasserted claims except for certain repetitive stress and other occupational trauma claims that allegedly result from prolonged repeated events or exposure. Such claims are estimated on an as-reported basis because the Company cannot estimate the range of reasonably possible loss due to other non-work related contributing causes of such injuries and the fact that continued exposure is required for the potential injury to manifest itself as a claim. BNSF has not experienced any significant adverse trends related to these types of claims in recent years.
Key elements of the actuarial assessment include:
• | Size and demographics (employee age and craft) of the workforce. |
• | Activity levels (manhours by employee craft and carloadings). |
• | Expected claim frequency rates by type of claim (employee FELA or third-party liability) based on historical claim frequency trends. |
• | Expected dismissal rates by type of claim based on historical dismissal rates. |
• | Expected average paid amounts by type of claim for open and incurred but not reported claims that eventually close with payment. |
From these assumptions, BNSF estimates the number of open claims by accident year that will likely require payment by the Company. The projected number of open claims by accident year that will require payment is multiplied by the expected average cost per claim by accident year and type to determine BNSF’s estimated liability for all asserted claims. Additionally, BNSF estimates the number of its incurred but not reported claims that will likely result in payment based upon historical emergence patterns by type of claim. The estimated number of projected claims by accident year requiring payment is multiplied by the expected average cost per claim by accident year and type to determine BNSF’s estimated liability for incurred but not reported claims.
BNSF monitors quarterly actual experience against the number of forecasted claims to be received, the forecasted number of claims closing with payment and expected claim payments. Adjustments to the Company’s estimates are recorded quarterly as necessary or more frequently as new events or revised estimates develop.
The following table summarizes the activity in the Company’s accrued obligations for asbestos and other personal injury matters (in millions):
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Beginning balance | $ | 387 | $ | 462 | $ | 540 | ||||||
Accruals | 61 | 21 | 58 | |||||||||
Payments | (73 | ) | (96 | ) | (136 | ) | ||||||
Ending balance | $ | 375 | $ | 387 | $ | 462 | ||||||
At December 31, 2014 and 2013, $80 million and $85 million were included in current liabilities, respectively. In addition, defense and processing costs, which are recorded on an as-reported basis, were not included in the recorded liability. The Company is primarily self-insured for personal injury claims.
Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to settle personal injury claims may range from approximately $330 million to $440 million. However, BNSF believes that the $375 million recorded at December 31, 2014, is the best estimate of the Company’s future obligation for the settlement of personal injury claims.
The amounts recorded by BNSF for personal injury liabilities were based upon currently known facts. Future events, such as the number of new claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties surrounding personal injury litigation in the United States, could cause the actual costs to be higher or lower than projected.
23
Although the final outcome of personal injury matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded, it is the opinion of BNSF that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, the occurrence of a number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.
BNSF Insurance Company
The Company has a consolidated, wholly-owned subsidiary, Burlington Northern Santa Fe Insurance Company, Ltd. (BNSF IC) that provides insurance coverage for certain risks, FELA claims, railroad protective and force account insurance claims and certain excess general liability and property coverage, and certain other claims which are subject to reinsurance. BNSF IC has entered into annual reinsurance treaty agreements with several other companies. The treaty agreements insure workers compensation, general liability, auto liability and FELA risk. In accordance with the agreements, BNSF IC cedes a portion of its FELA exposure through the treaty and assumes a proportionate share of the entire risk. Each year BNSF IC reviews the objectives and performance of the treaty to determine its continued participation in the treaty. The treaty agreements provide for certain protections against the risk of treaty participants’ non-performance. On an on-going basis, BNSF and/or the treaty manager reviews the credit-worthiness of each of the participants. BNSF does not believe its exposure to treaty participants’ non-performance is material at this time. BNSF IC typically invests in time deposits and money market accounts. At December 31, 2014, there was approximately $485 million related to these third-party investments, which were classified as cash and cash equivalents on the Company’s Consolidated Balance Sheet, as compared with approximately $480 million at December 31, 2013.
Environmental
The Company’s operations, as well as those of its competitors, are subject to extensive federal, state and local environmental regulation. BNSF’s operating procedures include practices to protect the environment from the risks inherent in railroad operations, which frequently involve transporting chemicals and other hazardous materials. Additionally, many of BNSF’s land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in discharges onto the property. As a result, BNSF is subject to environmental 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 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 such factors as 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.
BNSF is involved in a number of administrative and judicial proceedings and other mandatory cleanup efforts for 230 sites, including 16 Superfund sites, at which it is participating in the study or cleanup, or both, of alleged environmental contamination.
Liabilities for environmental cleanup costs are recorded when BNSF’s liability for environmental cleanup is probable and reasonably estimable. Subsequent adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Environmental costs include initial site surveys and environmental studies as well as costs for remediation of sites determined to be contaminated.
BNSF estimates the ultimate cost of cleanup efforts at its known environmental sites on an annual basis during the third quarter. Ultimate cost estimates for environmental sites are based on current estimated percentage to closure ratios, possible remediation workplans and estimates of the costs and likelihood of each possible outcome, historical payment patterns, and benchmark patterns developed from data accumulated from industry and public sources, including the Environmental Protection Agency and other governmental agencies. These factors incorporate into the estimates experience gained from cleanup efforts at other similar sites. The most significant assumptions are the possible remediation workplans and estimates of the costs and likelihood of each possible outcome for the larger sites.
Annual studies do not include (i) contaminated sites of which the Company is not aware; (ii) additional amounts for third-party tort claims, which arise out of contaminants allegedly migrating from BNSF property, due to a limited number of sites; or (iii) natural resource damage claims. BNSF continues to estimate third-party tort claims on a site by site basis when the liability for such claims is probable and reasonably estimable. BNSF’s recorded liability for third-party tort claims as of December 31, 2014 and 2013 was $15 million and $13 million, respectively.
24
On a quarterly basis, BNSF monitors actual experience against the forecasted remediation and related payments made on existing sites and conducts ongoing environmental contingency analyses, which consider a combination of factors including independent consulting reports, site visits, legal reviews and analysis of the likelihood of other PRP's participation in, and their ability to pay for, cleanup. Adjustments to the Company’s estimates will continue to be recorded as necessary based on developments in subsequent periods. Additionally, environmental accruals, which are classified as materials and other in the Consolidated Statements of Income, include amounts for newly identified sites or contaminants, third-party claims and legal fees incurred for defense of third-party claims and recovery efforts.
The following table summarizes the activity in the Company’s accrued obligations for environmental matters (in millions):
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Beginning balance | $ | 435 | $ | 458 | $ | 570 | ||||||
Accruals | 13 | 19 | (17 | ) | ||||||||
Payments | (44 | ) | (42 | ) | (95 | ) | ||||||
Ending balance | $ | 404 | $ | 435 | $ | 458 | ||||||
At December 31, 2014 and 2013, $60 million was included in current liabilities.
During the third quarters of 2014, 2013 and 2012, the Company analyzed recent data and trends to ensure the assumptions used by BNSF to estimate its future environmental liability were reasonable. As a result of this study, in the third quarters of 2014, 2013 and 2012, management recorded additional expense of $5 million, $12 million and $3 million as of the respective June 30 measurement dates. The Company plans to update its study again in the third quarter of 2015.
In 2012, settlements with various parties resulted in reductions in expense of approximately $30 million.
BNSF’s environmental liabilities are not discounted. BNSF anticipates that the majority of the accrued costs at December 31, 2014, will be paid over the next ten years, and no individual site is considered to be material.
Liabilities recorded for environmental costs represent BNSF’s best estimate of its probable future obligation for the remediation and settlement of these sites and include both asserted and unasserted claims. Although recorded liabilities include BNSF’s best estimate of all probable 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 contaminated sites.
Because of the uncertainty surrounding these factors, it is reasonably possible that future costs for environmental liabilities may range from approximately $305 million to $540 million. However, BNSF believes that the $404 million recorded at December 31, 2014, is the best estimate of the Company’s future obligation for environmental costs.
Although the final outcome of these environmental matters cannot be predicted with certainty, it is the opinion of BNSF that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, the occurrence of a number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.
Other Claims and Litigation
In addition to asbestos, other personal injury and environmental matters discussed above, BNSF and its subsidiaries are also parties to a number of other legal actions and claims, governmental proceedings and private civil suits arising in the ordinary course of business, including those related to disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for punitive as well as compensatory damages, and a few proceedings purport to be class actions. Although the final outcome of these matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, BNSF currently believes that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, an unexpected adverse resolution of one or more of these items could have a material adverse effect on the results of operations in a particular quarter or fiscal year.
25
13. Employment Benefit Plans
BNSF provides a funded, noncontributory qualified pension plan, the BNSF Retirement Plan, which covers most non-union employees, and an unfunded non-tax-qualified pension plan, the BNSF Supplemental Retirement Plan, which covers certain officers and other employees. The benefits under these pension plans are based on years of credited service and the highest consecutive sixty months of compensation for the last ten years of salaried employment with BNSF. The Company also provides two funded, noncontributory qualified pension plans which cover certain union employees of the former The Atchison, Topeka and Santa Fe Railway Company. The benefits under these pension plans are based on elections made at the time the plans were implemented. 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 with respect to the funded plans.
Certain salaried employees of BNSF who have met age and years of service requirements are eligible for medical benefits, including prescription drug coverage, during retirement. The postretirement medical and prescription drug benefit is contributory and provides benefits to retirees and their covered dependents. Retiree contributions are adjusted annually. The plan also contains fixed deductibles, coinsurance and out-of-pocket limitations. In addition, a basic life insurance plan is noncontributory and covers retirees only. Optional life insurance coverage is available for some retirees; however, the retiree is responsible for the full cost. BNSF’s policy is to fund the life insurance premiums and medical benefits as they come due. Generally, employees beginning salaried employment with BNSF subsequent to September 22, 1995, are not eligible for medical benefits during retirement. These benefits are collectively referred to as retiree health and welfare benefits.
Components of the net (benefit) cost for certain employee benefit plans were as follows (in millions):
Pension Benefits | ||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Service cost | $ | 38 | $ | 47 | $ | 39 | ||||||
Interest cost | 95 | 89 | 100 | |||||||||
Expected return on plan assets | (134 | ) | (124 | ) | (118 | ) | ||||||
Amortization of prior service credits | (1 | ) | — | — | ||||||||
Amortization of net loss | 1 | 17 | 10 | |||||||||
Settlements | (1 | ) | (1 | ) | — | |||||||
Net (benefit) cost recognized | $ | (2 | ) | $ | 28 | $ | 31 | |||||
Retiree Health and Welfare Benefits | ||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Service cost | $ | 1 | $ | 1 | $ | 1 | ||||||
Interest cost | 11 | 12 | 13 | |||||||||
Amortization of prior service credits | (2 | ) | (1 | ) | — | |||||||
Amortization of net loss | 1 | 5 | 1 | |||||||||
Net cost recognized | $ | 11 | $ | 17 | $ | 15 | ||||||
26
The projected benefit obligation is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases and expected healthcare cost trend rate increases. The following table shows the change in projected benefit obligation (in millions):
Pension Benefits | ||||||||
Change in Benefit Obligation | December 31, 2014 | December 31, 2013 | ||||||
Projected benefit obligation at beginning of period | $ | 2,220 | $ | 2,517 | ||||
Service cost | 38 | 47 | ||||||
Interest cost | 95 | 89 | ||||||
Actuarial loss (gain) | 256 | (234 | ) | |||||
Plan amendment | — | (7 | ) | |||||
Benefits paid | (141 | ) | (176 | ) | ||||
Administrative expenses | (1 | ) | (1 | ) | ||||
Settlements | (15 | ) | (15 | ) | ||||
Projected benefit obligation at end of period | 2,452 | 2,220 | ||||||
Component representing future salary increases | (146 | ) | (106 | ) | ||||
Accumulated benefit obligation at end of period | $ | 2,306 | $ | 2,114 | ||||
Retiree Health and Welfare Benefits | ||||||||
Change in Benefit Obligation | December 31, 2014 | December 31, 2013 | ||||||
Projected benefit obligation at beginning of period | $ | 272 | $ | 314 | ||||
Service cost | 1 | 1 | ||||||
Interest cost | 11 | 12 | ||||||
Plan participants’ contributions | 6 | 3 | ||||||
Actuarial loss (gain) | 13 | (29 | ) | |||||
Prior service credits | — | (7 | ) | |||||
Benefits paid | (23 | ) | (22 | ) | ||||
Projected benefit obligation at end of period | $ | 280 | $ | 272 | ||||
BNSF’s pension plans had plan assets in excess of accumulated benefit obligation and projected benefit obligations in excess of plan assets at December 31, 2014 and plan assets in excess of accumulated and projected benefit obligations at December 31, 2013.
The following tables show the change in plan assets of the plans (in millions):
Pension Benefits | ||||||||
Change in Plan Assets | December 31, 2014 | December 31, 2013 | ||||||
Fair value of plan assets at beginning of period | $ | 2,490 | $ | 2,014 | ||||
Actual return on plan assets | (3 | ) | 625 | |||||
Employer contributionsa | 12 | 43 | ||||||
Benefits paid | (141 | ) | (176 | ) | ||||
Administrative expenses | (1 | ) | (1 | ) | ||||
Settlements | (15 | ) | (15 | ) | ||||
Fair value of plan assets at measurement date | $ | 2,342 | $ | 2,490 | ||||
a Other than contributions to the BNSF Retirement Plan, employer contributions were classified as Other, Net under Operating Activities in the Company’s Consolidated Statements of Cash Flows.
27
Retiree Health and Welfare Benefits | ||||||||
Change in Plan Assets | December 31, 2014 | December 31, 2013 | ||||||
Fair value of plan assets at beginning of period | $ | — | $ | — | ||||
Employer contributionsa | 17 | 19 | ||||||
Plan participants’ contributions | 6 | 3 | ||||||
Benefits paid | (23 | ) | (22 | ) | ||||
Fair value of plan assets at measurement date | $ | — | $ | — | ||||
a Employer contributions were classified as Other, Net under Operating Activities in the Company’s Consolidated Statements of Cash Flows.
The following table shows the funded status, defined as plan assets less the projected benefit obligation (in millions):
Pension Benefits | Retiree Health and Welfare Benefits | |||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | |||||||||||||
Funded status (plan assets less projected benefit obligations) | $ | (110 | ) | $ | 270 | $ | (280 | ) | $ | (272 | ) | |||||
Of the combined pension and retiree health and welfare benefits liability of $390 million and $2 million recognized as of December 31, 2014 and 2013, respectively, $30 million was included in other current liabilities as of both December 31, 2014 and 2013, and $26 million and $390 million were included in other assets at December 31, 2014 and 2013, respectively.
Actuarial gains and losses and prior service credits are recognized in the Consolidated Balance Sheets through an adjustment to accumulated other comprehensive income / (loss) (AOCI). The following table shows the pre-tax change in AOCI attributable to the components of the net cost and the change in benefit obligation (in millions):
Pension Benefits | ||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||
Change in AOCI | December 31, 2014 | December 31, 2013 | December 31, 2012 | |||||||||
Beginning balance | $ | 427 | $ | (330 | ) | $ | (311 | ) | ||||
Amortization of net loss | 1 | 17 | 10 | |||||||||
Amortization of prior service credits | (1 | ) | — | — | ||||||||
Plan amendment | — | 7 | — | |||||||||
Actuarial (loss) gain | (392 | ) | 734 | (29 | ) | |||||||
Settlements | (1 | ) | (1 | ) | — | |||||||
Ending balance | $ | 34 | $ | 427 | $ | (330 | ) | |||||
Retiree Health and Welfare Benefits | ||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||
Change in AOCI | December 31, 2014 | December 31, 2013 | December 31, 2012 | |||||||||
Beginning balance | $ | (20 | ) | $ | (60 | ) | $ | (35 | ) | |||
Amortization of net loss | 1 | 5 | 1 | |||||||||
Amortization of prior service credits | (2 | ) | (1 | ) | — | |||||||
Plan amendment | — | — | 5 | |||||||||
Prior service credits | — | 7 | — | |||||||||
Actuarial (loss) gain | (13 | ) | 29 | (31 | ) | |||||||
Ending balance | $ | (34 | ) | $ | (20 | ) | $ | (60 | ) | |||
28
Approximately $1 million, net of tax, of the actuarial losses and less than $1 million, net of tax, of the prior service credits from defined benefit pension plans in AOCI are required to be amortized into net periodic benefit cost over the next fiscal year. Approximately $1 million, net of tax, of the actuarial losses and prior service credits from retiree health and welfare benefit plans in AOCI are required to be amortized into net periodic benefit cost over the next fiscal year. Pre-tax amounts currently recognized in AOCI consist of the following (in millions):
Pension Benefits | Retiree Health and Welfare Benefits | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net gain (loss) | $ | 29 | $ | 420 | $ | (43 | ) | $ | (31 | ) | ||||||
Plan amendment | 6 | 7 | 5 | 5 | ||||||||||||
Prior service costs | — | — | 4 | 6 | ||||||||||||
Settlements | (1 | ) | — | — | — | |||||||||||
Pre-tax amount recognized in AOCI at December 31, | $ | 34 | $ | 427 | $ | (34 | ) | $ | (20 | ) | ||||||
After-tax amount recognized in AOCI at December 31, | $ | 21 | $ | 263 | $ | (21 | ) | $ | (12 | ) | ||||||
The assumptions used in accounting for the BNSF plans were as follows:
Pension Benefits | |||||||||
Year Ended | Year Ended | Year Ended | |||||||
Assumptions Used to Determine Net Cost | December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||
Discount rate | 4.50 | % | 3.75 | % | 4.50 | % | |||
Expected long-term rate of return on plan assets | 6.75 | % | 6.75 | % | 6.75 | % | |||
Rate of compensation increase | 3.80 | % | 3.80 | % | 3.80 | % | |||
Retiree Health and Welfare Benefits | |||||||||
Year Ended | Year Ended | Year Ended | |||||||
Assumptions Used to Determine Net Cost | December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||
Discount rate | 4.50 | % | 3.75 | % | 4.50 | % | |||
Rate of compensation increase | 3.80 | % | 3.80 | % | 3.80 | % | |||
Pension Benefits | Retiree Health and Welfare Benefits | |||||||||||
Assumptions Used to Determine Benefit Obligations | December 31, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | ||||||||
Discount rate | 3.79 | % | 4.50 | % | 3.69 | % | 4.50 | % | ||||
Rate of compensation increase | 3.80 | % | 3.80 | % | 3.80 | % | 3.80 | % | ||||
BNSF determined the discount rate based on a yield curve that utilizes year-end market yields of high-quality corporate bonds whose maturities match expected payments. The discount rate used for the 2015 calculation of net benefit cost decreased to 3.79 percent for pension and 3.69 percent for retiree health and welfare benefits, which reflects market conditions at the December 31, 2014, measurement date.
In October 2014, the Society of Actuaries (SOA) released the final report of the RP-2014 mortality tables, which BNSF utilized in the calculation of its December 31, 2014 liabilities. At December 31, 2013, BNSF's liabilities were calculated utilizing the RP-2000 mortality tables. The adoption of new mortality tables increased BNSF's pension and retiree health and welfare benefits liabilities by $65 million and $5 million, respectively.
29
Pension plan assets are generally invested with the long-term objective of earning sufficient amounts to cover expected benefit obligations, while assuming a prudent level of risk. Allocations may change as a result of changing market conditions and investment opportunities. The expected rates of return on plan assets reflect subjective assessments of expected invested asset returns over a period of several years. Generally, past investment returns are not given significant consideration when establishing assumptions for expected long-term rates of returns on plan assets. Actual experience will differ from the assumed rates. The expected rate of return on plan assets was 6.75 percent for 2014 and will be 6.60 percent for 2015.
The following table is an estimate of the impact on future net benefit cost that could result from hypothetical changes to the most sensitive assumptions, the discount rate and rate of return on plan assets:
Sensitivity Analysis | ||||||||||
Change in Net Benefit Cost | ||||||||||
Hypothetical Discount Rate Change | Pension | Retiree Health and Welfare | ||||||||
50 basis point decrease | $ | 3 | million | increase | $ | 1 | million | increase | ||
50 basis point increase | $ | 1 | million | decrease | $ | 1 | million | decrease | ||
Hypothetical Rate of Return on Plan Assets Change | Pension | |||||||||
50 basis point decrease | $ | 10 | million | increase | ||||||
50 basis point increase | $ | 10 | million | decrease | ||||||
The following table presents assumed health care cost trend rates:
Year Ended | Year Ended | Year Ended | |||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | |||||||
Assumed health care cost trend rate for next year (participants over 65)a | 3.00 | % | 3.00 | % | 3.00 | % | |||
Assumed health care cost trend rate for next year (participants under 65) | 7.90 | % | 8.20 | % | 8.40 | % | |||
Rate to which health care cost trend rate for participants under 65 is expected to decline and remain | 4.50 | % | 4.50 | % | 4.50 | % | |||
Year that the rate reaches the ultimate trend rate | 2028 | 2028 | 2028 | ||||||
a Effective January 1, 2013, Medicare-eligible retirees who are enrolled in the retiree medical program received a contribution to a Health Reimbursement Account, which can be used to reimburse plan participants for health insurance premiums and to pay eligible out-of-pocket expenses.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects (in millions):
One Percentage- Point Increase | One Percentage- Point Decrease | |||||||
Effect on total service and interest cost | $ | 1 | $ | (1 | ) | |||
Effect on postretirement benefit obligation | $ | 21 | $ | (18 | ) | |||
Investments are stated at fair value. The various types of investments are valued as follows:
(i) Equity securities are valued at the last trade price at primary exchange close time on the last business day of the year (Level 1 input). If the last trade price is not available, values are based on bid, ask/offer quotes from contracted pricing vendors, brokers, or investment managers (Level 3 input or Level 2 if corroborated).
(ii) Corporate debt securities, government debt securities, and collateralized obligations and mortgage backed securities are valued based on institutional bid evaluations from contracted vendors. Where available, vendors use observable market-based data to evaluate prices (Level 2 input). This also applies to U.S. Treasury securities included in cash and cash equivalents. If observable market-based data is not available, unobservable inputs such as extrapolated data, proprietary models, and indicative quotes are used to arrive at estimated prices representing the price a dealer would pay for the security (Level 3 input).
30
(iii) Registered investment companies and common/collective trusts are valued at the daily net asset value of shares held at year end. Net asset value is considered a Level 1 input if net asset value is computed daily and redemptions at this value are available to all shareholders without restriction. Net asset value is considered a Level 2 input if the fund may restrict share redemptions under limited circumstances or if net asset value is not computed daily. Net asset value is considered a Level 3 input if shares could not be redeemed on the reporting date and net asset value can not be corroborated by trading activity.
The following table summarizes the investments of BNSF’s funded pension plans as of December 31, 2014, based on the inputs used to value them (in millions):
Total as of | ||||||||||||||||
Asset Category | December 31, 2014 | Level 1 Inputs a | Level 2 Inputs a | Level 3 Inputs a | ||||||||||||
Equity securities:b | ||||||||||||||||
U.S. | $ | 2,091 | $ | 2,091 | $ | — | $ | — | ||||||||
International | 77 | 77 | — | — | ||||||||||||
Corporate debt securities | 30 | — | 30 | — | ||||||||||||
Registered investment companies | 28 | 28 | — | — | ||||||||||||
U.S. government debt securities | 13 | — | 13 | — | ||||||||||||
Collateralized obligations and mortgage backed securities (MBS) | 6 | — | 6 | — | ||||||||||||
Cash and cash equivalents | 97 | — | 97 | — | ||||||||||||
Totalc | $ | 2,342 | $ | 2,196 | $ | 146 | $ | — | ||||||||
a See Note 2 to the Consolidated Financial Statements under the heading “Fair Value Measurements” for a definition of each of these levels of inputs.
b As of December 31, 2014, three equity securities each exceeded 10 percent of total plan assets. These investments represent approximately 43 percent of total plan assets.
c Excludes less than $1 million accrued for dividend and interest receivable.
Comparative Prior Year Information
The following table summarizes the investments of BNSF’s funded pension plans as of December 31, 2013, based on the inputs used to value them (in millions):
Total as of | ||||||||||||||||
Asset Category | December 31, 2013 | Level 1 Inputs a | Level 2 Inputs a | Level 3 Inputs a | ||||||||||||
U.S. equity securities b | $ | 2,240 | $ | 2,240 | $ | — | $ | — | ||||||||
Corporate debt securities | 16 | — | 16 | — | ||||||||||||
Registered investment companies | 60 | 60 | — | — | ||||||||||||
U.S. government debt securities | 10 | — | 10 | — | ||||||||||||
Collateralized obligations and mortgage backed securities (MBS) | 2 | — | 2 | — | ||||||||||||
Cash and cash equivalents | 162 | — | 162 | — | ||||||||||||
Total c | $ | 2,490 | $ | 2,300 | $ | 190 | $ | — | ||||||||
a See Note 2 to the Consolidated Financial Statements under the heading “Fair Value Measurements” for a definition of each of these levels of inputs.
b As of December 31, 2013, four U.S. equity securities each exceeded 10 percent of total plan assets. These investments represented approximately 62 percent of total plan assets.
c Excludes $1 million accrued for dividend and interest receivable.
31
The table below sets forth a summary of changes in the fair value of Level 3 assets held by BNSF’s funded pension plans for the year ended December 31, 2013 (in millions):
Level 3 Inputs | Total | Real Estate | ||||||
Balance as of December 31, 2012 | $ | 32 | $ | 32 | ||||
Purchases, sales and settlements | (32 | ) | (32 | ) | ||||
Balance as of December 31, 2013 | $ | — | $ | — | ||||
The Company is not required to make contributions to the BNSF Retirement Plan in 2015. The Company is required to make contributions of less than $1 million to its other funded pension plans. The Company expects to make benefit payments in 2015 of $9 million from its unfunded non-qualified pension plan.
The following table shows expected benefit payments from its defined benefit pension plans and expected claim payments for the retiree health and welfare plan for the next five fiscal years and the aggregate five years thereafter (in millions):
Fiscal year | Expected Pension Plan Benefit Payments | a | Expected Retiree Health and Welfare Payments | |||||
2015 | $ | 167 | $ | 21 | ||||
2016 | $ | 156 | $ | 21 | ||||
2017 | $ | 155 | $ | 20 | ||||
2018 | $ | 153 | $ | 20 | ||||
2019 | $ | 149 | $ | 19 | ||||
2020-2024 | $ | 692 | $ | 86 | ||||
a Primarily consists of the BNSF Retirement Plan payments, which are made from the plan trust and do not represent an immediate cash outflow to the Company.
Defined Contribution Plans
BNSF sponsors qualified 401(k) plans that cover substantially all employees and a non-qualified defined contribution plan that covers certain officers and other employees. BNSF matched 75 percent of the first six percent of non-union employees’ contributions and matched 25 percent on the first four percent of a limited number of union employees’ contributions, which are subject to certain percentage limits of the employees’ earnings, at each pay period. Employer contributions are subject to a five-year length of service vesting schedule. BNSF’s 401(k) matching expense was $36 million, $34 million and $32 million during the years ended December 31, 2014, 2013 and 2012, respectively.
Other
Under collective bargaining agreements, BNSF participates in multi-employer benefit plans that provide certain postretirement health care and life insurance benefits for eligible union employees. Insurance premiums paid attributable to retirees, which are generally expensed as incurred, were $65 million, $65 million and $71 million during the years ended December 31, 2014, 2013 and 2012, respectively. The average number of employees covered under these plans were 40 thousand, 37 thousand and 36 thousand during the years ended December 31, 2014, 2013 and 2012, respectively.
32
14. Related Party Transactions
The companies identified as affiliates of BNSF include Berkshire and its subsidiaries. For the years ended December 31, 2014, 2013 and 2012, the Company declared and paid distributions of $3.5 billion, $4 billion and $3.75 billion, respectively, to its parent company. For the years ended December 31, 2014, 2013 and 2012, the Company received tax refunds of $104 million, $8 million and $0 million, respectively, from Berkshire, and made cash payments of $1,253 million, $1,560 million and $1,033 million, respectively, for income taxes to Berkshire.
BNSF engages in various arm's-length transactions with affiliates in the ordinary course of business. The following table summarizes revenues earned by BNSF for services provided to affiliates and expenditures to affiliates (in millions):
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||||||||
Revenues | $ | 148 | $ | 150 | $ | 50 | ||||||
Expenditures | $ | 20 | $ | 20 | $ | 23 | ||||||
15. Stock-Based Compensation
Prior to the Merger, BNSF shareholders approved the Burlington Northern Santa Fe 1999 Stock Incentive Plan and subsequent amendments which authorized BNSF common stock to be issued in connection with stock options, restricted stock, restricted stock units and performance stock.
Following the Merger, no further grants of BNSF stock were made under the BNSF stock-based compensation plans and each outstanding stock option or share award of BNSF common stock was converted into an option or restricted stock unit of Berkshire Class B Common Stock, in accordance with a formula to convert such awards.
A summary of the status of stock options is presented below (options in thousands, aggregate intrinsic value in millions):
Options | Weighted Average Exercise Prices | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||
Balance at December 31, 2013 | 5,450 | $ | 59.78 | 3.77 | $ | 320 | |||||||
Exercised | (1,581 | ) | 60.43 | ||||||||||
Cancelled | (1 | ) | 78.43 | ||||||||||
Balance at December 31, 2014 | 3,868 | $ | 59.51 | 3.26 | $ | 351 | |||||||
Options exercisable at December 31, 2014 | 3,868 | $ | 59.51 | 3.26 | $ | 351 | |||||||
The total intrinsic value of options exercised was $111 million, $75 million and $95 million during the years ended December 31, 2014, 2013 and 2012, respectively.
33
16. Accumulated Other Comprehensive Income
The following table provides the changes of AOCI by component (in millions):
Pension and Retiree Health and Welfare Benefit Itemsa | Equity Method Investments | Total | ||||||||||
Balance at December 31, 2013 | $ | 251 | $ | (6 | ) | $ | 245 | |||||
Other comprehensive income before reclassifications | (250 | ) | 4 | (246 | ) | |||||||
Amounts reclassified from AOCI | (1 | ) | — | (1 | ) | |||||||
Balance at December 31, 2014 | $ | — | $ | (2 | ) | $ | (2 | ) | ||||
Balance at December 31, 2012 | $ | (241 | ) | $ | (4 | ) | $ | (245 | ) | |||
Other comprehensive income before reclassifications | 478 | (2 | ) | 476 | ||||||||
Amounts reclassified from AOCI | 14 | — | 14 | |||||||||
Balance at December 31, 2013 | $ | 251 | $ | (6 | ) | $ | 245 | |||||
a Amounts are net of tax. See Note 13 for additional details.
Reclassifications out of AOCIb | ||||||||||
Year Ended | Year Ended | |||||||||
Details about AOCI Components | December 31, 2014 | December 31, 2013 | Income Statement Line Item | |||||||
Amortization of pension and retiree health and welfare benefit items | ||||||||||
Actuarial losses | $ | (2 | ) | $ | (22 | ) | c | |||
Prior service costs | 3 | 1 | c | |||||||
1 | (21 | ) | Total before tax | |||||||
— | 7 | Tax (expense) / benefit | ||||||||
Total reclassifications for the period | $ | 1 | $ | (14 | ) | Net of tax | ||||
b Amounts in parenthesis indicate debits in the income statement.
c This component is included in the computation of net periodic pension and retiree health and welfare cost (see Note 13 for additional details).
17. Quarterly Financial Data—Unaudited
Dollars in millions
2014 | Fourth | Third | Second | First | ||||||||||||
Revenues | $ | 6,176 | $ | 5,881 | $ | 5,735 | $ | 5,447 | ||||||||
Operating income | $ | 2,097 | $ | 1,868 | $ | 1,680 | $ | 1,368 | ||||||||
Net income | $ | 1,194 | $ | 1,035 | $ | 916 | $ | 724 | ||||||||
2013 | Fourth | Third | Second | First | ||||||||||||
Revenues | $ | 5,757 | $ | 5,651 | $ | 5,322 | $ | 5,284 | ||||||||
Operating income | $ | 1,882 | $ | 1,740 | $ | 1,577 | $ | 1,468 | ||||||||
Net income | $ | 1,122 | $ | 989 | $ | 884 | $ | 798 | ||||||||
34
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. | Consolidated Financial Statements—see Item 8. |
Schedules are omitted because they are not required or applicable, or the required information is included in the Consolidated Financial Statements or related notes.
2. | Exhibits: |
See Index to Exhibits beginning on page 37 for a description of the exhibits filed as a part of this Report on Form
10-K/A.
35
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Burlington Northern Santa Fe, LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Burlington Northern Santa Fe, LLC | ||||
By: | /s/ Matthew K. Rose* | |||
Dated: | March 4, 2015 | Matthew K. Rose Chairman 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, LLC and in the capacities and on the date indicated.
Signature | Title | ||
/s/ Matthew K. Rose* | Chairman and Chief Executive Officer | ||
Matthew K. Rose | (Principal Executive Officer), and Manager | ||
/s/ Carl R. Ice* | President and Chief Operating Officer | ||
Carl R. Ice | (Principal Executive Officer), and Manager | ||
/s/ Julie A. Piggott | Executive Vice President and Chief Financial Officer | ||
Julie A. Piggott | (Principal Financial Officer), and Manager | ||
/s/ Jon I. Stevens | Vice President and Controller | ||
Jon I. Stevens | (Principal Accounting Officer) | ||
/s/ Stevan B. Bobb* | Manager | ||
Stevan B. Bobb | |||
/s/ Warren E. Buffett* | Manager | ||
Warren E. Buffett | |||
/s/ Gregory C. Fox* | Manager | ||
Gregory C. Fox | |||
/s/ Marc D. Hamburg* | Manager | ||
Marc D. Hamburg | |||
/s/ Roger Nober* | Manager | ||
Roger Nober | |||
*By: | /s/ Julie A. Piggott | |||
Dated: | March 4, 2015 | Julie A. Piggott Executive Vice President and Chief Financial Officer | ||
Burlington Northern Santa Fe, LLC and Subsidiaries
Exhibit Index
Incorporated by Reference (if applicable) | ||||||||||||
Exhibit Number and Description | Form | File Date | File No. | Exhibit | ||||||||
(2) | Plan of acquisition, reorganization, arrangement, liquidation or succession | |||||||||||
2.1 | Agreement and Plan of Merger by and among Berkshire Hathaway Inc., R Acquisition Company, LLC, and Burlington Northern Santa Fe Corporation, dated November 2, 2009. Ø | 8-K | 11/3/2009 | 1-11535 | 2.1 | |||||||
(3) | Articles of Incorporation and Bylaws | |||||||||||
3.1 | Certificate of Formation dated November 2, 2009. | 8-K | 2/16/2010 | 1-11535 | 3.1 | |||||||
3.2 | Amended and Restated Limited Liability Operating Agreement of Burlington Northern Santa Fe, LLC, dated February 12, 2010. | 8-K | 2/16/2010 | 1-11535 | 3.4 | |||||||
3.3 | Written Consent of the Sole Member, dated April 8, 2010, amending the Amended and Restated Limited Liability Operating Agreement. | 8-K | 4/8/2010 | 1-11535 | 3.1 | |||||||
(4) | Instruments defining the rights of security holders, including indentures | |||||||||||
4.1 | Indenture, dated as of December 1, 1995, between BNSF and The First National Bank of Chicago, as Trustee. | S-3 | 2/8/1999 | 333-72013 | 4 | |||||||
4.2 | Form of BNSF’s 6 3/4% Debentures Due March 15, 2029. | 10-K | 3/31/1999 | 1-11535 | 4.3 | |||||||
4.3 | Form of BNSF’s 6.70% Debentures Due August 1, 2028. | 10-K | 3/31/1999 | 1-11535 | 4.4 | |||||||
4.4 | Form of BNSF’s 8.125% Debentures Due April 15, 2020. | 10-K | 2/12/2001 | 1-11535 | 4.6 | |||||||
4.5 | Form of BNSF’s 7.95% Debentures Due August 15, 2030. | 10-K | 2/12/2001 | 1-11535 | 4.7 | |||||||
4.6 | Officers’ Certificate of Determination as to the terms of BNSF’s 4.875% Notes Due January 15, 2015, including Exhibit A thereto, the form of the Notes. | 8-K | 12/9/2004 | 1-11535 | 4.1 | |||||||
4.7 | Indenture, dated as of December 8, 2005, between BNSF and U.S. Bank Trust National Association, as Trustee. | S-3 ASR | 12/8/2005 | 333-130214 | 4.1 | |||||||
4.8 | Certificate of Trust of BNSF Funding Trust I, executed and filed by U.S. Bank Trust National Association, Linda Hurt and James Gallegos, as Trustees. | S-3 ASR | 12/8/2005 | 333-130214 | 4.3 | |||||||
4.9 | Amended and Restated Declaration of Trust of BNSF Funding Trust I, dated as of December 15, 2005. | 8-K | 12/15/2005 | 1-11535 | 4.4 | |||||||
4.10 | Guarantee Agreement between BNSF and U.S. Bank Trust National Association, as Guarantee Trustee, dated as of December 15, 2005. | 8-K | 12/15/2005 | 1-11535 | 4.5 | |||||||
4.11 | First Supplemental Indenture, dated as of December 15, 2005, between BNSF and U.S. Bank Trust National Association, as Trustee. | 8-K | 12/15/2005 | 1-11535 | 4.6 | |||||||
4.12 | Agreement as to Expenses and Liabilities dated as of December 15, 2005, between BNSF and BNSF Funding Trust I. | 8-K | 12/15/2005 | 1-11535 | 4.4 (Exhibit C) | |||||||
4.13 | Form of BNSF Funding Trust I’s 6.613% Trust Preferred Securities. | 8-K | 12/15/2005 | 1-11535 | 4.4 (Exhibit D) | |||||||
4.14 | Officer’s Certificate of Determination as to the terms of BNSF’s 6.20% Debentures Due August 15, 2036, including the form of the Debentures. | 10-Q | 10/24/2006 | 1-11535 | 4.1 | |||||||
4.15 | First Supplemental Indenture, dated as of April 13, 2007, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe Corporation and Bank of New York Trust Company, N.A., as Trustee. | 8-K | 4/13/2007 | 1-11535 | 4.1 | |||||||
4.16 | Officer’s Certificate of Determination as to the terms of BNSF’s 5.65% Debentures due May 1, 2017, and 6.15% Debentures Due May 1, 2037, including the forms of the Debentures. | 8-K | 4/13/2007 | 1-11535 | 4.2 | |||||||
4.17 | Second Supplemental Indenture, dated as of March 14, 2008, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe Corporation and Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 3/14/2008 | 1-11535 | 4.1 | |||||||
Ø | References to BNSF refer to Burlington Northern Santa Fe Corporation for all periods through February 12, 2010, and to Burlington Northern Santa Fe, LLC for all periods on or after February 13, 2010. |
37
Incorporated by Reference (if applicable) | |||||||
Exhibit Number and Description | Form | File Date | File No. | Exhibit | |||
4.18 | Officer’s Certificate of Determination as to the terms of BNSF’s 5.75% Notes due March 18, 2018, including the form of the Notes. | 8-K | 3/14/2008 | 1-11535 | 4.2 | ||
4.19 | Third Supplemental Indenture, dated as of December 3, 2008, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe Corporation and Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 12/3/2008 | 1-11535 | 4.1 | ||
4.20 | Officer’s Certificate of Determination as to the terms of BNSF’s 7.00% Debentures due February 1, 2014. | 8-K | 12/3/2008 | 1-11535 | 4.2 | ||
4.21 | Fourth Supplemental Indenture, dated as of September 24, 2009, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee including the form of BNSF’s 4.700% Notes due October 1, 2019. | 8-K | 9/24/2009 | 1-11535 | 4.1 | ||
4.22 | Certificate of Determination as to the terms of BNSF’s 4.700% Notes due October 1, 2019. | 8-K | 9/24/2009 | 1-11535 | 4.2 | ||
4.23 | Fifth Supplemental Indenture, dated as of February 11, 2010, by and among Burlington Northern Santa Fe Corporation, R Acquisition Company, LLC and The Bank of New York Mellon Trust Company, N.A. | 8-K | 2/16/2010 | 1-11535 | 4.1 | ||
4.24 | Second Supplemental Indenture, dated as of February 11, 2010, by and among Burlington Northern Santa Fe Corporation, R Acquisition Company, LLC and U.S. Bank Trust National Association. | 8-K | 2/16/2010 | 1-11535 | 4.2 | ||
4.25 | Sixth Supplemental Indenture, dated as of May 17, 2010, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 5/17/2010 | 1-11535 | 4.1 | ||
4.26 | Certificate of Determination as to the terms of BNSF’s 5.75% Debentures due May 1, 2040. | 8-K | 5/17/2010 | 1-11535 | 4.2 | ||
4.27 | Seventh Supplemental Indenture, dated as of September 10, 2010, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 9/10/2010 | 1-11535 | 4.1 | ||
4.28 | Certificate of Determination as to the terms of BNSF’s 3.60% Debentures due September 1, 2020 and 5.05% Debentures due March 1, 2041. | 8-K | 9/10/2010 | 1-11535 | 4.2 | ||
4.29 | Eighth Supplemental Indenture, dated as of May 19, 2011, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 5/19/2011 | 1-11535 | 4.1 | ||
4.30 | Certificate of Determination as to the terms of BNSF's 4.10% Debentures due June 1, 2021 and 5.40% Debentures due June 1, 2041. | 8-K | 5/19/2011 | 1-11535 | 4.2 | ||
4.31 | Ninth Supplemental Indenture, dated as of August 22, 2011, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 8/22/2011 | 1-11535 | 4.1 | ||
4.32 | Certificate of Determination as to the terms of BNSF's 3.45% Debentures due September 15, 2021 and 4.95% Debentures due September 15, 2041. | 8-K | 8/22/2011 | 1-11535 | 4.2 | ||
4.33 | Tenth Supplemental Indenture, dated as of March 2, 2012, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 3/2/2012 | 1-11535 | 4.1 | ||
4.34 | Certificate of Determination as to the terms of BNSF's 3.05% Debentures due March 15, 2022 and 4.40% Debentures due March 15, 2042. | 8-K | 3/2/2012 | 1-11535 | 4.2 | ||
4.35 | Eleventh Supplemental Indenture, dated as of August 23, 2012, to Indenture dated as of December 1, 1995 between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 8/23/2012 | 1-11535 | 4.1 | ||
4.36 | Certificate of Determination as to the terms of BNSF's 3.050% Debentures due September 1, 2022 and 4.375% Debentures due September 1, 2042. | 8-K | 8/23/2012 | 1-11535 | 4.2 | ||
4.37 | Twelfth Supplemental Indenture, dated as of March 12, 2013, to Indenture dated as of December 1, 1995 between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 3/12/2013 | 1-11535 | 4.1 | ||
38
Incorporated by Reference (if applicable) | |||||||||||
Exhibit Number and Description | Form | File Date | File No. | Exhibit | |||||||
4.38 | Certificate of Determination as to the terms of BNSF's 3.00% Debentures due March 15, 2023 and 4.45% Debentures due March 15, 2043. | 8-K | 3/12/2013 | 1-11535 | 4.2 | ||||||
4.39 | Thirteenth Supplemental Indenture, dated as of August 22, 2013, to Indenture dated December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 8/22/2013 | 1-11535 | 4.1 | ||||||
4.40 | Certificate of Determination as to the terms of BNSF's 3.850% Debentures due September 1, 2023 and 5.150% Debentures due September 1, 2043. | 8-K | 8/22/2013 | 1-11535 | 4.2 | ||||||
4.41 | Fourteenth Supplemental Indenture, dated as of March 7, 2014, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 3/7/2014 | 1-11535 | 4.1 | ||||||
4.42 | Certificate of Determination as to the terms of BNSF’s 3.750% Debentures due April 1, 2024 and 4.900% Debentures due April 1, 2044. | 8-K | 3/7/2014 | 1-11535 | 4.2 | ||||||
4.43 | Fifteenth Supplemental Indenture, dated as of August 18, 2014, to Indenture dated as of December 1, 1995, between Burlington Northern Santa Fe, LLC and The Bank of New York Mellon Trust Company, N.A., as Trustee. | 8-K | 8/18/2014 | 1-11535 | 4.1 | ||||||
4.44 | Certificate of Determination as to the terms of BNSF’s 3.400% Debentures due September 1, 2024 and 4.550% Debentures due September 1, 2044. | 8-K | 8/18/2014 | 1-11535 | 4.2 | ||||||
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) | Material Contracts | ||||||||||
10.23 | Replacement Capital Covenant, dated as of December 15, 2005, by BNSF in favor of and for the benefit of each Covered Debtholder (as defined therein). | 10-K | 2/17/2006 | 1-11535 | 10.41 | ||||||
(12) | Statements re: Computation of Ratios | ||||||||||
12.1 | Computation of Ratio of Earnings to Fixed Charges. | 10-K | 2/27/2015 | 1-11535 | 12.1 | ||||||
(23) | Consents of experts and counsel | ||||||||||
23.1 | Consent of Deloitte & Touche LLP. | 10-K | 2/27/2015 | 1-11535 | 23.1 | ||||||
(24) | Power of Attorney | ||||||||||
24.1 | Power of Attorney. | 10-K | 2/27/2015 | 1-11535 | 24.1 | ||||||
(31) | Rule 13a-14(a)/15d-14(a) Certifications | ||||||||||
(32) | Section 1350 Certifications | ||||||||||
‡ | Filed herewith |
39
Incorporated by Reference (if applicable) | ||||||||||
Exhibit Number and Description | Form | File Date | File No. | Exhibit | ||||||
(101) | XBRL-Related Documents | |||||||||
101 | eXtensible Business Reporting Language (XBRL) documents submitted electronically: 101.INS - XBRL Instance Document 101.SCH - XBRL Taxonomy Extension Schema Document 101.CAL - XBRL Extension Calculation Linkable Document 101.DEF - XBRL Taxonomy Extension Definition Linkable Document 101.LAB - XBRL Taxonomy Extension Label Linkbase Document 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document The following financial information from Burlington Northern Santa Fe, LLC's Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL includes: (i) the Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012, (ii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012, (iii) the Consolidated Balance Sheets as of December 31, 2014 and 2013, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012, (v) the Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012, and (v) the Notes to the Consolidated Financial Statements. | 10-K | 2/27/2015 | 1-11535 | ||||||
40