UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
[x]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2009
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 Corporation
|
State
of Incorporation
Delaware
|
I.R.S.
Employer Identification No.
41-1804964
|
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
Common
Stock, $0.01 par value
|
Name
of each exchange on which registered
New
York Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act:
None
|
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.
|
[ ]
|
|
|
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
[x] Accelerated filer [ ]
Non-accelerated filer [ ] 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]
|
|
|
The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $24.794 billion on June 30, 2009. For
purposes of this calculation only, the registrant has excluded stock
beneficially owned by directors and officers. By doing so, the registrant
does not admit that such persons are affiliates within the meaning of Rule
405 under the Securities Act of 1933 or for any other purpose.
|
|
|
|
Indicate
the number of shares outstanding of each of the registrant’s classes of
common stock, as of the latest practicable date:
|
|
|
|
Common Stock, $0.01
par value, 341,243,913 shares outstanding as of February 1, 2010.
|
|
DOCUMENTS
INCORPORATED BY REFERENCE
Burlington Northern
Santa Fe Corporation’s definitive Proxy Statement, to be filed not later
than 120 days after the end of the fiscal year covered by this
report
|
Part
III
|
Part
I
Item
1.
Business
Burlington
Northern Santa Fe Corporation (BNSF, Registrant or Company) was incorporated in
the State of Delaware on December 16, 1994. On September 22, 1995, the
shareholders of Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation
(SFP) became the shareholders of BNSF pursuant to a business combination of the
two companies.
On
December 30, 1996, BNI merged with and into SFP. On December 31, 1996, The
Atchison, Topeka and Santa Fe Railway Company merged with and into Burlington
Northern Railroad Company (BNRR), and BNRR changed its name to The Burlington
Northern and Santa Fe Railway Company. On January 2, 1998, SFP merged with and
into The Burlington Northern and Santa Fe Railway Company. On January 20, 2005,
The Burlington Northern and Santa Fe Railway Company changed its name to BNSF
Railway Company (BNSF Railway).
BNSF is a
holding company that conducts no operating activities and owns no significant
assets other than through its interests in its subsidiaries. Through its
subsidiaries, BNSF is engaged primarily in the freight rail transportation
business. At December 31, 2009, BNSF and its subsidiaries had approximately
35,000 employees. The rail operations of BNSF Railway Company (BNSF Railway),
the principal operating subsidiary, comprise one of the largest railroad systems
in North America.
Berkshire
Hathaway Inc., a Delaware corporation (Berkshire), R Acquisition Company, LLC, a
Delaware limited liability company and an indirect wholly owned subsidiary of
Berkshire (Merger Sub), and the Company have entered into a definitive Agreement
and Plan of Merger (the Merger Agreement) dated as of November 2,
2009. Pursuant to the Merger Agreement and subject to the conditions set
forth therein, the Company will merge with and into Merger Sub (the Merger) with
Merger Sub surviving as an indirect wholly owned subsidiary of Berkshire. The
Merger is subject to the approval of (i) the holders of at least 66-2/3% of
the issued and outstanding shares of Company common stock not owned by Berkshire
or any of its affiliates or associates and (ii) the holders of a majority
of the issued and outstanding shares of Company common stock, as well as to the
satisfaction or waiver of other conditions as provided in the Merger Agreement.
The Merger is expected to be completed on February 12, 2010. Further information
on the proposed Merger is incorporated by reference from Note 1 to the
Consolidated Financial Statements.
BNSF’s
internet address is www.bnsf.com. Through this internet Web site (under the
“Investors” link), BNSF makes available, free of charge, its Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as all amendments to those reports, as soon as reasonably practicable after
these reports are electronically filed with or furnished to the Securities and
Exchange Commission (the SEC). Filings on Forms 3, 4 and 5 are also available on
this Web site as is BNSF’s annual proxy statement. BNSF makes available on its
Web site other previously filed SEC reports, registration statements and
exhibits via a link to the SEC’s Web site at www.sec.gov. The following
documents are also made available on the Company’s Web site:
•
|
Code
of Conduct for Directors, Officers and Salaried
Employees;
|
•
|
Code
of Business Conduct and Ethics for Scheduled
Employees;
|
•
|
Corporate
Governance Guidelines; and
|
•
|
Charters
of the Audit, Compensation and Development and Directors and Corporate
Governance Committees.
|
Further
discussion of the Company’s business, including equipment and business sectors,
is incorporated by reference from Item 2, “Properties.”
Item
1A.
Risk Factors
Changes
in government policy could negatively impact demand for the Company’s services,
impair its ability to price its services or increase its costs or liability
exposure.
Changes
in United States and foreign government policies could change the economic
environment and affect demand for the Company’s services. For example, changes
in clean air laws or regulation of carbon dioxide emissions could reduce the
demand for coal and revenues from the coal transportation services provided by
BNSF Railway. Also, United States and foreign government agriculture tariffs or
subsidies could affect the demand for grain. Developments and changes in laws
and regulations as well as increased economic regulation of the rail industry
through legislative action and revised rules and standards applied by the U.S.
Surface Transportation Board in various areas, including rates, services and
access to facilities could adversely impact the Company’s ability to determine
prices for rail services and significantly affect the revenues, costs and
profitability of the Company’s business. Additionally, because of the
significant costs to maintain its rail network, a reduction in profitability
could hinder the Company’s ability to maintain, improve or expand its rail
network, facilities and equipment. Federal or state spending on infrastructure
improvements or incentives that favor other modes of transportation could also
adversely affect the Company’s revenues.
The
Company’s success depends on its ability to continue to comply with the
significant federal, state and local governmental regulations to which it is
subject.
The
Company is subject to a significant amount of governmental laws and regulation
with respect to its rates and practices, railroad operations and a variety of
health, safety, labor, environmental and other matters. Failure to comply with
applicable laws and regulations could have a material adverse effect on the
Company. Governments may change the legislative and/or regulatory framework
within which the Company operates without providing the Company with any
recourse for any adverse effects that the change may have on its business.
Federal legislation enacted in 2008 mandates the implementation of positive
train control technology by December 31, 2015, on certain mainline track where
intercity and commuter passenger railroads operate and where toxic-by-inhalation
hazardous materials are transported. This type of technology is new and
deploying it across BNSF Railway’s system and other railroads may pose
significant operating and implementation risks and will require significant
capital expenditures.
As
part of its railroad operations, the Company frequently transports chemicals and
other hazardous materials, which could expose it to the risk of significant
claims, losses and penalties.
BNSF
Railway is required to transport these commodities to the extent of its common
carrier obligation. An accidental release of these commodities could result in a
significant loss of life and extensive property damage as well as environmental
remediation obligations. The associated costs could have an adverse effect on
the Company’s operating results, financial condition or liquidity as the Company
is not insured above a certain threshold. Further, the rates BNSF Railway
receives for transporting these commodities do not adequately compensate it
should there be some type of accident. In addition, insurance premiums charged
for some or all of the coverage currently maintained by the Company could
increase dramatically or certain coverage may not be available to the Company in
the future if there is a catastrophic event related to rail transportation of
these commodities.
The
Company faces intense competition from rail carriers and other transportation
providers, and its failure to compete effectively could adversely affect its
results of operations, financial condition or liquidity.
The
Company operates in a highly competitive business environment. Depending on the
specific market, the Company faces intermodal, intramodal, product and
geographic competition. This competition from other railroads and motor
carriers, as well as barges, ships and pipelines in certain markets, may be
reflected in pricing, market share, level of services, reliability and other
factors. For example, the Company believes that high service truck lines, due to
their ability to deliver non-bulk products on an expedited basis, have had and
will continue to have an adverse effect on the Company’s ability to compete for
deliveries of non-bulk, time-sensitive freight. While the Company must build or
acquire and maintain its rail system, trucks and barges are able to use public
rights-of-way maintained by public entities. Any material increase in the
capacity and quality of these alternative methods or the passage of legislation
granting greater latitude to motor carriers with respect to size and weight
restrictions could have an adverse effect on the Company’s results of
operations, financial condition or liquidity. In addition, a failure to provide
the level of service required by the Company’s customers could result in loss of
business to competitors. Changes in the ports used by ocean carriers or the use
of all-water routes from the Pacific Rim to the East Coast or other changes in
the supply chain could also have an adverse effect on the Company’s volumes and
revenues.
Downturns
in the economy could adversely affect demand for the Company’s
services.
Significant,
extended negative changes in domestic and global economic conditions that impact
the producers and consumers of the commodities transported by the Company may
have an adverse effect on the Company’s operating results, financial condition
or liquidity. Declines in or muted manufacturing activity, economic growth and
international trade all could result in reduced revenues in one or more business
units.
Negative
changes in general economic conditions could lead to disruptions in the credit
markets, increase credit risks and could adversely affect the Company’s
financial condition or liquidity.
Challenging
economic conditions may not only affect revenues due to reduced demand for many
goods and commodities, but could result in payment delays, increased credit risk
and possible bankruptcies of customers. Railroads are capital-intensive and must
finance a portion of the building and maintenance of infrastructure as well as
locomotives and other rail equipment. Economic slowdowns and related credit
market disruptions may adversely affect the Company’s cost structure, its timely
access to capital to meet financing needs and costs of its financings. The
Company could also face increased counterparty risk for its cash investments and
its hedge arrangements. Adverse economic conditions could also affect the
Company’s costs for insurance or its ability to acquire and maintain adequate
insurance coverage for risks associated with the railroad business if insurance
companies experience credit downgrades or bankruptcies. Declines in the
securities and credit markets could also affect the Company’s pension fund and
railroad retirement tax rates, which in turn could increase funding
requirements.
The
Company is subject to stringent environmental laws and regulations, which may
impose significant costs on its business operations.
The
Company’s operations are subject to extensive federal, state and local
environmental laws and regulations concerning, among other things, emissions to
the air; discharges to waters; the generation, handling, storage, transportation
and disposal of waste and hazardous materials; and the cleanup of hazardous
material or petroleum releases. Changes to or limits on carbon dioxide emissions
could result in significant capital expenditures to comply with these
regulations with respect to BNSF Railway’s diesel locomotives, equipment,
vehicles and machinery and its yards and intermodal facilities and the cranes
and trucks serving those facilities. Emission regulations could also adversely
affect fuel efficiency and increase operating costs. Further, local concerns on
emissions and other forms of pollution could inhibit the Company’s ability to
build facilities in strategic locations to facilitate growth and efficient
operations. In addition, many 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. Environmental liability can extend to previously owned or operated
properties, leased properties and properties owned by third parties, as well as
to properties currently owned and used by the Company’s subsidiaries.
Environmental liabilities have arisen and may continue to arise from claims
asserted by adjacent landowners or other third parties in toxic tort litigation.
The Company’s subsidiaries have been and may continue to be subject to
allegations or findings to the effect that they have violated, or are strictly
liable under, these laws or regulations. The Company’s operating results,
financial condition or liquidity could be adversely affected as a result of any
of the foregoing, and it may be required to incur significant expenses to
investigate and remediate environmental contamination. The Company records
liabilities for environmental cleanup when the amount of its liability is both
probable and reasonably estimable.
Fuel
supply availability and fuel prices may adversely affect the Company’s results
of operations, financial condition or liquidity.
Fuel
supply availability could be impacted as a result of limitations in refining
capacity, disruptions to the supply chain, rising global demand and
international political and economic factors. A significant reduction in fuel
availability could impact the Company’s ability to provide transportation
services at current levels, increase fuel costs and impact the economy. Each of
these factors could have an adverse effect on the Company’s operating results,
financial condition or liquidity. If the price of fuel increases substantially,
the Company expects to be able to offset a significant portion of these higher
fuel costs through its fuel surcharge program. However, to the extent that the
Company is unable to maintain and expand its existing fuel surcharge program,
increases in fuel prices could have an adverse effect on the Company’s operating
results, financial condition or liquidity.
Severe
weather and natural disasters could disrupt normal business operations, which
would result in increased costs and liabilities and decreases in
revenues.
The
Company’s success is dependent on its ability to operate its railroad system
efficiently. Severe weather and natural disasters, such as tornados, flooding
and earthquakes, could cause significant business interruptions and result in
increased costs and liabilities and decreased revenues. In addition, damages to
or loss of use of significant aspects of the Company’s infrastructure due to
natural or man-made disruptions could have an adverse effect on the Company’s
operating results, financial condition or liquidity for an extended period of
time until repairs or replacements could be made. Additionally, during natural
disasters, the Company’s workforce may be unavailable, which could result in
further delays. Extreme swings in weather could also negatively affect the
performance of locomotives and rolling stock.
The
Company’s operational dependencies may adversely affect results of operations,
financial condition or liquidity.
Due to
the integrated nature of the United States’ freight transportation
infrastructure, the Company’s operations may be negatively affected by service
disruptions of other entities such as ports and other railroads which
interchange with the Company. A significant prolonged service disruption of one
or more of these entities could have an adverse effect on the Company’s results
of operations, financial condition or liquidity.
Acts
of terrorism or war, as well as the threat of war, may cause significant
disruptions in the Company’s business operations.
Terrorist
attacks and any government response to those types of attacks and war or risk of
war may adversely affect the Company’s results of operations, financial
condition or liquidity. The Company’s rail lines and facilities could be direct
targets or indirect casualties of an act or acts of terror, which could cause
significant business interruption and result in increased costs and liabilities
and decreased revenues, which could have an adverse effect on operating results
and financial condition. Such effects could be magnified if releases of
hazardous materials are involved. Any act of terror, retaliatory strike,
sustained military campaign or war or risk of war may have an adverse impact on
the Company’s operating results and financial condition by causing unpredictable
operating or financial conditions, including disruptions of BNSF Railway or
connecting rail lines, loss of critical customers or partners, volatility or
sustained increase of fuel prices, fuel shortages, general economic decline and
instability or weakness of financial markets. In addition, insurance premiums
charged for some or all of the coverage currently maintained by the Company
could increase dramatically, the coverage available may not adequately
compensate it for certain types of incidents and certain coverages may not be
available to the Company in the future.
The
Company depends on the stability and availability of its information technology
systems.
The
Company relies on information technology in all aspects of its business. A
significant disruption or failure of its information technology systems could
result in service interruptions, safety failures, security violations,
regulatory compliance failures and the inability to protect corporate
information assets against intruders or other operational difficulties. Although
the Company has taken steps to mitigate these risks, including Business
Continuity Planning, Disaster Recovery Planning and Business Impact Analysis, a
significant disruption could adversely affect the Company’s results of
operations, financial condition or liquidity. Additionally, if the Company is
unable to acquire or implement new technology, it may suffer a competitive
disadvantage, which could also have an adverse effect on the Company’s results
of operations, financial condition or liquidity.
Personal
injury claims constitute a significant expense, and increases in the amount or
severity of these claims could adversely affect the Company’s operating results,
financial condition and liquidity.
The
Company is subject to various personal injury claims by third parties and
employees, including claims by employees who worked around asbestos until 1985,
when its use at BNSF was substantially eliminated. Personal injury claims by
BNSF Railway employees are subject to the Federal Employees’ Liability Act
(FELA), rather than state workers’ compensation laws. The Company believes that
the FELA system, which includes unscheduled awards and a reliance on the jury
system, can contribute to increased expenses. Future events, such as increases
in the number of claims that are filed, developments in legislative and judicial
standards and the costs of settling claims, could result in an adverse effect on
the Company’s operating results, financial condition and liquidity.
Most
of the Company’s employees are represented by unions, and failure to
successfully negotiate collective bargaining agreements may result in strikes,
work stoppages or substantially higher ongoing labor costs.
A
significant majority of BNSF Railway’s employees are union-represented. BNSF
Railway’s union employees work under collective bargaining agreements with
various labor organizations. Wages, health and welfare benefits, work rules and
other issues have traditionally been addressed through industry-wide
negotiations. These negotiations have generally taken place over an extended
period of time and have previously not resulted in any extended work stoppages.
The existing agreements have remained in effect and will continue to remain in
effect until new agreements are reached or the Railway Labor Act’s procedures
(which include mediation, cooling-off periods and the possibility of
Presidential intervention) are exhausted. While the negotiations have not yet
resulted in any extended work stoppages, if BNSF Railway is unable to negotiate
acceptable new agreements, it could result in strikes by the affected workers,
loss of business and increased operating costs as a result of higher wages or
benefits paid to union members, any of which could have an adverse effect on the
Company’s operating results, financial condition or liquidity.
The
unavailability of qualified personnel could adversely affect the Company’s
operations.
Changes
in demographics, training requirements and the unavailability of qualified
personnel, particularly engineers and trainmen, could negatively impact the
Company’s ability to meet demand for rail service. Recruiting and retaining
qualified personnel, particularly those with expertise in the railroad industry,
are vital to operations. Although the Company has adequate personnel for the
current business environment, unpredictable increases in demand for rail
services may exacerbate the risk of not having sufficient numbers of trained
personnel, which could have a negative impact on operational efficiency and
otherwise have a material adverse effect on the Company’s operating results,
financial condition or liquidity.
Item
1B.
Unresolved Staff Comments
None.
Item
2.
Properties
Track
Configuration
BNSF
Railway operates one of the largest railroad networks in North America with
approximately 32,000 route miles of track, excluding multiple main tracks, yard
tracks and sidings, approximately 23,000 miles of which are owned route miles,
including easements, in 28 states and two Canadian provinces as of December 31,
2009. Approximately 9,000 route miles of BNSF Railway’s system consist of
trackage rights that permit BNSF Railway to operate its trains with its crews
over other railroads’ tracks.
As of
December 31, 2009, the total BNSF Railway system, including single and multiple
main tracks, yard tracks and sidings, consisted of approximately 50,000 operated
miles of track, all of which are owned by or held under easement by BNSF Railway
except for approximately 10,000 route miles operated under trackage rights. At
December 31, 2009, approximately 26,000 miles of BNSF Railway’s track consisted
of 112-pound per yard or heavier rail, including approximately 20,000 track
miles of 131-pound per yard or heavier rail.
Equipment
Configuration
BNSF
Railway owned or had under non-cancelable leases exceeding one year the
following units of railroad rolling stock and other equipment as of the dates
shown below. During 2009, BNSF continued phasing out intermodal equipment
(domestic chassis, domestic containers and trailers) due to an increase in
customers providing their own equipment for services versus BNSF maintaining a
rail-controlled fleet. Certain prior period amounts have been adjusted to
conform to current year presentation.
At
December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Locomotives
|
|
|
6,759
|
|
|
6,510
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
Freight
cars:
|
|
|
|
|
|
|
|
|
|
Covered hopper
|
|
|
33,878
|
|
|
35,381
|
|
|
36,439
|
Gondola
|
|
|
13,559
|
|
|
14,485
|
|
|
13,690
|
Open hopper
|
|
|
11,028
|
|
|
11,046
|
|
|
11,428
|
Flat
|
|
|
10,179
|
|
|
10,073
|
|
|
10,470
|
Box
|
|
|
5,493
|
|
|
6,145
|
|
|
7,948
|
Refrigerator
|
|
|
3,653
|
|
|
3,944
|
|
|
4,196
|
Auto rack
|
|
|
709
|
|
|
618
|
|
|
416
|
Tank
|
|
|
433
|
|
|
447
|
|
|
427
|
Other
|
|
|
397
|
|
|
416
|
|
|
324
|
Total freight
cars
|
|
|
79,329
|
|
|
82,555
|
|
|
85,338
|
|
|
|
|
|
|
|
|
|
|
Domestic
chassis
|
|
|
6,034
|
|
|
11,336
|
|
|
11,714
|
Domestic
containers
|
|
|
775
|
|
|
3,246
|
|
|
3,253
|
Trailers
|
|
|
−
|
|
|
1,195
|
|
|
1,200
|
Maintenance
of way and other
|
|
|
4,637
|
|
|
4,499
|
|
|
4,232
|
Commuter
passenger cars
|
|
|
164
|
|
|
163
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
Average
age from date of manufacture–locomotive fleet (years)
a
|
|
|
16
|
|
|
15
|
|
|
15
|
Average
age from date of manufacture–freight car fleet (years)
a
|
|
|
19
|
|
|
18
|
|
|
18
|
a
These averages are not weighted
to reflect the greater capacities of the newer
equipment.
|
Capital Expenditures and
Maintenance
Capital
Expenditures
The
extent of BNSF Railway’s replacement and capacity program is outlined in the
following table:
Year
ended December 31,
|
|
2010
Estimate
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Track
miles of rail laid
a
|
|
|
881
|
|
|
956
|
|
|
972
|
|
|
994
|
Cross
ties inserted (thousands)
a
|
|
|
3,124
|
|
|
3,310
|
|
|
3,167
|
|
|
3,126
|
Track
resurfaced (miles)
|
|
|
14,385
|
|
|
15,456
|
|
|
13,005
|
|
|
11,687
|
a
Includes both replacement capital
and expansion projects, which are primarily
capitalized.
|
A
breakdown of the Company’s cash capital expenditures for the three years ended
December 31, 2009, is incorporated by reference from a table in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the heading “Liquidity and Capital Resources; Investing
Activities.”
BNSF’s
planned 2010 capital commitments are incorporated by reference from Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the heading “Executive Summary; Capital Commitment Outlook for
2010.”
Locomotive
Maintenance
As of
December 31, 2009, General Electric Company and Electro-Motive Diesel, Inc.
performed locomotive maintenance and overhauls for BNSF Railway at its
facilities under various maintenance agreements that covered approximately
4,000 locomotives.
Property and
Facilities
BNSF
Railway operates various facilities and equipment to support its transportation
system, including its infrastructure and locomotives and freight cars. It also
owns or leases other equipment to support rail operations, including containers,
chassis and vehicles. Support facilities for rail operations include yards and
terminals throughout its rail network, system locomotive shops to perform
locomotive servicing and maintenance, a centralized network operations center
for train dispatching and network operations monitoring and management in Fort
Worth, Texas, regional dispatching centers, computers, telecommunications
equipment, signal systems and other support systems. Transfer facilities are
maintained for rail-to-rail as well as intermodal transfer of containers,
trailers and other freight traffic. These facilities include 31 major intermodal
hubs located across the system. BNSF Railway’s largest intermodal facilities in
terms of 2009 volume were as follows:
Intermodal
Facilities
|
|
Lifts
|
|
|
|
Hobart
Yard (Los Angeles, California)
|
|
921,000
|
Logistics
Park (Chicago, Illinois)
|
|
707,000
|
Corwith
Yard (Chicago, Illinois)
|
|
655,000
|
Alliance
(Fort Worth, Texas)
|
|
468,000
|
Willow
Springs (Illinois)
|
|
463,000
|
San
Bernardino (California)
|
|
418,000
|
Cicero
(Illinois)
|
|
392,000
|
Argentine
(Kansas City, Kansas)
|
|
278,000
|
Stockton
(California)
|
|
247,000
|
Memphis
(Tennessee)
|
|
231,000
|
BNSF
Railway owns 22 automotive distribution facilities and serves eight port
facilities where automobiles are loaded on or unloaded from multi-level rail
cars in the United States and Canada.
BNSF
Railway’s largest freight car classification yards based on the average daily
number of cars processed (excluding cars that do not change trains at the
terminal, intermodal and coal cars) are shown below:
Classification
Yards
|
|
Daily
Average
Cars
Processed
|
|
|
|
Argentine
(Kansas City, Kansas)
|
|
1,717
|
Galesburg
(Illinois)
|
|
1,458
|
Northtown
(Minnesota)
|
|
1,167
|
Barstow
(California)
|
|
1,120
|
Tulsa
(Oklahoma)
|
|
1,083
|
As of
December 31, 2009, certain BNSF Railway properties and other assets were subject
to liens securing $94 million of mortgage debt. Certain locomotives,
rolling stock and facilities of BNSF Railway were subject to equipment leases
and financing obligations, as referred to in Notes 9 and 10 to the Consolidated
Financial Statements.
Productivity
Productivity,
as measured by thousand gross ton miles per employee, is shown in the table
below. Gross ton miles is defined as the product of the number of loaded and
empty miles traveled and the combined weight of the car and contents.
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Thousand
gross ton miles divided by average number of employees
|
|
|
26,339
|
|
|
27,360
|
|
|
27,058
|
A
discussion of Employees and Labor Relations is incorporated by reference from
Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, under the heading “Other Matters; Employee and Labor
Relations.”
Business
Mix
In
serving the Midwest, Pacific Northwest and the Western, Southwestern and
Southeastern regions and ports of the country, BNSF transports, through one
operating transportation services segment, a range of products and commodities
derived from manufacturing, agricultural and natural resource industries. Over
half of the freight revenues of the Company are covered by contractual
agreements of varying durations,while the balance is subject to common carrier,
published prices or quotations offered by the Company. BNSF’s financial
performance is influenced by, among other things, general and industry economic
conditions at the international, national and regional levels. The following map
illustrates the Company’s primary routes, including trackage rights, which allow
BNSF to access major cities and ports in the western and southern United States
as well as Canadian and Mexican traffic. In addition to major cities and ports,
BNSF efficiently serves many smaller markets by working closely with
approximately 200 shortline partners. BNSF has also entered into marketing
agreements with CSX Transportation, Canadian National Railway Company and Kansas
City Southern Railway Company, expanding the marketing reach for each railroad
and their customers.
Consumer
Products:
The
Consumer Products’ freight business provided approximately 32 percent of freight
revenues in 2009 and consisted of the following business sectors:
•
|
International Intermodal
— International business consists primarily of container traffic from
steamship companies such as Mediterranean Shipping Company S.A., Orient
Overseas Container Line (OOCL) and Hyundai Merchant Marine Co., Ltd.
International Intermodal accounted for approximately 43 percent of total
Consumer Products revenues.
|
•
|
Domestic Intermodal
—
Domestic Intermodal generated approximately 49 percent of total Consumer
Products revenues. The Domestic Intermodal sector is comprised of the
following business areas:
|
•
|
Truckload/Intermodal Marketing
Companies
— The Truckload business area is comprised of full
truckload carriers such as J.B. Hunt Transportation, Schneider National
and Swift Transportation. The Intermodal Marketing Companies business area
is comprised of various shippers’ agents and
consolidators.
|
•
|
Expedited
Truckload/Less-than-Truckload
— This business area is comprised of
less-than-truckload carriers and parcel carriers such as United Parcel
Service and YRC Worldwide. It also includes expedited truckload carriers
such as U.S. Xpress Enterprises, Transport Corporation of America and
Marten Transport Ltd.
|
•
|
Automotive
— The
transportation of both assembled motor vehicles and shipments of vehicle
parts to numerous destinations throughout the Midwest, Southwest, West and
Pacific Northwest provided about 8 percent of total Consumer Products
revenues. Asian and European automobile companies account for
approximately 83 percent of Automotive
revenue.
|
Coal:
In 2009,
the transportation of coal contributed about 26 percent of freight revenues.
BNSF is one of the largest transporters of low-sulfur coal in the United States.
More than 90 percent of all BNSF’s coal tons originated from the Powder River
Basin of Wyoming and Montana. These coal shipments were destined for coal-fired
electric generating stations located primarily in the North Central, South
Central, Southeast, Mountain and Pacific Northwest regions of the United States.
BNSF also transports coal from the Powder River Basin to markets in Canada, the
eastern United States and Asian markets. Demand for Powder River Basin coal has
increased substantially over time due to its relatively low sulfur content,
abundant reserves, relatively inexpensive mine production and
competitive-delivered cost to power plants.
Other
BNSF coal shipments originate principally in Colorado, New Mexico and North
Dakota. These shipments move to electrical generating stations and industrial
plants in the Mountain and North Central regions of the United States and to
Mexico.
Industrial
Products:
The
Industrial Products’ freight business provided approximately 21 percent of
BNSF’s freight revenues in 2009 and consisted of the following five business
areas:
•
|
Construction Products
—
The Construction Products sector represented approximately 31 percent of
total Industrial Products revenues in 2009. This sector serves virtually
all of the commodities included in, or resulting from, the production of
steel along with mineral commodities such as clays, sands, cements,
aggregates, sodium compounds and other industrial minerals. Industrial
taconite, an iron ore derivative produced in northern Minnesota, scrap
steel and coal coke are BNSF’s primary input products transported.
Finished steel products range from structural beams and steel coils to
wire and nails. BNSF links the integrated steel mills in the East with
fabricators in the West and Southwest. Service is also provided to various
mini-mills in the Southwest that produce rebar, beams and coiled rod for
the construction industry. Industrial minerals include mined and processed
commodities such as cement and aggregates (construction sand, gravel and
crushed stone) that generally move to domestic markets for use in general
construction and public work projects, including highways. Borates and
clays move to domestic points as well as to export markets primarily
through West Coast ports. Sodium compounds, primarily soda ash, are moved
to domestic markets for use in the manufacturing of glass and other
industrial products. Sand is utilized in oil and natural gas drilling, the
manufacturing of glass and in foundry
applications.
|
•
|
Building Products
— This
sector generated approximately 25 percent of total 2009 Industrial
Products revenues and includes primary forest product commodities such as
lumber, plywood, oriented strand board, particleboard, paper products,
pulpmill feedstocks, wood pulp and sawlogs. Also included in this sector
are government, machinery and waste traffic. Commodities from this diverse
group primarily originate from the Pacific Northwest, Western Canada,
upper Midwest and the Southeast for shipment mainly into domestic markets.
Industries served include construction, furniture, photography,
publishing, newspaper and industrial packaging. Shipments of waste,
ranging from municipal waste to contaminated soil, are transported to
landfills and reclamation centers across the country. The government and
machinery business includes aircraft parts, agricultural and construction
machinery, military equipment and large industrial
machinery.
|
|
Petroleum Products
—
Commodities included in the Petroleum Products sector are liquefied
petroleum gas (LPG), diesel fuels, asphalt, alcohol, solvents, petroleum
coke, lubes, oils, waxes and carbon black. This group made up 20 percent
of total Industrial Products revenues for 2009. Product use varies based
on commodity and includes the use of LPG for heating purposes, diesel fuel
and lubes to run heavy machinery and asphalt for road projects and
roofing. Products within this group originate and terminate throughout the
BNSF network, with the largest areas of activities being the Texas Gulf,
Pacific Northwest, California, Montana and
Illinois.
|
|
Chemicals and Plastic
Products
— The Chemicals and Plastic Products sector represented
approximately 16 percent of total 2009 Industrial Products revenues. This
group is composed of industrial chemicals and plastics commodities. These
commodities include caustic soda, chlorine, industrial gases, acids,
polyethylene, polypropylene and polyvinyl chloride. Industrial chemicals
and plastics resins are used by the automotive, housing and packaging
industries, as well as for feedstocks, to produce other chemicals and
plastic products. These commodities originate primarily in the Gulf Coast
region for shipment mainly into domestic
markets.
|
|
Food and Beverages
—
Food and Beverages represented approximately 8 percent of total 2009
Industrial Products revenues. This group consists of beverages, canned
goods and perishable food items. Other consumer goods such as cotton,
salt, rubber and tires and miscellaneous boxcar shipments are also
included in this business area.
|
Agricultural
Products:
The
transportation of Agricultural Products provided approximately 21 percent of
2009 freight revenues. These products include wheat, corn, bulk foods, soybeans,
oil seeds and meals, feeds, barley, oats and rye, flour and mill products, milo,
oils, specialty grains, malt, ethanol and fertilizer. The BNSF system is
strategically located to serve the grain-producing regions of the Midwest and
Great Plains. The Company continues to develop and operate a shuttle network for
grain and grain products, which allows more efficient use of equipment and
improved cycle times. In addition to serving most grain-producing areas, BNSF
serves a variety of terminal, storage, feeding and food-processing locations.
Furthermore, BNSF has direct access to major export markets via the Pacific
Northwest, western Great Lakes, Texas Gulf and Mexican gateways.
Freight
Statistics
The
following table sets forth certain freight statistics relating to rail
operations for the periods indicated.
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Revenue
ton miles (millions)
a
|
|
|
593,573
|
|
|
664,384
|
|
|
657,572
|
Freight
revenue per thousand revenue ton miles
|
|
$
|
22.89
|
|
$
|
26.34
|
|
$
|
23.34
|
Average
length of haul (miles)
|
|
|
1,108
|
|
|
1,090
|
|
|
1,079
|
a
Revenue ton miles is defined as
the product of the number of loaded miles traveled and the weight of the
contents.
|
Revenues,
cars/units and average revenue per car/unit information for the three years
ended December 31, 2009, is incorporated by reference from a table in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, under the heading “Results of Operations; Revenue
Table.”
Government Regulation and
Legislation
The
Company is subject to federal, state and local laws and regulations generally
applicable to all businesses. Rail operations are subject to the regulatory
jurisdiction of the Surface Transportation Board (STB) of the United States
Department of Transportation (DOT), the Federal Railroad Administration of the
DOT, the Occupational Safety and Health Administration (OSHA), as well as other
federal and state regulatory agencies and Canadian regulatory agencies for
operations in Canada. The STB has jurisdiction over disputes and complaints
involving certain rates, routes and services, the sale or abandonment of rail
lines, applications for line extensions and construction and consolidation or
merger with, or acquisition of control of, rail common carriers. The outcome of
STB proceedings can affect the profitability of BNSF’s business.
DOT and
OSHA have jurisdiction under several federal statutes over a number of safety
and health aspects of rail operations, including the transportation of hazardous
materials. State agencies regulate some aspects of rail operations with respect
to health and safety in areas not otherwise preempted by federal
law.
BNSF
Railway’s rail operations, as well as those of its competitors, are also subject
to extensive federal, state and local environmental regulation. These laws cover
discharges to water, air emissions, toxic substances and the generation,
handling, storage, transportation and disposal of waste and hazardous materials.
This regulation has the effect of increasing the cost and liabilities associated
with rail operations. Environmental risks are also inherent in rail operations,
which frequently involve transporting chemicals and other hazardous
materials.
Many of
BNSF Railway’s land holdings are and have been used for industrial or
transportation-related purposes or leased to commercial or industrial companies
whose activities may have resulted in discharges onto the property. As a result,
BNSF Railway is now subject to, and will from time to time continue to be
subject to, environmental cleanup and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), also known as the Superfund law, generally imposes joint and several
liability for cleanup and enforcement costs on current and former owners and
operators of a site, without regard to fault or the legality of the original
conduct. Accordingly, BNSF Railway may be responsible under CERCLA and other
federal and state statutes for all or part of the costs to clean up sites at
which certain substances may have been released by BNSF Railway, its current
lessees, former owners or lessees of properties, or other third parties. BNSF
Railway may also be subject to claims by third parties for investigation,
cleanup, restoration or other environmental costs under environmental statutes
or common law with respect to properties they own that have been impacted by
BNSF Railway operations. Further discussion is incorporated by reference from
Note 10 to the Consolidated Financial Statements.
Railroad Retirement
Railroad
industry personnel are covered by the Railroad Retirement System instead of
Social Security. BNSF Railway’s contributions under the Railroad Retirement
System have been higher than those in industries covered by Social Security. The
Railroad Retirement System, funded primarily by payroll taxes on covered
employers and employees, includes a benefit roughly equivalent to Social
Security (Tier I), an additional benefit similar to that allowed in some private
defined-benefit plans (Tier II) and other benefits. For 2009, the Railroad
Retirement System required a 19.75 percent contribution by railroad employers on
eligible wages, while the Social Security and Medicare Acts only required a 7.65
percent contribution on similar wage bases.
Competition
The
business environment in which BNSF Railway operates is highly competitive.
Depending on the specific market, deregulated motor carriers and other
railroads, as well as river barges, ships and pipelines in certain markets, may
exert pressure on price and service levels. The presence of advanced, high
service truck lines with expedited delivery, subsidized infrastructure and
minimal empty mileage continues to affect the market for non-bulk,
time-sensitive freight. The potential expansion of longer combination vehicles
could further encroach upon markets traditionally served by railroads. In order
to remain competitive, BNSF Railway and other railroads continue to develop and
implement operating efficiencies to improve productivity.
As
railroads streamline, rationalize and otherwise enhance their franchises,
competition among rail carriers intensifies. BNSF Railway’s primary rail
competitor in the Western region of the United States is the Union Pacific
Railroad Company. Other Class I railroads and numerous regional railroads and
motor carriers also operate in parts of the same territories served by BNSF
Railway.
Based on
weekly reporting by the Association of American Railroads, BNSF’s share of the
western United States rail traffic in 2009 was approximately 49
percent.
Employee and Labor
Relations
A
significant majority of BNSF Railway’s employees are union-represented. Final
agreements have been reached in the most recent bargaining round covering 100
percent of BNSF’s unionized workforce. These agreements resolved all wage, work
rule, and health and welfare issues through December 31, 2009, and will remain
in effect until new agreements are reached or the Railway Labor Act’s procedures
(which include mediation, cooling-off periods and the possibility of U.S.
presidential intervention) are exhausted. Negotiations for the new bargaining
round began November 1, 2009.
In the
new bargaining round, an agreement covering wage and work rules issues was
reached with the Brotherhood of Locomotive Engineers and Trainmen (BLET),
representing nearly 7,000 BNSF engineers, which covers the period from January
1, 2010 through December 31, 2014. Also in the new bargaining round, BNSF has
joined industry-wide (or “national”) bargaining with all unions on health and
welfare issues and with all unions except BLET on wage and work rule issues.
Item
3. Legal
Proceedings
Beginning
May 14, 2007, some 30 similar class action complaints were filed in six federal
district courts around the country by rail shippers against BNSF Railway and
other Class I railroads alleging that they have conspired to fix fuel surcharges
with respect to unregulated freight transportation services in violation of the
antitrust laws and seeking injunctive relief and unspecified treble damages.
These cases have been consolidated and are currently pending in the federal
district court of the District of Columbia for coordinated or consolidated
pretrial proceedings. (
In
re: Rail Freight Fuel Surcharge Antitrust Litigation
, MDL No. 1869).
Consolidated amended class action complaints were filed against BNSF Railway and
three other Class I railroads in April 2008. The Company believes that these
claims are without merit and continues to defend against the allegations
vigorously. The Company does not believe that the outcome of these proceedings
will have a material effect on its financial condition, results of operations or
liquidity.
Burlington
Northern Santa Fe Corporation and its Board of Directors, and in some cases
Berkshire and R Acquisition Company, LLC, are named as defendants in putative
class action lawsuits brought by alleged Burlington Northern Santa Fe
Corporation stockholders challenging the merger described in Part 1, Item 1 of
this Form 10-K. Four stockholder actions were filed in Tarrant County, Texas
(the first of which was filed November 3, 2009), three actions were filed in
Dallas County, Texas (the first of which was filed November 4, 2009), and five
actions were filed in Delaware Chancery Court (the first of which was filed
November 5, 2009). The Tarrant County, Texas actions have been consolidated as
In re: Burlington Northern
Santa Fe Corporation Shareholder Class Action Litigation
, Cause No.
348-241465-09. The Dallas County, Texas actions were consolidated under the
action styled
Employees
Retirement System of the City of New Orleans v. Burlington Northern Santa Fe
Corporation, et al.
, Cause No. 09-14950 and have been abated. Plaintiffs
in the Dallas County actions have taken steps seeking to refile or transfer the
actions to Tarrant County. The Delaware actions have been consolidated as
In re: Burlington Northern Santa Fe
Shareholders Litigation
, C.A. No. 5043-VCL.
The
stockholder actions variously allege that Burlington Northern Santa Fe
Corporation’s directors have breached their fiduciary duties based on
allegations that (i) the consideration being offered is unfair and inadequate,
(ii) Burlington Northern Santa Fe Corporation’s directors did not adequately
seek to maximize stockholder value through open bidding or market check
mechanisms, (iii) the “no shop” clause and termination fee are onerous devices
designed to discourage a superior offer, (iv) Burlington Northern Santa Fe
Corporation’s earnings forecasts were manipulated to drive its stock price down
and thus make the proposed transaction appear more favorable to stockholders
than it truly is, and/or (v) Burlington Northern Santa Fe Corporation’s
disclosures relating to the proposed transaction have been, or will be,
inadequate and materially misleading. Certain of the stockholder actions also
allege that Berkshire aided and abetted the alleged breaches by Burlington
Northern Santa Fe Corporation’s directors. The stockholder actions seek various
remedies, including enjoining the transaction from being consummated in
accordance with the agreed-upon terms.
On
January 18, 2010, the parties to the litigation entered into a memorandum of
understanding (the memorandum of understanding) providing for a settlement of
the litigation, subject to the approval of the Delaware Chancery Court. Pursuant
to the memorandum of understanding, the plaintiffs have withdrawn their
application for preliminary injunctive relief, which was previously scheduled to
be heard in the Delaware Chancery Court on February 3, 2010, and the defendants,
while denying all allegations of wrongdoing and denying that the disclosures in
the proxy statement/prospectus were inadequate, provided the supplemental
disclosures set forth in the Current Report on Form 8-K that was filed on
January 20, 2010.
The
Company believes these claims are without merit and, if the proposed settlement
is not approved, will vigorously defend any further proceedings seeking to
prosecute these claims. The Company does not believe that the outcome of these
proceedings will have a material effect on its financial condition, results of
operations or liquidity.
Information
concerning certain pending tax-related administrative or adjudicative state
proceedings or appeals is incorporated by reference from Note 5 to the
Consolidated Financial Statements, and information concerning other claims and
litigation is incorporated by reference from Note 10 to the Consolidated
Financial Statements.
Item
4. Submission of Matters to a Vote of Security
Holders
No
matters were submitted by BNSF to a vote of its securities holders during the
fourth quarter of 2009.
Executive Officers of the
Registrant
Listed
below are the names, ages and positions of all executive officers of BNSF and
their business experience during the past five years. Executive officers hold
office until their successors are elected or appointed, or until their earlier
death, retirement, resignation or removal.
Matthew
K. Rose, 50
Chairman,
President and Chief Executive Officer of BNSF since March 2002.
Thomas
N. Hund, 56
Executive
Vice President and Chief Financial Officer since January 2001.
Carl
R. Ice, 53
Executive
Vice President and Chief Operations Officer since January 2001.
John
P. Lanigan, Jr., 54
Executive
Vice President and Chief Marketing Officer since January 2003.
Linda
Longo-Kazanova, 57
Vice
President–Human Resources and Medical since May 2007. Prior to that, Senior Vice
President, Human Resources and Business Optimization for Bell & Howell
Company, later named ProQuest Company, from 2000.
Roger
Nober, 45
Executive
Vice President Law and Secretary since January 2007. Prior to that, partner of
Steptoe & Johnson LLP, Washington, DC (law firm) from March 2006 and
Chairman of the United States Surface Transportation Board from November 2002 –
January 2006.
Part
II
Item
5. Market for Registrant’s Common Equity,
Related Stockholder
Matters and Issuer Purchases of Equity
Securities
BNSF’s
common stock is listed on the New York Stock Exchange under the symbol “BNI.”
Information as to the high and low sales prices of such stock for the two years
ended December 31, 2009, and the frequency and amount of dividends declared on
such stock during such periods, is set forth in Note 18 to the Consolidated
Financial Statements. The approximate number of holders of record of the common
stock at February 1, 2010, was 29,000.
Common Stock
Repurchases
The
following table presents repurchases by the Company of its common stock for each
of the three months for the quarter ended December 31, 2009, (shares in
thousands):
Issuer
Purchases of Equity Securities
|
Period
|
|
Total
Number of
Shares
Purchased
a
|
|
Average
Price
Paid
Per Share
|
|
Total
Number of Shares Purchased as Part of
Publicly
Announced
Plans
or Programs
b
|
|
Maximum
Number
of
Shares That May
Yet
be Purchased
Under
the Plans
or
Programs
b
|
|
|
|
|
|
|
|
|
|
October
1 – 31
|
|
3
|
|
$77.70
|
|
−
|
|
17,816
|
November
1 – 30
|
|
15
|
|
98.04
|
|
−
|
|
17,816
|
December
1 – 31
|
|
7
|
|
98.64
|
|
−
|
|
17,816
|
Total
|
|
25
|
|
$
95.61
|
|
−
|
|
|
a
Total number of shares purchased represents approximately 25 thousand
shares where employees delivered already owned shares or used an
attestation procedure to satisfy the exercise price of stock options or
the withholding of tax payments. Total number of shares purchased does not
include approximately 13 thousand shares acquired from employees to
satisfy tax withholding obligations that arose on the vesting of
restricted stock or the exercise of stock options.
b
On July 17, 1997, the Board initially authorized and the Company announced
the repurchase of up to 30 million shares of the Company’s common stock
from time to time in the open market. On December 9, 1999, April 20, 2000,
September 21, 2000, January 16, 2003, December 8, 2005 and February 14,
2007, the Board authorized and the Company announced extensions of the
BNSF share repurchase program, adding 30 million shares at each date for a
total of 210 million shares authorized. No share repurchases were made
under the program in 2009.
|
Item
6. Selected Financial
Data
The
following financial data should be read in conjunction with Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Item 8, “Financial Statements and Supplementary Data.” The table
below presents, as of and for the dates indicated, selected historical financial
information for the Company (in millions, except per share data).
December
31,
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,016
|
a
|
$
|
18,018
|
|
$
|
15,802
|
|
$
|
14,985
|
|
$
|
12,987
|
|
Operating
income
|
|
$
|
3,262
|
a
|
$
|
3,912
|
|
$
|
3,486
|
|
$
|
3,521
|
|
$
|
2,927
|
c
|
Net
income
|
|
$
|
1,721
|
a
|
$
|
2,115
|
|
$
|
1,829
|
|
$
|
1,889
|
|
$
|
1,534
|
c
|
Basic
earnings per share
b
|
|
$
|
5.04
|
a
|
$
|
6.13
|
|
$
|
5.15
|
|
$
|
5.19
|
|
$
|
4.09
|
c
|
Average
basic shares
|
|
|
340.0
|
|
|
343.8
|
|
|
352.5
|
|
|
361.0
|
|
|
371.8
|
|
Diluted
earnings per share
b
|
|
$
|
5.01
|
a
|
$
|
6.06
|
|
$
|
5.06
|
|
$
|
5.07
|
|
$
|
3.98
|
c
|
Average
diluted shares
|
|
|
342.5
|
|
|
347.8
|
|
|
358.9
|
|
|
369.8
|
|
|
381.8
|
|
Dividends
declared per common share
|
|
$
|
1.60
|
|
$
|
1.44
|
|
$
|
1.14
|
|
$
|
0.90
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
38,675
|
|
$
|
36,403
|
|
$
|
33,583
|
|
$
|
31,797
|
|
$
|
30,436
|
|
Long-term
debt, including current portion
|
|
$
|
10,335
|
|
$
|
9,555
|
|
$
|
8,146
|
|
$
|
7,385
|
|
$
|
7,154
|
|
Stockholders’
equity
|
|
$
|
12,798
|
|
$
|
11,131
|
|
$
|
11,144
|
|
$
|
10,528
|
|
$
|
9,638
|
|
Net
debt to total capitalization
d
|
|
|
41.5
|
%
|
|
44.5
|
%
|
|
41.2
|
%
|
|
40.0
|
%
|
|
42.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital expenditures excluding equipment
e
|
|
$
|
1,991
|
|
$
|
2,167
|
|
$
|
2,248
|
|
$
|
2,014
|
|
$
|
1,750
|
|
Depreciation
and amortization
|
|
$
|
1,537
|
|
$
|
1,397
|
|
$
|
1,293
|
|
$
|
1,176
|
|
$
|
1,111
|
|
a
2009 revenues and operating income include an unfavorable coal rate case
decision of $66 million, which impacted net income by $46 million, or
$0.13 per basic and diluted share. See Note 10 to the Consolidated
Financial Statements under the heading “Coal Rate Case
Decision.”
b The
retrospective application of new authoritative accounting guidance in 2009
reduced both basic and diluted earnings per share by $0.02 for the year
ended December 31, 2008 and $0.04 for each of the years ended
December 31, 2007, December 31, 2006 and December 31, 2005. See Note
12 to the Consolidated Financial Statements for further
information.
c 2005
operating income, net income and earnings per share include an impairment
charge related to an agreement to sell certain line segments to the State
of New Mexico in the future of $71 million pre-tax, $44 million
net of tax, or $0.12 per basic and diluted share. See discussion under
Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, under the heading "New Mexico Department of
Transportation."
d
Net debt is calculated as total debt (long-term debt plus long-term debt
due within one year) less cash and cash equivalents, and total
capitalization is calculated as the sum of net debt and total
stockholders’ equity.
e
Certain comparative prior period amounts have been adjusted to conform to
the current period presentation.
|
|
Item
7. Management’s Discussion and Analysis of
Financial
Condition and Results of
Operations
Management’s
discussion and analysis relates to the financial condition and results of
operations of Burlington Northern Santa Fe Corporation and its
majority-owned subsidiaries (collectively BNSF, Registrant or Company). The
principal operating subsidiary of BNSF is the BNSF Railway Company (BNSF
Railway) through which BNSF derives substantially all of its revenues. All
earnings per share information is stated on a diluted basis. Certain prior
period amounts have been adjusted to conform to current year
presentation.
Company
Overview
Through
its subsidiaries, BNSF is engaged primarily in the freight rail transportation
business. BNSF’s primary operating subsidiary, BNSF Railway, operates one of the
largest North American rail networks with about 32,000 route miles in 28 states
and two Canadian provinces. Through its one operating transportation segment,
BNSF Railway transports a wide range of products and commodities including
Consumer Products, Coal, Industrial Products and Agricultural
Products.
Additional
operational information, including weekly intermodal and carload unit reports as
submitted to the Association of American Railroads (AAR) and annual reports
submitted to the Surface Transportation Board (STB), are available on the
Company’s Web site at www.bnsf.com/investors.
Executive
Summary
Fiscal
Year 2009 — Financial Overview
•
|
The
Company achieved earnings of $5.01 per share compared with 2008 earnings
of $6.06 per share.
|
•
|
Freight
revenues decreased 22 percent to $13.6
billion.
|
•
|
The
22-percent decrease in freight revenue was attributable to decreases in
unit volumes and fuel surcharges, partially offset by improved
yields.
|
•
|
Operating
expenses of $10.8 billion for 2009 decreased 24 percent compared with
2008, primarily driven by a $2.3 billion, or 49-percent decrease in fuel
expense resulting from lower fuel prices and lower
consumption.
|
•
|
Operating
income of $3.3 billion for 2009 decreased 17 percent or $650 million from
2008.
|
•
|
Each
year capital expenditures excluding equipment are a significant use of
cash for BNSF. In 2009, BNSF decreased its cash capital expenditures
excluding equipment to $1.99 billion from $2.17 billion in the prior year
primarily due to decreased terminal and line expansion. BNSF’s capital
commitments, which include both cash spent for capital and locomotive
leases, decreased approximately $200 million to $2.64 billion in 2009 due
to a decrease in expansion projects and reduced spending on capital
improvements.
|
Capital
Commitment Outlook for 2010
•
|
The
Company’s planned capital commitment program for 2010 is approximately
$2.4 billion, or about $240 million lower than 2009 primarily due to fewer
expected locomotive acquisitions in
2010.
|
|
BNSF
expects to spend about $2.1 billion for track, signal systems, structures
and freight cars, and to upgrade technologies, including the unfunded
federal mandate for positive train
control.
|
|
The
Company anticipates acquiring approximately 170 locomotives at a cost of
about $320 million.
|
Proposed
Merger with Berkshire Hathaway Inc.
|
See
Note 1 to the Consolidated Financial
Statements.
|
Results of
Operations
Revenues
Summary
The
following table presents BNSF’s revenue information by business group for the
years ended December 31, 2009, 2008 and 2007.
Year
ended
|
|
Revenues
(in millions)
|
|
Cars
/ Units (in thousands)
|
|
Average
Revenue Per Car / Unit
|
December
31,
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
products
|
|
$
|
4,316
|
|
$
|
6,064
|
|
$
|
5,664
|
|
3,911
|
|
4,818
|
|
5,149
|
|
$
|
1,104
|
|
$
|
1,259
|
|
$
|
1,100
|
Coal
|
|
|
3,564
|
|
|
3,970
|
|
|
3,279
|
|
2,390
|
|
2,516
|
|
2,472
|
|
|
1,491
|
|
|
1,578
|
|
|
1,326
|
Industrial
products
|
|
|
2,874
|
|
|
4,028
|
|
|
3,684
|
|
1,172
|
|
1,598
|
|
1,664
|
|
|
2,452
|
|
|
2,521
|
|
|
2,214
|
Agricultural
products
|
|
|
2,834
|
|
|
3,441
|
|
|
2,722
|
|
945
|
|
1,062
|
|
1,033
|
|
|
2,999
|
|
|
3,240
|
|
|
2,635
|
Total
freight revenues
|
|
|
13,588
|
|
|
17,503
|
|
|
15,349
|
|
8,418
|
|
9,994
|
|
10,318
|
|
$
|
1,614
|
|
$
|
1,751
|
|
$
|
1,488
|
Other
revenues
|
|
|
428
|
|
|
515
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating revenues
|
|
$
|
14,016
|
|
$
|
18,018
|
|
$
|
15,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
Surcharges
Freight
revenues include both revenue for transportation services and fuel surcharges.
BNSF’s fuel surcharge program is intended to recover its incremental fuel costs
when fuel prices exceed a threshold fuel price. Fuel surcharges are calculated
differently depending on the type of commodity transported. In certain
commodities, fuel surcharge is calculated using a fuel price from a time
period that can be up to 60 days earlier. In a period of volatile fuel
prices or changing customer business mix, changes in fuel expense and fuel
surcharge may significantly differ.
The
following table presents fuel surcharge and fuel expense information for the
years ended December 31, 2009, 2008 and 2007 (in millions).
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Total
fuel expense
a
|
$
|
2,372
|
|
$
|
4,640
|
|
$
|
3,327
|
BNSF
fuel surcharges
|
$
|
1,226
|
|
$
|
3,255
|
|
$
|
1,786
|
a Total
fuel expense includes locomotive and non-locomotive fuel as well as gains and
losses from fuel hedges, which do not impact the fuel surcharge
program.
Expense
Table
The
following table presents BNSF’s expense information for the years ended December
31, 2009, 2008 and 2007 (in millions):
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
$
|
3,481
|
|
$
|
3,884
|
|
$
|
3,773
|
Fuel
|
|
|
2,372
|
|
|
4,640
|
|
|
3,327
|
Purchased
services
|
|
|
1,873
|
|
|
2,133
|
|
|
2,023
|
Depreciation
and amortization
|
|
|
1,537
|
|
|
1,397
|
|
|
1,293
|
Equipment
rents
|
|
|
777
|
|
|
901
|
|
|
942
|
Materials
and other
|
|
|
714
|
|
|
1,151
|
|
|
958
|
Total operating
expenses
|
|
$
|
10,754
|
|
$
|
14,106
|
|
$
|
12,316
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
613
|
|
$
|
533
|
|
$
|
511
|
Other
expense, net
|
|
$
|
8
|
|
$
|
11
|
|
$
|
18
|
Income
tax expense
|
|
$
|
920
|
|
$
|
1,253
|
|
$
|
1,128
|
Year
Ended December 31, 2009, Compared with Year Ended December 31, 2008
BNSF
recorded net income for 2009 of $1,721 million, or $5.01 per share. In
comparison, net income for 2008 was $2,115 million, or $6.06 per
share.
Revenues
Freight
Freight
revenues of $13,588 million for 2009 were $3,915 million, or 22 percent lower
than 2008. Freight revenues reflected a 16-percent decrease in unit volumes
resulting from the economic downturn. Freight revenues included a decrease of
$2,029 million in fuel surcharges compared with the same 2008
period. Decreased fuel surcharges were the primary driver of the
8-percent decrease in revenue per car/unit in 2009.
Consumer
Products
The
Consumer Products’ freight business includes a significant intermodal component
and consists of the following three business areas: international intermodal,
domestic intermodal and automotive.
Consumer
Products revenues of $4,316 million for 2009 were $1,748 million, or 29 percent
lower than 2008. The decrease in revenue was driven by lower international
intermodal, domestic intermodal and automotive volumes primarily due to the
economy and lower revenue per unit driven by decreased fuel
surcharges.
Coal
BNSF is
one of the largest transporters of low-sulfur coal in the United States. More
than 90 percent of all BNSF’s coal tons originate from the Powder River Basin of
Wyoming and Montana.
Coal
revenues of $3,564 million for 2009 declined $406 million, or 10 percent, versus
a year ago, due to decreased fuel surcharges, lower unit volumes and a $66
million loss in excess of amounts previously accrued related to the unfavorable
coal rate case decision during the first quarter of 2009 (see Note 10 to the
Consolidated Financial Statements under the heading “Coal Rate Case Decision.”)
These declines were partially offset by improved yields and approximately $30
million for contract settlements and adjustments with specific customers.
Industrial
Products
The
Industrial Products’ freight business consists of the following five business
areas: construction products, building products, petroleum products, chemicals
& plastic products and food & beverages.
Industrial
Products revenues of $2,874 million for 2009 decreased $1,154 million, or 29
percent, due to lower unit volumes, driven primarily by decreased demand for
construction and building products, and lower fuel surcharges, partially offset
by improved yields.
Agricultural
Products
The
Agricultural Products’ freight business transports agricultural products
including corn, wheat, soybeans, bulk foods, ethanol, fertilizer and other
products.
Agricultural
Products revenues of $2,834 million for 2009 were $607 million, or 18 percent
lower than revenues for 2008. This decrease was due mainly to lower fuel
surcharges, as well as lower unit volumes predominately due to reduced domestic
loadings and international grain shipments, partially offset by improved
yields.
Other
Revenues
Other
revenues decreased $87 million, or 17 percent, to $428 million for 2009 compared
to 2008. This decrease was primarily due to a decrease in BNSF Logistics
volume-related revenues, which is a wholly-owned, third-party logistics company,
and a decrease in charges for storage costs and demurrage.
Expenses
Total
operating expenses for 2009 were $10,754 million, a decrease of $3,352 million,
or 24 percent versus 2008.
Compensation
and Benefits
Compensation
and benefits includes expenses for BNSF employee wages, health and welfare,
payroll taxes and other related items. The primary factors influencing the
expenses recorded are volume, headcount, utilization, wage rates, incentives
earned during the period, benefit plan participation and pension
expenses.
Compensation
and benefits expenses of $3,481 million were $403 million, or 10 percent lower
than 2008. This reduction was primarily the result of decreased unit volumes,
effective cost controls, as well as lower incentive compensation costs, which
cover nearly all non-union and about one quarter of union employees. The average
number of employees decreased 9 percent compared with
2008.
Fuel
Fuel
expense is driven by market price, the level of locomotive consumption of diesel
fuel and the effects of hedging activities. Substantially all fuel expense
consists of fuel used in locomotives for transportation services. Fuel expense
also includes non-locomotive fuel-related costs such as fuel used in vehicles
(maintenance of way and other vehicles/equipment), fuel used in refrigerated
cars, intermodal facilities’ fuel and fuel-based products used in servicing
locomotives.
Fuel
expenses of $2,372 million for 2009 were $2,268 million, or 49 percent lower
than 2008. The decrease in fuel expense was primarily due to a decrease in the
average all-in cost per gallon of locomotive diesel fuel. The average all-in
cost per gallon of locomotive diesel fuel decreased by $1.27 to $1.89, or
$1,520 million. The decrease in the average all-in cost reflected a
decrease in the average purchase price per gallon of $1.43, or a $1,710 million
decrease in locomotive fuel expense, offset by an increase in the hedge loss of
16 cents per gallon, or $190 million (2009 loss of $195 million less 2008
loss of $5 million). Locomotive fuel consumption in 2009 decreased
217 million gallons to 1,198 million gallons when compared with
consumption in 2008, resulting in a $684 million decrease in fuel expense.
The remainder of the decrease was primarily due to lower non-locomotive fuel
prices.
Purchased
Services
Purchased
services expense includes the following: ramping (lifting of containers onto and
off of rail cars); drayage (highway movements to and from railway facilities);
maintenance of locomotives, freight cars and equipment; transportation costs
over other railroads; technology services outsourcing; professional services;
and other contract services provided to BNSF. Purchased services expense also
includes purchased transportation costs for BNSF Logistics. The expenses are
driven by the rates established in the related contracts and the volume of
services required.
Purchased
services expenses of $1,873 million for 2009 were $260 million, or 12 percent
lower than 2008. Variable expenses on lower volumes led to decreased costs in
ramping, drayage, car repairs and other volume-related costs, including those of
BNSF Logistics.
Depreciation
and Amortization
Depreciation
and amortization expenses for the period are determined by using the group
method of depreciation, which applies a single rate to the gross investment in a
particular class of property. Due to the capital-intensive nature of BNSF’s
operations, depreciation expense is a significant component of the Company’s
operating expenses. The full effect of inflation is not reflected in operating
expenses because depreciation is based on historical cost.
Depreciation
and amortization expenses of $1,537 million for 2009 were $140 million, or 10
percent higher than 2008. This increase in depreciation expense was primarily
due to capital expenditures.
Equipment
Rents
Equipment
rents expense includes long-term and short-term payments primarily for
locomotives, freight cars, containers and trailers. The expense is driven
primarily by volume, lease and rental rates, utilization of equipment and
changes in business mix resulting in equipment usage variances.
Equipment
rents expenses for 2009 of $777 million were $124 million, or 14 percent lower
than 2008. Improved car velocity, lower volumes and the return of leased
equipment all contributed to the decrease.
Materials
and Other
Material
expenses consist mainly of the costs involved to purchase mechanical and
engineering materials, in addition to other items for maintenance of property
and equipment. Other expenses principally include personal injury claims,
environmental remediation and derailments as well as utilities, locomotive
overhauls, property and miscellaneous taxes and employee separation costs. The
total is offset by gains on land sales and insurance recoveries.
Materials
and other expenses of $714 million for 2009 were $437 million, or 38 percent
lower than 2008, due largely to expenses in connection with environmental
matters in Montana during the second quarter of 2008, lower derailment and
personal injury costs, reduced volumes and effective cost controls.
Interest
Expense
Interest
expense of $613 million for 2009 was $80 million, or 15 percent higher than
2008. This increase was primarily attributable to a net $32 million loss for
terminated treasury locks (see Note 3 to the Consolidated Financial Statements).
The unfavorable coal rate case decision further increased interest expense by $8
million (see Note 10 to the Consolidated Financial Statements under the heading
“Coal Rate Case Decision”). The remainder of the increase was primarily due to a
higher average debt balance. Favorable tax settlements impacted interest expense
for both 2009 and 2008.
Income
Taxes
The
effective rate in 2009 was 34.8 percent compared with 37.2 percent for the prior
year. The decrease was primarily related to a tax benefit related to the
fourth-quarter donation of
a portion of a line
segment located in Washington State
. There were also favorable tax
settlements for both 2009 and 2008.
Year
Ended December 31, 2008, Compared with Year Ended December 31, 2007
BNSF
recorded net income for 2008 of $2,115 million, or $6.06 per share. In
comparison, net income for 2007 was $1,829 million, or $5.06 per
share.
Revenues
Freight
Freight
revenues of $17,503 million for 2008 were $2,154 million, or 14 percent higher
than 2007. Freight revenues reflected a 3-percent decrease in unit volumes.
Freight revenues included an increase of $1,469 million in fuel surcharges
compared with the same 2007 period. Growth in prices and fuel surcharges drove
average revenue per car/unit up 18 percent in 2008 to $1,751 from $1,488 in
2007.
Consumer Products
Consumer
Products revenues of $6,064 million for 2008 were $400 million, or 7 percent
greater than 2007. Revenue gains were driven by higher revenue per unit due to
increased fuel surcharges and improved yields along with slightly higher
domestic traffic, partially offset by lower international and automotive volumes
caused by economic softness.
Coal
Coal
revenues of $3,970 million for 2008 rose $691 million, or 21 percent, versus a
year ago, due to improved yields, contractual inflation escalators, increased
fuel surcharges and higher unit volumes. Despite the flooding impact in the
Powder River Basin and Midwest during May and June, 2008 was a record year for
coal as volumes grew 2 percent. This was driven by continued strong demand for
Powder River Basin coal, leading to organic growth of existing customers and new
eastern U.S. conversions of power plants to burn Powder River Basin
coal.
Industrial Products
Industrial
Products revenues increased $344 million, or 9 percent, to $4,028 million for
2008. The 14-percent increase in average revenue per car was mainly the result
of higher fuel surcharges and improved yields. Units decreased 4 percent
primarily due to a decline in building products resulting from weakness in the
housing market, partially offset by increased construction product
volumes.
Agricultural Products
Agricultural
Products revenues of $3,441 million for 2008 were $719 million, or 26 percent
higher than revenues for 2007. This increase was primarily due to improved
yields, higher fuel surcharges and strong unit volume growth in ethanol, corn
and soybeans.
Other
Revenues
Other
revenues increased $62 million, or 14 percent, to $515 million for 2008 compared
to 2007. This increase was primarily due to an increase in BNSF Logistics
revenues and an increase in demurrage charges. The increase in BNSF Logistics
revenues was primarily driven by acquisition activities.
Expenses
Total
operating expenses for 2008 were $14,106 million, an increase of $1,790 million,
or 15 percent over 2007.
Compensation
and Benefits
Compensation
and benefits expenses of $3,884 million, were $111 million, or 3 percent higher
than 2007. Wage inflation and increased incentive compensation costs, which
cover all non-union and about one quarter of union employees, were partially
offset by improved productivity and lower pension costs. The average number of
employees decreased 1 percent compared with 2007.
Fuel
Fuel
expenses of $4,640 million for 2008 were $1,313 million, or 39 percent higher
than 2007. The increase in fuel expense was primarily due to an increase in the
average all-in cost per gallon of locomotive diesel fuel, partially offset by a
decline in consumption related to improved fuel efficiency and lower volumes.
The average all-in cost per gallon of locomotive diesel fuel increased by 94
cents to $3.16, or $1,330 million, which is comprised of an increase in the
average purchase price of 91 cents, or $1,294 million, and a decrease in
the hedge benefit of 3 cents, or $36 million (2008 loss of $5 million
less 2007 benefit of $31 million). Locomotive fuel consumption in 2008
decreased 27 million gallons to 1,415 million gallons when compared
with consumption in 2007, resulting in a $60 million decrease in fuel
expense. The remainder of the increase was primarily due to higher
non-locomotive fuel prices.
Purchased
Services
Purchased
services expenses of $2,133 million for 2008 were $110 million, or 5 percent
higher than 2007. Approximately 30 percent of the increase was due to purchased
transportation costs for BNSF Logistics. An increase of approximately $30
million in freight car and locomotive contract maintenance expense as well as an
increase of approximately $15 million in haulage payments for transportation
over other railroads also contributed to the increase.
Depreciation
and Amortization
Depreciation
and amortization expenses of $1,397 million for 2008 were $104 million, or 8
percent higher than 2007. This increase was due to capital expenditures and
updated depreciation studies (see discussion under the heading “Critical
Accounting Estimates; Depreciation”).
Equipment
Rents
Equipment
rents expenses for 2008 of $901 million were $41 million, or 4 percent lower
than 2007, due to lower volumes and improved car
velocity.
Materials
and Other
Materials
and other expenses of $1,151 million for 2008, which consisted of approximately
$330 million of materials expense with the remainder consisting of numerous
other items, were $193 million, or 20 percent higher than 2007. The increase was
primarily due to (i) $125 million in higher environmental costs; (ii) a
reduction in gains on land sales of about $20 million; (iii) higher derailment
costs of about $20 million; and (iv) about $20 million higher property and other
miscellaneous taxes.
Interest
Expense
Interest
expense of $533 million for 2008 was $22 million, or 4 percent higher than 2007.
This increase was primarily the result of a higher average debt balance,
partially offset by the interest associated with a favorable tax settlement.
Income
Taxes
The
effective rate in 2008 was 37.2 percent compared with 38.2 percent for the prior
year. The decrease in the effective tax rate primarily reflects a favorable tax
settlement.
Liquidity and Capital
Resources
Liquidity
is a company’s ability to generate cash flows to satisfy current and future
obligations. Cash generated from operations is BNSF’s principal source of
liquidity. BNSF generally funds any additional liquidity requirements through
debt issuance, including commercial paper, through leasing of assets and through
the sale of a portion of its accounts receivable.
Operating
Activities
2009
Net cash
provided by operating activities was $3,413 million during 2009 compared
with $3,977 million during 2008. The decrease was primarily the result of
an increase in contributions to the pension plans of $257 million (see Note 13
to the Consolidated Financial Statements for further information) and payment of
reparations in the amount of $120 million related to the unfavorable coal rate
case decision during 2009 (see Note 10 to the Consolidated Financial Statements
under the heading “Coal Rate Case Decision.”)
2008
Net cash
provided by operating activities was $3,977 million during 2008 compared
with $3,492 million during 2007. The increase was primarily the result of
an increase in earnings before depreciation and amortization expense.
Investing
Activities
2009
Net cash
used for investing activities was $2,637 million during 2009 compared with
$3,073 million during 2008. The decrease in cash used for investing
activities was principally due to decreased acquisition of equipment of $216
million and a $176 million decrease in capital expenditures excluding
equipment.
2008
Net cash
used for investing activities was $3,073 million during 2008 compared with
$2,415 million during 2007. The increase in cash used for investing
activities primarily reflects an increase in equipment acquired in 2008 that was
not sold and leased back in the same year. This was partially offset by a
decrease in capital expenditures excluding equipment.
A
breakdown of capital expenditures during 2009, 2008 and 2007 is set forth in the
following table (in millions):
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Engineering:
|
|
|
|
|
|
|
Rail
|
|
$
|
416
|
|
$
|
429
|
|
$
|
376
|
Ties
|
|
|
391
|
|
|
358
|
|
|
316
|
Surfacing
|
|
|
252
|
|
|
230
|
|
|
235
|
Other
a
|
|
|
546
|
|
|
544
|
|
|
432
|
Total
engineering
|
|
|
1,605
|
|
|
1,561
|
|
|
1,359
|
Mechanical
|
|
|
107
|
|
|
168
|
|
|
141
|
Other
|
|
|
110
|
|
|
133
|
|
|
105
|
Total
replacement capital
|
|
|
1,822
|
|
|
1,862
|
|
|
1,605
|
Information
services
|
|
|
83
|
|
|
83
|
|
|
75
|
Terminal
and line expansion
|
|
|
86
|
|
|
222
|
|
|
568
|
Total
capital expenditures excluding equipment
|
|
$
|
1,991
|
|
$
|
2,167
|
|
$
|
2,248
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of equipment
|
|
$
|
733
|
|
$
|
949
|
|
$
|
745
|
a Other
primarily includes signals, bridges, structures and other right of way
improvements.
Acquisition
of equipment includes the acquisition of locomotives, freight cars and other
equipment, some or all of which may be sold and leased back by the Company
through either an operating or capital lease. The cash received from any such
sale-leaseback transaction is included in proceeds from sale of equipment
financed in the Consolidated Statements of Cash Flows.
Financing
Activities
2009
Net cash
used for financing activities during 2009 was $140 million, primarily
related to dividend payments of $546 million and common stock repurchases to
satisfy tax withholding obligations for stock option exercises of $16 million,
partially offset by net debt borrowings of $296 million, proceeds from stock
options exercised of $59 million, proceeds from a facility financing obligation
of $51 million and excess tax benefits from equity compensation plans of $29
million.
Aggregate
debt to mature in 2010 is $644 million. BNSF’s ratio of net debt to total
capitalization was 41.5 percent at December 31, 2009, compared with 44.5 percent
at December 31, 2008. The Company’s adjusted net debt to total capitalization
was 50.5 percent at December 31, 2009, compared with 54.7 percent at December
31, 2008. BNSF’s adjusted net debt to total capitalization is a non-GAAP measure
and should be considered in addition to, but not as a substitute or preferable
to, the information prepared in accordance with GAAP. However, management
believes that adjusted net debt to total capitalization provides meaningful
additional information about the ability of BNSF to service long-term debt and
other fixed obligations and to fund future growth.
The
following table presents a reconciliation of the calculation of adjusted net
debt to total capitalization percentage:
December
31,
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Net
debt to total capitalization
a
|
|
|
41.5
|
%
|
|
44.5
|
%
|
Adjustment
for long-term operating leases and other debt equivalents
b
|
|
|
8.9
|
|
|
9.7
|
|
Adjustment
for unfunded pension and retiree health and welfare
liability
|
|
|
1.1
|
|
|
1.5
|
|
Adjustment
for junior subordinated notes
c
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
Adjusted
net debt to total capitalization
|
|
|
50.5
|
%
|
|
54.7
|
%
|
a Net
debt to total capitalization is calculated as total debt (long-term debt
plus long-term debt due within one year) less cash and cash equivalents
divided by the sum of net debt and total stockholders’
equity.
b
Primarily represents an adjustment for the net present value of future
operating lease commitments.
c
Junior subordinated notes are included in total debt on the respective
Consolidated Balance Sheets; however, as they include certain equity
characteristics, they have been assigned 50 percent equity credit for
purposes of this calculation.
|
|
In
September 2009, BNSF issued $750 million of 4.70 percent notes due October 1,
2019. The net proceeds from the sale of the notes were used for general
corporate purposes including, but not limited to, working capital, capital
expenditures and repayment of outstanding indebtedness.
At
December 31, 2009, $750 million remained authorized to be issued by the Board of
Directors (the Board) through the Securities and Exchange Commission (SEC) debt
shelf registration process.
In July
2009, BNSF Railway entered into an 18-year equipment obligation totaling $75
million to finance locomotives and railcars.
In 2009,
BNSF Railway entered into a 12-year capital lease to finance $368 million of
locomotives and freight cars. Additionally, BNSF Railway entered into capital
leases totaling $146 million to finance maintenance of way and other vehicles
and equipment with lease terms of three to seven years.
In 2005,
the Company commenced the construction of an intermodal facility that it
intended to sell to a third party and subsequently lease back. In 2009,
construction of the facility was completed for a cost of approximately $160
million. All improvements have been sold to the third party and BNSF leased the
facility from the third party for 20 years. This sale leaseback transaction was
accounted for as a financing obligation due to continuing involvement. The
outflows from the construction of the facility were classified as investing
activities, and the inflows from the associated financing proceeds were
classified as financing activities in the Company’s Consolidated Statements of
Cash Flows.
2008
Net cash
used for financing activities during 2008 was $601 million, primarily
related to common stock repurchases of $1,147 million, including
$60 million to satisfy tax withholding obligations for stock option
exercises, and dividend payments of $471 million, which were partially
offset by net debt borrowings of $772 million, excess tax benefits from
equity compensation plans of $96 million, proceeds from stock options exercised
of $91 million and proceeds from a facility financing obligation of $68 million.
In
November 2008, BNSF issued $500 million of 7.00 percent notes due February 1,
2014. The net proceeds from the sale of the notes were used for general
corporate purposes including, but are not limited to, working capital, capital
expenditures, repurchase of common stock pursuant to the share repurchase
program and repayment of short-term borrowings.
In March
2008, BNSF issued $650 million of 5.75 percent notes due March 15, 2018. The net
proceeds from the sale of the notes were used for general corporate purposes
including, but not limited to, working capital, capital expenditures, funding
debt which matured in 2008, repurchase of common stock pursuant to the share
repurchase program and repayment of short-term borrowings.
In 2008,
BNSF Railway entered into a capital lease for approximately $158 million to
finance locomotives and freight cars. The term of the lease is 20 years.
Additionally, BNSF Railway entered into capital leases totaling $100 million to
finance maintenance of way and other vehicles and equipment with lease terms of
three to seven years.
2007
Net cash
used for financing activities during 2007 was $1,122 million, primarily
related to common stock repurchases of $1,265 million, including
$43 million to satisfy tax withholding obligations for stock option
exercises, and dividend payments of $380 million, which were partially
offset by net debt borrowings of $234 million, proceeds from stock options
exercised of $142 million, excess tax benefits from equity compensation
plans of $121 million and proceeds from a facility financing obligation of
$41 million.
In April
2007, BNSF issued $650 million of 5.65 percent debentures and
$650 million of 6.15 percent debentures due May 1, 2017 and May 1, 2037,
respectively. The net proceeds from the sale of the debentures were used for
general corporate purposes including, but not limited to, working capital,
capital expenditures, funding the maturity of debt which matured in 2007, the
repayment of commercial paper and the repurchase of common stock.
In 2007,
BNSF Railway entered into several capital leases totaling approximately $325
million to finance locomotives and freight cars. The terms of the leases are
between 15 and 20 years. Additionally, BNSF Railway entered into capital leases
totaling $119 million to finance maintenance of way and other vehicles and
equipment with lease terms of three to seven
years.
Dividends
Common
stock dividends declared were $1.60, $1.44 and $1.14 per share annually for
2009, 2008 and 2007, respectively. Dividends paid on common stock were $546
million, $471 million and $380 million during 2009, 2008 and 2007,
respectively. On October 22, 2009, the Board declared a quarterly dividend of
$0.40 per share on outstanding shares of common stock, payable January 4, 2010
to shareholders of record on December 14, 2009. On January 25, 2010, the Board
declared a conditional cash dividend on outstanding shares of common stock to
shareholders of record on February 4, 2010. The dividend is expected to be paid
on the closing date of the Merger and is contingent upon and subject to the
satisfaction or waiver of all closing conditions set for in the Merger Agreement
executed in connection with the Merger. If all of the closing conditions to the
Merger are satisfied or waived, the dividend will be paid in an amount per share
equal to (1) the number of calendar days between (and including) December 15,
2009 and the closing date of the Merger multiplied by (2) $0.0044, rounded to
the nearest $0.01 per share. See Note 1 to the Consolidated Financial Statements
for additional information related to the Merger.
Share
Repurchase Program
BNSF did
not repurchase shares related to its share repurchase program during 2009.
During 2008 and 2007, the Company repurchased approximately 12 million and
15 million, respectively, of its common stock at average prices of $92.96
per share and $83.96 per share, respectively. Further information on this
repurchase program is incorporated by reference from Note 15 to the Consolidated
Financial Statements.
In
February 2007, the Board authorized the extension of the current BNSF share
repurchase program, adding 30 million shares to the total of
180 million shares previously authorized in equal amounts in July 1997,
December 1999, April 2000, September 2000, January 2003 and December
2005.
Long-Term
Debt and Other Obligations
The
Company’s business is capital intensive. BNSF has historically generated a
significant amount of cash from operating activities, which it uses to fund
capital additions, service debt, repurchase shares and pay dividends.
Additionally, the Company relies on access to the debt and leasing markets to
finance a portion of capital additions on a long-term basis.
In 2009
BNSF took delivery of 331 locomotives under a long-term commitment. At December
31, 2009, BNSF’s remaining commitment was to acquire 537 locomotives by
2013.
In
connection with a transaction entered into in 2006, as amended, BNSF has
remaining railcar purchase obligations for 837 covered hopper cars through
2010.
The
locomotives and freight cars under these agreements have been or are expected to
be financed from one or a combination of sources including, but not limited to,
cash from operations, capital or operating leases and debt issuances. The
decision on the method used for a particular acquisition financing will depend
on market conditions and other factors at that time.
The
Company’s ratio of earnings to fixed charges was 3.91 and 5.04 times for the
years ended December 31, 2009 and 2008, respectively. Additionally, the
Company’s ratio of net cash provided by operating activities divided by total
average debt was 34 percent and 46 percent for the years ended December 31, 2009
and 2008, respectively. The decrease in the ratio of net cash provided by
operating activities divided by total average debt was primarily due to
decreased earnings and a higher average debt balance.
The
following table summarizes the Company’s obligations under long-term debt and
other contractual commitments at December 31, 2009 (in millions):
|
|
Payments
Due by Period
|
Contractual
Obligations
|
|
Total
|
|
Less
than
1
year
|
|
1–3
years
|
|
3–5
years
|
|
More
than
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
a
|
|
$
|
8,783
|
|
$
|
366
|
|
$
|
798
|
|
$
|
866
|
|
$
|
6,753
|
Capital
lease obligations
|
|
|
1,589
|
|
|
278
|
|
|
384
|
|
|
218
|
|
|
709
|
Interest
payments
b
|
|
|
8,650
|
|
|
626
|
|
|
1,141
|
|
|
1,005
|
|
|
5,878
|
Operating
lease obligations
c
|
|
|
6,325
|
|
|
613
|
|
|
1,143
|
|
|
1,016
|
|
|
3,553
|
Purchase
obligations
d
|
|
|
16,945
|
|
|
3,847
|
|
|
4,786
|
|
|
2,506
|
|
|
5,806
|
Other
long-term liabilities reflected
on
the balance sheet under GAAP
e
|
|
|
843
|
|
|
86
|
|
|
334
|
|
|
318
|
|
|
105
|
Total contractual
obligations
|
|
$
|
43,135
|
|
$
|
5,816
|
|
$
|
8,586
|
|
$
|
5,929
|
|
$
|
22,804
|
a
Excludes capital lease obligations. Includes a net fair value interest
rate hedge benefit of $26 million. See Note 9 to the Consolidated
Financial Statements.
b
Interest payments relate to fixed-rate long-term debt and capital lease
obligations and exclude the impact of any interest-rate hedging
activities. See Note 3 to the Consolidated Financial Statements for
additional information.
c
Gross payments due, which includes an interest component.
d
Includes short-line minimum usage commitments, asset maintenance and other
purchase commitments.
e
Consists of employee separation payments as discussed in Note 11 to the
Consolidated Financial Statements, actuarially estimated required payments
from BNSF expected to be made over the next five years for the pension
plans and the retiree health and welfare plan and estimated future
cash flows for income tax liabilities and interest accrued related to
unrecognized tax benefits as discussed in Note 5 to the Consolidated
Financial Statements.
|
In the
normal course of business, the Company enters into long-term contracts 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.
Credit
Agreement
Commercial
paper and the revolving credit agreement are discussed in Note 9 to the
Consolidated Financial Statements. The $1.2 billion revolving credit agreement
includes covenants and events of default typical for this type of facility,
including a maximum debt-to-capital test and a $75 million cross-default
provision. At December 31, 2009, there were no bank borrowings against the
revolving credit agreements, and the Company was in compliance with its debt
covenants. BNSF’s maximum debt-to-capital test provides approximately $8 billion
of debt capacity above BNSF’s outstanding debt as of December 31, 2009, before
an event of default would occur under these covenants. With the exception of a
voluntary bankruptcy or insolvency, any event of default has either or both a
cure period or notice requirement before termination of the agreement. A
voluntary bankruptcy or insolvency would be considered an immediate termination
event.
Off-Balance Sheet
Arrangements
Sale
of Accounts Receivable
The
accounts receivable sales program of Santa Fe Receivables Corporation, as
described in Note 6 to the Consolidated Financial Statements, includes
thresholds for dilution, delinquency and write-off ratios that, if exceeded,
allow the investors participating in this program, at their option, to cancel
the program. These provisions include a maximum debt-to-capital test, which is
the same as in the BNSF revolving credit agreements described above. BNSF’s
maximum debt-to-capital test provides approximately $8 billion of debt capacity
above BNSF’s outstanding debt as of December 31, 2009. At December 31, 2009, the
Company’s capacity to sell undivided interests to investors under the accounts
receivable sales program was $700 million, which was comprised of two
$175 million, 364-day accounts receivable facilities and two $175 million,
3-year accounts receivable facilities. In November 2009, BNSF Railway extended
the commitment termination date of the two, 364-day facilities to November 2010.
The two 3-year facilities were entered into in November 2007 and have a
commitment termination date of November 2010. There was no outstanding undivided
interest held by investors as of December 31, 2009. Outstanding undivided
interests held by investors under the accounts receivable sales program were $50
million at December 31, 2008.
The
amount of undivided interests in the accounts receivable sold by BNSF Railway to
investors fluctuates based on borrowing needs and upon the availability of
receivables and is directly affected by changing business volumes and credit
risks, which may, from time to time, reduce the effective capacity of the
program to less than the $700 million. At December 31, 2009, the effective
capacity under the accounts receivable sales program was $611 million.
The
accounts receivable sales program provides efficient financing at a competitive
interest rate as compared with traditional borrowing arrangements and provides
diversification of funding sources. See Note 6 to the Consolidated Financial
Statements for additional information and Note 16 to the Consolidated Financial
Statements for information about recent accounting pronouncements that will have
an impact on the accounts receivable sales program upon adoption.
Guarantees
The
Company acts as guarantor for certain debt and lease obligations. During the
past several years, the Company has primarily utilized guarantees to allow
third-party entities to obtain favorable terms to finance the construction of
assets that will benefit the Company. Additionally, in the ordinary course of
business, BNSF enters into agreements with third parties that include
indemnification clauses. The Company does not expect performance under these
guarantees or indemnities to have a material adverse effect on the Company’s
liquidity in the foreseeable future (see Note 9 to the Consolidated Financial
Statements for additional information).
Inflation
Due to
the capital-intensive nature of BNSF’s business, the full effect of inflation is
not reflected in operating expenses because depreciation is based on historical
cost. An assumption that all operating assets were depreciated at current price
levels would result in substantially greater expense than historically reported
amounts.
Other
Matters
Hedging
Activities
The
Company uses derivatives to hedge against increases in diesel fuel prices and
interest rates as well as to convert a portion of its fixed-rate long-term debt
to floating-rate debt. The Company does not use derivative financial instruments
for trading or speculative purposes. The Company formally documents the
relationship between the hedging instrument and the hedged item, as well as the
risk management objective and strategy for the use of the hedging instrument.
This documentation includes linking the derivatives that are designated as fair
value or cash flow hedges to specific assets or liabilities on the balance
sheet, commitments or forecasted transactions. The Company assesses at the time
a derivative contract is entered into, and at least quarterly thereafter,
whether the derivative item is effective in offsetting the changes in fair value
or cash flows. Any change in fair value resulting from ineffectiveness, as
defined by authoritative accounting guidance related to derivatives and
hedging
,
is recognized
in current period earnings. For derivative instruments that are designated and
qualify as cash flow hedges, the effective portion of the gain or loss on the
derivative instrument is recorded in accumulated other comprehensive loss (AOCL)
as a separate component of stockholders’ equity and reclassified into earnings
in the period during which the hedge transaction affects earnings. Cash flows
related to fuel and interest rate hedges are classified as operating activities
in the Consolidated Statements of Cash Flows.
BNSF
monitors its hedging positions and credit ratings of its counterparties and does
not anticipate losses due to counterparty nonperformance. As of December 31,
2009, BNSF’s counterparties have credit ratings of A2/A
or
higher.
Fuel
BNSF
measures the fair value of fuel hedges from data provided by various external
counterparties. The Company uses the forward commodity price for the periods
hedged to value its fuel-hedge swaps and costless collars. This methodology is a
market approach, which under authoritative accounting guidance related to fair
value measurements utilizes Level 2 inputs as it uses market data for similar
instruments in active markets. Certain of the Company’s fuel-hedge instruments
are covered by an agreement which includes a provision such that the Company
either receives or posts collateral if the position of the instruments exceeds a
certain net asset or net liability threshold, respectively. Further information
on BNSF’s fuel hedging program is incorporated by reference from Note 3 to the
Consolidated Financial Statements.
From
January 1, 2010, through February 11, 2010, the Company entered into additional
swaps utilizing New York Mercantile Exchange (NYMEX) #2 Heating Oil (HO). The
supporting tables below provide fuel hedge data for hedges entered into
subsequent to December 31, 2009.
|
|
Quarter
Ending
|
|
|
|
2010
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons
hedged (in millions)
|
|
|
−
|
|
|
1.68
|
|
|
2.52
|
|
|
2.52
|
|
|
6.72
|
|
Average
swap price (per gallon)
|
|
$
|
−
|
|
$
|
2.00
|
|
$
|
2.04
|
|
$
|
2.12
|
|
$
|
2.06
|
|
From
January 1, 2010, through February 11, 2010, the Company entered into additional
costless collar agreements utilizing West Texas Intermediate (WTI) crude oil.
The supporting table below provides fuel hedge data for hedges entered into
subsequent to December 31, 2009.
|
|
Quarter
Ending
|
|
|
|
2011
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI
Costless Collars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
75
|
|
|
75
|
|
|
75
|
|
|
75
|
|
|
300
|
|
Equivalent
gallons hedged (in millions)
|
|
|
3.15
|
|
|
3.15
|
|
|
3.15
|
|
|
3.15
|
|
|
12.60
|
|
Average
cap price (per barrel)
|
|
$
|
89.63
|
|
$
|
90.51
|
|
$
|
91.27
|
|
$
|
92.03
|
|
$
|
90.86
|
|
Average
floor price (per barrel)
|
|
$
|
70.35
|
|
$
|
71.25
|
|
$
|
72.08
|
|
$
|
73.02
|
|
$
|
71.68
|
|
From
January 1, 2010, through February 11, 2010, the Company entered into additional
swaps utilizing the HO refining spread (HO-WTI). The supporting tables below
provide fuel hedge data for hedges entered into subsequent to December 31,
2009.
|
|
Quarter
Ending
|
|
|
|
2010
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO-WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
−
|
|
|
85
|
|
|
85
|
|
|
85
|
|
|
255
|
|
Equivalent
gallons hedged (in millions)
|
|
|
−
|
|
|
3.57
|
|
|
3.57
|
|
|
3.57
|
|
|
10.71
|
|
Average
swap price (per barrel)
|
|
$
|
−
|
|
$
|
7.32
|
|
$
|
8.14
|
|
$
|
9.85
|
|
$
|
8.44
|
|
|
|
Quarter
Ending
|
|
|
|
2011
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO-WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
175
|
|
|
85
|
|
|
−
|
|
|
−
|
|
|
260
|
|
Equivalent
gallons hedged (in millions)
|
|
|
7.35
|
|
|
3.57
|
|
|
−
|
|
|
−
|
|
|
10.92
|
|
Average
swap price (per barrel)
|
|
$
|
10.50
|
|
$
|
9.52
|
|
$
|
−
|
|
$
|
−
|
|
$
|
10.18
|
|
Interest
Rate
From time
to time, the Company enters into various interest rate hedging transactions for
the purpose of managing exposure to fluctuations in interest rates by
establishing rates in anticipation of both future debt issuances and the
refinancing of leveraged leases, as well as converting a portion of its
fixed-rate long-term debt to floating-rate debt. The Company uses interest rate
swaps and treasury locks as part of its interest rate risk management strategy.
BNSF’s
measurement of the fair value of interest rate derivatives is based on estimates
of the mid-market values for the transactions which are provided by the
counterparties to these agreements. BNSF reviews these estimates for
reasonableness. This methodology is a market approach, which under authoritative
accounting guidance related to fair value measurements utilizes Level 2 inputs
as it uses market data for similar instruments in active markets. Further
information on BNSF’s interest hedging program is incorporated by reference from
Note 3 to the Consolidated Financial Statements.
Seattle
Sound Transit
In
December 2003, BNSF Railway entered into several agreements with Central Puget
Sound Regional Transit Authority (Sound Transit), a government authority
established by King, Pierce and Snohomish counties within the State of
Washington. BNSF has agreed to sell to Sound Transit, under the threat of
condemnation, four easements enabling Sound Transit to offer commuter rail
service over existing BNSF track from Seattle to Everett. Sound Transit agreed
to pay BNSF approximately $260 million for four commuter easements to
operate trains on the segment between Seattle and Everett and entered into
agreements both for service on the commuter easements and joint use of track for
commuter and freight purposes. The sale proceeds were received between 2003 and
2007 and will be recognized in income over the average life of the associated
track structure (approximately 37 years).
New
Mexico Department of Transportation
In the
fourth quarter of 2005, BNSF Railway Company entered into agreements with the
New Mexico Department of Transportation to sell the Company’s rail line and
certain adjacent property between Belen, New Mexico and Trinidad, Colorado for
$75 million, through a series of sales agreements, while retaining freight
easement rights on the line. The Company recognized an impairment charge in 2005
related to this agreement of $71 million. To date, the Company has received
all funds and closed on two line segments, recognizing gains of $22 million. The
impairment charge and the gains were recorded as a component of materials and
other expense.
Donation
In the
fourth quarter of 2009, BNSF Railway donated a portion of a line segment located
in the State of Washington, resulting in a tax benefit of $0.25 per diluted
share.
Gain
on Land Sale
On
January 11, 2010, BNSF transferred operations which completed the sale of a line
segment in the State of Washington, which will result in a gain of $74 million
in the first quarter of 2010. The gain will be reported in the Consolidated
Statement of Income in materials and other.
Critical Accounting
Estimates
In the
ordinary course of business, the Company makes a number of estimates and
assumptions related to the reporting of results of operations and financial
position in the preparation of its financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual
results could differ significantly from those estimates under different
assumptions and conditions. The following discussion addresses the Company’s
most critical accounting estimates.
Management
has discussed the development and selection of the critical accounting estimates
described below with the Audit Committee of the Board of Directors, and the
Audit Committee has reviewed the Company’s disclosure relating to them in this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Legal
The most
significant estimates using management’s judgment for legal claims are made with
respect to personal injury claims and environmental matters. These matters are
discussed in more detail below.
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 a 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
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.
BNSF
assesses its unasserted 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 for the period 2004-2006.
|
•
|
An
estimate of the future anticipated dismissal rate by type of claim was
computed using the Company’s historical average dismissal rates observed
in 2005-2007.
|
•
|
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
2005-2007.
|
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., the average historical
filing rate for the period 2004-2006) 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 2005-2007 are most representative of
future claim values. Non-malignant claims, which represent approximately 90
percent of the total number and 75 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. A 10-percent increase or decrease in either the forecasted
number of unasserted claims or the average claim values would result in an
approximate $20 million increase or decrease in the liability recorded for
unasserted asbestos claims.
Further
discussion on asbestos is incorporated by reference from Note 10 to the
Consolidated Financial Statements.
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.
The most
sensitive assumptions for this accrual are the expected average cost per claim
and the projected frequency rates for the number of claims that will ultimately
result in payment. A 10-percent increase or decrease in either the expected
average cost per claim or the frequency rate for claims with payment would
result in an approximate $37 million increase or decrease in BNSF’s
recorded other personal injury reserves.
Further
discussion on other personal injury is incorporated by reference from Note 10 to
the Consolidated Financial Statements.
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.
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 historical payment patterns, current estimated
percentage to closure ratios and benchmark patterns developed from data
accumulated from industry and public sources, including the Environmental
Protection Agency and other governmental agencies. These factors incorporate
experience gained from cleanup efforts at other similar sites into the estimates
for which remediation and restoration efforts are still in progress. The most
significant assumptions are as follows: (i) historical payment patterns of site
development and (ii) variance from benchmark costs. A 10 percent change in any
of these individual assumptions could result in an approximate increase or
decrease of approximately $25 million in BNSF’s estimated environmental
liability.
Further
discussion on environmental is incorporated by reference from Note 10 to the
Consolidated Financial Statements.
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 lawsuits arising
in the ordinary course of business, including those related to disputes and
complaints involving certain transportation rates and charges (including
complaints seeking refunds of prior charges paid for coal transportation and the
prescription of future rates for such movements and claims relating to service
under contract provisions or otherwise). 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, 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, 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.
Further
discussion on other claims and litigation is incorporated by reference from Note
10 to the Consolidated Financial Statements.
Income
Taxes
BNSF is
subject to various federal, state and local income taxes in the taxing
jurisdictions where the Company operates. BNSF accounts for income taxes by
providing for taxes payable or refundable in the current year and for deferred
tax assets and liabilities for future tax consequences of events that have been
recognized in financial statements or tax returns.
BNSF
recorded total income tax expense, including federal, state and other income
taxes, of $920 million, $1,253 million and $1,128 million for the
years ended December 31, 2009, 2008 and 2007, respectively. BNSF’s Consolidated
Balance Sheets reflect $290 million and $442 million of net current
deferred tax assets at December 31, 2009 and 2008, respectively. Also included
in BNSF’s Consolidated Balance Sheets are $9,322 million and $8,590 million
of net non-current deferred tax liabilities at December 31, 2009 and 2008,
respectively. Classification of deferred tax assets and liabilities as current
or non-current is determined by the financial statement classification of the
asset or liability to which the temporary difference is related. If a temporary
difference is not related to an asset or liability for financial reporting, it
is classified according to the expected reversal date of the temporary
difference.
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.
All
federal income tax returns of BNSF are closed through 1999. Internal Revenue
Service (IRS) examination of the years 2000 through 2007 for BNSF is completed,
and the un-agreed issues for 2000 through 2007 are pending before IRS Appeals.
It is anticipated that a settlement with the IRS for the years 2000 through 2005
may be reached within the next twelve months. BNSF is currently under
examination for year 2008.
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.
A
significant portion of the audit issues relate to state income tax issues with
various taxing authorities and with the IRS related to whether certain
valuations of donated property are appropriate. A provision for taxes resulting
from ongoing and future federal and state audits is based on an estimation of
aggregate adjustments that may be required as a result of the audits. The
Company believes that adequate provision has been made for any adjustment that
might be assessed for open years through 2009.
BNSF
makes estimates of the potential liability based on its assessment of all
potential tax exposures. In addition, the Company uses factors such as
applicable tax laws and regulations, current information and past experience
with similar issues to make these judgments.
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.
The
Company has not significantly changed its methodology for calculating income tax
expense for the years presented, and there are currently no known trends,
demands, commitments, events or uncertainties that are reasonably likely to
occur and materially affect the methodology or assumptions described above.
Further information on federal and state income taxes and uncertain tax
positions is incorporated by reference from Notes 2 and 5 to the Consolidated
Financial Statements.
Employment
Benefit Plans
BNSF
sponsors 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. 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 plan.
Certain
salaried employees of BNSF that have met age and years of service requirements
are eligible for life insurance coverage and medical benefits, including
prescription drug coverage, during retirement. This postretirement benefit plan,
referred to as the retiree health and welfare plan, is contributory and provides
benefits to retirees, their covered dependents and beneficiaries. Retiree
contributions are adjusted annually. The plan also contains fixed deductibles,
coinsurance and out-of-pocket limitations. The 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 benefits payable under the medical and life
insurance plans as they come due. Generally, employees beginning salaried
employment with BNSF subsequent to September 22, 1995, are not eligible for
medical benefits during retirement.
The
amounts recorded in the Consolidated Statements of Income for the pension and
the retiree health and welfare plans were as follows (in millions):
Year
ended December 31,
|
|
2010
Estimate
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
pension cost
|
|
$
|
45
|
|
$
|
47
|
|
$
|
31
|
|
$
|
52
|
Net
retiree health and welfare cost
|
|
$
|
13
|
|
$
|
13
|
|
$
|
17
|
|
$
|
17
|
At
December 31, 2009, BNSF had net losses, excluding prior service credits, of $792
million and $25 million related to the pension and retiree health and welfare
benefits plans, respectively, which had been recognized as a component of AOCL
under authoritative accounting guidance, as described in Note 13 to the
Consolidated Financial Statements. These losses were comprised of gains and
losses from changes in discount rates, actuarial assumptions and census data as
well as market gains and losses and will be recognized as a component of net
pension and retiree health and welfare costs over the next 17 and 14 years,
respectively. The expected amortization of deferred losses is as
follows:
|
|
Deferred
Losses to be Recognized (in millions)
|
Fiscal
year
|
|
Pension
|
|
Retiree
Health and
Welfare
Benefits
|
|
|
|
|
|
|
|
2010
|
|
$
|
32
|
|
$
|
1
|
2011
|
|
|
37
|
|
|
1
|
2012
|
|
|
41
|
|
|
1
|
2013
|
|
|
44
|
|
|
1
|
2014
|
|
|
39
|
|
|
1
|
Thereafter
|
|
|
446
|
|
|
8
|
The
Company estimates liabilities and expenses for the pension and retiree health
and welfare plans. Estimated amounts are based on historical information,
current information and estimates about future events and circumstances.
Significant assumptions used in the valuation of the pension or retiree health
and welfare obligations include expected return on plan assets, discount rate,
rate of increase in compensation levels and the health care cost trend rate.
From time
to time, the Company will change pension and retiree health and welfare
assumptions in response to current conditions and expected future experience.
Significant assumptions for the past three years are as follows:
Assumptions
Used to Determine Net Cost
|
|
Pension
Benefits
|
|
Retiree
Health and Welfare Benefits
|
|
for
Fiscal Years Ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.75
|
%
|
|
6.00
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
|
6.00
|
%
|
|
5.50
|
%
|
Expected
long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
Assumed
health care cost trend rate
|
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
9.75
|
%
|
|
10.50
|
%
|
|
10.00
|
%
|
Rate to which health care
cost trend rate
is expected to decline
and remain
|
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Year that the rate
reaches the ultimate trend rate
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2016
|
|
|
2016
|
|
|
2012
|
|
Rate
of compensation increase
|
|
|
3.80
|
%
|
|
3.80
|
%
|
|
3.90
|
%
|
|
3.80
|
%
|
|
3.80
|
%
|
|
3.90
|
%
|
Assumptions
Used to Determine Benefit
|
Pension
Benefits
|
|
Retiree
Health and Welfare Benefits
|
|
Obligations
at December 31,
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
5.75
|
%
|
|
5.75
|
%
|
|
5.75
|
%
|
|
5.75
|
%
|
Assumed
health care cost trend rate
|
|
–
|
%
|
|
–
|
%
|
|
9.00
|
%
|
|
9.75
|
%
|
Rate to which health care cost
trend rate
is expected to decline and
remain
|
|
–
|
%
|
|
–
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Year that the rate reaches the
ultimate trend rate
|
|
–
|
|
|
–
|
|
|
2016
|
|
|
2016
|
|
Rate
of compensation increase
|
|
3.80
|
%
|
|
3.80
|
%
|
|
3.80
|
%
|
|
3.80
|
%
|
At
December 31, 2009, BNSF determined the discount rate by utilizing the Mercer
Yield Curve applied to the future estimated cash flows of the Company’s pension
and retiree health and welfare plans. At December 31, 2008, BNSF determined the
discount rate by averaging the Mercer Yield Curve and the Moody’s Aa Corporate
bond yield, with the latter measure adjusted to reflect the future estimated
cash flows of the Company’s pension and retiree health and welfare plans. BNSF
believes the Mercer Yield Curve is, in general, a better model to determine
discount rates as it utilizes a much larger and more diverse population of
highly rated bonds than the Moody’s Aa Corporate bond yield. However, given the
volatility experienced in late 2008, the Company was concerned that some of the
bonds included in the Mercer Yield Curve, such as financial institutions, may
have higher yields because their market risk had not yet fully been reflected in
their credit rating. Therefore, BNSF decided it most appropriate to average the
Mercer Yield Curve with the Moody’s Aa Corporate bond yield, which had no
financial institutions in its population. The discount rate used for the 2010
calculation of net benefit cost remained at 5.75 percent which reflects market
conditions at the December 31, 2009, measurement date.
The
expected long-term rate of return is the return the Company anticipates earning,
net of plan expenses, over the period that benefits are paid. It reflects the
rate of return on present investments and on expected contributions. In
determining the expected long-term rate of return, BNSF considered the
following: (i) forward looking capital market forecasts; (ii) historical returns
for individual asset classes; and (iii) the impact of active portfolio
management. The expected rate of return on plan assets remained consistent from
2009 to 2010, and the Company does not expect any near-term significant changes
to the current investment allocation of assets. However, unforeseen changes in
the investment markets or other external factors could prompt changes in these
estimates in future years.
The rate
of compensation increase is determined based on historical experience. The
health care cost trend rates reflect the expected future increases in health
care costs.
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
|
|
$6
million increase
|
|
$200
thousand decrease
|
50
basis point increase
|
|
$6
million decrease
|
|
$100
thousand increase
|
|
|
|
|
|
Hypothetical
Rate of Return
on
Plan Assets Change
|
|
Pension
|
|
|
50
basis point decrease
|
|
$7
million increase
|
|
|
50
basis point increase
|
|
$7
million decrease
|
|
|
The
Company is not required to make contributions to the BNSF Retirement Plan in
2010. The Company currently determines required funding by amortizing asset
gains and losses over a period of two years. If the Company was required to
fully fund the unfunded portion of its accumulated benefit obligation, which was
$492 million at December 31, 2009, for these pension plans and $266 million for
the retiree health and welfare plan, the Company’s management believes that it
would have sufficient liquidity, and it could fund the balance without a
significant impact to the Company’s financial position. Additionally, the
Company expects to make benefit payments in 2010 of approximately $8 million and
$23 million from its non-qualified defined benefit and retiree health and
welfare plans, respectively.
In August
of 2006, the President signed the Pension Protection Act of 2006 (PPA) into law.
While the Act had some effect on specific plan provisions in the Company’s
retirement program, its primary effect was to change the minimum funding
requirements. The Act will accelerate the required funding of future
contributions for the Company’s pension plans beginning with the 2010 fiscal
year. Additionally, in December of 2008, the President signed the Worker,
Retiree, and Employer Act of 2008 (WRE) into law. This Act, among other things,
will delay some of the funding that would have otherwise been required over the
next few years. Anticipated payments, including the impact of PPA and WRE, over
the next five years are included in the Contractual Obligations table under the
heading “Long-Term Debt and Other Obligations” in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations. The
Company does not anticipate that this legislation will significantly impact its
results of operations, financial condition or liquidity.
Further
information on employee benefits is incorporated by reference from Note 13 to
the Consolidated Financial Statements.
Depreciation
Due to
the capital-intensive nature of the railroad industry, depreciation expense is a
significant component of the Company’s operating expense. The Company recorded
depreciation and amortization expenses of $1,537 million,
$1,397 million and $1,293 million for the years ended December 31,
2009, 2008 and 2007, respectively. At December 31, 2009 and 2008, the Company
had property and equipment, net balances of $32,294 million and
$30,847 million, which included $10,736 million and $9,912 million,
respectively, of accumulated depreciation.
The
Company uses the group method of depreciation under 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.
Changes in the estimated service lives of the assets and their related
depreciation rates are implemented prospectively, and the difference between the
calculated accumulated depreciation and the amount recorded is amortized over
the average remaining service lives of the assets.
A study
completed and implemented in April 2008 resulted in the Company adopting new
depreciation rates for other roadway property, which includes items such as
bridges, office buildings and facilities, telecommunication and information
technology systems and machinery, that resulted in a net increase in 2008
depreciation expense of approximately $13 million and approximately $18 million
on an ongoing annual basis. A study conducted in 2007 resulted in the Company
adopting new depreciation rates for locomotives that resulted in a net increase
in 2007 depreciation expense of $17 million and approximately
$22 million on an ongoing annual basis, as calculated using the asset base
at the time of the rate change. All rate studies are current under the STB’s
requirements.
Accounting
Pronouncements
See Note
16 to the Consolidated Financial Statements for information about recent
accounting pronouncements.
Forward-Looking
Information
To the
extent that statements made by the Company relate to the Company’s future
economic performance or business outlook, projections or expectations of
financial or operational results, or refer to matters that are not historical
facts, such statements are “forward-looking” statements within the meaning of
the federal securities laws. These forward-looking statements include, but are
not limited to, statements regarding:
•
|
Expectations
as to operating results, such as revenues and earnings;
|
|
|
•
|
Expectations
as to the effect on the Company’s financial condition of claims,
litigation, environmental and personal injury costs, commitments,
contingent liabilities, U.S. Surface Transportation Board and other
governmental and regulatory investigations and proceedings, and changes in
the economic laws and regulations applicable to the rail
industry;
|
|
|
•
|
Plans
and goals for future operational improvements and capital commitments;
and
|
|
|
•
|
Current
or future volatility in the credit market and future market conditions or
economic performance.
|
Forward-looking
statements involve a number of risks and uncertainties, and actual performance
or results may differ materially. For a discussion of material risks and
uncertainties that the Company faces, see the discussion in Item 1A, “Risk
Factors,” of this Annual Report on Form 10-K. Important factors that could cause
actual results to differ materially include, but are not limited to, the
following:
•
|
Economic
and industry conditions:
material adverse changes in economic or
industry conditions, both in the United States and globally, volatility in
the capital or credit markets including changes affecting the timely
availability and cost of capital, changes in customer demand, effects of
adverse economic conditions affecting shippers or BNSF’s supplier base and
in the industries and geographic areas that produce and consume freight,
changes in demand due to more stringent regulatory policies such as
the regulation of carbon dioxide emissions that could reduce the demand
for coal or governmental tariffs or subsidies that could affect the demand
for grain, competition and consolidation within the transportation
industry, the extent to which BNSF is successful in gaining new long-term
relationships with customers or retaining existing ones, level of service
failures that could lead customers to use competitors' services, changes
in fuel prices and other key materials and disruptions in supply chains
for these materials, increased customer bankruptcies, closures or
slowdowns and changes in crew availability, labor costs and labor
difficulties, including stoppages affecting either BNSF’s operations or
customers’ abilities to deliver goods to BNSF for
shipment;
|
•
|
Legal
,
legislative and regulatory factors:
developments and changes in
laws and regulations, including those affecting train operations or the
marketing of services, the ultimate outcome of shipper and rate claims
subject to adjudication or claims, investigations or litigation alleging
violations of the antitrust laws, increased economic regulation of the
rail industry through legislative action and revised rules and standards
applied by the U.S. Surface Transportation Board in various areas
including rates and services, other more general legislative actions,
developments in environmental investigations or proceedings with respect
to rail operations or current or past ownership or control of real
property or properties owned by others impacted by BNSF Railway operations
and developments in and losses resulting from other types of claims and
litigation, including those relating to personal injuries, asbestos and
other occupational diseases, the release of hazardous materials,
environmental contamination and damage to property; the availability of
adequate insurance to cover the risks associated with operations;
and
|
•
|
Operating
factors:
technical difficulties, changes in operating conditions
and costs, changes in business mix, the availability of equipment and
human resources to meet changes in demand, the extent of the Company’s
ability to achieve its operational and financial initiatives and to
contain costs in response to changes in demand and other factors, the
effectiveness of steps taken to maintain and improve operations and
velocity and network fluidity, operational and other difficulties in
implementing positive train control technology, restrictions on
development and expansion plans due to environmental concerns,
constraints due to the nation’s aging infrastructure, disruptions to
BNSF’s technology network including computer systems and software, as well
as natural events such as severe weather, fires, floods and earthquakes or
man-made or other disruptions of BNSF Railway’s operating systems,
structures, or equipment including the effects of acts of terrorism on the
Company’s system or other railroads’ systems or other links in the
transportation chain.
|
The
Company cautions against placing undue reliance on forward-looking statements,
which reflect its current beliefs and are based on information currently
available to it as of the date a forward-looking statement is made. The Company
undertakes no obligation to revise forward-looking statements to reflect future
events, changes in circumstances or changes in beliefs. In the event the Company
does update any forward-looking statement, no inference should be made that the
Company will make additional updates with respect to that statement, related
matters, or any other forward-looking statements. Any corrections or revisions
and other important assumptions and factors that could cause actual results to
differ materially from forward-looking statements made by the Company may appear
in the Company’s public filings with the SEC, which are accessible at
www.sec.gov, and on the Company’s Web site at www.bnsf.com, and which investors
are advised to consult.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
In the
ordinary course of business, BNSF utilizes various financial instruments that
inherently have some degree of market risk. The following table summarizes the
impact of these hedging activities on the Company’s results of operations (in
millions):
Year
ended December 31,
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Fuel-hedge
loss (including ineffective portion of unexpired hedges)
|
|
$
|
(195
|
)
|
$
|
(5
|
)
|
Interest
rate hedge benefit
|
|
|
22
|
|
|
12
|
|
Interest
rate derivative loss
|
|
|
(32
|
)
|
|
−
|
|
Total
hedge (loss) benefit
|
|
|
(205
|
)
|
|
7
|
|
Tax
effect
|
|
|
79
|
|
|
(3
|
)
|
Hedge (loss) benefit, net of
tax
|
|
$
|
(126
|
)
|
$
|
4
|
|
The
Company’s fuel-hedge loss is due to decreases in average fuel prices subsequent
to the initiation of various hedges and through their termination. The interest
rate hedge benefit is the result of lower interest rates. The interest rate
derivative loss is related to terminated treasury locks (see Note 3 to the
Consolidated Financial Statements). The information presented in Notes 3 and 9
to the Consolidated Financial Statements describe significant aspects of BNSF’s
financial instrument activities that have a material market risk. Additionally,
the Company uses fuel surcharges, which it believes substantially mitigates the
risk of fuel price volatility.
Commodity Price Sensitivity
BNSF
engages in hedging activities to partially mitigate the risk of fluctuations in
the price of its diesel fuel purchases. Existing hedge transactions as of
December 31, 2009, are based on the front month settlement prices of New York
Mercantile Exchange (NYMEX) #2 heating oil (HO), West Texas Intermediate (WTI)
crude oil, or the HO refining spread (HO-WTI), which is the difference between
HO and WTI. A WTI hedge combined with a HO-WTI hedge will result in the
equivalent of a HO hedge. For swaps, BNSF either pays or receives the difference
between the hedge price and the actual average price of the hedge commodity
during a specified determination period for a specified number of gallons. For
costless collars, if the average hedge commodity price for a specified
determination period is greater than the cap price, BNSF receives the difference
for a specified number of gallons. If the average commodity price is less than
the floor price, BNSF pays the difference for a specified number of gallons. If
the commodity price is between the floor price and the cap price, BNSF neither
makes nor receives a payment. Hedge transactions are generally settled with the
counterparty in cash. Based on historical information, BNSF believes there is a
significant correlation between the market prices for diesel fuel, HO and WTI.
At
December 31, 2009, BNSF had recorded a net fuel-hedging asset of
$23 million for fuel hedges covering 2010 through 2012.
The
following table is an estimate of the impact to earnings that could result from
hypothetical price changes during the twelve-month period ending December 31,
2010, and the balance sheet impact from the hypothetical price changes on all
open hedges, both based on the Company’s hedge position at December 31,
2009:
|
|
Sensitivity
Analysis
|
|
|
Hedged
Commodity
Price
Change
|
|
Fuel-Hedge
Annual
Pre-Tax
Earnings Impact
|
|
Balance
Sheet Impact of Change
in
Fuel-Hedge Fair Value
|
|
|
|
|
|
10-percent
increase
|
|
$54 million
increase
|
|
$112 million
increase
|
10-percent
decrease
|
|
$51 million
decrease
|
|
$108 million
decrease
|
Based on
locomotive fuel consumption during the twelve-month period ended December 31,
2009, of 1,198 million gallons and fuel prices during that same period,
excluding the impact of the Company’s hedging activities, a 10-percent increase
or decrease in the commodity price per gallon would result in an approximate
$199 million increase or decrease, respectively, in fuel expense (pre-tax)
on an annual basis. Additionally, the Company uses fuel surcharges, which it
believes substantially mitigates the risk of fuel price volatility.
At
December 31, 2009, BNSF maintained fuel inventories for use in normal
operations, which were not material to BNSF’s overall financial position and,
therefore, represent no significant market exposure. The frequency of BNSF’s
fuel inventory turnover also reduces market exposure, should fuel inventories
become material to BNSF’s overall financial position. Further information on
fuel hedges is incorporated by reference from Note 3 to the Consolidated
Financial Statements.
Interest Rate Sensitivity
From time
to time, BNSF enters into various interest rate hedging transactions for
purposes of managing exposure to fluctuations in interest rates by establishing
rates in anticipation of both future debt issuances and the refinancing of
leveraged leases, as well as to convert a portion of its fixed-rate long-term
debt to floating-rate debt. These interest rate hedges are accounted for as cash
flow or fair value hedges. BNSF’s measurement of the fair value of these hedges
is based on estimates of the mid-market values for the transactions provided by
the counterparties to these agreements.
At
December 31, 2009, the fair value of BNSF’s debt, excluding capital leases and a
net fair value interest rate hedge benefit of $26 million, was $9,416 million.
The
following table is an estimate of the impact to earnings and the fair value of
total debt, excluding capital leases, and interest rate hedges that could result
from hypothetical interest rate changes during the twelve-month period ending
December 31, 2010, based on debt levels and outstanding hedges as of December
31, 2009:
Sensitivity
Analysis
|
Hypothetical
Change
in
Interest Rates
|
|
Floating
Rate Debt – Annual
Pre-Tax
Earnings Impact
|
|
Change
in Fair Value
|
Total
Debt
|
a
|
Interest
Rate Hedges
|
|
|
|
|
|
|
|
1-percent
decrease
|
|
$7
million increase
|
|
$825
million increase
|
|
$32
million increase
|
1-percent
increase
|
|
$7
million decrease
|
|
$715
million decrease
|
|
$30
million decrease
|
a
Excludes impact of
interest rate hedges.
|
Further
information on interest rate hedges is incorporated by reference from Note 3 to
the Consolidated Financial Statements. Information on the Company’s debt, which
may be sensitive to interest rate fluctuations, is incorporated by reference
from Note 9 to the Consolidated Financial Statements.
Item
8. Financial Statements and Supplementary
Data
The
Consolidated Financial Statements and Management’s Report on Internal Control
Over Financial Reporting 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
Management’s
Report on
Internal
Control Over Financial
Reporting
To
the Shareholders of Burlington Northern Santa Fe Corporation
and
Subsidiaries
The
management of Burlington Northern Santa Fe Corporation (BNSF) is responsible for
establishing and maintaining adequate internal control over financial reporting.
BNSF’s internal control over financial reporting was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of BNSF’s financial statements for external reporting purposes in
accordance with generally accepted accounting principles in the United States of
America.
Management
of BNSF assessed the effectiveness of BNSF’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management of BNSF
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control – Integrated Framework. Based on this
assessment, management of BNSF concluded that as of December 31, 2009, BNSF’s
internal control over financial reporting was effective based on those
criteria.
The
effectiveness of BNSF’s internal control over financial reporting as of December
31, 2009, has been audited by PricewaterhouseCoopers LLP, BNSF’s independent
registered public accounting firm, as stated in their report, which appears on
the following page.
Report
of Independent Registered Public Accounting
Firm
To
the Shareholders and Board of Directors of
Burlington
Northern Santa Fe Corporation
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Burlington
Northern Santa Fe Corporation and its subsidiaries (the Company) at December 31,
2009 and 2008, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
criteria established in
Internal Control - Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these
financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on
Internal Control Over Financial Reporting. Our responsibility is to express
opinions on these financial statements and on the Company's internal control
over financial reporting based on our integrated 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
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Fort
Worth, Texas
February
11, 2010
Burlington
Northern Santa Fe Corporation and Subsidiaries
Consolidated
Statements of
Income
In
millions, except per share data
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,016
|
|
$
|
18,018
|
|
$
|
15,802
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
3,481
|
|
|
3,884
|
|
|
3,773
|
|
Fuel
|
|
|
2,372
|
|
|
4,640
|
|
|
3,327
|
|
Purchased
services
|
|
|
1,873
|
|
|
2,133
|
|
|
2,023
|
|
Depreciation and
amortization
|
|
|
1,537
|
|
|
1,397
|
|
|
1,293
|
|
Equipment rents
|
|
|
777
|
|
|
901
|
|
|
942
|
|
Materials and other
|
|
|
714
|
|
|
1,151
|
|
|
958
|
|
Total operating
expenses
|
|
|
10,754
|
|
|
14,106
|
|
|
12,316
|
|
Operating income
|
|
|
3,262
|
|
|
3,912
|
|
|
3,486
|
|
Interest
expense
|
|
|
613
|
|
|
533
|
|
|
511
|
|
Other
expense, net
|
|
|
8
|
|
|
11
|
|
|
18
|
|
Income before income taxes
|
|
|
2,641
|
|
|
3,368
|
|
|
2,957
|
|
Income
tax expense
|
|
|
920
|
|
|
1,253
|
|
|
1,128
|
|
Net income
|
|
$
|
1,721
|
|
$
|
2,115
|
|
$
|
1,829
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
5.04
|
|
$
|
6.13
|
|
$
|
5.15
|
|
Diluted earnings per share
|
|
$
|
5.01
|
|
$
|
6.06
|
|
$
|
5.06
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
Burlington
Northern Santa Fe Corporation and Subsidiaries
Consolidated
Balance
Sheets
Dollars
in millions, shares in thousands
December
31,
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
1,269
|
|
$
|
633
|
|
Accounts receivable,
net
|
|
|
787
|
|
|
847
|
|
Materials and
supplies
|
|
|
633
|
|
|
525
|
|
Current portion of deferred
income taxes
|
|
|
290
|
|
|
442
|
|
Other current
assets
|
|
|
277
|
|
|
218
|
|
Total current
assets
|
|
|
3,256
|
|
|
2,665
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $10,736 and $9,912,
respectively
|
|
|
32,294
|
|
|
30,847
|
|
Other
assets
|
|
|
3,125
|
|
|
2,891
|
|
Total assets
|
|
$
|
38,675
|
|
$
|
36,403
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts payable and other
current liabilities
|
|
$
|
2,695
|
|
$
|
3,190
|
|
Long-term debt due within one
year
|
|
|
644
|
|
|
456
|
|
Total current liabilities
|
|
|
3,339
|
|
|
3,646
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
9,691
|
|
|
9,099
|
|
Deferred
income taxes
|
|
|
9,322
|
|
|
8,590
|
|
Casualty
and environmental liabilities
|
|
|
899
|
|
|
959
|
|
Pension
and retiree health and welfare liability
|
|
|
783
|
|
|
1,047
|
|
Other
liabilities
|
|
|
1,843
|
|
|
1,931
|
|
Total liabilities
|
|
|
25,877
|
|
|
25,272
|
|
Commitments
and contingencies (see Notes 3, 9 and 10)
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common stock, $0.01 par value,
600,000 shares authorized;
543,416
shares and 541,346 shares issued, respectively
|
|
|
5
|
|
|
5
|
|
Additional
paid-in-capital
|
|
|
7,776
|
|
|
7,631
|
|
Retained
earnings
|
|
|
13,941
|
|
|
12,764
|
|
Treasury stock, at cost,
202,677 shares and 202,165 shares, respectively
|
|
|
(8,428
|
)
|
|
(8,395
|
)
|
Accumulated other comprehensive
loss
|
|
|
(496
|
)
|
|
(874
|
)
|
Total stockholders’
equity
|
|
|
12,798
|
|
|
11,131
|
|
Total liabilities and
stockholders’ equity
|
|
$
|
38,675
|
|
$
|
36,403
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
Burlington
Northern Santa Fe Corporation and Subsidiaries
Consolidated Statements of
Cash
Flows
In
millions
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,721
|
|
$
|
2,115
|
|
$
|
1,829
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,537
|
|
|
1,397
|
|
|
1,293
|
|
Deferred income
taxes
|
|
|
612
|
|
|
417
|
|
|
280
|
|
Long-term casualty and
environmental liabilities, net
|
|
|
(90
|
)
|
|
150
|
|
|
26
|
|
Other, net
|
|
|
(210
|
)
|
|
66
|
|
|
162
|
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable,
net
|
|
|
116
|
|
|
191
|
|
|
20
|
|
Change in accounts receivable
sales program
|
|
|
(50
|
)
|
|
(250
|
)
|
|
–
|
|
Materials and
supplies
|
|
|
(108
|
)
|
|
54
|
|
|
(91
|
)
|
Other current
assets
|
|
|
(38
|
)
|
|
(31
|
)
|
|
12
|
|
Accounts payable and other
current liabilities
|
|
|
(77
|
)
|
|
(132
|
)
|
|
(39
|
)
|
Net cash provided by operating
activities
|
|
|
3,413
|
|
|
3,977
|
|
|
3,492
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures excluding equipment
|
|
|
(1,991
|
)
|
|
(2,167
|
)
|
|
(2,248
|
)
|
Acquisition
of equipment
|
|
|
(733
|
)
|
|
(949
|
)
|
|
(745
|
)
|
Proceeds
from sale of equipment financed
|
|
|
368
|
|
|
348
|
|
|
778
|
|
Construction
costs for facility financing obligation
|
|
|
(37
|
)
|
|
(64
|
)
|
|
(37
|
)
|
Other,
net
|
|
|
(244
|
)
|
|
(241
|
)
|
|
(163
|
)
|
Net cash used for investing
activities
|
|
|
(2,637
|
)
|
|
(3,073
|
)
|
|
(2,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in commercial paper and bank borrowings
|
|
|
(100
|
)
|
|
(161
|
)
|
|
(584
|
)
|
Proceeds
from issuance of long-term debt
|
|
|
825
|
|
|
1,150
|
|
|
1,300
|
|
Payments
on long-term debt
|
|
|
(429
|
)
|
|
(217
|
)
|
|
(482
|
)
|
Dividends
paid
|
|
|
(546
|
)
|
|
(471
|
)
|
|
(380
|
)
|
Proceeds
from stock options exercised
|
|
|
59
|
|
|
91
|
|
|
142
|
|
Purchase
of BNSF common stock
|
|
|
(16
|
)
|
|
(1,147
|
)
|
|
(1,265
|
)
|
Excess
tax benefits from equity compensation plans
|
|
|
29
|
|
|
96
|
|
|
121
|
|
Proceeds
from facility financing obligation
|
|
|
51
|
|
|
68
|
|
|
41
|
|
Other,
net
|
|
|
(13
|
)
|
|
(10
|
)
|
|
(15
|
)
|
Net cash used for financing
activities
|
|
|
(140
|
)
|
|
(601
|
)
|
|
(1,122
|
)
|
Increase
(decrease) in cash and cash equivalents
|
|
|
636
|
|
|
303
|
|
|
(45
|
)
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
|
633
|
|
|
330
|
|
|
375
|
|
End of year
|
|
$
|
1,269
|
|
$
|
633
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized
|
|
$
|
587
|
|
$
|
538
|
|
$
|
494
|
|
Income
taxes paid, net of refunds
|
|
$
|
264
|
|
$
|
820
|
|
$
|
680
|
|
Non-cash
asset financing
|
|
$
|
514
|
|
$
|
258
|
|
$
|
461
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
Burlington
Northern Santa Fe Corporation and Subsidiaries
Consolidated
Statements of Changes in Stockholders’
Equity
Dollars
in millions, shares in thousands, except per share data
|
|
Common
Shares
|
|
Treasury
Shares
|
|
|
Common
Stock and Paid–in Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Stockholders’
Equity
|
|
Balance
at December 31, 2006
|
|
532,080
|
|
(174,205
|
)
|
|
$
|
6,995
|
|
$
|
9,739
|
|
$
|
(5,929
|
)
|
$
|
(277
|
)
|
$
|
10,528
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
–
|
|
|
1,829
|
|
|
–
|
|
|
–
|
|
|
1,829
|
|
Change
in unrecognized prior service credit and actuarial losses, net of tax
expense of $76
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
122
|
|
|
122
|
|
Change
in fuel/interest hedge mark-to-market, net of tax expense of
$10
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
16
|
|
|
16
|
|
Total comprehensive
income
|
|
|
|
|
|
|
|
–
|
|
|
1,829
|
|
|
–
|
|
|
138
|
|
|
1,967
|
|
Adjustment
for the adoption of authoritative accounting guidance related to
accounting for uncertainty in income taxes
|
|
|
|
|
|
|
|
–
|
|
|
(13
|
)
|
|
–
|
|
|
–
|
|
|
(13
|
)
|
Common
stock dividends, $1.14 per share
|
|
|
|
|
|
|
|
–
|
|
|
(403
|
)
|
|
–
|
|
|
–
|
|
|
(403
|
)
|
Restricted
stock and stock options expense
|
|
|
|
|
|
|
|
66
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
66
|
|
Restricted
stock activity and related tax benefit of $23
|
|
1
|
|
(48
|
)
|
|
|
24
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
24
|
|
Exercise
of stock options and related tax benefit of $98
|
|
5,249
|
|
(319
|
)
|
|
|
268
|
|
|
–
|
|
|
(28
|
)
|
|
–
|
|
|
240
|
|
Purchase
of BNSF common stock
|
|
–
|
|
(15,054
|
)
|
|
|
–
|
|
|
–
|
|
|
(1,265
|
)
|
|
–
|
|
|
(1,265
|
)
|
Balance
at December 31, 2007
|
|
537,330
|
|
(189,626
|
)
|
|
|
7,353
|
|
|
11,152
|
|
|
(7,222
|
)
|
|
(139
|
)
|
|
11,144
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
–
|
|
|
2,115
|
|
|
–
|
|
|
–
|
|
|
2,115
|
|
Change
in unrecognized prior service credit and actuarial losses, net of tax
benefit of $219
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(353
|
)
|
|
(353
|
)
|
Change
in fuel/interest hedge mark-to-market, net of tax benefit of
$233
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(377
|
)
|
|
(377
|
)
|
Change
in other comprehensive income of equity method investees
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(5
|
)
|
|
(5
|
)
|
Total comprehensive
income
|
|
|
|
|
|
|
|
–
|
|
|
2,115
|
|
|
–
|
|
|
(735
|
)
|
|
1,380
|
|
Adjustment
to change the measurement date pursuant to adoption of authoritative
accounting guidance related to defined benefit pension and other
postretirement plans, net of tax benefit of $3
|
|
|
|
|
|
|
|
–
|
|
|
(7
|
)
|
|
–
|
|
|
2
|
|
|
(5
|
)
|
Adjustment
to initially apply authoritative accounting guidance related to defined
benefit pension and other postretirement plans to equity method
investees
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(2
|
)
|
|
(2
|
)
|
Common
stock dividends, $1.44 per share
|
|
|
|
|
|
|
|
–
|
|
|
(496
|
)
|
|
–
|
|
|
–
|
|
|
(496
|
)
|
Restricted
stock and stock options expense
|
|
|
|
|
|
|
|
69
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
69
|
|
Restricted
stock activity and related tax benefit of $25
|
|
697
|
|
1
|
|
|
|
26
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
26
|
|
Exercise
of stock options and related tax benefit of $71
|
|
3,319
|
|
(255
|
)
|
|
|
188
|
|
|
–
|
|
|
(26
|
)
|
|
–
|
|
|
162
|
|
Purchase
of BNSF common stock
|
|
–
|
|
(12,285
|
)
|
|
|
–
|
|
|
–
|
|
|
(1,147
|
)
|
|
–
|
|
|
(1,147
|
)
|
Balance
at December 31, 2008
|
|
541,346
|
|
(202,165
|
)
|
|
|
7,636
|
|
|
12,764
|
|
|
(8,395
|
)
|
|
(874
|
)
|
|
11,131
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
–
|
|
|
1,721
|
|
|
–
|
|
|
–
|
|
|
1,721
|
|
Change
in unrecognized prior service credit and actuarial losses, net of tax
expense of $13
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
24
|
|
|
24
|
|
Change
in fuel/interest hedge mark-to-market, net of tax expense of
$203
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
327
|
|
|
327
|
|
Recognized
loss on derivative instruments-discontinued hedges, net of tax benefit of
$16
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
27
|
|
|
27
|
|
Total comprehensive
income
|
|
|
|
|
|
|
|
–
|
|
|
1,721
|
|
|
–
|
|
|
378
|
|
|
2,099
|
|
Common
stock dividends, $1.60 per share
|
|
|
|
|
|
|
|
–
|
|
|
(544
|
)
|
|
–
|
|
|
–
|
|
|
(544
|
)
|
Restricted
stock and stock options expense
|
|
|
|
|
|
|
|
38
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
38
|
|
Restricted
stock activity
|
|
43
|
|
1
|
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2
|
|
Exercise
of stock options and related tax benefit of $29
|
|
2,027
|
|
(267
|
)
|
|
|
105
|
|
|
–
|
|
|
(17
|
)
|
|
–
|
|
|
88
|
|
Purchase
of BNSF common stock
|
|
–
|
|
(246
|
)
|
|
|
–
|
|
|
–
|
|
|
(16
|
)
|
|
–
|
|
|
(16
|
)
|
Balance
at December 31, 2009
|
|
543,416
|
|
(202,677
|
)
|
|
$
|
7,781
|
|
$
|
13,941
|
|
$
|
(8,428
|
)
|
$
|
(496
|
)
|
$
|
12,798
|
|
See
accompanying Notes to Consolidated Financial
Statements.
|
Burlington
Northern Santa Fe Corporation and Subsidiaries
Notes
to Consolidated Financial
Statements
1.
The Company
Burlington
Northern Santa Fe Corporation (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 32,000 route miles
in 28 states and two Canadian provinces. Through one operating transportation
services segment, BNSF Railway transports a wide range of products and
commodities including the transportation of Consumer Products, Coal, Industrial
Products and Agricultural Products, derived from manufacturing, agricultural and
natural resource industries, which constituted 32 percent, 26 percent, 21
percent and 21 percent, respectively, of total freight revenues for the year
ended December 31, 2009. These Consolidated Financial Statements include BNSF,
BNSF Railway and other majority-owned subsidiaries, all of which are separate
legal entities.
Proposed
Merger
Berkshire
Hathaway Inc., a Delaware corporation (Berkshire), R Acquisition Company, LLC, a
Delaware limited liability company and an indirect wholly owned subsidiary of
Berkshire (Merger Sub), and the Company have entered into a definitive Agreement
and Plan of Merger (the Merger Agreement) dated as of November 2,
2009. Pursuant to the Merger Agreement and subject to the conditions set
forth therein, the Company will merge with and into Merger Sub (the Merger) with
Merger Sub surviving as an indirect wholly owned subsidiary of Berkshire. Merger
Sub will change its name to Burlington Northern Santa Fe, LLC upon completion of
the Merger.
Under the
Merger Agreement, approximately 60% of the total merger consideration payable by
Berkshire to BNSF stockholders will be in the form of cash and approximately 40%
will be in the form of Berkshire common stock. Fractional shares of Berkshire
Class A common stock will not be issued in the Merger. Instead, shares of
Berkshire Class B common stock will be issued in lieu of any fractional shares
of Berkshire Class A common stock, and cash will be paid in lieu of any
fractional shares of Berkshire Class B common stock.
On
February 11, 2010, the Merger Agreement was adopted by the necessary votes of
BNSF stockholders. The Merger is expected to close on February 12,
2010.
2.
Significant Accounting Policies
Adoption of Accounting
Standards Codification
In June
2009, the Financial Accounting Standards Board (FASB) issued authoritative
accounting guidance which established the FASB Accounting Standards Codification
(Codification or ASC) as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities and stated that
all guidance contained in the Codification carries an equal level of authority.
The authoritative accounting guidance recognized that rules and interpretive
releases of the Securities and Exchange Commission (SEC) under federal
securities laws are also sources of authoritative Generally Accepted Accounting
Principles (GAAP) for SEC registrants. The Company adopted the provisions of the
authoritative accounting guidance on July 1, 2009, the adoption of which did not
have a material effect on the Company’s consolidated financial
statements.
Principles of
Consolidation
The
Consolidated Financial Statements include the accounts of BNSF, including its
principal subsidiary BNSF Railway. All significant 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
.
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. 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.
Additionally, accounts receivable, net is reduced by receivables sold under the
Accounts Receivable sales program (see Note 6 to the Consolidated Financial
Statements).
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.
Property and Equipment,
Net
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. Changes in the estimated
service lives of the assets and their related depreciation rates are implemented
prospectively, and the difference between the calculated accumulated
depreciation and the amount recorded is amortized over the average remaining
service lives of the assets. Upon normal sale or retirement of certain
depreciable railroad property, cost less net salvage value is charged to
accumulated depreciation, and no gain or loss is recognized. The disposals of
land and non-rail property as well as significant premature retirements are
recorded as gains or losses at the time of their occurrence.
The
Company self-constructs portions of its track structure and rebuilds certain
classes of rolling stock. Expenditures that significantly increase asset values
or extend useful lives are capitalized. In addition to direct labor and
material, certain indirect costs, which relate to supportive functions, are
capitalized. Repair and maintenance expenditures are charged to operating
expense when the work is performed.
The
Company incurs certain direct labor, contract service and other costs associated
with the development and installation of internal-use computer software. Costs
for newly developed software or significant enhancements to existing software
are typically capitalized. Research, preliminary project, operations,
maintenance and training costs are charged to operating expense when the work is
performed.
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.
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. Cash flows for capitalized leasehold improvements are
reported in the investing activities other, net line of the Consolidated
Statements of Cash Flows.
Planned Major Maintenance
Activities
The
Company 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.
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.
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.
Stock-Based
Compensation
The
Company recognizes the compensation expense related to the cost of employee
services received in exchange for company equity interests over the award’s
vesting period based on the award’s fair value at the date of grant.
Employment Benefit
Plans
The
Company estimates liabilities and expenses for the 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
In
September 2006, the FASB issued authoritative accounting guidance which defines
fair value, establishes a framework for measuring fair value and expands
disclosure requirements around fair value measurements.
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.
|
The
authoritative accounting guidance requires companies to maximize the use of
observable inputs (Level 1 and Level 2), when available, and to minimize the use
of unobservable inputs (Level 3) when determining fair value.
The
Company adopted the authoritative accounting guidance for financial assets and
liabilities on January 1, 2008, and recorded no financial statement adjustments
as a result of adoption. The Company has applied the provisions of the standard
to its fuel and interest rate hedges (see Note 3 to the Consolidated Financial
Statements).
Beginning
January 1, 2009, the Company applied the provisions of the standard to its
property and equipment, goodwill and certain other assets, which are measured at
fair value for impairment assessment, and to any business combinations or asset
retirement obligations as required by authoritative accounting guidance. This
adoption did not have a material impact on the Company’s results of operations,
financial condition or liquidity.
Subsequent
Events
BNSF has
evaluated subsequent events through February 11, 2010, which represents the date
the Consolidated Financial Statements were issued.
Proposed
Merger
See Note
1 to the Consolidated Financial Statements for information related to the
proposed Merger with Berkshire.
Gain on Land
Sale
On
January 11, 2010, BNSF transferred operations which completed the sale of a line
segment in the State of Washington, which will result in a gain of $74 million
in the first quarter of 2010. The gain will be reported in the Consolidated
Statement of Income in materials and other.
Reclassifications
Certain
comparative prior year amounts in the Consolidated Financial Statements and
accompanying notes have been reclassified to conform to the current year
presentation. These reclassifications had no effect on previously reported
operating income or net income.
3.
Hedging Activities
The
Company uses derivative financial instruments to hedge against increases in
diesel fuel prices and interest rates as well as to convert a portion of its
fixed-rate, long-term debt to floating-rate debt. The Company does not use
derivative financial instruments for trading or speculative purposes. The
Company formally documents the relationship between the hedging instrument and
the hedged item, as well as the risk management objective and strategy for the
use of the hedging instrument. This documentation includes linking the
derivatives that are designated as fair value or cash flow hedges to specific
assets or liabilities on the balance sheet, commitments or forecasted
transactions. The Company assesses at the time a derivative contract is entered
into, and at least quarterly thereafter, whether the derivative item is
effective in offsetting the changes in fair value or cash flows. Any change in
fair value resulting from ineffectiveness, as defined by authoritative
accounting guidance related to derivatives and hedging
,
is recognized in current
period earnings. For derivative instruments that are designated and qualify as
cash flow hedges, the effective portion of the gain or loss on the derivative
instrument is recorded in accumulated other comprehensive loss (AOCL) as a
separate component of stockholders’ equity and reclassified into earnings in the
period during which the hedge transaction affects earnings. Cash flows related
to fuel and interest rate derivatives are classified as operating activities in
the Consolidated Statements of Cash Flows.
BNSF
monitors its hedging positions and credit ratings of its counterparties and does
not anticipate any losses due to counterparty nonperformance. All counterparties
were financial institutions with credit ratings of A2/A or higher as of December
31, 2009. The maximum amount of loss the Company could incur from credit risk
based on the gross fair value of derivative instruments in asset positions as of
December 31, 2009 and 2008, was $104 million and $77 million, respectively.
Other than as disclosed under the heading “Fuel; Total Fuel-Hedging Activities,”
the Company’s hedge agreements do not include provisions requiring collateral.
Certain of the Company’s hedge instruments are covered by master netting
arrangements whereby, in the event of a default, the non-defaulting party has
the right to setoff any amounts payable against any obligation of the defaulting
party under the same counterparty agreement. As such, the Company’s net asset
exposure to counterparty credit risk was $90 million and $53 million as of
December 31, 2009 and 2008, respectively.
Additional
disclosures related to derivative instruments are included in Note 8 and Note 9
to the Consolidated Financial Statements.
The
amounts recorded in the Consolidated Balance Sheets for derivative transactions
were as follows (in millions). These amounts exclude $106 million of collateral
posted for certain fuel hedge contracts as of December 31, 2008.
Year
ended December 31,
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Short-term
hedge asset
|
|
$
|
34
|
|
$
|
5
|
|
Long-term
hedge asset
|
|
|
57
|
|
|
72
|
|
Short-term
hedge liability
|
|
|
(25
|
)
|
|
(387
|
)
|
Long-term
hedge liability
|
|
|
(12
|
)
|
|
(193
|
)
|
Total
derivatives
|
|
$
|
54
|
|
$
|
(503
|
)
|
The
tables below contain summaries of all derivative positions reported in the
Consolidated Financial Statements, presented gross of any master netting
arrangements (in millions).
Fair
Value of Derivative Instruments
|
|
Asset
Derivatives
|
|
|
|
|
|
|
|
|
Balance
Sheet
|
December
31,
|
|
2009
|
|
2008
|
|
Location
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments under ASC 815-20
|
|
|
|
|
|
|
|
|
Fuel
Contracts
|
|
$
|
20
|
|
$
|
−
|
|
Other
current assets
|
Interest
Rate Contracts
|
|
|
14
|
|
|
5
|
|
Other
current assets
|
Fuel
Contracts
|
|
|
40
|
|
|
−
|
|
Other
assets
|
Interest
Rate Contracts
|
|
|
17
|
|
|
72
|
|
Other
assets
|
Fuel
Contracts
|
|
|
10
|
|
|
−
|
|
Accounts
payable and other current liabilities
|
Fuel
Contracts
|
|
|
3
|
|
|
−
|
|
Other
liabilities
|
Total
Asset Derivatives designated as hedging instruments under ASC
815-20
|
|
$
|
104
|
|
$
|
77
|
|
|
Liability
Derivatives
|
|
|
|
|
|
|
|
|
Balance
Sheet
|
December
31,
|
|
2009
|
|
2008
|
|
Location
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments under ASC 815-20
|
|
|
|
|
|
|
|
|
Fuel
Contracts
|
|
$
|
35
|
|
$
|
279
|
|
Accounts
payable and other current liabilities
|
Interest
Rate Contracts
|
|
|
−
|
|
|
108
|
|
Accounts
payable and other current liabilities
|
Fuel
Contracts
|
|
|
15
|
|
|
193
|
|
Other
liabilities
|
Total
Liability Derivatives designated as hedging instruments under ASC
815-20
|
|
$
|
50
|
|
$
|
580
|
|
|
The
Effect of Derivative Instruments Gains and Losses
for
the Twelve Month Periods Ended December 31, 2009, 2008 and
2007
|
Derivatives
in ASC 815-20 Fair Value Hedging Relationships
|
|
Location
of Gain Recognized
in
Income
on
Derivatives
|
|
Amount
of Gain
Recognized in Income
on
Derivatives
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
Interest
Rate Contracts
|
|
Interest
expense
|
|
$
|
23
|
|
$
|
12
|
|
$
|
(3)
|
Total
derivatives
|
|
$
|
23
|
|
$
|
12
|
|
$
|
(3)
|
Derivatives
in ASC 815-20 Cash Flow Hedging Relationships
|
|
Amount
of Gain or (Loss) Recognized in OCI
on
Derivatives
(Effective
Portion)
|
|
Location
of Gain or (Loss) Recognized from AOCL into Income
|
|
Amount
of Gain or (Loss) Recognized from
AOCL
into Income
(Effective
Portion)
|
|
Location
of Gain or (Loss) Recognized in Income on Derivatives
|
|
Amount
of Gain or (Loss) Recognized in Income
on
Derivatives
(Ineffective
Portion and Amount Excluded from
Effectiveness
Testing)
a
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
2009
|
|
2008
|
|
2007
|
Fuel
Contracts
|
|
$
|
268
|
|
$
|
(499)
|
|
$
|
58
|
|
Fuel
expense
|
|
$
|
(227)
|
|
$
|
12
|
|
$
|
30
|
|
Fuel
expense
|
|
$
|
32
|
|
$
|
(17)
|
|
$
|
1
|
Interest
Rate Contracts
|
|
|
66
|
|
|
(116)
|
|
|
1
|
|
Interest
expense
|
|
|
(1)
|
|
|
−
|
|
|
2
|
|
Interest
expense
|
|
|
−
|
|
|
−
|
|
|
−
|
Total
derivatives
|
|
$
|
334
|
|
$
|
(615)
|
|
$
|
59
|
|
|
|
$
|
(228)
|
|
$
|
12
|
|
$
|
32
|
|
|
|
$
|
32
|
|
$
|
(17)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
Not Designated as Hedging
Instruments
under
ASC
815-20
|
|
Location
of (Loss) Recognized in Income on Derivatives
|
|
Amount
of (Loss)
Recognized
in
Income
on
Derivatives
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
Interest
Rate Contracts
|
|
Interest
expense
|
|
$
|
(32)
|
|
$
|
−
|
|
$
|
−
|
Total
derivatives
|
|
$
|
(32)
|
|
$
|
−
|
|
$
|
−
|
a No
portion of the gain or (loss) was excluded from the assessment of hedge
effectiveness for the periods then ended.
Fuel
Fuel
costs represented 22 percent, 33 percent and 27 percent of total operating
expenses during 2009, 2008 and 2007, respectively. Due to the significance of
diesel fuel expenses to the operations of BNSF and the historical volatility of
fuel prices, the Company has entered into hedges to partially mitigate the risk
of fluctuations in the price of its diesel fuel purchases. The fuel hedges
include the use of derivatives that are accounted for as cash flow hedges. The
hedging is intended to protect the Company’s operating margins and overall
profitability from adverse fuel price changes by entering into fuel-hedge
instruments based on management’s evaluation of current and expected diesel fuel
price trends. However, to the extent the Company hedges portions of its fuel
purchases, it may not realize the impact of decreases in fuel prices.
Conversely, to the extent the Company does not hedge portions of its fuel
purchases, it may be adversely affected by increases in fuel prices. Based on
locomotive fuel consumption (which represents substantially all fuel
consumption)
during
2009 and excluding the impact of the hedges, each one-cent increase in the price
of fuel per gallon would result in approximately $12 million of additional fuel
expense on an annual basis. However, BNSF believes any fuel price increase would
be substantially offset by the Company’s fuel surcharge program.
Total
Fuel-Hedging Activities
As of
December 31, 2009, BNSF’s total fuel-hedging positions for 2010, 2011 and 2012
represent 21 percent, 17 percent and 3 percent, respectively, of the average
annual locomotive fuel consumption over the past three years. Hedge positions
are closely monitored to ensure that they will not exceed actual fuel
requirements in any period.
The
amounts recorded in the Consolidated Balance Sheets for settled fuel-hedge
transactions were as follows (in millions):
December
31,
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Settled
fuel-hedging contracts payable
|
|
$
|
(23
|
)
|
$
|
(38
|
)
|
Certain
of the Company’s fuel-hedge instruments are covered by an agreement which
includes a provision such that the Company either receives or posts cash
collateral if the fair value of the instruments exceeds a certain net asset or
net liability threshold, respectively. The threshold is based on a sliding
scale, utilizing either the counterparty’s credit rating, if the instruments are
in a net asset position, or BNSF’s credit rating, if the instruments are in a
net liability position. If the applicable credit rating should fall below Ba3
(Moody’s) or BB- (S&P), the threshold would be eliminated and collateral
would be required for the entire fair value amount. All cash collateral paid is
held on deposit by the payee and earns interest to the benefit of the payor
based on the London Interbank Offered Rate (LIBOR). The aggregate fair value of
all open fuel-hedge instruments under these provisions was in a net liability
position on December 31, 2009, of $18 million, which was below the collateral
threshold. As such, there was no posted collateral outstanding at December 31,
2009. As of December 31, 2008, the aggregate fair value of all open fuel-hedge
instruments under these provisions was in a net liability position of $131
million for which the Company posted collateral of $106 million. Additional
collateral of $20 million was posted related to settled fuel-hedging contracts
payable at December 31, 2008. The collateral was reflected as a reduction to
either accounts payable and other current liabilities or other liabilities in
the Consolidated Balance Sheet, depending on the expiration date of the related
fuel hedges. The settled fuel-hedge liabilities presented in the table above do
not reflect a reduction for the posted collateral.
The
Company uses the forward commodity price for the periods hedged to value its
fuel-hedge swaps and costless collars. This methodology is a market approach,
which under authoritative accounting guidance related to fair value measurements
utilizes Level 2 inputs as it uses market data for similar instruments in active
markets.
New York Mercantile Exchange
(NYMEX) #2 Heating Oil (HO) Hedges
As of
December 31, 2009, BNSF had entered into fuel swap agreements utilizing NYMEX #2
HO. The hedge prices do not include taxes, transportation costs, certain other
fuel handling costs and any differences that may occur between the prices of HO
and the purchase price of BNSF’s diesel fuel. Over the twelve months ended
December 31, 2009, the sum of all such costs averaged approximately 9 cents per
gallon.
During
2009, the Company entered into fuel swap agreements utilizing HO to hedge the
equivalent of approximately 77.35 million gallons of fuel with an average swap
price of $1.95 per gallon. The following tables provide fuel-hedge data based on
the quarter being hedged for all HO fuel hedges outstanding as of December 31,
2009.
|
|
Quarter
Ending
|
|
|
|
2010
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons
hedged (in millions)
|
|
|
5.60
|
|
|
8.35
|
|
|
6.10
|
|
|
6.50
|
|
|
26.55
|
|
Average
swap price (per gallon)
|
|
$
|
1.79
|
|
$
|
1.81
|
|
$
|
1.87
|
|
$
|
1.93
|
|
$
|
1.85
|
|
Fair
value (in millions)
|
|
$
|
2
|
|
$
|
3
|
|
$
|
2
|
|
$
|
2
|
|
$
|
9
|
|
|
|
Quarter
Ending
|
|
|
|
2011
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons
hedged (in millions)
|
|
|
8.30
|
|
|
8.30
|
|
|
7.50
|
|
|
7.50
|
|
|
31.60
|
|
Average
swap price (per gallon)
|
|
$
|
1.91
|
|
$
|
1.89
|
|
$
|
1.95
|
|
$
|
2.01
|
|
$
|
1.94
|
|
Fair
value (in millions)
|
|
$
|
3
|
|
$
|
3
|
|
$
|
3
|
|
$
|
3
|
|
$
|
12
|
|
|
|
Quarter
Ending
|
|
|
|
2012
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons
hedged (in millions)
|
|
|
17.20
|
|
|
2.00
|
|
|
−
|
|
|
−
|
|
|
19.20
|
|
Average
swap price (per gallon)
|
|
$
|
2.08
|
|
$
|
2.18
|
|
$
|
−
|
|
$
|
−
|
|
$
|
2.09
|
|
Fair
value (in millions)
|
|
$
|
5
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
$
|
5
|
|
West Texas Intermediate
(WTI) Crude Oil Hedges
In
addition, BNSF enters into fuel swap and costless collar agreements utilizing
WTI crude oil. The hedge prices do not include taxes, transportation costs,
certain other fuel handling costs and any differences which may occur between
the prices of WTI and the purchase price of BNSF’s diesel fuel, including
refining costs. Over the twelve months ended December 31, 2009, the sum of all
such costs averaged approximately 29 cents per gallon.
During
2009, the Company entered into fuel swap agreements utilizing WTI to hedge the
equivalent of approximately 890 thousand barrels of fuel with an average
swap price of $76.44 per barrel and costless collar agreements utilizing WTI to
hedge the equivalent of approximately 80 thousand barrels of fuel with an
average cap price of $79.86 per barrel and an average floor price of $70.06 per
barrel. The following tables provide fuel-hedge data based on the quarter being
hedged for all WTI fuel hedges outstanding as of December 31, 2009.
|
|
Quarter
Ending
|
|
|
|
2010
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
1,210
|
|
|
1,110
|
|
|
1,125
|
|
|
1,235
|
|
|
4,680
|
|
Equivalent
gallons hedged (in millions)
|
|
|
50.82
|
|
|
46.62
|
|
|
47.25
|
|
|
51.87
|
|
|
196.56
|
|
Average
swap price (per barrel)
|
|
$
|
85.05
|
|
$
|
87.89
|
|
$
|
87.82
|
|
$
|
86.27
|
|
$
|
86.71
|
|
Fair
value (in millions)
|
|
$
|
(6
|
)
|
$
|
(7
|
)
|
$
|
(5
|
)
|
$
|
(2
|
)
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI
Costless Collars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
420
|
|
|
420
|
|
|
420
|
|
|
320
|
|
|
1,580
|
|
Equivalent
gallons hedged (in millions)
|
|
|
17.64
|
|
|
17.64
|
|
|
17.64
|
|
|
13.44
|
|
|
66.36
|
|
Average
cap price (per barrel)
|
|
$
|
78.23
|
|
$
|
79.79
|
|
$
|
81.33
|
|
$
|
82.84
|
|
$
|
80.40
|
|
Average
floor price (per barrel)
|
|
$
|
72.35
|
|
$
|
73.84
|
|
$
|
75.15
|
|
$
|
76.54
|
|
$
|
74.34
|
|
Fair
value (in millions)
|
|
$
|
1
|
|
$
|
2
|
|
$
|
2
|
|
$
|
1
|
|
$
|
6
|
|
|
|
Quarter
Ending
|
|
|
|
2011
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
995
|
|
|
1,000
|
|
|
1,005
|
|
|
1,055
|
|
|
4,055
|
|
Equivalent
gallons hedged (in millions)
|
|
|
41.79
|
|
|
42.00
|
|
|
42.21
|
|
|
44.31
|
|
|
170.31
|
|
Average
swap price (per barrel)
|
|
$
|
85.59
|
|
$
|
85.20
|
|
$
|
85.52
|
|
$
|
85.88
|
|
$
|
85.55
|
|
Fair
value (in millions)
|
|
$
|
−
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI
Costless Collars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
200
|
|
|
200
|
|
|
200
|
|
|
200
|
|
|
800
|
|
Equivalent
gallons hedged (in millions)
|
|
|
8.40
|
|
|
8.40
|
|
|
8.40
|
|
|
8.40
|
|
|
33.60
|
|
Average
cap price (per barrel)
|
|
$
|
84.00
|
|
$
|
84.70
|
|
$
|
85.39
|
|
$
|
86.10
|
|
$
|
85.05
|
|
Average
floor price (per barrel)
|
|
$
|
77.75
|
|
$
|
78.40
|
|
$
|
79.05
|
|
$
|
79.70
|
|
$
|
78.73
|
|
Fair
value (in millions)
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
$
|
4
|
|
|
|
Quarter
Ending
|
|
|
|
2012
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
205
|
|
|
200
|
|
|
−
|
|
|
−
|
|
|
405
|
|
Equivalent
gallons hedged (in millions)
|
|
|
8.61
|
|
|
8.40
|
|
|
−
|
|
|
−
|
|
|
17.01
|
|
Average
swap price (per barrel)
|
|
$
|
76.95
|
|
$
|
77.52
|
|
$
|
−
|
|
$
|
−
|
|
$
|
77.23
|
|
Fair
value (in millions)
|
|
$
|
2
|
|
$
|
2
|
|
$
|
−
|
|
$
|
−
|
|
$
|
4
|
|
NYMEX #2 Heating Oil
Refining Spread Hedges
During
2009, the Company entered into fuel swap agreements utilizing the HO refining
spread (HO-WTI) to hedge the equivalent of approximately 800 thousand barrels of
fuel with an average swap price of $8.92 per barrel. HO-WTI is the difference in
price between HO and WTI; therefore, a HO-WTI swap in combination with a WTI
swap is equivalent to a HO swap. The following table provides fuel-hedge data
based upon the quarter being hedged for all HO-WTI fuel hedges outstanding as of
December 31, 2009.
|
|
Quarter
Ending
|
|
|
|
2010
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO-WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
215
|
|
|
180
|
|
|
135
|
|
|
100
|
|
|
630
|
|
Equivalent
gallons hedged (in millions)
|
|
|
9.03
|
|
|
7.56
|
|
|
5.67
|
|
|
4.20
|
|
|
26.46
|
|
Average
swap price (per barrel)
|
|
$
|
7.82
|
|
$
|
7.64
|
|
$
|
8.61
|
|
$
|
10.03
|
|
$
|
8.29
|
|
Fair
value (in millions)
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
|
|
Quarter
Ending
|
|
|
|
2011
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HO-WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
−
|
|
|
−
|
|
|
85
|
|
|
85
|
|
|
170
|
|
Equivalent
gallons hedged (in millions)
|
|
|
−
|
|
|
−
|
|
|
3.57
|
|
|
3.57
|
|
|
7.14
|
|
Average
swap price (per barrel)
|
|
$
|
−
|
|
$
|
−
|
|
$
|
10.49
|
|
$
|
12.03
|
|
$
|
11.26
|
|
Fair
value (in millions)
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
Summarized Comparative Prior
Year Information
The
following table provides summarized comparative information for fuel-hedge
transactions outstanding as of December 31, 2008.
Year
ending December 31,
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
5,005
|
|
|
4,680
|
|
|
3,570
|
|
Equivalent
gallons hedged (in millions)
|
|
|
210.21
|
|
|
196.56
|
|
|
149.94
|
|
Average
swap price (per barrel)
|
|
$
|
74.71
|
|
$
|
86.71
|
|
$
|
86.88
|
|
Fair
value (in millions)
|
|
$
|
(98
|
)
|
$
|
(104
|
)
|
$
|
(62
|
)
|
WTI
Costless Collars
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
2,725
|
|
|
1,500
|
|
|
800
|
|
Equivalent
gallons hedged (in millions)
|
|
|
114.45
|
|
|
63.00
|
|
|
33.60
|
|
Average
cap price (per barrel)
|
|
$
|
129.95
|
|
$
|
80.43
|
|
$
|
85.05
|
|
Average
floor price (per barrel)
|
|
$
|
119.82
|
|
$
|
74.57
|
|
$
|
78.73
|
|
Fair
value (in millions)
|
|
$
|
(181
|
)
|
$
|
(19
|
)
|
$
|
(8
|
)
|
Interest
Rate
From time
to time, the Company enters into various interest rate hedging transactions for
the purpose of managing exposure to fluctuations in interest rates by
establishing rates in anticipation of both future debt issuances and the
refinancing of leveraged leases, as well as converting a portion of its
fixed-rate, long-term debt to floating-rate debt. The Company uses interest rate
swaps and treasury locks as part of its interest rate risk management strategy.
Total
Interest Rate Hedging Program
All
interest rate hedge transactions outstanding are reflected in the following
table:
|
|
December
31, 2009
|
|
|
|
Maturity
Date
|
|
|
|
Fair
Value
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
to variable swaps
(in
millions)
|
|
$
|
250
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
400
|
|
$
|
650
|
|
$
|
31
|
a
|
Average
fixed rate
|
|
|
7.13
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
5.75
|
%
|
|
6.28
|
%
|
|
|
|
Average
floating rate
|
|
|
3.13
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
1.66
|
%
|
|
2.22
|
%
|
|
|
|
a Fair
value includes $5 million of accrued interest.
BNSF’s
measurement of the fair value of interest rate derivatives is based on estimates
of the mid-market values for the transactions which are provided by the
counterparties to these agreements. BNSF reviews these estimates for
reasonableness. This methodology is a market approach, which under authoritative
accounting guidance related to fair value measurements utilizes Level 2 inputs
as it uses market data for similar instruments in active markets.
Summarized Comparative Prior
Year Information
The
following table provides summarized comparative information for interest
rate-hedge transactions outstanding as of December 31, 2008.
|
|
December
31, 2008
|
|
|
|
Maturity
Date
|
|
|
|
Fair
Value
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
to variable swaps
(in
millions)
|
|
$
|
200
|
|
$
|
250
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
400
|
|
$
|
850
|
|
$
|
77
|
a
|
Average
fixed rate
|
|
|
6.13
|
%
|
|
7.13
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
5.75
|
%
|
|
6.24
|
%
|
|
|
|
Average
floating rate
|
|
|
2.47
|
%
|
|
4.87
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
3.40
|
%
|
|
3.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
locks (in millions)
|
|
$
|
400
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
400
|
|
$
|
(108
|
)
|
Average
rate
|
|
|
4.04
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
4.04
|
%
|
|
|
|
a Fair
value includes $4 million of accrued interest.
Fair Value Interest Rate
Hedges
The
Company enters into interest rate swaps to convert fixed-rate, long-term debt to
floating-rate debt. These swaps are accounted for as fair value hedges under
authoritative accounting guidance related to derivatives and hedging. These fair
value hedges qualify for the short-cut method of recognition; therefore, no
portion of these swaps is treated as ineffective.
The gain
or loss on the fair value hedges as well as the offsetting loss or gain on the
hedged items (fixed-rate debt) attributable to the hedged risk are recorded in
current earnings. The Company included the gain or loss on the fixed-rate debt
in the same line item − interest expense − as the offsetting loss or gain on the
related interest rate swaps, which is presented in the following table for the
years ended December 31 (in millions):
|
|
Gain
(Loss) on Interest Rate Swaps
|
|
Gain
(Loss) on Fixed-rate Debt
|
|
Income
Statement Classification
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(47
|
)
|
$
|
67
|
|
$
|
12
|
|
$
|
47
|
|
$
|
(67
|
)
|
$
|
(12
|
)
|
As of
each of the years ended December 31, 2009 and 2008, BNSF had nine and eleven
outstanding swaps, respectively, with an aggregate notional amount of
$650 million and $850 million, respectively, in which it pays an
average floating rate, which fluctuates quarterly, based on London Interbank
Offered Rate (LIBOR). The average floating rate to be paid by BNSF as of
December 31, 2009, was 2.22 percent, and the average fixed rate BNSF is to
receive is 6.28 percent.
In March
of 2008, the Company entered into four interest rate swaps having an aggregate
notional amount of $400 million to convert fixed-rate, long-term debt to
floating-rate debt. These swaps were entered into at the inception of new
10-year notes (see Note 9 to the Consolidated Financial Statements).
Cash Flow Interest Rate
Hedges
In
September 2009, the Company entered into a treasury lock having a notional
amount of $500 million and a locked-in rate of 3.46 percent, to fix a portion of
the rate for a 10-year unsecured debt issuance. The treasury lock was terminated
in connection with the issuance of $750 million 10-year notes (see Note 9 to the
Consolidated Financial Statements). Upon termination, BNSF received
approximately $600 thousand from the counterparty, which will be amortized as a
reduction to interest expense over the life of the issued debt. This transaction
was accounted for as a cash flow hedge. As of December 31, 2009, no cash flow
hedges were outstanding.
In
anticipation of a future debt issuance, the Company entered into five treasury
locks during 2008 having an aggregate notional amount of $250 million, and an
average locked-in rate of 4.18 percent, to fix a portion of the rate for a
future 30-year unsecured debt issuance. The Company also entered into six
treasury locks during 2008 having an aggregate notional amount of $150 million,
and an average locked-in rate of 3.80 percent, to fix a portion of the rate for
a future 10-year unsecured debt issuance. These transactions were previously
accounted for as cash flow hedges. During the first quarter of 2009, the Company
determined that it was no longer probable that it would issue debt according to
the terms of the hedges. As such, hedge accounting could no longer be applied to
the treasury locks. The treasury locks were terminated in early April and $32
million was paid to the counterparties, which was the fair value of the treasury
locks at the date of termination. Therefore, a net $32 million loss was
recognized as an increase to interest expense.
In
anticipation of a future debt issuance, the Company entered into nine treasury
locks during 2008 and 2007, having an aggregate notional amount of $250 million,
and an average locked-in rate of 4.24 percent, to fix a portion of the rate for
a future 10-year unsecured debt issuance. The treasury locks were terminated in
March 2008 in connection with the issuance of $650 million 10-year notes (see
Note 9 to the Consolidated Financial Statements). Upon termination, BNSF paid
$13 million to the counterparties, which will be amortized to interest expense
over the life of the issued debt. These transactions are accounted for as cash
flow hedges.
AOCL
included $8 million and $6 million of unrecognized gains on closed hedges as of
December 31, 2009 and 2008, respectively. These amounts will be amortized to
interest expense over the life of the corresponding issued debt.
4.
Other Expense, Net
Other
expense, net includes the following (in millions):
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable sales fees
|
|
$
|
3
|
|
$
|
12
|
|
$
|
19
|
|
Loss
from participation in synthetic fuel partnership
|
|
|
−
|
|
|
−
|
|
|
5
|
|
Miscellaneous,
net
|
|
|
5
|
|
|
(1
|
)
|
|
(6
|
)
|
Total
|
|
$
|
8
|
|
$
|
11
|
|
$
|
18
|
|
The
decrease in other expense, net was predominantly due to lower accounts
receivable sales fees (see Note 6 to the Consolidated Financial Statements for
additional information), partially offset by lower interest and investment
income.
During
the fourth quarter of 2004, BNSF Railway indirectly purchased a 4.17 percent
ownership of a synthetic fuel partnership through a 50 percent interest in a
limited liability company with an unrelated entity. The synthetic fuel
partnership generated Section 29 synthetic fuel tax credits, which reduced the
Company’s effective tax rate (see Note 5 to the Consolidated Financial
Statements for additional information). In 2007, BNSF Railway received a tax
benefit from its participation in the partnership of approximately
$7 million related to the fuel tax credits and the deduction of partnership
operating losses. In 2007, the Company recorded approximately $5 million of
other expense, net related to the Company’s share of the partnership’s losses
under the equity method of accounting. The partnership did not qualify for
consolidation under authoritative accounting guidance related to the
consolidation of variable interest entities, as BNSF Railway was not the primary
beneficiary of the partnership. Under the tax law, the Section 29 synthetic fuel
tax credits terminated on December 31, 2007; under the BNSF Railway’s purchase
agreement, it did not have any additional exposure to loss from the
synthetic fuel partnership after that date.
5.
Income Taxes
Income
tax expense was as follows (in millions):
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
282
|
|
$
|
735
|
|
$
|
741
|
|
State
|
|
|
26
|
|
|
101
|
|
|
107
|
|
Total current
|
|
|
308
|
|
|
836
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
535
|
|
|
383
|
|
|
245
|
|
State
|
|
|
77
|
|
|
34
|
|
|
35
|
|
Total
deferred
|
|
|
612
|
|
|
417
|
|
|
280
|
|
Total
|
|
$
|
920
|
|
$
|
1,253
|
|
$
|
1,128
|
|
|
|
Reconciliation
of the federal statutory income tax rate to the effective tax rate was as
follows:
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
statutory income tax rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State
income taxes, net of federal tax benefit
|
|
|
2.5
|
|
|
2.6
|
|
|
3.1
|
|
Property
donations
|
|
|
(3.0
|
)
|
|
–
|
|
|
–
|
|
Synthetic
fuel credits
|
|
|
–
|
|
|
–
|
|
|
(0.2
|
)
|
Other,
net
|
|
|
0.3
|
|
|
(0.4
|
)
|
|
0.3
|
|
Effective tax
rate
|
|
|
34.8
|
%
|
|
37.2
|
%
|
|
38.2
|
%
|
The
components of deferred tax assets and liabilities were as follows (in
millions):
December
31,
|
|
2009
|
|
2008
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
$
|
(9,939
|
)
|
$
|
(9,522
|
)
|
Hedging
|
|
|
(12
|
)
|
|
−
|
|
Other
|
|
|
(173
|
)
|
|
(167
|
)
|
Total deferred tax
liabilities
|
|
|
(10,124
|
)
|
|
(9,689
|
)
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Casualty and
environmental
|
|
|
398
|
|
|
428
|
|
Pension and retiree health and
welfare benefits
|
|
|
328
|
|
|
431
|
|
Compensation and
benefits
|
|
|
141
|
|
|
178
|
|
Hedging
|
|
|
−
|
|
|
207
|
|
Other
|
|
|
225
|
|
|
297
|
|
Total deferred tax
assets
|
|
|
1,092
|
|
|
1,541
|
|
Net deferred tax
liability
|
|
$
|
(9,032
|
)
|
$
|
(8,148
|
)
|
|
|
|
|
|
|
|
|
Non-current
deferred income tax liability
|
|
$
|
(9,322
|
)
|
$
|
(8,590
|
)
|
Current
portion of deferred income taxes
|
|
|
290
|
|
|
442
|
|
Net deferred tax
liability
|
|
$
|
(9,032
|
)
|
$
|
(8,148
|
)
|
All
federal income tax returns of BNSF are closed through 1999. Internal Revenue
Service (IRS) examination of the years 2000 through 2007 for BNSF is completed,
and the un-agreed issues for 2000 through 2007 are pending before IRS Appeals.
It is anticipated that a settlement with the IRS for the years 2000 through 2005
may be reached within the next twelve months. BNSF is currently under
examination for year 2008.
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.
A
significant portion of the audit issues relate to state income tax issues with
various taxing authorities and with the IRS related to whether certain
valuations of donated property are appropriate. A provision for taxes resulting
from ongoing and future federal and state audits is based on an estimation of
aggregate adjustments that may be required as a result of the audits. The
Company believes that adequate provision has been made for any adjustment that
might be assessed for open years through 2009.
Uncertain Tax
Positions
The
amount of unrecognized tax benefits at December 31, 2009, 2008 and 2007, was
$166 million, $150 million and $125 million, respectively. The amount of
unrecognized tax benefits at December 31, 2009, that would affect the Company’s
effective tax rate if recognized was $97 million. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as follows (in
millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
150
|
|
$
|
125
|
|
$
|
87
|
|
Additions
for tax positions related to current year
|
|
|
49
|
|
|
19
|
|
|
29
|
|
(Reductions)
additions for tax positions taken in prior years
|
|
|
(8
|
)
|
|
9
|
|
|
12
|
|
(Reductions)
additions for tax positions as a result of:
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
(13
|
)
|
|
2
|
|
|
−
|
|
Lapse
of statute of limitations
|
|
|
(12
|
)
|
|
(5
|
)
|
|
(3
|
)
|
Ending
balance
|
|
$
|
166
|
|
$
|
150
|
|
$
|
125
|
|
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 or the financial position 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
$23 million and $33 million for the payment of interest and penalties for the
years ended December 31, 2009 and 2008, respectively. For the years ended
December 31, 2009, 2008 and 2007, the Company recognized a reduction of
approximately $8 million, $18 million and $7 million in interest and penalty
expense, respectively.
6.
Accounts Receivable, Net
BNSF
Railway sells a portion of its accounts receivable to Santa Fe Receivables
Corporation (SFRC), a special purpose subsidiary. The sole purpose and activity
of SFRC is to purchase receivables from BNSF Railway. SFRC transfers an
undivided interest in such receivables, with limited exceptions, to a master
trust and causes the trust to issue an undivided interest in the receivables to
investors (the A/R sales program). The undivided interests in the master trust
may be in the form of certificates or purchased interests and are isolated from
BNSF Railway which eliminates all of BNSF Railway’s control over the undivided
interest.
BNSF
Railway’s total capacity to sell undivided interests to investors under the A/R
sales program was $700 million at December 31, 2009, which was comprised of
two $175 million, 364-day accounts receivable facilities and two $175 million,
3-year accounts receivable facilities. In November 2009, BNSF Railway extended
the commitment termination date of the two 364-day facilities to November 2010.
The two 3-year facilities were entered into in November 2007 and have a
commitment termination date in November 2010. Each of the financial institutions
providing credit for the facilities is rated Aa3/A+ or higher. There was no
outstanding undivided interest held by investors at December 31, 2009.
Outstanding undivided interests held by investors under the A/R sales program
were $50 million at December 31, 2008, with $12.5 million allocated to each
facility. The undivided interests in receivables held by investors are excluded
from accounts receivable by BNSF Railway in connection with the sale of
undivided interests under the A/R sales program. As of December 31, 2009 and
2008, an interest in $801 million and $878 million, respectively, of receivables
had been transferred by SFRC to the master trust. When SFRC transfers the
interest in these receivables to the master trust, it retains an undivided
interest in the receivables, which is included in accounts receivable in the
Company’s Consolidated Balance Sheets. The interest that continued to be held by
SFRC of $801 million and $828 million at December 31, 2009 and 2008,
respectively, less an allowance for uncollectible accounts, reflected the total
accounts receivable transferred by SFRC to the master trust less $50 million of
outstanding undivided interests held by investors at December 31, 2008. Due to a
relatively short collection cycle, the fair value of the undivided interest
transferred to investors in the A/R sales program approximated book value, and
there was no gain or loss from the transaction.
BNSF
Railway retains the collection responsibility with respect to the accounts
receivable. Proceeds from collections reinvested in the A/R sales program were
approximately $15.2 billion, $19.5 billion and $16.8 billion in
2009, 2008 and 2007, respectively. No servicing asset or liability has been
recorded because the fees BNSF Railway receives for servicing the receivables
approximate the related costs. SFRC’s costs of the sale of receivables are
included in other expense, net and were $3 million, $12 million and
$19 million for the years ended December 31, 2009, 2008 and 2007,
respectively. These costs fluctuate monthly with changes in prevailing interest
rates as well as unused available commitments and include interest, discounts
associated with transferring the receivables under the A/R sales program to
SFRC, program fees paid to banks, incidental commercial paper issuing costs and
fees for unused commitment availability.
The
amount of undivided interests in the accounts receivable sold by BNSF Railway to
investors fluctuates based on borrowing needs and upon the availability of
receivables and is directly affected by changing business volumes and credit
risks, which may, from time to time, reduce the effective capacity of the
program to less than the $700 million. At December 31, 2009, the effective
capacity under the A/R sales program was $611 million. Additionally, if the
combined dilution and delinquency percentages exceed an established threshold,
there would be an impact on the amount of undivided interest that BNSF Railway
could sell. BNSF Railway has historically experienced very low levels of
dilution or delinquency and was below the established reserve threshold at
December 31, 2009. Based on the current levels, if dilution or delinquency
percentages were to increase by one percentage point, there would be no impact
to the amount of undivided interests BNSF Railway could sell.
Receivables
eligible under the A/R sales program do not include receivables over 90 days
past due or concentrations over certain limits with any one customer and certain
other receivables.
At
December 31, 2009 and 2008, $11 million and $9 million, respectively, of
such accounts receivable were greater than 90 days old.
BNSF
Railway maintains an allowance for bill adjustments and uncollectible accounts
based upon the expected collectibility of accounts receivable, including
receivables transferred to the master trust. At December 31, 2009 and 2008,
$31 million and $43 million, respectively of such allowances had been
recorded, of which $31 million and $42 million, respectively, had been
recorded as a reduction to accounts receivable, net. The remaining $1 million at
December 31, 2008, had been recorded in accounts payable and other current
liabilities because it relates to the outstanding undivided interests held by
investors. During the years ended December 31, 2009 and 2008, $16 million
and $15 million, respectively, of accounts receivable were written off, net
of recoveries. Credit losses are based on specific identification of
uncollectible accounts and application of historical collection percentages by
aging category.
The
investors in the master trust have no recourse to BNSF Railway’s other assets
except for customary warranty and indemnity claims. Creditors of BNSF Railway
have no recourse to the assets of the master trust or SFRC until after the
creditors have been paid and SFRC and the master trust have been terminated. The
A/R sales program includes thresholds for dilution, delinquency and write-off
ratios that, if exceeded, allow the investors participating in this program, at
their option, to cancel the program. At December 31, 2009, BNSF Railway was in
compliance with these provisions.
See Note
16 to the Consolidated Financial Statements for information about recent
accounting pronouncements that will have an impact on the A/R sales program upon
adoption.
7.
Property and Equipment, Net
Property
and equipment, net (in millions), and the weighted average annual depreciation
rates (%) were as follows:
December
31,
|
|
2009
|
|
2008
|
|
2009
Depreciation
Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,803
|
|
$
|
1,751
|
|
|
–
|
%
|
Track
structure
|
|
|
20,281
|
|
|
19,108
|
|
|
3.5
|
%
|
Other
roadway
|
|
|
13,245
|
|
|
12,924
|
|
|
2.6
|
%
|
Locomotives
|
|
|
4,759
|
|
|
4,210
|
|
|
7.2
|
%
|
Freight
cars and other equipment
|
|
|
2,246
|
|
|
2,140
|
|
|
5.1
|
%
|
Computer
hardware, software and other
|
|
|
696
|
|
|
626
|
|
|
12.3
|
%
|
Total cost
|
|
|
43,030
|
|
|
40,759
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(10,736
|
)
|
|
(9,912
|
)
|
|
|
|
Property and equipment,
net
|
|
$
|
32,294
|
|
$
|
30,847
|
|
|
|
|
The
Consolidated Balance Sheets at December 31, 2009 and 2008, included $1,876
million, net of $772 million of amortization and $1,648 million, net
of $572 million of amortization, respectively, for property and equipment
under capital leases, primarily for rolling stock.
The
Company capitalized $18 million, $17 million and $17 million of
interest for the years ended December 31, 2009, 2008 and 2007,
respectively.
8.
Accounts Payable and Other Current Liabilities
Accounts
payable and other current liabilities consisted of the following (in millions):
December
31,
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Compensation
and benefits payable
|
|
$
|
512
|
|
$
|
610
|
Rents
and leases
|
|
|
283
|
|
|
276
|
Casualty
and environmental liabilities
|
|
|
250
|
|
|
280
|
Accounts
payable
|
|
|
244
|
|
|
290
|
Property
tax liabilities
|
|
|
177
|
|
|
157
|
Accrued
interest
|
|
|
177
|
|
|
135
|
Dividends
payable
|
|
|
137
|
|
|
136
|
Customer
incentives
|
|
|
125
|
|
|
141
|
Hedge
liabilities
a
|
|
|
48
|
|
|
333
|
Other
|
|
|
742
|
|
|
832
|
Total
|
|
$
|
2,695
|
|
$
|
3,190
|
a 2008
hedge liabilities include a reduction of $92 million for collateral paid (see
Note 3 to the Consolidated Financial Statements for additional
information).
9.
Debt
Debt
outstanding was as follows (in millions):
December
31,
|
|
2009
a
|
|
2008
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
and debentures, due 2010 to 2097
|
|
$
|
8,095
|
|
6.0
|
%
|
$
|
7,593
|
|
6.3
|
%
|
Equipment
obligations, due 2010 to 2027
|
|
|
271
|
|
6.2
|
|
|
244
|
|
6.7
|
|
Capitalized
lease obligations, due 2010 to 2028
|
|
|
1,589
|
|
5.5
|
|
|
1,281
|
|
5.3
|
|
Mortgage
bonds, due 2010 to 2047
|
|
|
94
|
|
5.9
|
|
|
97
|
|
6.0
|
|
Financing
obligations, due 2010 to 2028
|
|
|
323
|
|
6.2
|
|
|
278
|
|
6.2
|
|
Commercial
paper
|
|
|
−
|
|
−
|
|
|
100
|
|
4.7
|
|
Unamortized
discount and other, net
|
|
|
(37
|
)
|
|
|
|
(38
|
)
|
|
|
Total
|
|
|
10,335
|
|
|
|
|
9,555
|
|
|
|
Less
current portion of long-term debt
|
|
|
(644
|
)
|
5.1
|
%
|
|
(456
|
)
|
4.8
|
%
|
Long-term debt
|
|
$
|
9,691
|
|
|
|
$
|
9,099
|
|
|
|
a
Amounts
represent debt outstanding and weighted average effective interest rates
for 2009 and 2008, respectively. Maturities are as of December 31,
2009.
|
|
Notes and
debentures include a fair value adjustment increase for hedges of
$26 million and $73 million at December 31, 2009 and 2008,
respectively.
As of
December 31, 2009, certain BNSF Railway properties and other assets were subject
to liens securing $94 million of mortgage debt. Certain locomotives and
rolling stock of BNSF Railway were subject to equipment obligations and capital
leases.
The
following table provides fair value information for the Company’s debt
obligations including principal cash flows and related weighted average interest
rates by contractual maturity dates. The Company had no outstanding commercial
paper at December 31, 2009. The remaining weighted average variable rates are
based on implied forward rates in the yield curve at December 31,
2009.
|
|
December
31, 2009
|
|
|
|
Maturity
Date
|
|
Total
Including Capital Leases
|
|
Total
Excluding Capital Leases
|
|
Fair
Value Excluding Capital Leases
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
debt (in millions)
|
|
$
|
385
|
|
$
|
673
|
|
$
|
509
|
|
$
|
446
|
|
$
|
638
|
|
$
|
7,008
|
|
$
|
9,659
|
|
$
|
8,070
|
|
$
|
8,740
|
|
Average
interest rate
|
|
|
6.4
|
%
|
|
6.5
|
%
|
|
5.9
|
%
|
|
5.1
|
%
|
|
6.8
|
%
|
|
6.4
|
%
|
|
6.4
|
%
|
|
|
|
|
|
|
Variable-rate
debt (in millions)
|
|
$
|
259
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
$
|
−
|
|
$
|
417
|
|
$
|
676
|
|
$
|
676
|
|
$
|
676
|
|
Average
interest rate
|
|
|
3.4
|
%
|
|
−
|
%
|
|
−
|
%
|
|
−
|
%
|
|
−
|
%
|
|
5.4
|
%
|
|
4.6
|
%
|
|
|
|
|
|
|
As of
December 31, 2008, the fair value excluding capital leases of fixed-rate debt
and variable-rate debt was $7,300 million and $1,023 million,
respectively.
The fair
value of BNSF’s long-term debt is primarily based on quoted market prices for
the same or similar issues, or on the current rates that would be offered to
BNSF for debt of the same remaining maturities. Capital leases have been
excluded from the calculation of fair value for both 2009 and 2008.
Notes and
Debentures
2009
In
September 2009, BNSF issued $750 million of 4.70 percent notes due October 1,
2019. The net proceeds from the sale of the notes were used for general
corporate purposes including, but not limited to, working capital, capital
expenditures and repayment of outstanding indebtedness.
At
December 31, 2009, $750 million remained authorized to be issued by the Board of
Directors (the Board) through the Securities and Exchange Commission (SEC) debt
shelf registration process.
2008
In
November 2008, BNSF issued $500 million of 7.00 percent notes due February 1,
2014. The net proceeds from the sale of the notes were used for general
corporate purposes including, but not limited to, working capital, capital
expenditures, repurchase of common stock pursuant to the share repurchase
program and repayment of short-term borrowings.
In March
2008, BNSF issued $650 million of 5.75 percent notes due March 15, 2018. The net
proceeds from the sale of the notes were used for general corporate purposes
including, but not limited to, working capital, capital expenditures, funding
debt which matured in 2008, repurchase of common stock pursuant to the share
repurchase program and repayment of short-term borrowings.
2007
In April
2007, BNSF issued $650 million of 5.65 percent debentures and
$650 million of 6.15 percent debentures due May 1, 2017 and May 1, 2037,
respectively. The net proceeds from the sale of the debentures were used for
general corporate purposes including, but not limited to, working capital,
capital expenditures, funding debt which matured in 2007, the repayment of
commercial paper and the repurchase of common stock.
Equipment
Obligation
2009
In July
2009, BNSF Railway entered into an 18-year equipment obligation totaling $75
million to finance locomotives and railcars.
Capital
Leases
2009
In 2009,
BNSF Railway entered into a 12-year capital lease to finance $368 million of
locomotives and freight cars. Additionally, BNSF Railway entered into capital
leases totaling $146 million to finance maintenance of way and other vehicles
and equipment with lease terms of three to seven years.
2008
In 2008,
BNSF Railway entered into a capital lease for approximately $158 million to
finance locomotives and freight cars. The term of the lease is 20 years.
Additionally, BNSF Railway entered into capital leases totaling $100 million to
finance maintenance of way and other vehicles and equipment with lease terms of
three to seven years.
2007
In 2007,
BNSF Railway entered into several capital leases totaling approximately $325
million to finance locomotives and freight cars. The terms of the leases are
between 15 and 20 years. Additionally, BNSF Railway entered into capital leases
totaling $119 million to finance maintenance of way and other vehicles and
equipment with lease terms of three to seven
years.
Financing
Obligation
In 2005,
the Company commenced the construction of an intermodal facility that it
intended to sell to a third party and subsequently lease back. In 2009,
construction of the facility was completed for a cost of approximately $160
million. All improvements have been sold to the third party and BNSF leased the
facility from the third party for 20 years. This sale leaseback transaction was
accounted for as a financing obligation due to continuing involvement. The
outflows from the construction of the facility were classified as investing
activities, and the inflows from the associated financing proceeds were
classified as financing activities in the Company’s Consolidated Statements of
Cash Flows.
Revolving Credit Facility
and Commercial Paper
As of
December 31, 2009, the Company had borrowing capacity of up to $1.2 billion
under its long-term revolving bank credit facility, which expires September
2012. Annual facility fees are currently 0.08 percent for the facility. The rate
is subject to change based upon changes in BNSF’s senior unsecured debt ratings.
Borrowing rates are based upon (i) LIBOR plus a spread determined by BNSF’s
senior unsecured debt ratings, (ii) money market rates offered at the option of
the lenders, or (iii) an alternate base rate. BNSF must maintain compliance with
certain financial covenants under its revolving bank credit facility. At
December 31, 2009, the Company was in compliance with these
covenants.
At
December 31, 2009, there were no bank borrowings against the revolving credit
facility.
BNSF
issues commercial paper from time to time that is supported by the revolving
bank credit facility. Outstanding commercial paper reduces the amount of
borrowing capacity available under the facility. The classification of
commercial paper is determined by the Company’s ability and intent to use
long-term or short-term funding sources to settle the obligations at maturity.
At December 31, 2008, the Company classified outstanding commercial paper as
long-term debt.
There was
no commercial paper outstanding at December 31, 2009; therefore, the total
borrowing capacity available under the revolving bank credit facility was $1.2
billion.
Due to
the proposed Merger, the Company sought a waiver of the change of control
provision included in the revolving credit facility. In December 2009, the banks
participating in the facility provided unanimous consent for the waiver and
amended the revolving credit facility agreement to allow the use of an LLC legal
structure. See Note 1 to the Consolidated Financial Statements for additional
information related to the proposed Merger.
Guarantees
As of
December 31, 2009, BNSF Railway 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, 2009, 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
|
|
$
|
–
|
|
Kansas
City Terminal Intermodal Transportation Corporation
|
|
0.0
|
%
|
$
|
48
|
|
$
|
67
|
|
$
|
67
|
|
|
9
|
|
$
|
27
|
b
|
Westside
Intermodal Transportation Corporation
|
|
0.0
|
%
|
$
|
37
|
|
$
|
54
|
|
$
|
–
|
|
|
14
|
|
$
|
29
|
b
|
The
Unified Government of Wyandotte County/Kansas City, Kansas
|
|
0.0
|
%
|
$
|
12
|
|
$
|
17
|
|
$
|
–
|
|
|
14
|
|
$
|
9
|
b
|
Chevron
Phillips Chemical Company, LP
|
|
0.0
|
%
|
|
N/A
|
d
|
|
N/A
|
d
|
|
N/A
|
d
|
|
8
|
|
$
|
11
|
c
|
Various
lessors (Residual value guarantees)
|
|
0.0
|
%
|
|
N/A
|
|
$
|
270
|
|
$
|
270
|
|
|
Various
|
|
$
|
68
|
c
|
All
other
|
|
0.0
|
%
|
$
|
3
|
|
$
|
4
|
|
$
|
1
|
|
|
Various
|
|
$
|
–
|
|
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 Railway,
has a guarantee in connection with its remaining special limited partnership
interest in Santa Fe Pacific Pipelines 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.
Kansas
City Terminal Intermodal Transportation Corporation
BNSF
Railway and another major railroad jointly and severally guarantee $48 million
of debt of Kansas City Terminal Intermodal Transportation Corporation, the
proceeds of which were used to finance construction of a double track grade
separation bridge in Kansas City, Missouri, which is operated and used by Kansas
City Terminal Railway Company (KCTRC). BNSF Railway has a 25 percent ownership
in KCTRC, accounts for its interest using the equity method of accounting and
would be required to fund a portion of the remaining obligation upon default by
the original debtor.
Westside
Intermodal Transportation Corporation and The Unified Government of Wyandotte
County/Kansas City, Kansas
BNSF
Railway has outstanding guarantees of $49 million of debt, the proceeds of which
were used to finance construction of a bridge that connects BNSF Railway’s
Argentine Yard in Kansas City, Kansas, with the KCTRC mainline tracks in Kansas
City, Missouri. The bridge is operated by KCTRC, and payments related to BNSF
Railway’s guarantee of this obligation would only be called for upon default by
the original debtor.
Chevron
Phillips Chemical Company, LP
In the
third quarter of 2007, BNSF Railway entered into an indemnity agreement with
Chevron Phillips Chemical Company, LP (Chevron Phillips), granting certain
rights of indemnity from BNSF Railway, 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.
Residual
Value Guarantees (RVG)
In the
normal course of business, the Company enters into leases in which it guarantees
the residual value of certain leased equipment. Some of these leases have
renewal or purchase options, or both, that the Company may exercise at the end
of the lease term. If the Company elects not to exercise these options, it may
be required to pay the lessor an amount not exceeding the RVG. The amount of any
payment is contingent upon the actual residual value of the leased equipment.
Some of these leases also require the lessor to pay the Company any surplus if
the actual residual value of the leased equipment is over the RVG. These
guarantees will expire between 2010 and 2011.
The
maximum future payments, as disclosed in the Guarantees table above, represent
the undiscounted maximum amount that the Company could be required to pay in the
event the Company did not exercise its renewal option and the fair market value
of the equipment had significantly declined. As of December 31, 2009, BNSF does
not anticipate such a large reduction in the fair market value of the leased
equipment. As of December 31, 2009, the Company had recorded a $68 million asset
and corresponding liability for the fair value of RVG.
All
Other
As of
December 31, 2009, BNSF guaranteed $3 million of other debt and leases. BNSF
holds a performance bond and has the option to sub-lease property to recover up
to $1 million of the $3 million of guarantees. These guarantees expire between
2011 and 2013.
Other
than as discussed above, there is no collateral held by a third party that the
Company could obtain and liquidate to recover any amounts paid under the above
guarantees.
Other
than as discussed above, none of the guarantees are recorded in the Consolidated
Financial Statements of the Company. The Company does not expect performance
under these guarantees to have a material effect on the Company in the
foreseeable future.
Indemnities
In the
ordinary course of business, BNSF enters into agreements with third parties that
include indemnification clauses. In general, these clauses are 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. Due to the uncertainty of 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 and that the fair value of any such amount would be
immaterial to the Consolidated Financial Statements. Agreements that contain
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.
10.
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, 2009, are summarized
as follows (in millions):
December
31,
|
|
Capital
Leases
|
|
Operating
Leases
|
a
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
349
|
|
$
|
613
|
|
2011
|
|
|
285
|
|
|
602
|
|
2012
|
|
|
215
|
|
|
541
|
|
2013
|
|
|
169
|
|
|
517
|
|
2014
|
|
|
138
|
|
|
499
|
|
Thereafter
|
|
|
922
|
|
|
3,553
|
|
Total
|
|
|
2,078
|
|
$
|
6,325
|
|
Less
amount representing interest
|
|
|
(489
|
)
|
|
|
|
Present
value of minimum lease payments
|
|
$
|
1,589
|
|
|
|
|
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 $644
million, $689 million and $706 million for the years ended December
31, 2009, 2008 and 2007, 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 a 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
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.
BNSF
assesses its unasserted 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.
During
the third quarters of 2009, 2008 and 2007, the Company analyzed recent filing
and payment trends to ensure the assumptions used by BNSF to estimate its future
asbestos liability were reasonable. In 2007, management recorded a decrease in
expense of $17 million due to a statistically significant reduction in
filing rate experience for non-malignant claims. In 2009 and 2008, management
determined that the liability remained appropriate and no change was recorded.
The Company plans to update its study again in the third quarter of
2010.
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.
The
following table summarizes the activity in the Company’s accrued obligations for
both asserted and unasserted asbestos matters (in millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
251
|
|
$
|
270
|
|
$
|
306
|
|
Accruals
|
|
|
–
|
|
|
–
|
|
|
(17
|
)
|
Payments
|
|
|
(15
|
)
|
|
(19
|
)
|
|
(19
|
)
|
Ending balance at December
31,
|
|
$
|
236
|
|
$
|
251
|
|
$
|
270
|
|
Of the
obligation at December 31, 2009, $198 million was related to unasserted claims
while $38 million was related to asserted claims. At December 31, 2009 and 2008,
$16 million and $17 million was included in current liabilities,
respectively. The recorded liability was not discounted. 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
asbestos-related claims.
The
following table summarizes information regarding the number of asserted asbestos
claims filed against BNSF:
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Claims
unresolved at January 1,
|
|
|
1,833
|
|
|
1,781
|
|
Claims
filed
|
|
|
290
|
|
|
494
|
|
Claims
settled, dismissed or otherwise resolved
|
|
|
(512
|
)
|
|
(442
|
)
|
Claims unresolved at December
31,
|
|
|
1,611
|
|
|
1,833
|
|
Based on
BNSF’s estimate of the potentially exposed employees and related mortality
assumptions, it is anticipated that unasserted 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 55, 75 and 90 percent of the future unasserted asbestos claims
will be filed within the next 10, 15 and 25 years, respectively.
Because
of the uncertainty surrounding the factors used in the study, it is reasonably
possible that future costs to settle asbestos claims may range from
approximately $212 million to $257 million. However, BNSF believes that the $236
million recorded at December 31, 2009, is the best estimate of the Company’s
future obligation for the settlement of asbestos claims.
The
amounts recorded by BNSF for the asbestos-related liability 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 asbestos litigation in the United States,
could cause the actual costs to be higher or lower than projected.
While the
final outcome of asbestos-related 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.
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.
BNSF
monitors quarterly actual experience against the number of forecasted claims to
be received, the forecasted number of claims closing with payment and expected
claims 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
other personal injury matters (in millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
442
|
|
$
|
439
|
|
$
|
439
|
|
Accruals
|
|
|
73
|
|
|
159
|
|
|
190
|
|
Payments
|
|
|
(119
|
)
|
|
(156
|
)
|
|
(190
|
)
|
Ending balance at December
31,
|
|
$
|
396
|
|
$
|
442
|
|
$
|
439
|
|
At
December 31, 2009 and 2008, $144 million and $183 million were included in
current liabilities, respectively. BNSF’s liabilities for other personal injury
claims are undiscounted. In addition, defense and processing costs, which are
recorded on an as-reported basis, were not included in the recorded liability.
The Company is substantially self-insured for other personal injury
claims.
The
following table summarizes information regarding the number of personal injury
claims, other than asbestos, filed against BNSF:
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Claims
unresolved at January 1,
|
|
|
3,349
|
|
|
3,322
|
|
Claims
filed
|
|
|
3,460
|
|
|
4,313
|
|
Claims
settled, dismissed or otherwise resolved
|
|
|
(3,437
|
)
|
|
(4,286
|
)
|
Claims unresolved at December
31,
|
|
|
3,372
|
|
|
3,349
|
|
Because
of the uncertainty surrounding the ultimate outcome of other personal injury
claims, it is reasonably possible that future costs to settle other personal
injury claims may range from approximately $345 million to $495 million.
However, BNSF believes that the $396 million recorded at December 31, 2009, is
the best estimate of the Company’s future obligation for the settlement of other
personal injury claims.
The
amounts recorded by BNSF for other personal injury claims 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.
While the
final outcome of these other 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 incurred after April 1, 1998, FELA claims, railroad protective and
force account insurance claims and certain excess general liability coverage
incurred after January 1, 2002, and certain other claims which are subject to
reinsurance. Beginning in 2004, BNSF IC 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 third-party commercial paper, time deposits and money market accounts
as well as in commercial paper issued by BNSF. At December 31, 2009, 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 $425 million at December 31, 2008.
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.
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 historical payment patterns, current estimated
percentage to closure ratios 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.
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 participation in, and the ability to pay for,
cleanup of other PRPs. 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.
During
the third quarter of 2009, 2008 and 2007, 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
quarter of 2009, 2008 and 2007, management recorded additional expense of
approximately $25 million, $13 million and $20 million as of the
June 30 measurement date, respectively. The Company plans to update its study
again in the third quarter of 2010.
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, 2009, is approximately $13
million.
BNSF is
involved in a number of administrative and judicial proceedings and other
mandatory cleanup efforts for 320 sites, including 19 Superfund sites, at which
it is participating in the study or cleanup, or both, of alleged environmental
contamination.
The
following table summarizes the activity in the Company’s accrued obligations for
environmental matters (in millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
546
|
|
$
|
380
|
|
$
|
318
|
|
Accruals
|
|
|
64
|
|
|
251
|
|
|
126
|
|
Payments
|
|
|
(93
|
)
|
|
(85
|
)
|
|
(64
|
)
|
Ending balance at December
31,
|
|
$
|
517
|
|
$
|
546
|
|
$
|
380
|
|
At
December 31, 2009 and 2008, $90 million and $80 million were included in
current liabilities, respectively.
In the
second quarter of 2008, the Company completed an analysis of its Montana sites
to determine its legal exposure related to the potential effect of a Montana
Supreme Court decision. The decision, which did not involve BNSF, held that
restoration damages (damages equating to clean-up costs which are intended to
return property to its original condition) may be awarded under certain
circumstances even where such damages may exceed the property’s actual value.
The legal situation in Montana, the increase in the number of claims against
BNSF and others resulting from this decision, and the completion of the analysis
caused BNSF to record additional pre-tax environmental expenses of $175 million,
or $0.31 per diluted share in the second quarter of 2008 for environmental
liabilities primarily related to the effect of the aforementioned Montana
Supreme Court decision on certain of BNSF’s Montana sites.
In the
first quarter of 2007, the Company recorded additional pre-tax environmental
expenses of $65 million, or $0.11 per share, due to an increase in
environmental costs primarily related to a final resolution with the State of
Washington and its Department of Ecology on clean-up of an existing
environmental site at Skykomish and an adverse reversal of a trial court
decision on appeal regarding a site at Arvin, California.
BNSF’s
environmental liabilities are not discounted. BNSF anticipates that the majority
of the accrued costs at December 31, 2009, will be paid over the next ten years,
and no individual site is considered to be material.
The
following table summarizes the environmental sites:
|
|
BNSF
Sites
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Number
of sites at January 1,
|
|
|
336
|
|
|
346
|
|
Sites
added during the period
|
|
|
13
|
|
|
19
|
|
Sites
closed during the period
|
|
|
(29
|
)
|
|
(29
|
)
|
Number of sites at December
31,
|
|
|
320
|
|
|
336
|
|
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 $370
million to $830 million. However, BNSF believes that the $517 million recorded
at December 31, 2009, 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 (including
complaints seeking refunds of prior charges paid for coal transportation and the
prescription of future rates for such movements and claims relating to service
under contract provisions or otherwise). 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, 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, 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.
Coal Rate Case
Decision
On
February 17, 2009, the United States Surface Transportation Board (STB) issued a
new decision in a rate dispute between Western Fuels Association, Inc. and Basin
Electric Power Cooperative, Inc. (collectively, WFA) and BNSF Railway Company
(BNSF Railway). (
Western Fuels Association,
Inc. and Basin Electric Power Cooperative v. BNSF Railway Company
,
STB Docket No. 42088). The dispute relates
to the reasonableness of rates BNSF Railway charges to WFA for the
transportation of approximately 8 million tons of coal a year from Powder River
Basin mines in Wyoming to the Laramie River Station Plant at Moba Junction,
Wyoming. The STB previously ruled in this matter in 2007 that the challenged
rates were not shown unreasonable. During the pendency of the case, the STB
issued new guidelines for reviewing the reasonableness of rates in cases such as
this and then permitted WFA to submit new evidence. In its new 2009 decision,
the STB found that these same challenged rates were not commercially reasonable.
The STB ordered BNSF Railway to reimburse WFA for amounts previously collected
above the new levels prescribed for prior periods. The STB also prescribed
maximum rates through 2024 at levels substantially below the rates previously
set by BNSF Railway. In compliance with the STB’s decision, BNSF Railway
published new rates to the Laramie River Station effective March 20, 2009. WFA
challenged BNSF Railway’s methodology for implementing those rates before the
STB and on July 27, 2009, the STB issued a decision that largely adopted the
methodology advocated for by BNSF Railway. The final amount of approximately
$120 million in reparations, which includes interest, was submitted by WFA to
the STB with BNSF Railway’s concurrence. The STB approved the final amount of
reparations. BNSF Railway paid the reparations during the fourth quarter of
2009.
The net
impact in 2009 resulting from the STB’s decision was a loss of $74 million, or
$0.13 per diluted share, in excess of amounts previously accrued. Of the total
loss, $66 million and $8 million were recorded as a reduction to freight
revenues and an increase to interest expense, respectively.
Litigation Arising From
Proposed Merger
Burlington
Northern Santa Fe Corporation and its Board of Directors, and in some cases
Berkshire and R Acquisition Company, LLC, are named as defendants in putative
class action lawsuits brought by alleged Burlington Northern Santa Fe
Corporation stockholders challenging the merger described in Part 1, Item 1 of
this Form 10-K. Four stockholder actions were filed in Tarrant County, Texas
(the first of which was filed November 3, 2009), three actions were filed in
Dallas County, Texas (the first of which was filed November 4, 2009), and five
actions were filed in Delaware Chancery Court (the first of which was filed
November 5, 2009). The Tarrant County, Texas actions have been consolidated as
In re: Burlington Northern
Santa Fe Corporation Shareholder Class Action Litigation
,
Cause No. 348-241465-09. The Dallas County,
Texas actions were consolidated under the action styled
Employees Retirement System of the
City of New Orleans v. Burlington Northern Santa Fe Corporation, et al.
,
Cause No. 09-14950 and have been abated. Plaintiffs in the Dallas County actions
have taken steps seeking to refile or transfer the actions to Tarrant County.
The Delaware actions have been consolidated as
In re: Burlington Northern Santa Fe
Shareholders Litigation
, C.A. No. 5043-VCL.
The
stockholder actions variously allege that Burlington Northern Santa Fe
Corporation’s directors have breached their fiduciary duties based on
allegations that (i) the consideration being offered is unfair and inadequate,
(ii) Burlington Northern Santa Fe Corporation’s directors did not adequately
seek to maximize stockholder value through open bidding or market check
mechanisms, (iii) the “no shop” clause and termination fee are onerous devices
designed to discourage a superior offer, (iv) Burlington Northern Santa Fe
Corporation’s earnings forecasts were manipulated to drive its stock price down
and thus make the proposed transaction appear more favorable to stockholders
than it truly is, and/or (v) Burlington Northern Santa Fe Corporation’s
disclosures relating to the proposed transaction have been, or will be,
inadequate and materially misleading. Certain of the stockholder actions also
allege that Berkshire aided and abetted the alleged breaches by Burlington
Northern Santa Fe Corporation’s directors. The stockholder actions seek various
remedies, including enjoining the transaction from being consummated in
accordance with the agreed-upon terms.
On
January 18, 2010, the parties to the litigation entered into a memorandum of
understanding (the memorandum of understanding) providing for a settlement of
the litigation, subject to the approval of the Delaware Chancery Court. Pursuant
to the memorandum of understanding, the plaintiffs have withdrawn their
application for preliminary injunctive relief, which was previously scheduled to
be heard in the Delaware Chancery Court on February 3, 2010, and the defendants,
while denying all allegations of wrongdoing and denying that the disclosures in
the proxy statement/prospectus were inadequate, provided the supplemental
disclosures set forth in the Current Report on Form 8-K that was filed on
January 20, 2010.
The
Company believes these claims are without merit and, if the proposed settlement
is not approved, will vigorously defend any further proceedings seeking to
prosecute these claims. The Company does not believe that the outcome of these
proceedings will have a material effect on its financial condition, results of
operations or liquidity.
11.
Employee Separation Costs
Employee
separation costs activity was as follows (in millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance at January 1,
|
|
$
|
79
|
|
$
|
91
|
|
$
|
107
|
|
Accruals
|
|
|
15
|
|
|
3
|
|
|
5
|
|
Payments
|
|
|
(17
|
)
|
|
(15
|
)
|
|
(21
|
)
|
Ending balance at December
31,
|
|
$
|
77
|
|
$
|
79
|
|
$
|
91
|
|
Employee
separation liabilities of $77 million were included in the Consolidated
Balance Sheet at December 31, 2009, and principally represent the following: (i)
$75 million for deferred benefits payable upon separation or retirement to
certain active conductors, trainmen and locomotive engineers; and (ii)
$2 million for certain non-union employee severance costs. Employee
separation expenses are recorded in materials and other in the Consolidated
Statements of Income. At December 31, 2009, $27 million of the remaining
liabilities were included in current liabilities.
The
deferred benefits payable upon separation or retirement to certain active
conductors, trainmen and locomotive engineers were primarily incurred in
connection with labor agreements reached prior to the business combination of
BNSF’s predecessor companies, Burlington Northern Inc. and Santa Fe Pacific
Corporation. These agreements, among other things, reduced train crew sizes and
allowed for more flexible work rules. The majority of the remaining costs will
be paid between 2010 and 2020. As of December 31, 2009, the Company had updated
its estimate and recorded an additional liability of $15 million related to
deferred benefits (see (i) above). The remaining costs for the non-union
employee severance costs (ii) are expected to be paid out between 2010 and
approximately 2021 based on deferral elections made by the affected
employees.
12.
Earnings Per Share
Basic
earnings per share is based on the weighted average number of the Company’s
common shares outstanding for the periods shown below. Diluted earnings per
share is based on basic earnings per share adjusted for the effect of potential
common shares outstanding that were dilutive during the period, arising from
employee stock awards and incremental shares calculated using the treasury stock
method.
Weighted
average stock options totaling 4.3 million, 2.4 million and
2.2 million for 2009, 2008 and 2007, respectively, were not included in the
computation of diluted earnings per share, because the options’ exercise price
exceeded the average market price of the Company’s stock for those
periods.
The
Company adopted authoritative accounting guidance which requires non-vested
shares that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) to be considered participating securities, and
therefore be included in computing earnings per share using the two-class
method. The Company has retrospectively applied the provisions to the financial
information included herein, which resulted in a reduction in both basic
earnings per share and diluted earnings per share of $0.02 and $0.04 for the
years ended December 31, 2008 and 2007, respectively.
The
following table is a reconciliation of net income available to common
stockholders used in the basic and diluted EPS computations (in millions, except
per share amounts):
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Income
Statement:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,721
|
|
$
|
2,115
|
|
$
|
1,829
|
|
Net income
allocated to participating securities
|
|
|
(6
|
)
|
|
(9
|
)
|
|
(13
|
)
|
Net
income available to common stockholders
|
|
$
|
1,715
|
|
$
|
2,106
|
|
$
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Shares:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
340.0
|
|
|
343.8
|
|
|
352.5
|
|
Diluted
|
|
|
342.5
|
|
|
347.8
|
|
|
358.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.04
|
|
$
|
6.13
|
|
$
|
5.15
|
|
Diluted
|
|
$
|
5.01
|
|
$
|
6.06
|
|
$
|
5.06
|
|
13.
Employment Benefit Plans
BNSF
sponsors 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. 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 plan.
Certain
salaried employees of BNSF that have met age and years of service requirements
are eligible for life insurance coverage and medical benefits, including
prescription drug coverage, during retirement. This postretirement benefit plan,
referred to as the retiree health and welfare plan, is contributory and provides
benefits to retirees, their covered dependents and beneficiaries. Retiree
contributions are adjusted annually. The plan also contains fixed deductibles,
coinsurance and out-of-pocket limitations. The 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 benefits payable under the medical and life
insurance plans as they come due. Generally, employees beginning salaried
employment with BNSF subsequent to September 22, 1995, are not eligible for
medical benefits during retirement.
In
September 2006, the FASB issued authoritative accounting guidance related to
employers’ accounting for defined benefit pension and
other postretirement
plans
,
which requires
the recognition of the overfunded or underfunded status of a defined benefit
postretirement plan in the Company’s Consolidated Balance Sheets. This portion
of the new guidance was adopted by the Company on December 31, 2006.
Additionally, the pronouncement eliminates the option for the Company to use a
measurement date prior to the Company’s fiscal year-end effective December 31,
2008. This authoritative accounting guidance provides two approaches to
transition to a fiscal year-end measurement date, both of which are to be
applied prospectively. BNSF elected to apply the transition option under which a
15-month measurement was determined as of September 30, 2007 that covered the
period until the fiscal year-end measurement was required on December 31, 2008.
As a result, the Company recorded a $7 million decrease to retained earnings in
January 2008.
Components
of the net cost for these plans were as follows (in millions):
|
|
Pension
Benefits
|
|
Retiree
Health and Welfare Benefits
|
|
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
28
|
|
$
|
25
|
|
$
|
25
|
|
$
|
3
|
|
$
|
2
|
|
$
|
2
|
|
Interest
cost
|
|
|
102
|
|
|
102
|
|
|
97
|
|
|
15
|
|
|
18
|
|
|
17
|
|
Expected
return on plan assets
|
|
|
(107
|
)
|
|
(112
|
)
|
|
(105
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Amortization
of net loss
|
|
|
24
|
|
|
16
|
|
|
35
|
|
|
1
|
|
|
5
|
|
|
6
|
|
Amortization
of prior service credit
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(6
|
)
|
|
(8
|
)
|
|
(8
|
)
|
Net cost
recognized
|
|
$
|
47
|
|
$
|
31
|
|
$
|
52
|
|
$
|
13
|
|
$
|
17
|
|
$
|
17
|
|
The
projected benefit obligation is the present value of benefit 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 based on the respective measurement dates
(in millions):
|
|
Pension
Benefits
|
|
Retiree
Health and Welfare Benefits
|
|
Change
in Benefit Obligation
|
|
2009
|
|
2008
|
a
|
2009
|
|
2008
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of period
|
|
$
|
1,840
|
|
$
|
1,763
|
|
$
|
269
|
|
$
|
304
|
|
Service
cost
|
|
|
28
|
|
|
32
|
|
|
3
|
|
|
3
|
|
Interest
cost
|
|
|
102
|
|
|
127
|
|
|
15
|
|
|
22
|
|
Plan
participants’ contributions
|
|
|
–
|
|
|
–
|
|
|
9
|
|
|
11
|
|
Actuarial
loss (gain)
|
|
|
35
|
|
|
86
|
|
|
–
|
|
|
(36
|
)
|
Medicare
subsidy
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
2
|
|
Benefits
paid
|
|
|
(141
|
)
|
|
(168
|
)
|
|
(32
|
)
|
|
(37
|
)
|
Projected benefit obligation at
end of period
|
|
|
1,864
|
|
|
1,840
|
|
|
266
|
|
|
269
|
|
Component representing future
salary increases
|
|
|
(53
|
)
|
|
(82
|
)
|
|
–
|
|
|
–
|
|
Accumulated benefit obligation
at end of period
|
|
$
|
1,811
|
|
$
|
1,758
|
|
$
|
266
|
|
$
|
269
|
|
a
In accordance with the transition to new authoritative accounting
guidance, the beginning balance in 2009 and 2008 was December 31, 2008,
and September 30, 2007, respectively; therefore, 2008 includes 15 months
of activity.
|
Both the
BNSF Retirement Plan and the BNSF Supplemental Retirement Plan had accumulated
and projected benefit obligations in excess of plan assets at December 31, 2009
and 2008.
The
following table shows the change in plan assets of the plans based on the
respective measurement dates (in millions):
|
|
Pension
Benefits
|
|
Retiree
Health and Welfare Benefits
|
|
Change
in Plan Assets
|
|
2009
|
|
2008
|
a
|
2009
|
|
2008
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of period
|
|
$
|
1,034
|
|
$
|
1,588
|
|
$
|
–
|
|
$
|
–
|
|
Actual
return on plan assets
|
|
|
160
|
|
|
(395
|
)
|
|
–
|
|
|
–
|
|
Employer
contributions
b
|
|
|
266
|
|
|
9
|
|
|
21
|
|
|
24
|
|
Plan
participants’ contributions
|
|
|
–
|
|
|
–
|
|
|
9
|
|
|
11
|
|
Medicare
subsidy
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
2
|
|
Benefits
paid
|
|
|
(141
|
)
|
|
(168
|
)
|
|
(32
|
)
|
|
(37
|
)
|
Fair value of plan assets at
measurement date
|
|
$
|
1,319
|
|
$
|
1,034
|
|
$
|
–
|
|
$
|
–
|
|
a In
accordance with the transition to new authoritative accounting guidance,
the beginning balance in 2009 and 2008 was December 31, 2008, and
September 30, 2007, respectively; therefore, 2008 includes 15 months of
activity.
|
|
|
|
b 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, as of December 31 (in millions):
|
|
Pension
Benefits
|
|
Retiree
Health and
Welfare
Benefits
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status (plan assets less projected benefit obligations)
|
|
$
|
(545
|
)
|
$
|
(806
|
)
|
$
|
(266
|
)
|
$
|
(269
|
)
|
Of the
combined pension and retiree health and welfare benefits liability of $811
million and $1,075 million recognized as of December 31, 2009 and 2008,
respectively, $28 million was included in other current liabilities as of both
dates.
Actuarial
gains and losses and prior service credits are recognized in the Consolidated
Balance Sheets through an adjustment to AOCL. Beginning in 2007, the Company
recognized actuarial gains and losses and prior service credits in AOCL as they
arose. The following table shows the pre-tax change in AOCL attributable to the
components of the net cost and the change in benefit obligation (in
millions):
|
|
Pension
Benefits
|
|
Retiree
Health and
Welfare
Benefits
|
|
Change
in AOCL
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1,
|
|
$
|
834
|
|
$
|
233
|
|
$
|
429
|
|
$
|
14
|
|
$
|
46
|
|
$
|
48
|
|
Measurement
date adjustment pursuant to adoption of authoritative accounting guidance
issued September 2006
|
|
|
–
|
|
|
(4
|
)
|
|
–
|
|
|
–
|
|
|
1
|
|
|
–
|
|
Amortization
of actuarial loss
|
|
|
(24
|
)
|
|
(16
|
)
|
|
(35
|
)
|
|
(1
|
)
|
|
(5
|
)
|
|
(6
|
)
|
Amortization
of prior service credit
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
8
|
|
|
8
|
|
Actuarial
(gain) loss
|
|
|
(18
|
)
|
|
621
|
|
|
(161
|
)
|
|
–
|
|
|
(36
|
)
|
|
(4
|
)
|
Balance at December
31,
|
|
$
|
792
|
|
$
|
834
|
|
$
|
233
|
|
$
|
19
|
|
$
|
14
|
|
$
|
46
|
|
The
estimated net actuarial loss for these defined benefit pension plans that will
be amortized from AOCL into net periodic benefit cost over the next fiscal year
is expected to be $32 million. The estimated net actuarial loss and prior
service credit for the retiree health and welfare benefit plans that will be
amortized from AOCL into net periodic benefit cost over the next fiscal year is
expected to be $1 million and $4 million, respectively. Pre-tax amounts
currently recognized in AOCL consist of the following (in
millions):
|
|
Pension
Benefits
|
|
Retiree
Health and
Welfare
Benefits
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
792
|
|
$
|
834
|
|
$
|
25
|
|
$
|
26
|
|
Prior
service credit
|
|
|
−
|
|
|
−
|
|
|
(6
|
)
|
|
(12
|
)
|
Pre-tax amount recognized in
AOCL at December 31,
|
|
|
792
|
|
|
834
|
|
|
19
|
|
|
14
|
|
After-tax amount recognized in
AOCL at December 31,
|
|
$
|
489
|
|
$
|
515
|
|
$
|
11
|
|
$
|
9
|
|
The
assumptions used in accounting for the BNSF plans were as follows:
Assumptions
Used to Determine Net Cost
for
Fiscal Years Ended December 31,
|
|
Pension
Benefits
|
|
Retiree
Health and
Welfare
Benefits
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
5.75
|
%
|
6.00
|
%
|
5.50
|
%
|
5.75
|
%
|
6.00
|
%
|
5.50
|
%
|
Expected
long-term rate of return on plan assets
|
|
8.00
|
%
|
8.00
|
%
|
8.00
|
%
|
–
|
%
|
–
|
%
|
–
|
%
|
Rate
of compensation increase
|
|
3.80
|
%
|
3.80
|
%
|
3.90
|
%
|
3.80
|
%
|
3.80
|
%
|
3.90
|
%
|
Assumptions
Used to Determine Benefit
Obligations
at December 31,
|
|
Pension
Benefits
|
|
Retiree
Health and
Welfare
Benefits
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
5.75
|
%
|
5.75
|
%
|
5.75
|
%
|
5.75
|
%
|
Rate
of compensation increase
|
|
3.80
|
%
|
3.80
|
%
|
3.80
|
%
|
3.80
|
%
|
At
December 31, 2009, BNSF determined the discount rate by utilizing the Mercer
Yield Curve applied to the future estimated cash flows of the Company’s pension
and retiree health and welfare plans. At December 31, 2008, BNSF determined the
discount rate by averaging the Mercer Yield Curve and the Moody’s Aa Corporate
bond yield, with the latter measure adjusted to reflect the future estimated
cash flows of the Company’s pension and retiree health and welfare plans. BNSF
believes the Mercer Yield Curve is, in general, a better model to determine
discount rates as it utilizes a much larger and more diverse population of
highly rated bonds than the Moody’s Aa Corporate bond yield. However, given the
volatility experienced in late 2008, the Company was concerned that some of the
bonds included in the Mercer Yield Curve, such as financial institutions, may
have higher yields because their market risk had not yet fully been reflected in
their credit rating. Therefore, BNSF decided it most appropriate to average the
Mercer Yield Curve with the Moody’s Aa Corporate bond yield, which had no
financial institutions in its population. The discount rate used for the 2010
calculation of net benefit cost remained at 5.75 percent which reflects market
conditions at the December 31, 2009, measurement date.
The
expected long-term rate of return is the return the Company anticipates earning,
net of plan expenses, over the period that benefits are paid. It reflects the
rate of return on present investments and on expected contributions. In
determining the expected long-term rate of return, BNSF considered the
following: (i) forward looking capital market forecasts; (ii) historical returns
for individual asset classes; and (iii) the impact of active portfolio
management. The expected rate of return on plan assets remained consistent from
2009 to 2010, and the Company does not expect any near-term significant changes
to the current investment allocation of assets. However, unforeseen changes in
the investment markets or other external factors could prompt changes in these
estimates in future years.
The
following table presents assumed health care cost trend rates:
December
31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
health care cost trend rate for next year
|
|
|
9.00
|
%
|
|
9.75
|
%
|
|
10.50
|
%
|
Rate
to which health care cost trend rate is expected to decline and remain
|
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Year
that the rate reaches the ultimate trend rate
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
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
|
|
$
|
20
|
|
$
|
(17
|
)
|
The BNSF
Retirement Plan asset allocation at December 31, 2009 and 2008, and the target
allocation for 2009 by asset category are as follows:
|
Target
Allocation
|
|
Percentage
of Pension Plan Assets
|
|
Plan
Asset Allocation
|
|
2009
|
|
2009
|
|
2008
|
|
Equity
Securities
|
|
45
– 75
|
%
|
|
62
|
%
|
|
55
|
%
|
Fixed
Income Securities
|
|
20
– 40
|
%
|
|
30
|
|
|
30
|
|
Real
Estate
|
|
5
– 15
|
%
|
|
8
|
|
|
15
|
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
The
general investment objective of the BNSF Retirement Plan is to grow the plan
assets in relation to the plan liabilities while prudently managing the risk of
a decrease in the plan’s assets relative to those liabilities. To meet this
objective, the Company’s management has adopted the above asset allocation
ranges. This allows flexibility to accommodate market changes in the asset
classes within defined parameters.
Assets
are primarily managed by external Investment Managers each with a specific asset
class mandate as directed by management. There are currently at least two
Investment Managers in each of the above asset classes.
Concentration
in a single security or credit issuer is generally limited to 5% of each
Investment Manager’s portfolio (excluding U.S. government and agencies,
authorized commingled funds, and other manager specific exceptions as authorized
by management). Real estate investment trust investments may not exceed 10% of
any equity manager’s portfolio.
The Fixed
Income allocation may include Core, Core “Plus”, and/or Long Duration
portfolios. “Plus” strategies (higher risk investments such as high
yield, emerging markets, and non-dollar denominated securities) are limited to
30% of the Core Plus portfolio value.
Real
Estate is generally accessed through direct investment in one or more commingled
funds with reasonable diversification by property type and geographic
location.
Derivative
investments are permitted under certain circumstances.
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). (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). (iii) Shares of real estate commingled funds are valued at the
quarterly net asset value of units held at year end. Net asset value is based on
independent appraisals obtained at least annually for each property and is
considered a Level 3 input as the funds impose ongoing limitations on the
availability of share redemptions. (iv) Registered investment companies are
valued at the daily net asset value of shares held at year end. Net asset value
is considered a Level 1 input if 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. 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 Plan’s investments as of December 31, 2009, based
on the inputs used to value them (in millions):
Asset
Category
|
|
Total
as of December 31, 2009
|
|
Level
1
Inputs
a
|
|
Level
2
Inputs
a
|
|
Level
3
Inputs
a
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.
S.
|
|
$
|
443
|
|
$
|
443
|
|
$
|
−
|
|
$
|
−
|
International
|
|
|
336
|
|
|
336
|
|
|
−
|
|
|
−
|
Corporate
debt securities
|
|
|
157
|
|
|
−
|
|
|
157
|
|
|
−
|
Government
debt securities
|
|
|
114
|
|
|
−
|
|
|
114
|
|
|
−
|
Real
estate
|
|
|
103
|
|
|
−
|
|
|
−
|
|
|
103
|
Collateralized
obligations and mortgage backed securities (MBS)
|
|
|
78
|
|
|
−
|
|
|
77
|
|
|
1
|
Cash
and cash equivalents
|
|
|
48
|
|
|
38
|
|
|
10
|
|
|
−
|
Registered
investment companies
|
|
|
34
|
|
|
23
|
|
|
11
|
|
|
−
|
Total
b
|
|
$
|
1,313
|
|
$
|
840
|
|
$
|
369
|
|
$
|
104
|
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 Excludes
$6 million accrued for dividend and interest
receivable.
|
The table
below sets forth a summary of changes in the fair value of the Plan’s Level 3
assets for the year ended December 31, 2009 (in millions):
Level
3 Inputs
|
|
Total
|
|
U.S.
Equity Securities
|
|
Corporate
Debt Securities
|
|
Real
Estate
|
|
Collateralized
Obligations & MBS
|
|
Cash
and Cash Equivalents
a
|
|
Registered
Investment Companies
|
|
Balance
as of December 31, 2008
|
|
$
|
162
|
|
$
|
1
|
|
$
|
6
|
|
$
|
151
|
|
$
|
4
|
|
$
|
(2
|
)
|
$
|
2
|
|
Actual
return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating
to assets still held at reporting date
|
|
|
(39
|
)
|
|
−
|
|
|
2
|
|
|
(42
|
)
|
|
(1
|
)
|
|
2
|
|
|
−
|
|
Relating
to assets sold during the period
|
|
|
(5
|
)
|
|
(1
|
)
|
|
−
|
|
|
(2
|
)
|
|
−
|
|
|
(2
|
)
|
|
−
|
|
Purchases,
sales and settlements
|
|
|
(8
|
)
|
|
−
|
|
|
(3
|
)
|
|
(4
|
)
|
|
(1
|
)
|
|
2
|
|
|
(2
|
)
|
Transfers
out of Level 3
|
|
|
(6
|
)
|
|
−
|
|
|
(5
|
)
|
|
−
|
|
|
(1
|
)
|
|
−
|
|
|
−
|
|
Balance
as of December 31, 2009
|
|
$
|
104
|
|
$
|
−
|
|
$
|
−
|
|
$
|
103
|
|
$
|
1
|
|
$
|
−
|
|
$
|
−
|
|
a Balance
at December 31, 2008, represents a temporary deficit in a securities
lending program. As of December 31, 2009, the Company no longer
participates in the program.
|
|
The
Company is not required to make contributions to the BNSF Retirement Plan in
2010. The Company expects to make benefit payments in 2010 of $8 million
from its non-qualified defined benefit plan.
The
following table shows expected benefit payments from its defined benefit pension
plans and expected claim payments and Medicare Part D subsidy receipts 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
|
|
Expected
Medicare
Subsidy
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
137
|
|
$
|
23
|
|
$
|
(2
|
)
|
2011
|
|
|
138
|
|
|
24
|
|
|
(3
|
)
|
2012
|
|
|
139
|
|
|
24
|
|
|
(3
|
)
|
2013
|
|
|
139
|
|
|
24
|
|
|
(3
|
)
|
2014
|
|
|
141
|
|
|
24
|
|
|
(3
|
)
|
2015–2019
|
|
|
702
|
|
|
118
|
|
|
(17
|
)
|
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 matches 50 percent of the first six percent of non-union
employees’ contributions and matches 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. Non-union
employees are eligible to receive an annual discretionary matching contribution
of up to 30 percent of the first six percent of their contributions. Employer
contributions for all non-union employees are subject to a five-year length of
service vesting schedule. BNSF’s 401(k) matching expense was $22 million,
$29 million and $21 million in 2009, 2008 and 2007,
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 $54 million,
$54 million and $46 million, in 2009, 2008 and 2007, respectively (see
Note 11 to the Consolidated Financial Statements for other deferred benefits
payable to certain conductors, trainmen and locomotive engineers).
14.
Stock-Based Compensation
On April
15, 1999, BNSF shareholders approved the Burlington Northern Santa Fe 1999 Stock
Incentive Plan and authorized 20 million shares of BNSF common stock to be
issued in connection with stock options, restricted stock, restricted stock
units and performance stock. On April 18, 2001, April 17, 2002, April 21, 2004
and April 19, 2006, BNSF shareholders approved the amendments to the Burlington
Northern Santa Fe 1999 Stock Incentive Plan, which authorized additional awards
of 9 million, 6 million, 7 million and 11 million shares,
respectively, of BNSF common stock to be issued in connection with stock
options, restricted stock, restricted stock units and performance stock.
Approximately 5 million common shares were available for future grant at
December 31, 2009.
Additionally,
on April 18, 1996, BNSF shareholders approved the non-employee directors’ stock
plan and authorized 900,000 shares of BNSF common stock to be issued in
connection with this plan. Approximately 403,000 common shares were available
for future grant at December 31, 2009.
Upon
completion of the proposed Merger, no further grants of BNSF stock will be
made under the BNSF stock-based compensation plans. See Note 1 to the
Consolidated Financial Statements for information related to the proposed
Merger.
Stock
Options
Under
BNSF’s stock plans, options were granted to directors, officers and salaried
employees at the fair market value of BNSF’s common stock on the date of grant.
Stock option grants generally vest ratably over three years and expire within
ten years after the date of grant. Shares issued upon exercise of options may be
issued from treasury shares or from authorized but unissued shares.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions apply to the
options granted for the periods presented:
Year
ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average expected life (years)
|
|
|
4.8
|
|
|
4.7
|
|
|
4.6
|
|
Weighted
average expected volatility
|
|
|
29.6
|
%
|
|
24.0
|
%
|
|
24.0
|
%
|
Weighted
average expected dividend yield
|
|
|
1.96
|
%
|
|
1.50
|
%
|
|
1.15
|
%
|
Weighted
average risk free interest rate
|
|
|
2.15
|
%
|
|
3.09
|
%
|
|
4.31
|
%
|
Weighted
average fair value per share at date of grant
|
|
$
|
15.09
|
|
$
|
22.92
|
|
$
|
21.91
|
|
Expected
volatilities are based on historical volatility of BNSF’s stock, implied
volatilities from traded options on BNSF’s stock and other factors. The Company
uses historical experience with exercise and post-vesting employment termination
behavior to determine the options’ expected life. The expected life represents
the period of time that options granted are expected to be outstanding. The
risk-free rate is based on the U.S. Treasury rate with a maturity date
corresponding to the options’ expected life.
A summary
of the status of stock options as of, and for the year ended December 31, 2009,
is presented below (options in thousands, aggregate intrinsic value in
millions):
Year
ended December 31, 2009
|
|
Options
|
|
Weighted
Average Exercise Prices
|
|
Weighted
Average Remaining
Contractual
Term
(in
years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
9,668
|
|
$
|
62.95
|
|
|
|
|
|
|
Granted
|
|
|
2,556
|
|
|
64.63
|
|
|
|
|
|
|
Exercised
|
|
|
(2,027
|
)
|
|
37.27
|
|
|
|
|
|
|
Cancelled
|
|
|
(177
|
)
|
|
81.54
|
|
|
|
|
|
|
Balance at end of
year
|
|
|
10,020
|
|
$
|
68.24
|
|
|
6.16
|
|
$
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at year end
|
|
|
6,334
|
|
$
|
62.35
|
|
|
4.65
|
|
$
|
235
|
The total
intrinsic value of options exercised was $87 million, $207 million and
$281 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
Other Incentive
Programs
BNSF had
other long-term incentive programs that utilize restricted shares/units. A
summary of the status of restricted shares/units and the weighted average grant
date fair values as of, and for the year ended December 31, 2009, is presented
below (shares in thousands):
Year
ended
December
31, 2009
|
|
Time
Based
|
|
Performance
Based
Units
|
|
Performance
Stock
|
|
BNSF
Incentive Bonus Stock Program
|
|
BNSF
Discounted Stock Purchase Program
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
beginning
of year
|
|
457
|
|
$
|
76.49
|
|
1,056
|
|
$
|
92.48
|
|
612
|
|
$
|
89.24
|
|
64
|
|
$
|
81.31
|
|
20
|
|
$
|
81.34
|
|
2,209
|
|
$
|
87.84
|
Granted
|
|
58
|
|
|
66.67
|
|
558
|
|
|
64.97
|
|
279
|
|
|
59.75
|
|
−
|
|
|
−
|
|
23
|
|
|
66.25
|
|
918
|
|
|
63.52
|
Vested
|
|
(233
|
)
|
|
75.74
|
|
(209
|
)
|
|
80.17
|
|
(54
|
)
|
|
80.17
|
|
(64
|
)
|
|
81.31
|
|
(12
|
)
|
|
81.32
|
|
(572
|
)
|
|
78.52
|
Forfeited
|
|
(6
|
)
|
|
84.77
|
|
(40
|
)
|
|
88.18
|
|
(171
|
)
|
|
81.26
|
|
−
|
|
|
−
|
|
−
|
|
|
−
|
|
(217
|
)
|
|
82.62
|
Balance at end of
year
|
|
276
|
|
$
|
74.89
|
|
1,365
|
|
$
|
83.24
|
|
666
|
|
$
|
79.67
|
|
−
|
|
$
|
−
|
|
31
|
|
$
|
70.41
|
|
2,338
|
|
$
|
81.06
|
A summary
of the weighted average grant date fair market values of the restricted
share/units as of, and for the years ended December 31, 2008 and 2007, is
presented below:
Grant
Date Fair Market Value of Awards Granted
|
|
Time
Based
|
|
Performance
Based
Units
|
|
Performance
Stock
|
|
BNSF
Incentive Bonus Stock Program
|
|
BNSF
Discounted Stock Purchase Program
|
Year
ended December 31, 2008
|
|
$
|
102.06
|
|
$
|
105.23
|
|
$
|
100.13
|
|
$
|
−
|
|
$
|
86.56
|
Year
ended December 31, 2007
|
|
$
|
86.38
|
|
$
|
88.80
|
|
$
|
88.77
|
|
$
|
−
|
|
$
|
79.28
|
A summary
of the fair value of the restricted share/units vested during the years ended
December 31, 2009, 2008 and 2007 is presented below:
Total
Fair Value of Shares Vested
(in
millions)
|
|
Time
Based
|
|
Performance
Based
Units
|
|
Performance
Stock
|
|
BNSF
Incentive Bonus Stock Program
|
|
BNSF
Discounted Stock Purchase Program
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2009
|
|
$
|
15
|
|
$
|
14
|
|
$
|
4
|
|
$
|
4
|
|
$
|
1
|
|
$
|
38
|
Year
ended December 31, 2008
|
|
$
|
31
|
|
$
|
30
|
|
$
|
15
|
|
$
|
51
|
|
$
|
1
|
|
$
|
128
|
Year
ended December 31, 2007
|
|
$
|
49
|
|
$
|
21
|
|
$
|
–
|
|
$
|
18
|
|
$
|
1
|
|
$
|
89
|
Time-based
awards were granted to senior managers within BNSF primarily as a retention tool
and to encourage ownership in BNSF. They generally vest over three years,
although in some cases up to five years, and are contingent on continued
salaried employment.
Performance-based
units were granted to senior managers within BNSF to encourage ownership in BNSF
and to align management’s interest with those of its shareholders.
Performance-based units generally vest over three years and are contingent on
the achievement of certain predetermined corporate performance goals (e.g.,
return on invested capital (ROIC)) and continued salaried employment.
Additionally,
eligible employees could earn performance stock contingent upon achievement of
higher ROIC goals and continued salaried employment.
Certain
employees were eligible to exchange through the Burlington Northern Santa Fe
Incentive Bonus Stock Program the cash payment of their bonus for grants of
restricted stock. In September 2005, the program was amended so that exchanges
of cash bonus payments for awards of restricted stock were no longer permitted
after February 2006.
Certain
other salaried employees were eligible to participate in the BNSF Discounted
Stock Purchase Program and use their bonus to purchase shares of BNSF common
stock at a discount from the market price. These shares immediately vest but are
restricted for a three-year period. This program was terminated in December
2009.
Shares
awarded under each of the plans may not be sold or used as collateral and are
generally not transferable by the holder until the shares awarded become free of
restrictions. Compensation cost, net of tax, recorded under the BNSF Stock
Incentive Plans is shown in the following table (in millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
cost
|
|
$
|
41
|
|
$
|
69
|
|
$
|
66
|
|
Income
tax benefit
|
|
|
(15
|
)
|
|
(25
|
)
|
|
(23
|
)
|
Total
|
|
$
|
26
|
|
$
|
44
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
cost capitalized
|
|
$
|
6
|
|
$
|
6
|
|
$
|
7
|
|
At
December 31, 2009, there was $89 million of total unrecognized compensation cost
related to unvested share-based compensation arrangements. That cost is expected
to be recognized over a weighted-average period of 1.58 years.
Upon
completion of the proposed Merger, each outstanding stock option or share award
of BNSF common stock will be converted into an option or restricted stock unit
of Berkshire Class B Common Stock, in accordance with a formula to convert such
awards.
15.
Common Stock and Preferred Capital Stock
Common
Stock
BNSF is
authorized to issue 600 million shares of common stock, $0.01 par value. At
December 31, 2009, there were 341 million shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
shareholders. Subject to the rights and preferences of any future issuances of
preferred stock, each share of common stock is entitled to receive dividends as
may be declared by the Board out of funds legally available and to share ratably
in all assets available for distribution to shareholders upon dissolution or
liquidation. No holder of common stock has any preemptive right to subscribe for
any securities of BNSF. Upon completion of the proposed Merger, shares of
Burlington Northern Santa Fe Corporation common stock will no longer be
available for issuance. See Note 1 to the Consolidated Financial Statements for
information related to the proposed Merger.
Preferred Capital
Stock
At
December 31, 2009, BNSF had 50 million shares of Class A Preferred Stock,
$0.01 par value and 25 million shares of preferred stock, $0.01 par value
available for issuance. The Board has the authority to issue such stock in one
or more series, to fix the number of shares and to fix the designations and the
powers, rights and qualifications and restrictions of each series. As of
December 31, 2009, no shares of Class A Preferred Stock had been issued. Upon
completion of the proposed Merger, shares of Class A Preferred Stock will no
longer be available for issuance. See Note 1 to the Consolidated Financial
Statements for information related to the proposed Merger.
Share Repurchase
Program
In
February 2007, the Board authorized the extension of the current BNSF share
repurchase program, adding 30 million shares to the total of
180 million shares previously authorized in equal amounts in July 1997,
December 1999, April 2000, September 2000, January 2003 and December 2005. The
Company did not repurchase shares related to its share repurchase program during
2009. During 2008 and 2007, the Company repurchased approximately
12 million and 15 million shares, respectively, of its common stock at
average prices of $92.96 per share and $83.96 per share, respectively. Total
repurchases through December 31, 2009, were 192 million shares at a total
average cost of $41.53 per share, leaving 18 million shares available for
repurchase out of the 210 million shares presently authorized. During 2009
and apart from the share repurchase program, the Company repurchased shares from
employees at a cost of $16 million to satisfy tax withholding obligations
on the vesting of restricted stock or the exercise of stock options. Upon
completion of the proposed Merger, the share repurchase program will be
terminated. See Note 1 to the Consolidated Financial Statements for information
related to the proposed Merger.
16.
Accounting Pronouncements
In June
2009, the FASB amended authoritative accounting guidance related to transfers of
financial assets which updates existing guidance. The amended authoritative
accounting guidance limits the circumstances in which financial assets can be
derecognized and requires enhanced disclosures regarding transfers of financial
assets and a transferor’s continuing involvement with transferred financial
assets. The amended authoritative accounting guidance also eliminates the
concept of a qualifying special-purpose entity (QSPE), which will require
companies to evaluate former QSPEs for consolidation.
In June
2009, the FASB amended authoritative accounting guidance related to the
consolidation of variable interest entities (VIEs). The amended authoritative
accounting guidance updates existing guidance used to determine whether or not a
company is required to consolidate a VIE and requires enhanced disclosures. The
amended authoritative accounting guidance also eliminates quantitative-based
assessments and will require companies to perform ongoing qualitative
assessments to determine whether or not the VIE should be
consolidated.
The
Company adopted the amended authoritative accounting guidance on January 1,
2010.
As
discussed in Note 6, the Company’s A/R sales program involves a master trust
that issues an undivided interest in receivables to investors. The A/R sales
master trust is not currently consolidated in the Company’s financial statements
and the undivided interest in receivables that have been sold to investors is
derecognized. The amended authoritative accounting guidance will require the
Company to consolidate the A/R sales master trust and to no longer derecognize
the undivided interest sold to investors effective January 1, 2010. The Company
intends to apply this guidance prospectively. As a result, the Company’s
Consolidated Balance Sheets will reflect an increase in accounts receivable, net
and an increase in current liabilities for the amount of undivided interests
sold to investors and any related cash flow impacts will be included in
Financing Activities rather than Operating Activities in the Consolidated
Statements of Cash Flows. There were no outstanding undivided interests held by
investors under the A/R sales program at December 31, 2009. Outstanding
undivided interests held by investors under the A/R sales program were $50
million at December 31, 2008.
The
Company did not record any additional financial statement adjustments as a
result of the adoption of the amended authoritative accounting
guidance.
17.
Accumulated Other Comprehensive Loss
The
following table provides the components of accumulated other comprehensive loss
(in millions):
As
of December 31,
|
|
2009
|
|
2008
|
|
Unrecognized
prior service credit and actuarial losses, net of tax (see Note
13)
|
|
$
|
(500
|
)
|
$
|
(524
|
)
|
Fuel/interest
hedge mark-to-market, net of tax (see Note 3)
|
|
|
10
|
|
|
(344
|
)
|
Accumulated
other comprehensive income of equity method investees, net of tax
|
|
|
(6
|
)
|
|
(6
|
)
|
Total
Accumulated other comprehensive loss
|
|
$
|
(496
|
)
|
$
|
(874
|
)
|
18.
Quarterly Financial Data—Unaudited
Dollars
in millions, except per share data
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,681
|
|
$
|
3,595
|
|
$
|
3,316
|
|
$
|
3,424
|
Operating
income
|
|
$
|
895
|
|
$
|
901
|
|
$
|
797
|
|
$
|
669
|
Net
income
|
|
$
|
536
|
|
$
|
488
|
|
$
|
404
|
|
$
|
293
|
Basic
earnings per share
|
|
$
|
1.57
|
|
$
|
1.43
|
|
$
|
1.18
|
|
$
|
0.86
|
Diluted
earnings per share
|
|
$
|
1.55
|
|
$
|
1.42
|
|
$
|
1.18
|
|
$
|
0.86
|
Dividends
declared per share
|
|
$
|
0.40
|
|
$
|
0.40
|
|
$
|
0.40
|
|
$
|
0.40
|
Common
stock price
a
:
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
98.84
|
|
$
|
84.98
|
|
$
|
77.33
|
|
$
|
80.21
|
Low
|
|
$
|
76.17
|
|
$
|
67.79
|
|
$
|
60.50
|
|
$
|
52.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,373
|
|
$
|
4,906
|
|
$
|
4,478
|
|
$
|
4,261
|
Operating
income
|
|
$
|
1,116
|
|
$
|
1,207
|
|
$
|
714
|
|
$
|
875
|
Net
income
|
|
$
|
615
|
|
$
|
695
|
|
$
|
350
|
|
$
|
455
|
Basic
earnings per share
b
|
|
$
|
1.80
|
|
$
|
2.01
|
|
$
|
1.01
|
|
$
|
1.31
|
Diluted
earnings per share
b
|
|
$
|
1.78
|
|
$
|
1.99
|
|
$
|
1.00
|
|
$
|
1.29
|
Dividends
declared per share
|
|
$
|
0.40
|
|
$
|
0.40
|
|
$
|
0.32
|
|
$
|
0.32
|
Common
stock price
a
:
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
90.71
|
|
$
|
107.36
|
|
$
|
112.96
|
|
$
|
94.53
|
Low
|
|
$
|
70.91
|
|
$
|
92.32
|
|
$
|
92.79
|
|
$
|
76.02
|
a
Average of high and low reported daily stock price.
b
The retrospective application of new authoritative accounting guidance in
2009 reduced basic earnings per share by $0.01 for both of the three month
periods ended September 30, 2008 and December 31, 2008, and diluted
earnings per share by $0.01 for each of the three month periods ended
March 31, 2008, September 30, 2008, and December 31, 2008. See Note 12 to
the Consolidated Financial Statements for further
information.
|
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and
Procedures
Disclosure Controls and
Procedures
Based on
their evaluation as of the end of the period covered by this annual report on
Form 10-K, the Company's principal executive officer and principal financial
officer have concluded that BNSF’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934)
are effective to ensure that information required to be disclosed by BNSF in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms and that such information
is accumulated and communicated to BNSF’s management, including its principal
executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control Over
Financial Reporting
The
report of management on the Company’s internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of
1934) is included in “Management’s Report on Internal Control Over Financial
Reporting” in Item 8.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009, has been audited by PricewaterhouseCoopers LLP, the Company’s
independent registered public accounting firm, as stated in their report, which
is included in Item 8.
Changes in Internal Control
Over Financial Reporting
As of the
period covered by this report, the Company has concluded that there have been no
changes in BNSF's internal control over financial reporting that occurred during
BNSF’s fourth fiscal quarter that have materially affected, or are reasonably
likely to materially affect, BNSF's internal control over financial
reporting.
Item
9B. Other
Information
None.
Part
III
Item 10. Directors,
Executive Officers and Corporate
Governance
Information
concerning the directors of BNSF will be provided under the heading “Item 1:
Election of Directors; Nominees for Director” in BNSF’s proxy statement for its
2010 annual meeting of shareholders, which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of the fiscal year, and
the information under that heading is hereby incorporated by
reference.
Information
concerning the executive officers of BNSF is included in Part I of this Report
on Form 10-K.
Information
concerning compliance with Section 16(a) of the Securities Exchange Act of 1934
will be provided under the heading “Communications and Other Matters; Section
16(a) Beneficial Ownership Reporting Compliance” in BNSF’s proxy statement for
its 2010 annual meeting of shareholders, which will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year,
and the information under that heading is hereby incorporated by
reference.
Information
concerning the Directors and Governance Committee’s policy with regard to
consideration of any director candidates recommended by shareholders will be
provided under the heading “Communications and Other Matters; Procedures for
Recommending Director Candidates” in BNSF’s proxy statement for its 2010 annual
meeting of shareholders, which will be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year, and the
information under that heading is hereby incorporated by reference.
Information
concerning the Audit Committee and the Audit Committee Financial Expert will be
provided under the heading “Governance of the Company; Board Committees; Audit
Committee” in BNSF’s proxy statement for its 2010 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission no
later than 120 days after the end of the fiscal year, and the information under
that heading is hereby incorporated by reference.
The
Company has a Code of Conduct that applies to members of the Board of Directors,
officers, and all salaried employees of BNSF and its wholly-owned subsidiaries.
Only the Board of Directors may waive the application of the Code of Conduct to
a director, executive officer, or the principal accounting officer or
controller, and any such waiver will be promptly disclosed on the Company’s Web
site. A copy of the Code of Conduct is available on the Company’s Web site
at www.bnsf.com under the “Investors” link and then “Corporate Governance.”
Item
11. Executive
Compensation
Information
concerning the compensation of directors and executive officers of BNSF will be
provided under the headings “Directors’ Compensation,” “Compensation Discussion
and Analysis” and “Executive Compensation” in BNSF’s proxy statement for its
2010 annual meeting of shareholders, which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of the fiscal year, and
the information under those headings is hereby incorporated by
reference.
Item
12. Security Ownership of Certain Beneficial Owners
and
Management and Related Stockholder
Matters
Certain
information about BNSF’s equity compensation plans is set forth in the table
below (number of shares in thousands) as of December 31, 2009:
Plan
Category
|
|
Number
of Shares to Be Issued upon Exercise of Outstanding Options, Warrants and
Rights
|
|
Weighted
Average Exercise Price
of
Outstanding Options,
Warrants
and Rights
|
|
Number
of Shares
Available
for
Future
Issuance
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by shareholders
|
|
|
10,020
|
|
$
|
68.24
|
|
|
5,030
|
Equity
compensation plans not approved by shareholders
|
|
|
–
|
|
|
–
|
|
|
–
|
Total
|
|
|
10,020
|
|
$
|
68.24
|
|
|
5,030
|
Information
concerning the ownership of BNSF equity securities by certain beneficial owners
and by management will be provided under the headings “Stock Ownership in the
Company; Certain Beneficial Owners” and “Stock Ownership in the Company;
Ownership of Management” in BNSF’s proxy statement for its 2010 annual meeting
of shareholders, which will be filed with the Securities and Exchange Commission
no later than 120 days after the end of the fiscal year, and the information
under those headings is hereby incorporated by reference.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Information
concerning certain relationships and related transactions and director
independence will be provided under the headings “Governance of the Company;
Director Independence” and “Governance of the Company; Certain Relationships and
Related Person Transactions” in BNSF’s proxy statement for its 2010 annual
meeting of shareholders, which will be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year, and the
information under those headings is hereby incorporated by
reference.
Item
14. Principal Accountant Fees and
Services
Information
concerning principal accountant fees and services will be provided under the
heading “Item 2: Appointment of Independent Auditor; Independent Auditor Fees”
in BNSF’s proxy statement for its 2010 annual meeting of shareholders, which
will be filed with the Securities and Exchange Commission no later than 120 days
after the end of the fiscal year, and the information under that heading is
hereby incorporated by reference.
Item
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 E-1 for a description of the exhibits filed as
a part of this Report on Form 10-K.
|
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Burlington Northern Santa Fe Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
Burlington
Northern Santa Fe Corporation
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Matthew
K. Rose
|
Dated:
February 11, 2010
|
|
|
Matthew
K. Rose
Chairman,
President and
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of Burlington Northern Santa Fe
Corporation and in the capacities and on the date indicated.
Signature
|
Title
|
|
|
|
|
/s/ Matthew
K. Rose
|
Chairman,
President and Chief Executive Officer
|
|
Matthew
K. Rose
|
(Principal
Executive Officer), and Director
|
|
|
|
|
/s/ Thomas
N. Hund
|
Executive
Vice President and Chief Financial Officer
|
|
Thomas
N. Hund
|
(Principal
Financial Officer)
|
|
|
|
|
/s/ Julie
A. Piggott
|
Vice
President - Planning & Studies and Controller
|
|
Julie
A. Piggott
|
(Principal
Accounting Officer)
|
|
|
|
|
/s/ Alan
L. Boeckmann*
|
Director
|
|
Alan
L. Boeckmann
|
|
|
|
|
|
/s/ Donald
G. Cook*
|
Director
|
|
Donald
G. Cook
|
|
|
|
|
|
/s/ Marc
F. Racicot*
|
Director
|
|
Marc
F. Racicot
|
|
|
|
|
|
/s/ Roy
S. Roberts*
|
Director
|
|
Roy
S. Roberts
|
|
|
|
|
|
/s/ Marc
J. Shapiro*
|
Director
|
|
Marc
J. Shapiro
|
|
|
|
|
|
/s/ Cynthia
A. Telles *
|
Director
|
|
Cynthia
A. Telles
|
|
|
|
|
|
/s/ J.C.
Watts, Jr.*
|
Director
|
|
Signature
|
Title
|
|
|
|
|
/s/ Robert
H. West*
|
Director
|
|
Robert
H. West
|
|
|
|
|
|
/s/ J.
Steven Whisler*
|
Director
|
|
J.
Steven Whisler
|
|
|
|
|
|
/s/ Edward
E. Whitacre, Jr.*
|
Director
|
|
Edward
E. Whitacre, Jr.
|
|
*
|
By:
|
|
/s/
Roger Nober
|
Dated:
February 11, 2010
|
|
|
Roger
Nober
Executive
Vice President Law
and
Secretary
|
Burlington
Northern Santa Fe Corporation 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.,
|
|
8-K
|
|
11/3/2009
|
|
1-11535
|
|
2.1
|
|
|
R Acquisition
Company,
LLC, and Burlington
Northern Santa Fe Corporation,
|
|
|
|
|
|
|
|
|
|
|
dated November 2,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Articles
of Incorporation and Bylaws
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
Amended and Restated
Certificate of Incorporation of Burlington Northern Santa Fe
|
|
10-Q
|
|
8/13/1998
|
|
1-11535
|
|
3.1
|
|
|
Corporation, dated
December 21, 1994, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
By-Laws of
Burlington Northern Santa Fe Corporation, as amended
|
|
8-K
|
|
12/12/2008
|
|
1-11535
|
|
3.1
|
|
|
and
restated, dated December 11, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
S-3
|
|
2/8/1999
|
|
333-72013
|
|
4
|
|
|
of
Chicago, as
Trustee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
Form of BNSF’s 6
1/8% Notes Due March 15, 2009.
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
Form of BNSF’s 6
3/4% Debentures Due March 15, 2029.
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4
|
Form of BNSF’s 6.70%
Debentures Due
August
1, 2028.
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
Form of BNSF’s
8.125% Debentures Due April 15, 2020.
|
|
10-K
|
|
2/12/2001
|
|
1-11535
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
Form of BNSF’s 7.95%
Debentures Due
August
15, 2030.
|
|
10-K
|
|
2/12/2001
|
|
1-11535
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
Form of BNSF’s 6.75%
Notes Due July 15, 2011.
|
|
10-Q
|
|
8/3/2001
|
|
1-11535
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
Form of BNSF’s 5.90%
Notes Due July 1, 2012.
|
|
10-Q
|
|
8/9/2002
|
|
1-11535
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
Officers’
Certificate of Determination as to the terms of BNSF’s 4.875% Notes Due
|
|
8-K
|
|
12/9/2004
|
|
1-11535
|
|
4.1
|
|
|
January 15,
2015, including Exhibit A thereto, the form of the Notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.10
|
Indenture, dated as
of December 8, 2005, between BNSF and U.S. Bank Trust
|
|
S-3
ASR
|
|
12/8/2005
|
|
333-130214
|
|
4.1
|
|
|
National
Association, as Trustee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.11
|
Certificate of Trust
of BNSF Funding Trust I, executed and filed by U.S. Bank Trust
|
|
S-3
ASR
|
|
12/8/2005
|
|
333-130214
|
|
4.3
|
|
|
National
Association, Linda Hurt and James Gallegos,
as
Trustees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.12
|
Amended and Restated
Declaration of Trust
of
BNSF Funding Trust I, dated as of
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.4
|
|
|
December 15,
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.13
|
Guarantee Agreement
between BNSF and U.S. Bank Trust National Association, as
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.5
|
|
|
Guarantee Trustee,
dated as of December 15, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.14
|
First Supplemental
Indenture, dated as of
December
15, 2005, between BNSF and
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.6
|
|
|
U.S. Bank Trust
National Association, as Trustee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.15
|
Agreement as to
Expenses and Liabilities dated as of December 15, 2005, between
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.4
|
|
|
BNSF and BNSF
Funding Trust I.
|
|
|
|
|
|
|
|
(Exhibit
C)
|
|
|
Incorporated
by Reference
(if
applicable)
|
Exhibit
Number and Description
|
|
Form
|
|
File
Date
|
|
File
No.
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
4.16
|
Form
of BNSF Funding Trust I’s 6.613% Trust Preferred Securities.
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
4.17
|
Officer’s
Certificate of Determination as to the terms of BNSF’s 6.20% Debentures
|
|
10-Q
|
|
10/24/2006
|
|
1-11535
|
|
4.1
|
|
|
Due
August 15, 2036, including the form of the Debentures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.18
|
First Supplemental
Indenture, dated as of April 13, 2007, to Indenture dated
|
|
8-K
|
|
4/13/2007
|
|
1-11535
|
|
4.1
|
|
|
as of December 1,
1995, between Burlington Northern Santa Fe Corporation and
|
|
|
|
|
|
|
|
|
|
|
Bank
of New York Trust Company, N.A., as Trustee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.19
|
Officer’s
Certificate of Determination as to the terms of BNSF’s 5.65% Debentures
|
|
8-K
|
|
4/13/2007
|
|
1-11535
|
|
4.2
|
|
|
due May 1, 2017, and
6.15% Debentures Due May 1, 2037, including the forms
|
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|
|
|
|
|
|
|
|
|
of the
Debentures.
|
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|
|
|
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|
|
4.20
|
Second Supplemental
Indenture, dated as of March 14, 2008, to Indenture
|
|
8-K
|
|
3/14/2008
|
|
1-11535
|
|
4.1
|
|
|
dated as of December
1, 1995, between Burlington Northern Santa Fe Corporation
|
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|
and Bank of New
York Mellon
Trust
Company, N.A., as Trustee.
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|
4.21
|
Officer’s
Certificate of Determination as to the terms of BNSF’s 5.75% Notes
|
|
8-K
|
|
3/14/2008
|
|
1-11535
|
|
4.2
|
|
|
due March 18, 2018,
including the form of the Notes.
|
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|
4.22
|
Third Supplemental
Indenture, dated as of December 3, 2008, to Indenture
|
|
8-K
|
|
12/3/2008
|
|
1-11535
|
|
4.1
|
|
|
dated as of December
1, 1995, between Burlington Northern Santa Fe Corporation
|
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|
and
Bank of New York Mellon Trust Company, N.A., as
Trustee.
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|
4.23
|
Officer’s
Certificate of Determination as to the terms of BNSF’s 7.00%
|
|
8-K
|
|
12/3/2008
|
|
1-11535
|
|
4.2
|
|
|
Debentures
due February 1, 2014.
|
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4.24
|
Fourth Supplemental
Indenture, dated as of September 24, 2009, to Indenture
|
|
8-K
|
|
9/24/2009
|
|
1-11535
|
|
4.1
|
|
|
dated as of December
1, 1995, between Burlington Northern Santa Fe Corporation
|
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|
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|
|
and The Bank of New
York Mellon Trust Company, N.A., as Trustee including the
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|
form
of BNSF’s 4.700% Notes due October 1, 2021.
|
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|
4.25
|
Certificate
of Determination as to the terms of BNSF’s 4.700% Notes due
|
|
8-K
|
|
9/24/2009
|
|
1-11535
|
|
4.2
|
|
|
October 1,
2019.
|
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|
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.
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(10)
|
Material
Contracts
|
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|
|
10.1
|
Burlington Northern
Santa Fe Non-Employee Directors’ Stock Plan, as
|
|
10-Q
|
|
4/23/2009
|
|
1-11535
|
|
10.1
|
|
|
amended
and restated February 13, 2009.*
|
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|
|
10.2
|
BNSF Railway Company
Incentive Compensation Plan, as amended and
|
|
10-K
|
|
2/13/2009
|
|
1-11535
|
|
10.3
|
|
|
restated February
12, 2009.*
|
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|
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|
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|
10.3
|
Burlington Northern
Santa Fe Corporation Deferred Compensation Plan,
|
|
10-K
|
|
2/16/2007
|
|
1-11535
|
|
10.5
|
|
|
as
amended and restated effective December 9, 2004.*
|
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10.4
|
Burlington Northern
Santa Fe Corporation Senior Management Stock
|
|
10-K
|
|
2/15/2008
|
|
1-11535
|
|
10.5
|
|
|
Deferral
Plan, as amended and restated effective January 1, 2008.*
|
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|
|
|
|
|
|
|
Incorporated
by Reference
(if
applicable)
|
Exhibit
Number and Description
|
|
Form
|
|
File
Date
|
|
File
No.
|
|
Exhibit
|
|
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|
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|
|
|
10.5
|
Burlington Northern
Santa Fe Incentive Bonus Stock Program, as
|
|
8-K
|
|
9/19/2005
|
|
1-11535
|
|
10.1
|
|
|
amended
and restated effective September 14, 2005.*
|
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|
|
|
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|
|
|
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|
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|
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|
|
10.6
|
Burlington Northern
Santa Fe 1996 Stock Incentive Plan, as amended
|
|
10-K
|
|
2/13/2009
|
|
1-11535
|
|
10.7
|
|
|
and
restated December 11, 2008.*
|
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|
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|
|
10.7
|
The Burlington
Northern Santa Fe Supplemental Retirement Plan, as
|
|
10-K
|
|
2/13/2009
|
|
1-11535
|
|
10.8
|
|
|
amended and restated
effective January 1, 2005, and further amended
|
|
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|
|
|
|
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|
|
|
through October 20,
2008.*
|
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|
|
10.8
|
Retirement Benefit
Agreement between BNSF and Matthew K. Rose,
|
|
10-Q
|
|
10/24/2006
|
|
1-11535
|
|
10.5
|
|
|
as
amended and restated September 21, 2006.*
|
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|
|
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|
|
|
|
|
|
|
|
|
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|
|
10.9
|
Retirement Benefit
Agreement, dated January 16, 2003, between BNSF
|
|
10-K
|
|
2/13/2004
|
|
1-11535
|
|
10.29
|
|
|
and John
P.
Lanigan.*
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
10.9.1
|
Amended and Restated
Letter from Mr. Rose to Burlington Northern
|
|
8-K
|
|
11/20/2009
|
|
1-11535
|
|
10.1
|
|
|
Santa Fe
Corporation, dated November 17, 2009.*
|
|
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|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
10.11
|
Special Cash Award
Retention Agreement, dated October 9, 2008,
|
|
10-Q
|
|
10/24/2008
|
|
1-11535
|
|
10.1
|
|
|
between BNSF Railway
Company and Peter J. Rickershauser.*
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
10.12
|
Form of BNSF
Change-in-Control Agreement, as amended and restated
|
|
10-K
|
|
2/15/2008
|
|
1-11535
|
|
10.12
|
|
|
December 6, 2007,
and effective December 31, 2007, (applicable to Messrs.
|
|
|
|
|
|
|
|
|
|
|
Rose,
Hund, Ice, Lanigan, and Nober and two other executive officers).*
|
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|
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|
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|
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|
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|
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|
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|
|
|
|
|
|
10.13
|
Burlington Northern
Santa Fe Corporation Supplemental Investment
|
|
10-K
|
|
2/13/2009
|
|
1-11535
|
|
10.13
|
|
|
and
Retirement Plan, as amended and restated effective January 1, 2005,
|
|
|
|
|
|
|
|
|
|
|
as further amended
November 4, 2008.*
|
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|
|
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|
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|
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|
|
|
|
10.14
|
Burlington Northern
Inc. Director’s Charitable Award Program as
|
|
10-K
|
|
2/13/2009
|
|
1-11535
|
|
10.14
|
|
|
amended
and restated December 11, 2008, effective January 1, 2009.*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.15
|
Burlington Northern
Santa Fe Salary Exchange Option Program, as
|
|
10-K
|
|
2/15/2005
|
|
1-11535
|
|
10.18
|
|
|
amended
and restated October 1, 2004.*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
10.16
|
Burlington Northern
Santa Fe 1999 Stock Incentive Plan, as amended
|
|
10-K
|
|
2/13/2009
|
|
1-11535
|
|
10.16
|
|
|
and
restated December 11, 2008.*
|
|
|
|
|
|
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|
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|
|
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|
|
10.17
|
Amended and Restated
Benefits Protection Trust Agreement by
|
|
10-K
|
|
2/15/2008
|
|
1-11535
|
|
10.23
|
|
|
and
between Burlington Northern Santa Fe Corporation and Wachovia Bank,
|
|
|
|
|
|
|
|
|
|
|
dated January 8,
2008.*
|
|
|
|
|
|
|
|
|
|
10.17.1
|
Amendment to Benefits Protection Trust Agreement
effective December 11, 2009.*
‡
|
|
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|
|
|
|
|
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|
|
|
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|
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|
|
|
|
|
10.18
|
Burlington
Northern Santa Fe Directors’ Retirement Plan.*
|
|
10-K
|
|
4/1/1996
|
|
1-11535
|
|
10.27
|
|
|
|
|
|
|
|
|
|
|
|
|
10.18.1
|
Termination of
Burlington Northern Santa Fe Directors’ Retirement Plan, dated
|
|
10-K
|
|
2/16/2007
|
|
1-11535
|
|
10.31.1
|
|
|
July 17, 2003.*
|
|
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|
|
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|
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|
|
10.19
|
Form of
Indemnification Agreement dated as of September 17, 1998, entered
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
10.37
|
|
|
into
between BNSF and directors.*
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
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|
|
10.20
|
Form of
Indemnification Agreement dated as of September 17, 1998, entered
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
10.38
|
|
|
into between BNSF
and certain officers, including Messrs. Rose, Hund,
|
|
|
|
|
|
|
|
|
|
|
Ice,
Lanigan, Nober and two other executive officers.*
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.21
|
Burlington Northern
Santa Fe 2005 Deferred Compensation Plan for Non-Employee
|
|
10-K
|
|
2/13/2009
|
|
1-11535
|
|
10.27
|
|
|
Directors,
as amended and restated December 11, 2008.*
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
10.22
|
Burlington Northern
Santa Fe Deferred Compensation Plan for Directors, as amended
|
|
10-K
|
|
2/16/2007
|
|
1-11535
|
|
10.35
|
|
|
and restated
December 9, 2004.*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
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|
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|
|
Incorporated
by Reference
(if
applicable)
|
Exhibit
Number and Description
|
|
Form
|
|
File Date
|
|
File
No.
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
10.23
|
Replacement Capital
Covenant, dated as of December 15, 2005, by BNSF in favor of
|
|
10-K
|
|
2/17/2006
|
|
1-11535
|
|
10.41
|
|
|
and
for the benefit of each Covered Debtholder (as defined
therein).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
Statements
re: Computation of Ratios
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
12.1
|
|
|
|
|
|
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|
|
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|
|
|
(23)
|
Consents
of experts and counsel
|
|
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|
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|
23.1
|
|
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|
|
|
|
|
|
(24)
|
Power
of Attorney
|
|
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|
|
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|
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|
|
24.1
|
|
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|
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|
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|
|
|
|
|
|
|
|
(31)
|
Rule
13a-14(a)/15d-14(a) Certifications
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
|
|
31.1
|
Principal Executive Officer’s Certifications Pursuant to
Rule 13a-14(a) (Section 302
|
|
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|
|
|
|
|
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|
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|
|
|
|
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|
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|
|
|
|
|
|
31.2
|
Principal Financial Officer’s Certifications Pursuant to
Rule 13a-14(a) (Section 302
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
(32)
|
Section
1350 Certifications
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
32.1
|
Certification Pursuant to Rule 13a-14(b) and 18 U.S.C. §
1350 (Section 906 of the
|
|
|
|
|
|
|
|
|
|
|
Sarbanes
Act
of
2002).
‡
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101)
|
The following
financial information from Burlington Northern Santa Fe Corporation’s
|
|
|
|
|
|
|
|
|
|
|
Annual Report on
Form 10-K for the year ended December 31, 2009, formatted
|
|
|
|
|
|
|
|
|
|
|
in XBRL (Extensible
Business Reporting Language) includes: (i) the Consolidated
|
|
|
|
|
|
|
|
|
|
|
Statements of Income
for the twelve-month periods ended December 31, 2009,
|
|
|
|
|
|
|
|
|
|
|
2008 and 2007, (ii)
the Consolidated Balance Sheets as of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
and 2008, (iii) the
Consolidated Statements of Cash Flows for the twelve-month
|
|
|
|
|
|
|
|
|
|
|
periods ended
December 31, 2009, 2008 and 2007, (iv) the Consolidated Statement
|
|
|
|
|
|
|
|
|
|
|
of Changes
in Stockholders’ Equity for the twelve-month periods
ended
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009,
2008 and 2007, and (v) the Notes to Consolidated
|
|
|
|
|
|
|
|
|
|
|
Financial
Statements,
tagged
as blocks of text.
‡
|
|
|
|
|
|
|
|
|
*
Management contract or compensatory plan
bnsf (NYSE:BNI)
Graphique Historique de l'Action
De Mai 2024 à Juin 2024
bnsf (NYSE:BNI)
Graphique Historique de l'Action
De Juin 2023 à Juin 2024