UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
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 1-6324
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 41-6034000 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 2650 Lou Menk Drive Fort Worth, Texas |
76131 | |
| (Address of principal executive offices) | (Zip Code) |
(800) 795-2673
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Shares Outstanding at July 25, 2003 | |
| Common stock, $1.00 par value |
1,000 shares |
Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format permitted by General Instruction H (2).
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Revenues |
$ | 2,285 | $ | 2,206 | $ | 4,512 | $ | 4,366 | ||||||||
| Operating expenses: |
||||||||||||||||
| Compensation and benefits |
698 | 698 | 1,415 | 1,416 | ||||||||||||
| Purchased services |
306 | 282 | 604 | 557 | ||||||||||||
| Depreciation and amortization |
225 | 231 | 450 | 461 | ||||||||||||
| Equipment rents |
180 | 177 | 349 | 352 | ||||||||||||
| Fuel |
263 | 207 | 537 | 391 | ||||||||||||
| Materials and other |
189 | 184 | 382 | 379 | ||||||||||||
| Total operating expenses |
1,861 | 1,779 | 3,737 | 3,556 | ||||||||||||
| Operating income |
424 | 427 | 775 | 810 | ||||||||||||
| Interest expense |
37 | 38 | 75 | 79 | ||||||||||||
| Interest income, related parties |
(5 | ) | (4 | ) | (13 | ) | (9 | ) | ||||||||
| Other expense, net |
3 | 5 | 5 | 2 | ||||||||||||
| Income before income taxes and cumulative effect of accounting change |
389 | 388 | 708 | 738 | ||||||||||||
| Income tax expense |
132 | 148 | 253 | 280 | ||||||||||||
| Income before cumulative effect of accounting change |
$ | 257 | $ | 240 | $ | 455 | $ | 458 | ||||||||
| Cumulative effect of accounting change, net of income tax |
— | — | 39 | — | ||||||||||||
| Net income |
$ | 257 | $ | 240 | $ | 494 | $ | 458 | ||||||||
See accompanying Notes to Consolidated Financial Statements.
2
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)
| June 30, 2003 |
December 31, 2002 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 43 | $ | 28 | ||||
| Accounts receivable, net |
143 | 138 | ||||||
| Materials and supplies |
229 | 226 | ||||||
| Current portion of deferred income taxes |
289 | 302 | ||||||
| Other current assets |
175 | 73 | ||||||
| Total current assets |
879 | 767 | ||||||
| Property and equipment, net |
24,489 | 23,968 | ||||||
| Other assets |
884 | 849 | ||||||
| Intercompany notes receivable, net |
1,018 | 1,189 | ||||||
| Total assets |
$ | 27,270 | $ | 26,773 | ||||
| LIABILITIES AND STOCKHOLDER’S EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and other current liabilities |
$ | 1,728 | $ | 1,875 | ||||
| Long-term debt due within one year |
148 | 173 | ||||||
| Total current liabilities |
1,876 | 2,048 | ||||||
| Long-term debt and commercial paper |
2,039 | 2,083 | ||||||
| Deferred income taxes |
7,227 | 6,966 | ||||||
| Casualty and environmental liabilities |
311 | 352 | ||||||
| Minimum pension liability |
368 | 368 | ||||||
| Employee merger and separation costs |
156 | 170 | ||||||
| Other liabilities |
1,196 | 1,198 | ||||||
| Total liabilities |
13,173 | 13,185 | ||||||
| Commitments and contingencies (see Notes 2, 5 and 6) |
||||||||
| Stockholder’s equity: |
||||||||
| Common stock, $1 par value, 1,000 shares authorized; issued and outstanding and paid-in capital |
6,286 | 6,286 | ||||||
| Retained earnings |
8,004 | 7,510 | ||||||
| Accumulated other comprehensive loss |
(193 | ) | (208 | ) | ||||
| Total stockholder’s equity |
14,097 | 13,588 | ||||||
| Total liabilities and stockholder’s equity |
$ | 27,270 | $ | 26,773 | ||||
See accompanying Notes to Consolidated Financial Statements.
3
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
| Six Months Ended June 30, |
2003 |
2002 |
||||||
| OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 494 | $ | 458 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
450 | 461 | ||||||
| Deferred income taxes |
240 | 243 | ||||||
| Employee merger and separation costs paid |
(18 | ) | (31 | ) | ||||
| Cumulative effect of accounting change |
(39 | ) | — | |||||
| Other, net |
(92 | ) | (104 | ) | ||||
| Changes in current assets and liabilities: |
||||||||
| Accounts receivable, net |
(5 | ) | 30 | |||||
| Materials and supplies |
(3 | ) | (15 | ) | ||||
| Other current assets |
(71 | ) | (108 | ) | ||||
| Accounts payable and other current liabilities |
(140 | ) | (31 | ) | ||||
| Net cash provided by operating activities |
816 | 903 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Capital expenditures |
(835 | ) | (641 | ) | ||||
| Other, net |
(51 | ) | (103 | ) | ||||
| Net cash used for investing activities |
(886 | ) | (744 | ) | ||||
| FINANCING ACTIVITIES |
||||||||
| Payments on long-term debt, net |
(87 | ) | (70 | ) | ||||
| Net (increase) decrease in intercompany notes receivables, net |
171 | (14 | ) | |||||
| Other, net |
1 | 1 | ||||||
| Net cash provided by (used for) financing activities |
85 | (83 | ) | |||||
| Increase in cash and cash equivalents |
15 | 76 | ||||||
| Cash and cash equivalents: |
||||||||
| Beginning of period |
28 | 78 | ||||||
| End of period |
$ | 43 | $ | 154 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION |
||||||||
| Interest paid, net of amounts capitalized |
$ | 60 | $ | 83 | ||||
| Income taxes paid, net of refunds |
$ | 110 | $ | 129 | ||||
See accompanying Notes to Consolidated Financial Statements.
4
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Accounting Policies and Interim Results
The Consolidated Financial Statements should be read in conjunction with The Burlington Northern and Santa Fe Railway Company (BNSF Railway or Company) Annual Report on Form 10-K for the year ended December 31, 2002, including the financial statements and notes thereto. BNSF Railway is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF), and is the principal operating subsidiary of BNSF. The Consolidated Financial Statements include the accounts of BNSF Railway and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the entire year. In the opinion of management, all adjustments (consisting of only normal recurring adjustments, except as disclosed) necessary to present fairly BNSF Railway’s consolidated financial position as of June 30, 2003 and the results of operations for the three and six month periods ended June 30, 2003 and 2002 have been included.
Certain comparative prior year amounts in the Consolidated Financial Statements have been reclassified to conform to the current year presentation.
Cumulative Effect of Accounting Change, Net
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, on January 1, 2003. This statement requires BNSF Railway to recognize a liability for legally obligated asset retirement costs associated with tangible long-lived assets. SFAS No. 143 also disallows the accrual of retirement costs that are not legal obligations. As a result, BNSF Railway and other railroads were required to change their accounting policies for certain track structure assets to exclude removal costs as a component of depreciation expense where the inclusion of such costs would result in accumulated depreciation balances exceeding the historical basis of the assets. This change will result in lower Depreciation and amortization expense primarily offset by higher Compensation and benefits and Purchased services expenses in the period in which removal costs are incurred.
The net cumulative effect of adopting SFAS No. 143 for years prior to 2003 was an increase to Net income of $39 million, net of tax, for the six months ended June 30, 2003, which is reflected in the cumulative effect adjustment recorded in the first quarter of 2003. The net effect of adoption of SFAS No. 143 on the six month period ended June 30, 2003 is an increase to Income before cumulative effect of accounting change of $5 million, net of tax. The Company anticipates that the adoption of SFAS No. 143 will have an insignificant impact on full year 2003 Income before cumulative effect of accounting change. The Company’s liability for legally obligated asset retirement costs is $4 million at June 30, 2003.
The following table presents the pro forma net income if SFAS No. 143 would have been applied retroactively:
| Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||
| 2003 |
2002 |
2003 |
2002 | |||||||||
| (in millions) | ||||||||||||
| Net income as reported |
$ | 257 | $ | 240 | $ | 494 | $ | 458 | ||||
| Pro forma net income |
$ | 257 | $ | 235 | $ | 455 | $ | 451 | ||||
5
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)