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(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
None
None
None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive
Data File required to be submitted 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [x] Smaller reporting company [ ] Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
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).
BURLINGTON NORTHERN SANTA FE, LLC 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, LLC’s Annual Report on Form 10-K for the year ended December 31, 2018, including the financial statements and notes thereto. Burlington Northern Santa Fe, LLC (BNSF) is a holding company that conducts no operating activities and owns no significant assets other than through its interests
in its subsidiaries. The Consolidated Financial Statements include the accounts of BNSF and its majority-owned subsidiaries, all of which are separate legal entities (collectively, the Company). BNSF’s principal operating subsidiary is BNSF Railway Company (BNSF Railway). All intercompany accounts and transactions have been eliminated.
On February 12, 2010, Berkshire Hathaway Inc., a Delaware corporation (Berkshire), acquired 100 percent of the outstanding shares of Burlington Northern Santa Fe Corporation common stock
that it did not already own. The acquisition was completed through the merger (Merger) of a Berkshire wholly-owned merger subsidiary and Burlington Northern Santa Fe Corporation with the surviving entity renamed Burlington Northern Santa Fe, LLC. Earnings per share data is not presented because BNSF has only one holder of its membership interests.
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, the unaudited financial statements reflect all adjustments (consisting of only normal recurring adjustments, except as disclosed) necessary for the fair statement of BNSF’s consolidated financial position as of September 30, 2019,
and the results of operations for the three and nine months ended September 30, 2019 and 2018.
The
Company disaggregates revenue from contracts with customers based on the characteristics of the services provided and the types of products transported (in millions):
Contract
assets and liabilities are immaterial. Receivables from contracts with customers is a component of accounts receivable, net on the Consolidated Balance Sheets. At both September 30, 2019 and December 31, 2018, $1.3 billion represented net receivables from contracts with customers.
Remaining performance obligations primarily consist of in-transit freight revenues, which will be recognized in the next reporting period. At September 30,
2019 and December 31, 2018, remaining performance obligations were $210 million and $237 million, respectively.
3.
Accounts Receivable, Net
Accounts receivable, net consists of freight and other receivables, reduced by an allowance for bill adjustments and uncollectible accounts, based upon expected
collectibility. At September 30, 2019 and December 31, 2018, $94 million and $87 million, respectively, of such allowances had been recorded.
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
4.
Leases
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), using a modified retrospective approach for leases existing at or entered into after the effective date. In addition, the Company elected the package of practical expedients
permitted under the transition guidance within the new standard. The standard requires the recognition of right-of-use assets and lease liabilities for operating leases on the Company’s Consolidated Balance Sheets. The accounting for finance leases remained unchanged. There was no effect of adopting Topic 842 on member’s equity, operating income, or net income. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted.
The Company has substantial lease commitments for locomotives, freight cars, office buildings, operating facilities, and other property. Many of the
Company’s leases provide the option to purchase the leased item at fair market value or a fixed purchase price at the end of the lease, and some leases include early buyout options at a fixed purchase price. Also, many of the Company’s leases include both fixed rate and fair market value renewal options.
As the implicit interest rate is not readily available for most leases, the Company used its incremental borrowing rate to determine the present value of lease payments at the transition date. The Company has lease agreements that contain both lease and non-lease components, but only freight cars are accounted for as a single
lease component. BNSF has applied the short-term lease exemption to all asset classes, and as a result, short-term leases are not recognized on the Consolidated Balance Sheets. Variable lease costs, sublease income, and lessor transactions were not significant.
The following table shows the components of lease cost (in millions):
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Future minimum lease payments as of December 31, 2018 are summarized as follows (in millions):
Operating
Leases
Capital Leases
2019
$
400
$
72
2020
496
69
2021
421
200
2022
328
35
2023
289
28
Thereafter
787
101
Total
lease payments
$
2,721
505
Less amount representing interest
(86
)
Total
$
419
5.
Debt
Notes
and Debentures
In May 2019, BNSF filed a new automatic shelf registration with the Securities and Exchange Commission (SEC) for the issuance of debt securities which became effective on May 8, 2019 and will remain effective for three years.
In May 2019, the Board of Managers (the Board) authorized an additional $2.25 billion of debt securities that may be issued pursuant to the debt shelf registration statement filed with the SEC. As of September 30, 2019, $1.675 billion remained authorized by the Board to be issued through the SEC debt shelf offering
process.
In July 2019, BNSF issued $825 million of 3.55 percent debentures due February 15, 2050. The net proceeds from the sale of the debentures will be used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness, and distributions.
The Company is required to maintain certain financial covenants in conjunction with $500 million of certain issued and outstanding junior subordinated notes. As of September 30,
2019, the Company was in compliance with these financial covenants.
Fair Value of Debt Instruments
At September 30, 2019 and December 31, 2018, the fair value of BNSF’s debt, excluding finance leases, was $27.6 billion and $24.1 billion, respectively, while the book value, which also excludes finance leases, was $23.6 billion and $22.8
billion, respectively. The fair value of BNSF’s debt is primarily based on market value price models using observable market-based data for the same or similar issues, or on the estimated rates that would be offered to BNSF for debt of the same remaining maturities (Level 2 inputs).
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Guarantees
As
of September 30, 2019, BNSF has not been called upon to perform under the guarantees specifically disclosed in this footnote and does not anticipate a significant performance risk in the foreseeable future.
Debt and other obligations of non-consolidated entities guaranteed by the Company as of September 30, 2019, were as follows (dollars in millions):
Guarantees
BNSF
Ownership
Percentage
Principal
Amount
Guaranteed
Maximum
Future
Payments
Maximum
Recourse
Amounta
Remaining
Term
(in
years)
Capitalized Obligations
Kinder Morgan Energy Partners, L.P.
0.5
%
$
190
$
190
$
—
Termination
of Ownership
$
2
b
Chevron Phillips Chemical Company LP
—
%
N/Ad
N/Ad
N/Ad
8
$
17
c
a
Reflects
the maximum amount the Company could recover from a third party other than the counterparty.
b
Reflects capitalized obligations that are recorded on the Company’s Consolidated Balance Sheets.
c
Reflects the asset and corresponding liability for the fair value of these guarantees required by authoritative
accounting guidance related to guarantees.
d
There is no cap to the liability that can be sought from BNSF for BNSF’s negligence or the negligence of the indemnified party. However, BNSF could receive reimbursement from certain insurance policies if the liability exceeds a certain amount.
Kinder Morgan Energy Partners, L.P.
Santa Fe Pacific Pipelines, Inc., an indirect, wholly-owned subsidiary of BNSF, has a guarantee in connection with its remaining special limited partnership interest in Santa Fe Pacific Pipeline Partners,
L.P. (SFPP), a subsidiary of Kinder Morgan Energy Partners, L.P., to be paid only upon default by the partnership. All obligations with respect to the guarantee will cease upon termination of ownership rights, which would occur upon a put notice issued by BNSF or the exercise of the call rights by the general partners of SFPP.
Chevron Phillips Chemical Company LP
BNSF has an indemnity agreement with Chevron Phillips Chemical Company LP (Chevron Phillips), granting certain rights of indemnity from BNSF, in order to facilitate access to a storage facility. Under certain circumstances, payment under this obligation may be required in the event Chevron Phillips were to incur certain liabilities or other incremental costs resulting from trackage access.
Indemnities
In
the ordinary course of business, BNSF enters into agreements with third parties that include indemnification clauses. The Company believes that these clauses are generally customary for the types of agreements in which they are included. At times, these clauses may involve indemnification for the acts of the Company, its employees and agents, indemnification for another party’s acts, indemnification for future events, indemnification based upon a certain standard of performance, indemnification for liabilities arising out of the Company’s use of leased equipment or other property, or other types of indemnification. Despite the uncertainty whether events which would trigger the indemnification obligations would ever occur,
the Company does not believe that these indemnity agreements will have a material adverse effect on the Company’s results of operations, financial position, or liquidity. Additionally, the Company believes that, due to lack of historical payment experience, the fair value of indemnities cannot be estimated with any amount of certainty and that the fair value of any such amount would be immaterial to the Consolidated Financial Statements. Unless separately disclosed above, no fair value liability related to indemnities has been recorded in the Consolidated Financial Statements.
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
6.
Commitments and Contingencies
Personal Injury
BNSF’s personal injury liability includes the cost of claims for employee work-related injuries, third-party claims, and asbestos claims.
BNSF records a liability for asserted and unasserted claims when the expected loss is both probable and reasonably estimable. Because of the uncertainty of the timing of future payments, the liability is undiscounted. Defense and processing costs, which are recorded on an as-reported basis, are not included in the recorded liability. Expense accruals and adjustments are classified as materials and other in the Consolidated Statements of Income.
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. Resolution of these cases under the FELA’s fault-based system requires either a finding of fault by a jury or an out of court settlement. Third-party claims include claims by non-employees for compensatory damages and may, from time to time, include requests for punitive
damages or treatment of the claim as a class action.
BNSF estimates its personal injury liability claims and expense using standard actuarial methodologies based on the covered population, activity levels and trends in frequency, and the costs of covered injuries. The Company monitors actual experience against the forecasted number of claims to be received, the forecasted number of claims closing with payment, and expected claim payments and records adjustments as new events or changes in estimates develop.
BNSF is party to asbestos claims by employees and non-employees who may have been exposed to asbestos. Because of the relatively finite exposed population, the
Company has recorded an estimate for the full amount of probable exposure. This is determined through an actuarial analysis based on estimates of the exposed population, the number of claims likely to be filed, the number of claims that will likely require payment, and the cost per claim. Estimated filing and dismissal rates and average cost per claim are determined utilizing recent claim data and trends.
The following table summarizes the activity in the Company’s accrued obligations for personal injury claims (in millions):
The
amount recorded by the Company for the personal injury liability is based upon the best information currently available. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to resolve these claims may be different from the recorded amounts. The Company estimates that costs to resolve the liability may range from approximately $245 million to $345 million.
Although the final outcome of these personal injury 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.
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Environmental
BNSF
is subject to extensive federal, state, and local environmental regulation. The Company’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 or 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. Under federal (in particular, the Comprehensive Environmental Response, Compensation, and Liability Act) and state statutes, the Company may be held jointly and severally liable for cleanup and enforcement costs associated with a particular site without regard to fault or the legality of the original
conduct. The Company participates in the study, cleanup, or both of environmental contamination at approximately 200 sites.
Environmental costs may include, but are not limited to, site investigations, remediation, and restoration. The liability is recorded when the expected loss is both probable and reasonably estimable and is undiscounted due to uncertainty of the timing of future payments. Expense accruals and adjustments are classified as materials and other in the Consolidated Statements of Income.
BNSF estimates the cost of cleanup efforts at its known environmental sites based on experience gained from
cleanup efforts at similar sites, estimated percentage to closure ratios, possible remediation work plans, estimates of the costs and likelihood of each possible outcome, historical payment patterns, and benchmark patterns developed from data accumulated from industry and public sources. The Company monitors actual experience against expectations and records adjustments as new events or changes in estimates develop.
The following table summarizes the activity in the Company’s accrued obligations for environmental costs (in millions):
The
amount recorded by the Company for the environmental liability is based upon the best information currently available. It has not been reduced by anticipated recoveries from third parties and includes both asserted and unasserted claims. 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 various factors, it is reasonably possible that future costs to settle these claims may be different from the recorded amounts. The
Company estimates that costs to settle the liability may range from approximately $230 million to $380 million.
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 personal injury and environmental matters, BNSF and its subsidiaries are also parties to a number of other legal actions and claims, governmental proceedings, and private civil suits arising in the ordinary course of business, including those related to disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for compensatory damages and may, from time to time, include requests for punitive damages or treatment of the claim as a class action. Although the final outcome of these 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.
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
BNSF Insurance Company
BNSF
has a consolidated, wholly-owned subsidiary, Burlington Northern Santa Fe Insurance Company, Ltd. (BNSFIC), that offers insurance coverage for certain risks, including FELA claims, railroad protective and force account insurance claims, certain excess general liability and property coverage, and certain other claims which are subject to reinsurance. BNSFIC has entered into annual reinsurance treaty agreements with several other companies. The treaty agreements insure workers’ compensation, general liability, auto liability, and FELA risk. In accordance with the agreements, BNSFIC cedes a portion of its FELA exposure through the treaties and assumes a proportionate share of the entire risk. Each year, BNSFIC reviews the objectives and performance of the treaties to determine its continued participation. The treaty agreements provide for certain protections against the risk of treaty participants’ non-performance. On an ongoing basis, BNSF and/or the treaty manager reviews
the creditworthiness of each of the participants. The Company does not believe its exposure to treaty participants’ non-performance is material at this time. BNSFIC typically invests in time deposits and money market accounts. At September 30, 2019, there was $507 million related to these third-party investments, which were classified as cash and cash equivalents on the Company’s Consolidated Balance Sheets, as compared with $519 million at December 31, 2018.
The
Company experienced significant flooding across parts of the network for which impacts extended into the third quarter. The Company is insured for certain costs incurred as a result of flooding and is in process of compiling and submitting claims to its insurers. The Company may recover up to $250 million associated with property damage, business interruption and extra expense incurred as part of the flooding.
7.
Employment
Benefit Plans
During the first quarter of 2019, the Company amended its funded, noncontributory qualified pension plan, which covers most non-union employees, and its unfunded, non-tax-qualified pension plan, which covers certain officers and other employees (collectively, the Retirement Plans). Non-union employees hired on or after April 1, 2019 will not be eligible for the Retirement Plans and instead will receive an additional company contribution as part of the qualified 401(k) plan based on the employee’s age and years of service. Current employees will be transitioned away from the Retirement Plans within the next ten years, beginning
October 1, 2019, and upon transition will be eligible for the additional company contribution. As a result of the plan amendments, the Company recognized a curtailment gain of $120 million in the first quarter of 2019 consisting of $117 million for the reduction in projected benefit obligation and $3 million for the recognition of prior service credits.
Components of the net (benefit) cost for the periods presented below for certain employee benefit plans were as follows (in millions):
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Retiree
Health and Welfare Benefits
Three Months Ended September 30,
Nine Months Ended September 30,
Net (Benefit) Cost
2019
2018
2019
2018
Service
cost
$
1
$
1
$
1
$
1
Interest
cost
2
2
6
6
Amortization of prior service credits
—
(2
)
—
(2
)
Net
(benefit) cost recognized
$
3
$
1
$
7
$
5
Service
cost is included in compensation and benefits expense and the other components of net periodic benefit costs are included in other (income) expense, net in the Consolidated Statements of Income.
8.
Related Party Transactions
The companies identified as affiliates of BNSF include Berkshire and its subsidiaries. During the nine months ended September 30,
2019 and 2018, the Company declared and paid cash distributions of $3.4 billion and $4.2 billion, respectively, to its parent company. In the nine months ended September 30, 2019 and 2018, the Company made tax payments to Berkshire of $741 million and $591 million,
respectively. Additionally, the Company received $217 million of tax refunds from Berkshire in the nine months ended September 30, 2018. As of September 30, 2019, the Company had a tax receivable from Berkshire of $32 million. As of December 31, 2018, the Company had a tax payable to Berkshire of $54 million.
BNSF
engages in various transactions with related parties in the ordinary course of business. The following tables summarize revenues earned by BNSF for services provided to related parties and expenditures to related parties (in millions):
BNSF
owns 17.3 percent of TTX Company (TTX) while other North American railroads own the remaining interest. As BNSF possesses the ability to exercise significant influence, but not control, over the operating and financial policies of TTX, BNSF applies the equity method of accounting to its investment in TTX. The investment in TTX is recorded in other assets in the Consolidated Balance Sheets. Equity income or losses are recorded in materials and other in the Consolidated Statements of Income. North American railroads pay TTX car hire to use TTX’s freight equipment to serve their customers. BNSF’s car hire expenditures incurred with TTX are included in the table above. BNSF had $645 million and $609 million recognized
as investments related to TTX in its Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018, respectively.
BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
9.
Accumulated Other Comprehensive Income
Other comprehensive income refers to revenues, expenses, gains, and losses that under generally accepted accounting principles are included in accumulated other comprehensive income, a component of equity within the Consolidated Balance Sheets, rather than net income on the Consolidated Statements of Income. Other comprehensive income may include, among other things, unrecognized gains and losses and prior service credit related to pension and other postretirement benefit plans.
The
following table provides the components of accumulated other comprehensive income (loss) (AOCI) by component (in millions):
Pension and Retiree Health and Welfare Benefit Items
This accumulated other comprehensive income component is included in the computation of net periodic pension and retiree health and welfare cost (see Note 7 for additional details).
10.
Accounting Pronouncements
No pronouncements materially affecting the Company’s financial statements have been issued since the filing of the
Company’s 2018 Annual Report on Form 10-K.
Management’s Narrative Analysis of Results of Operations.
Management’s narrative analysis relates to the results of operations of Burlington Northern Santa Fe,
LLC and its majority-owned subsidiaries (collectively BNSF, Registrant, or Company). The principal operating subsidiary of BNSF is BNSF Railway Company (BNSF Railway) through which BNSF derives substantially all of its revenues. The following narrative analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes.
The following narrative analysis of results of operations includes a brief discussion of the factors that materially affected the Company’s operating results in the nine months ended September 30, 2019, and a comparative
analysis to the nine months ended September 30, 2018.
Results of Operations
Revenues Summary
The following tables present BNSF’s revenue information by business group:
Freight revenues include both revenue for transportation services and fuel surcharges. Where BNSF’s fuel surcharge program is applied, it is intended to recover BNSF’s incremental fuel costs when
fuel prices exceed a threshold fuel price. Fuel surcharges are calculated differently depending on the type of commodity transported. BNSF has two standard fuel surcharge programs – Percent of Revenue and Mileage-Based. In addition, 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 differ significantly.
The following table presents fuel surcharge and fuel expense information (in millions):
Revenues for the nine months ended September 30, 2019 were $17.7 billion, an increase of $27 million, as compared with the nine months ended September 30,
2018. The increase in revenue is primarily due to a 5 percent increase in average revenue per car / unit as a result of increased rates per car / unit and a favorable outcome of an arbitration hearing. This increase was partially offset by a 4 percent decrease in unit volume due to severe winter weather and flooding on parts of the network, as well as the following:
▪
Consumer Products volumes decreased primarily
due to lower intermodal volumes, which were driven by overall lower demand and the availability of truck capacity as well as lower international intermodal market share.
▪
Industrial Products volumes decreased primarily due to overall softness in the industrial sector, lower sand volumes, and reduced car loadings due to the aforementioned challenging weather conditions. This decrease was partially offset by higher demand for petroleum products and liquefied petroleum gas.
▪
Agricultural
Products volumes decreased primarily due to export competition from non-U.S. sources, the impacts of changes in international trade policies, and the aforementioned challenging weather conditions.
▪
Coal volumes decreased primarily due to the aforementioned challenging weather conditions as well as the effects of lower natural gas prices.
Expenses
Operating expenses for the nine
months ended September 30, 2019 were $11.7 billion, a decrease of $200 million, or 2 percent, as compared with the nine months ended September 30, 2018. This decrease is due to lower volume-related costs and cost controls, partially offset by increased costs related to severe winter weather and flooding, as well as the following:
▪
Fuel
expense decreased primarily due to lower average fuel prices and lower volumes.
▪
There were no significant changes in compensation and benefits, purchased services, depreciation and amortization, equipment rents, materials and other, and interest expense.
Other (income) expense, net income increased primarily due to a curtailment gain related to a first quarter 2019 amendment to the Company’s retirement plans.
The
effective tax rate was 24.6 percent and 23.8 percent for the nine months ended September 30, 2019 and 2018, respectively. The 2018 effective tax rate included the impact of various state income tax rate reductions enacted during the second quarter of 2018.
Capital Commitments
BNSF anticipates that capital commitments for 2019 will be approximately $3.67 billion, or $100 million higher than previously disclosed.
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.
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 the Company’s 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; effects due
to more stringent regulatory policies such as the regulation of greenhouse gas emissions that could reduce the demand for coal or governmental tariffs or subsidies that could affect the demand for products BNSF hauls; the impact of low natural gas or oil prices on energy-related commodities demand; changes in environmental laws and other laws and regulations that could affect the demand for drilling products and products produced by drilling; changes in prices of fuel and other key materials, the impact of high barriers to entry for prospective new suppliers, and disruptions in supply chains for these materials; competition and consolidation within the transportation industry; and changes in crew availability, labor and benefits 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, the marketing of services or regulatory restrictions on equipment; the ultimate outcome of shipper and rate claims subject to adjudication; 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; 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 operations; losses resulting from claims and litigation relating to personal injuries, asbestos, and other occupational diseases; the release of hazardous materials, environmental contamination, and damage
to property; regulation, restrictions or caps, or other controls on transportation of energy-related commodities or other operating restrictions that could affect operations or increase costs; the availability of adequate insurance to cover the risks associated with operations; and changes in tax rates and tax laws.
• Operating factors: changes in operating conditions and costs; operational and other difficulties in implementing positive train control technology, including increased compliance or operational costs or penalties; restrictions on development and expansion plans due to environmental concerns; disruptions to BNSF’s technology network including computer systems and software, such as cybersecurity intrusions, misappropriation of assets or sensitive information, corruption of
data or operational disruptions; network congestion, including effects of greater than anticipated demand for transportation services and equipment; as well as natural events such as severe weather, fires, floods, and earthquakes or man-made or other disruptions of BNSF’s or other railroads’ operating systems, structures, or equipment including the effects of acts of war or 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.
Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, 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. Additionally, as of the end of the period covered by this report, BNSF’s principal executive officer and principal financial officer have concluded that there have been no changes in BNSF’s internal control over financial reporting that occurred during BNSF’s third fiscal quarter that have materially affected, or are reasonably likely to materially affect, BNSF’s internal control over financial reporting.
BURLINGTON
NORTHERN SANTA FE, LLC and SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. 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. The complaints seek injunctive relief and unspecified
treble damages. These cases were consolidated and are currently pending in the federal District Court for 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. On June 21, 2012, the District Court certified the class sought by the plaintiffs. BNSF Railway and the other three Class I railroads appealed the class certification decision to the U.S. Court of Appeals. On August 9, 2013, the U.S. Court of Appeals vacated the District Court’s class certification decision and remanded the case to permit the District Court to reconsider its decision in light of the United States Supreme Court case of Comcast Corp. v. Behrend. In September 2016, the District
Court held a hearing to determine whether to certify a class. On October 10, 2017, the District Court denied the plaintiffs’ motion to certify a class. The plaintiffs appealed the denial of class certification to the U.S. Court of Appeals. In September 2018, the U.S. Court of Appeals held a hearing on the appeal of the denial of class certification. On August 16, 2019, the U.S. Court of Appeals affirmed the District Court’s denial of class certification. The Company continues to believe that these allegations are without merit and will continue to vigorously dispute any such claims in any subsequent litigation by individual parties involving such allegations. 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.
The
following unaudited information from Burlington Northern Santa Fe, LLC’s Form 10-Q for the three and nine months ended September 30, 2019 formatted in XBRL includes: (i) the Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018, (ii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018, (iii) the Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018,
(v) the Consolidated Statements of Changes in Equity for the periods ended September 30, 2019 and 2018, and (vi) the Notes to the Consolidated Financial Statements. *
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 instrument does not exceed 10 percent of BNSF’s total assets. BNSF will furnish copies of any material instruments upon request of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
