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, 2004
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
BURLINGTON NORTHERN SANTA FE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 41-1804964 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2650 Lou Menk Drive
Fort Worth, Texas
(Address of principal executive offices)
76131
(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 x No ¨
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 16, 2004 | |
| Common stock, $.01 par value | 372,393,283 shares |
| PAGE | ||
| Item 1. Financial Statements |
3 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
36 | |
| Item 4. Controls and Procedures |
37 | |
| Item 1. Legal Proceedings |
38 | |
| Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
39 | |
| Item 6. Exhibits and Reports on Form 8-K |
39 | |
| S-1 | ||
2
FINANCIAL INFORMATION
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Revenues |
$ | 2,685 | $ | 2,294 | $ | 5,175 | $ | 4,526 | ||||
| Operating expenses: |
||||||||||||
| Compensation and benefits |
818 | 699 | 1,605 | 1,417 | ||||||||
| Purchased services |
351 | 312 | 691 | 613 | ||||||||
| Depreciation and amortization |
251 | 225 | 500 | 451 | ||||||||
| Equipment rents |
197 | 180 | 384 | 349 | ||||||||
| Fuel |
326 | 267 | 606 | 546 | ||||||||
| Materials and other |
234 | 199 | 471 | 392 | ||||||||
| Total operating expenses |
2,177 | 1,882 | 4,257 | 3,768 | ||||||||
| Operating income |
508 | 412 | 918 | 758 | ||||||||
| Interest expense |
101 | 106 | 203 | 212 | ||||||||
| Other expense, net |
5 | 3 | 2 | 5 | ||||||||
| Income before income taxes and cumulative effect of accounting change |
402 | 303 | 713 | 541 | ||||||||
| Income tax expense |
153 | 103 | 271 | 193 | ||||||||
| Income before cumulative effect of accounting change |
$ | 249 | $ | 200 | $ | 442 | $ | 348 | ||||
| Cumulative effect of accounting change, net of tax |
— | — | — | 39 | ||||||||
| Net income |
$ | 249 | $ | 200 | $ | 442 | $ | 387 | ||||
| Earnings per share: |
||||||||||||
| Basic earnings per share (before cumulative effect of accounting change) |
$ | 0.68 | $ | 0.54 | $ | 1.20 | $ | 0.94 | ||||
| Basic earnings per share (after cumulative effect of accounting change) |
$ | 0.68 | $ | 0.54 | $ | 1.20 | $ | 1.05 | ||||
| Diluted earnings per share (before cumulative effect of accounting change) |
$ | 0.67 | $ | 0.54 | $ | 1.18 | $ | 0.94 | ||||
| Diluted earnings per share (after cumulative effect of accounting change) |
$ | 0.67 | $ | 0.54 | $ | 1.18 | $ | 1.04 | ||||
| Average shares (in millions): |
||||||||||||
| Basic |
368.3 | 369.5 | 368.9 | 370.3 | ||||||||
| Dilutive effect of stock awards |
5.2 | 2.9 | 4.8 | 2.6 | ||||||||
| Diluted |
373.5 | 372.4 | 373.7 | 372.9 | ||||||||
| Dividends declared per share |
$ | 0.15 | $ | 0.12 | $ | 0.30 | $ | 0.24 | ||||
See accompanying Notes to Consolidated Financial Statements.
3
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, shares in thousands)
(Unaudited)
| June 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 64 | $ | 18 | ||||
| Accounts receivable, net |
242 | 129 | ||||||
| Materials and supplies |
294 | 266 | ||||||
| Current portion of deferred income taxes |
320 | 292 | ||||||
| Other current assets |
345 | 157 | ||||||
| Total current assets |
1,265 | 862 | ||||||
| Property and equipment, net |
25,376 | 25,068 | ||||||
| Other assets |
1,351 | 1,009 | ||||||
| Total assets |
$ | 27,992 | $ | 26,939 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and other current liabilities |
$ | 2,074 | $ | 2,102 | ||||
| Long-term debt due within one year |
309 | 244 | ||||||
| Total current liabilities |
2,383 | 2,346 | ||||||
| Long-term debt and commercial paper |
6,678 | 6,440 | ||||||
| Deferred income taxes |
7,750 | 7,481 | ||||||
| Casualty and environmental liabilities |
477 | 462 | ||||||
| Minimum pension liability |
359 | 359 | ||||||
| Employee separation costs |
133 | 144 | ||||||
| Other liabilities |
1,303 | 1,212 | ||||||
| Total liabilities |
19,083 | 18,444 | ||||||
| Commitments and contingencies (see Notes 2, 5, and 6) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $.01 par value, 600,000 shares authorized; 507,158 shares and 500,685 shares issued, respectively |
5 | 5 | ||||||
| Additional paid-in capital |
5,961 | 5,766 | ||||||
| Retained earnings |
6,570 | 6,240 | ||||||
| Treasury stock, at cost, 134,875 shares and 129,225 shares, respectively |
(3,522 | ) | (3,340 | ) | ||||
| Unearned compensation |
(58 | ) | (36 | ) | ||||
| Accumulated other comprehensive loss |
(47 | ) | (140 | ) | ||||
| Total stockholders’ equity |
8,909 | 8,495 | ||||||
| Total liabilities and stockholders’ equity |
$ | 27,992 | $ | 26,939 | ||||
See accompanying Notes to Consolidated Financial Statements.
4
BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
| Six Months Ended June 30, |
2004 |
2003 |
||||||
| OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 442 | $ | 387 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
500 | 451 | ||||||
| Deferred income taxes |
183 | 183 | ||||||
| Employee separation costs paid |
(15 | ) | (18 | ) | ||||
| Cumulative effect of accounting change, net of tax |
— | (39 | ) | |||||
| Other, net |
(3 | ) | (17 | ) | ||||
| Changes in current assets and liabilities: |
||||||||
| Accounts receivable, net |
(109 | ) | (7 | ) | ||||
| Materials and supplies |
(28 | ) | (3 | ) | ||||
| Other current assets |
(88 | ) | (17 | ) | ||||
| Accounts payable and other current liabilities |
32 | (29 | ) | |||||
| Net cash provided by operating activities |
914 | 891 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Capital expenditures |
(692 | ) | (835 | ) | ||||
| Other, net |
(269 | ) | (32 | ) | ||||
| Net cash used for investing activities |
(961 | ) | (867 | ) | ||||
| FINANCING ACTIVITIES |
||||||||
| Net increase in commercial paper and bank borrowings |
304 | 29 | ||||||
| Proceeds from issuance of long-term debt |
— | 265 | ||||||
| Payments on long-term debt |
(71 | ) | (106 | ) | ||||
| Dividends paid |
(111 | ) | (89 | ) | ||||
| Proceeds from stock options exercised |
141 | 18 | ||||||
| Purchase of BNSF common stock |
(172 | ) | (123 | ) | ||||
| Other, net |
2 | (3 | ) | |||||
| Net cash provided by (used for) financing activities |
93 | (9 | ) | |||||
| Increase in cash and cash equivalents |
46 | 15 | ||||||
| Cash and cash equivalents: |
||||||||
| Beginning of period |
18 | 28 | ||||||
| End of period |
$ | 64 | $ | 43 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION |
||||||||
| Interest paid, net of amounts capitalized |
$ | 214 | $ | 221 | ||||
| Income taxes paid (refunded), net |
$ | 37 | $ | (6 | ) | |||
| Non-cash asset financing |
$ | 48 | $ | 4 | ||||
See accompanying Notes to Consolidated Financial Statements.
5
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Accounting Policies and Interim Results
The Consolidated Financial Statements should be read in conjunction with Burlington Northern Santa Fe Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003, including the financial statements and notes thereto. Burlington Northern Santa Fe Corporation (BNSF) is a holding company that conducts no operating activities and owns no significant assets other than its interests in its subsidiaries. The Consolidated Financial Statements include the accounts of Burlington Northern Santa Fe Corporation, its majority-owned subsidiaries and a variable interest entity for which BNSF is the primary beneficiary, all of which are separate legal entities (collectively, the Company). BNSF’s principal operating subsidiary is The Burlington Northern and Santa Fe Railway Company (BNSF Railway). All significant intercompany accounts and transactions have been eliminated. BNSF was incorporated in Delaware on December 16, 1994.
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’s consolidated financial position as of June 30, 2004, and the results of operations for the three and six month periods ended June 30, 2004 and 2003, have been included.
Certain comparative prior year amounts in the Consolidated Financial Statements have been reclassified to conform to the current year presentation.
Implementation of FIN 46R
In 2001, BNSF Railway entered into the San Jacinto Rail Limited partnership (the Partnership) with subsidiaries of three chemical manufacturing companies that ship their products on BNSF Railway’s rail lines. The purpose of this Partnership is to construct and operate a 13-mile railroad, which will service several chemical and plastics manufacturing facilities in the Houston, Texas area. BNSF Railway owns a 48 percent limited partnership interest and a one percent general partnership interest in the Partnership and acts as the general partner and operator of this facility. The Company has determined that San Jacinto Rail Limited, a previously unconsolidated subsidiary, was required to be consolidated pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities, on March 31, 2004, as the Partnership qualifies as a variable interest entity and the Company is the primary beneficiary. This consolidation had a minimal impact to the Consolidated Statements of Income due to the fact that the Company accounted for this investment prior to the adoption of FIN 46R under the equity method of accounting and the Partnership’s losses to date have been minimal. The consolidation resulted in an increase in assets of $54 million, which includes $26 million and $23 million in cash and land, respectively, an increase in liabilities of $55 million, including $50 million of short-term debt, and a decrease in equity of $1 million.
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 stateme