|
|
 | | | |
- close
- close
- close
- close
| |||||||||
Burlington Northern Santa Fe 10-K 2009 Documents found in this filing:
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, 2008
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
The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $34.135 billion on June 30, 2008. 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, 339,394,803
shares outstanding as of February 3, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the documents from which parts thereof have been incorporated by
reference and the Part of the Form 10-K into which such information is
incorporated:
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
i
Table
of Contents
ii
Part I
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, 2008, BNSF and its subsidiaries had approximately
40,000 employees. The rail operations of BNSF Railway, BNSF’s principal
operating subsidiary, comprise one of the largest railroad systems in North
America.
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 (SEC). Filings on Forms 3, 4 and 5 are also available on
this Web site as is BNSF’s annual proxy statement. BNSF’s annual CEO
certification filed pursuant to the New York Stock Exchange’s corporate
governance listing standards is filed as an exhibit to this Form 10-K. 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:
Further
discussion of the Company’s business, including equipment and business sectors,
is incorporated by reference from Item 2, “Properties.”
Item 1A. Risk Factors
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 affect on the Company’s volumes and
revenues.
1
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, liquidity or stock price.
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,
which in turn could increase funding requirements.
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.
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 coverage may not be
available to the Company in the future.
2
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.
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 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 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. New federal legislation
mandates the implementation of positive train control technology by December 31,
2015, on all 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. Also, some government regulations
require the Company to obtain and maintain various licenses, permits and other
authorizations, and it cannot assure that it will continue to be able to do
so.
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 and services,
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
availability of qualified personnel could adversely affect the Company’s
operations.
Changes
in demographics, training requirements and the availability 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.
3
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.
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 affect 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.
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.
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.
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.
4
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, has contributed to increased expenses in the past. 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.
Item 1B. Unresolved Staff Comments
None.
5
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,
2008. 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, 2008, 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, 2008, 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.
Capital Expenditures and
Maintenance
Capital
Expenditures
The
extent of BNSF Railway’s replacement and capacity program is outlined in the
following table:
A
breakdown of the Company’s cash capital expenditures for the three years ended
December 31, 2008, 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.”
6
BNSF’s
planned 2009 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 2009.”
Locomotive
Maintenance
As of
December 31, 2008, General Electric Company, Alstom Transportation, Inc. and
Electro-Motive Diesel, Inc. performed locomotive maintenance and overhauls for
BNSF Railway at its facilities under various maintenance agreements that covered
approximately 4,550 locomotives.
Property and
Facilities
BNSF
Railway operates various facilities and equipment to support its transportation
system, including its infrastructure and locomotives and freight cars as
previously described. 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 32 major intermodal hubs located across the system. BNSF
Railway’s largest intermodal facilities in terms of 2008 volume were as
follows:
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:
As of
December 31, 2008, certain BNSF Railway properties and other assets were subject
to liens securing $97 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. Certain
prior period amounts have been adjusted to conform to current year
presentation.
7
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.
Slightly less than two-thirds 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 34 percent of freight
revenues in 2008 and consisted of the following business sectors:
8
Industrial
Products:
The
Industrial Products’ freight business provided approximately 23 percent of
BNSF’s freight revenues in 2008 and consisted of the following five business
areas:
9
Coal:
In 2008,
the transportation of coal contributed about 23 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.
Agricultural
Products:
The
transportation of Agricultural Products provided approximately 20 percent of
2008 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 most major terminal, storage, feeding and food-processing locations.
Furthermore, BNSF has access to major export markets in the Pacific Northwest,
western Great Lakes, Texas Gulf and Mexico.
Freight
Statistics
The
following table sets forth certain freight statistics relating to rail
operations for the periods indicated. Certain prior period amounts have been
adjusted to conform to current year presentation.
Revenues,
cars/units and average revenue per car/unit information for the three years
ended December 31, 2008, 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.
10
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 2008, the Railroad
Retirement System required up to 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 2008 was approximately 49
percent.
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.
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.
11
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 2008.
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, 49
Chairman,
President and Chief Executive Officer of BNSF since March 2002.
Thomas
N. Hund, 55
Executive
Vice President and Chief Financial Officer since January 2001.
Carl
R. Ice, 52
Executive
Vice President and Chief Operations Officer since January 2001.
John
P. Lanigan, Jr., 53
Executive
Vice President and Chief Marketing Officer since January 2003.
Linda
Longo-Kazanova, 56
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, 44
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.
Peter
J. Rickershauser, 60
Vice
President–Network Development since May 1999.
12
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, 2008, and the frequency and amount of dividends declared on
such stock during such periods, is set forth in Note 16 to the Consolidated
Financial Statements. The approximate number of holders of record of the common
stock at February 3, 2009, was 31,000.
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, 2008, (shares in
thousands):
13
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).
14
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, Industrial Products, Coal 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 2008 — Financial Overview
Capital Commitment Outlook for
2009
15
Results of
Operations
Revenue
Table
The
following table presents BNSF’s revenue information by business group for the
years ended December 31, 2008, 2007 and 2006.
Expense
Table
The
following table presents BNSF’s expense information for the years ended December
31, 2008, 2007 and 2006 (in millions):
Year
Ended December 31, 2008, Compared with Year Ended December 31, 2007
BNSF
recorded net income for 2008 of $2,115 million, or $6.08 per share. In
comparison, net income for 2007 was $1,829 million, or $5.10 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 approximately $1,460 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.
16
Coal
BNSF
Railway 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 $3,970 million for 2008 rose $691 million, or 21 percent, versus a
year ago, due to improved yields, contractual economic 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.
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 of $40 million, or 21
percent, to $230 million in BNSF Logistics revenues and an increase in demurrage
charges. The increase in BNSF Logistics revenues was primarily driven by
acquisition activities. BNSF Logistics is a wholly-owned, third-party logistics
company.
Expenses
Total
operating expenses for 2008 were $14,106 million, an increase of $1,790 million,
or 15 percent over 2007.
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 $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.
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.
17
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.
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 $2,136 million for 2008 were $113 million, or 6 percent
higher than 2007. Approximately 30 percent of the increase was due to purchased
transportation costs for BNSF Logistics, which increased about $30 million to
$185 million for 2008. 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 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 $1,397 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 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 2008 of $901 million were $41 million, or 4 percent lower
than 2007, due to lower volumes and improved car
velocity.
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, impairments of
long-lived assets, 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 $1,148 million for 2008, which consisted of approximately
$340 million of materials expense with the remainder consisting of numerous
other items, were $190 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.
Year
Ended December 31, 2007, Compared with Year Ended December 31, 2006
BNSF
recorded net income for 2007 of $1,829 million, or $5.10 per share. In
comparison, net income for 2006 was $1,889 million, or $5.11 per
share.
18
Revenues
Freight
Freight
revenues of $15,349 million for 2007 were $804 million, or 6 percent higher than
2006. Freight revenues reflected a 3-percent decrease in unit volumes. Freight
revenues included an increase of approximately $150 million in fuel surcharges
compared with the same 2006 period. Growth in prices and fuel surcharges drove
average revenue per car/unit up 9 percent in 2007 to $1,488 from $1,367 in
2006.
Coal
Coal
revenues of $3,279 million for 2007 increased $363 million, or 12 percent,
versus a year ago due to improved yields, contractual inflation escalators,
increased tons per unit and fuel surcharges. Coal unit volumes increased 1
percent despite mine production and weather-related issues.
Other
Revenues
Other
revenues increased $13 million, or 3 percent, to $453 million for 2007 compared
to 2006. This increase was primarily due to volume growth of BNSF Logistics, an
indirect, wholly-owned non-rail subsidiary that specializes in providing
third-party logistics and transportation services.
Expenses
Total
operating expenses for 2007 were $12,316 million, an increase of $852 million,
or 7 percent over 2006.
Fuel
Fuel
expenses of $3,327 million for 2007 were $471 million, or 16 percent higher than
2006. 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. The average all-in
cost per gallon of locomotive diesel fuel increased by 37 cents to $2.22, or
$538 million, which is comprised of an increase in the average purchase
price of 16 cents, or $228 million, and a decrease in the hedge benefit of
21 cents, or $310 million (2007 benefit of $31 million less 2006
benefit of $341 million). Locomotive fuel consumption in 2007 decreased
36 million gallons to 1,442 million gallons when compared with
consumption in the same 2006 period, resulting in a $75 million decrease in
fuel expense. The remainder of the increase was primarily due to higher
non-locomotive fuel prices.
19
Compensation
and Benefits
Compensation
and benefits expenses of $3,773 million were $43 million, or 1 percent lower
than 2006, on flat employee headcount. Wages and benefit increases were offset
by lower incentive compensation costs and other cost controls.
Purchased
Services
Purchased
services expenses of $2,023 million for 2007 were $117 million, or 6 percent
higher than 2006. Beyond general inflation, the largest drivers of this increase
were (i) $25 million in haulage payments for transportation over other
railroads, principally due to a new southeast intermodal agreement; (ii) $20
million in purchased transportation costs for BNSF Logistics; (iii) $10 million
in locomotive maintenance costs; and (iv) $10 million in ramping costs (lifting
of containers onto and off of cars).
Depreciation
and Amortization
Depreciation
and amortization expenses of $1,293 million for 2007 were $117 million, or 10
percent higher than 2006. This increase was primarily due to continuing capital
expenditures as well as updated depreciation rates for locomotives (see
discussion under the heading “Critical Accounting Estimates;
Depreciation”).
Equipment
Rents
Equipment
rents expenses for 2007 of $942 million were $12 million, or 1
percent higher than 2006, on a 3-percent decline in unit volumes. The
variance represents an increase in locomotive lease expense, partially offset by
a decrease in freight car equipment expense due to the impact of the Company’s
privatization efforts, lower volumes and velocity improvements for freight car
equipment.
Materials
and Other
Materials
and other expenses of $958 million for 2007, which consisted of approximately
$320 million of materials expense with the remainder consisting of numerous
other items, were $178 million, or 23 percent higher than 2006. The increase was
primarily due to increases of approximately (i) $65 million and $16 million
first quarter environmental and technology charge, respectively; (ii) $40
million in environmental remediation developments; (iii) $18 million due largely
to rising costs for materials for locomotives, freight cars and track structure;
and (iv) about $20 million in crew transportation costs principally due to
increased fuel and insurance-related costs as well as increased usage due to
adverse weather. In addition, a $22 million gain from a line sale to the
State of New Mexico was recorded in 2006 (see discussion under the heading
“Other Matters; New Mexico Department of Transportation”).
Interest
Expense
Interest
expense of $511 million for 2007 was $26 million, or 5 percent higher than 2006.
This increase was primarily the result of a higher average debt balance,
partially offset by lower average rates.
Income
Taxes
The
effective rate in 2007 was 38.2 percent compared with 36.9 percent for the prior
year. The increase in the effective tax rate primarily reflects income tax
adjustments that favorably impacted income tax expense in 2006 as compared with
2007.
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
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.
2007
Net cash
provided by operating activities was $3,492 million during 2007 compared
with $3,189 million during 2006. The increase was primarily the result of
an increase in earnings before depreciation and amortization expense, higher
environmental accruals in 2007 and higher contributions to the pension plan in
2006.
Investing
Activities
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 as it was acquired, as was the case in
the prior year. This was partially offset by a decrease in cash capital
expenditures. Investing activities for the year included $2,175 million of
capital expenditures, which were $73 million lower than 2007.
20
2007
Net cash
used for investing activities was $2,415 million during 2007 compared with
$2,167 million during 2006. Investing activities for the year included
$2,248 million of capital expenditures, which were $234 million higher
than 2006 primarily due to an increase in replacement capital expenditures
related to track structure and terminal and line expansions.
A
breakdown of cash capital expenditures during 2008, 2007 and 2006 is set forth
in the following table (in millions):
The table
above does not include expenditures for equipment financed through operating or
capital leases (principally related to rolling stock).
Financing
Activities
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.
Aggregate
debt to mature in 2009, excluding commercial paper, is $456 million. BNSF’s
ratio of net debt to total capitalization was 44.5 percent at December 31, 2008,
compared with 41.2 percent at December 31, 2007. The Company’s adjusted net debt
to total capitalization was 54.7 percent at December 31, 2008, compared with
53.4 percent at December 31, 2007. 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:
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 are being used for general
corporate purposes which may include, 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.
21
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 are being 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.
At
December 31, 2008, $500 million remained authorized to be issued by the Board of
Directors through the Securities and Exchange Commission (SEC) debt shelf
registration process. In February 2009, the Board of Directors
authorized an additional $1.0 billion of debt securities that may be issued
through the SEC debt shelf registration process, for a total of $1.5 billion
authorized to be issued.
In 2008,
BNSF 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 entered into capital leases totaling $100 million to finance maintenance of
way and other vehicles/equipment with lease terms of three to seven
years.
In 2005,
the Company commenced the construction of an intermodal facility that it intends
to sell to a third party and subsequently lease back. Once construction of the
facility is complete and all improvements have been sold to the third party,
BNSF will lease the facility from the third party for 20 years. Construction is
expected to be completed by mid-2009 with an approximate cost of $160 million.
As of December 31, 2008, BNSF has sold $109 million of completed improvements.
This sale leaseback transaction is being accounted for as a financing obligation
due to continuing involvement. The outflows from the construction of the
facility are classified as investing activities, and the inflows from the
associated financing proceeds are classified as financing activities in the
Company’s Consolidated Statements of Cash Flows.
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 are being 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 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 entered into capital leases totaling $119 million
to finance maintenance of way and other vehicles/equipment with lease terms of
three to seven years.
2006
Net cash
used for financing activities during 2006 was $722 million, primarily
related to common stock repurchases of $730 million and dividend payments
of $310 million, which were partially offset by net debt borrowings of
$116 million, proceeds from stock options exercised of $116 million
and excess tax benefits from equity compensation plans of $95 million. Upon
adoption of Statement of Financial Accounting Standards (SFAS) No. 123R, the
excess tax benefits from equity compensation plans were classified in financing
activities. However, as the Company adopted SFAS No. 123R prospectively,
financial statements prior to January 1, 2006, include excess tax benefits as an
operating activity.
In August
2006, BNSF issued $300 million of 6.20 percent debentures due August 15,
2036. The net proceeds from the sale of the debentures are being used for
general corporate purposes including but not limited to working capital, capital
expenditures and the repayment of outstanding commercial paper. See Note 3 to
the Consolidated Financial Statements for information related to the hedges
unwound as part of this debt issuance.
In 2006,
BNSF entered into several capital leases totaling $108 million to finance
maintenance of way and other vehicles/equipment with lease terms of three to
seven years.
Dividends
Common
stock dividends declared were $1.44, $1.14 and $0.90 per share annually for
2008, 2007 and 2006, respectively. Dividends paid on common stock were $471
million, $380 million and $310 million during 2008, 2007 and 2006,
respectively. On October 23, 2008, the Board declared a quarterly dividend of
$0.40 per share on outstanding shares of common stock, payable January 2, 2009,
to shareholders of record on December 12, 2008. On February 13, 2009, the Board
declared a quarterly dividend of $0.40
per share on outstanding shares of common stock, payable April 1, 2009, to
shareholders of record on March 11, 2009.
22
Share
Repurchase Program
During
2008, 2007 and 2006, the Company repurchased approximately 12 million,
15 million and 18 million shares, respectively, of its common stock at
average prices of $92.96 per share, $83.96 per share and $73.43 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.
During
2008, BNSF agreed to acquire an additional 220 locomotives, bringing its total
commitment to 1,245 new locomotives to be acquired by 2013. As of December 31,
2008, BNSF had taken delivery of 377 of the 1,245 locomotives, all of which were
delivered in 2008.
Under an
agreement entered into in 2006, as amended, BNSF has remaining railcar purchase
obligations for 253 double-stack cars, 381 covered hopper cars, and 152 autorack
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 5.04 and 4.62 times for the
years ended December 31, 2008 and 2007, respectively. Additionally, the
Company’s ratio of net cash provided by operating activities divided by total
average debt was 46 percent and 44 percent for the years ended December 31, 2008
and 2007, respectively. The increase in the ratio of net cash provided by
operating activities divided by total average debt was primarily due to
increased earnings.
The
following table summarizes the Company’s obligations under long-term debt and
other contractual commitments at December 31, 2008 (in millions):
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.
23
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, 2008, 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 $6 billion
of debt capacity above BNSF’s outstanding debt as of December 31, 2008, 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.
Market
Conditions
In spite
of the current volatility, the Company believes it will have access to the
capital markets and external sources of funds through debt issuance, including
secured and unsecured markets, commercial paper, leasing of assets and the sale
of a portion of its accounts receivable, as required to maintain liquidity.
Additionally, while the Company has seen a reduction in volumes in its
economically sensitive business sectors such as housing and consumer, it has a
diverse customer base. The Company has not seen a material increase
in aging or defaults but is monitoring several significant customers due to
adverse credit-ratings. See further discussion of funding sources throughout
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
BNSF’s
fuel and interest rate hedging programs, revolving credit facility and accounts
receivable sales program involve relationships with high-quality counterparties
with credit ratings of A or higher as of December 31, 2008. As a requirement of
certain leasing arrangements, BNSF has approximately $359 million in deposits
with various high-quality banks that will be used to make future capital lease
payments. These banks had a credit rating of A or higher as of December 31,
2008. On an ongoing basis, BNSF monitors the credit ratings of its various
counterparties.
Recently,
BNSF’s pension plan has suffered losses associated with the general market
downturn which may ultimately impact the timing and/or increase the amount of
BNSF’s future cash contributions. BNSF’s plan investments are broadly
diversified, and despite the recent downturn, BNSF does not anticipate this will
have a significant impact on its ability to fund its future pension plan
obligations.
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 $6 billion of debt capacity
above BNSF’s outstanding debt as of December 31, 2008. At December 31, 2008, 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 sales facilities and two $175
million, 3-year accounts receivable sales facilities. BNSF Railway extended the
maturity date of one 364-day facility to November 2009 and extended the maturity
date of the other 364-day facility to March 2009, at which time the Company
expects to extend it to November 2009. The two 3-year facilities were entered
into in November 2007 and will mature in November 2010. Outstanding undivided
interests held by investors under the accounts receivable sales program were $50
million and $300 million at December 31, 2008 and December 31, 2007,
respectively. Management expects to be able to either extend the commitment of
the current investors under the 364-day facilities past November 2009 or to find
additional investors in the accounts receivable sales program who will commit to
purchase undivided interests after November 2009.
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. Since the funding is collateralized by BNSF
receivables, the risk of exposure is only as great as the risk of default on
these receivables (see Note 6 to the Consolidated Financial Statements for
additional information).
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).
24
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 hold or issue 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 SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, 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,
2008, BNSF’s counterparties have credit ratings of 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 SFAS No. 157, 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.
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 provided by the counterparties to
these agreements. This methodology is a market approach, which under SFAS No.
157 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.
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 resolve all wage, work
rule and benefit 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.
Seattle
Sound Transit
In
December 2003, BNSF Railway Company 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.
25
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 closed
on two of the four line segments and recognized gains of $22 million. The third
and fourth line segments are expected to close in 2009 and any related gain will
be immaterial. The impairment charge and the gains were recorded as a
component of materials and other expense.
American
Jobs Creation Act of 2004
In
October 2004, the American Jobs Creation Act of 2004 was signed into law. Part
of the legislation includes the repeal of a 4.3–cent tax per gallon of diesel
fuel. The tax was gradually phased out in 2005 and 2006 and was completely
phased out January 1, 2007. Based on actual fuel consumption, the repeal of the
tax resulted in $32 million and $8 million in incremental savings for
the years ended December 31, 2007 and 2006, respectively, with no impact to the
year ended December 31, 2008.
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.
26
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:
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:
27
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 $45 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 $20 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.
28
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 $1,253 million, $1,128 million and $1,107 million for
the years ended December 31, 2008, 2007 and 2006, respectively. BNSF’s
Consolidated Balance Sheets reflect $442 million and $290 million of
net current deferred tax assets at December 31, 2008 and 2007, respectively.
Also included in BNSF’s Consolidated Balance Sheets are $8,590 million and
$8,484 million of net non-current deferred tax liabilities at December 31,
2008 and 2007, 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
