UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K | | | | | |
| (Mark One) |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[x]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20182021
OR
[ ]TRANSITION | | | | | |
| ☐ | 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:Commission file number 1-11535
BURLINGTON NORTHERN SANTA FE, LLC
(Exact name of registrant as specified in its charter)
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Burlington Northern Santa Fe, LLCDelaware | | 27-1754839 |
(State or other jurisdiction of Organization Delaware
incorporation or organization) | | (I.R.S. Employer Identification No. 27-1754839)
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2650 Lou Menk Drive
Fort Worth, Texas
(Address of principal executive offices)
76131-2830
(Zip Code)
(800) 795-2673
(Registrant’s telephone number, including area code) | | | | | | | | |
Address of principal executive offices, including zip code
2650 Lou Menk Drive, Fort Worth, Texas 76131-2830
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Registrant’s telephone number, including area code
(800) 795-2673
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| Securities registered pursuant to Section 12(b) of the Act: | |
Title of each class None
| Trading symbol(s) | Name of each exchange on which registered None
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None | None | None |
| Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Membership Interest |
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| Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | Yes [x] | ☒ | No [ ] | ☐ |
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| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. | Yes [ ] | ☐ | No [x] | ☒ |
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Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementrequirements for the past 90 days. | Yes [x] | ☒ | No [ ] | ☐ |
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Yes [x] No [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | [x] |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ] | ☐ | Accelerated filer [ ] | ☐ | Non-accelerated filer [x] | ☒ | Smaller reporting company [ ] | ☐ | Emerging growth company [ ] | ☐ |
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| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | [ ] | ☐ | | |
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. | | ☐ | | |
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| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | Yes [ ] | ☐ | No [x] | ☒ |
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| Burlington Northern Santa Fe, LLC is an indirect, wholly-owned subsidiary of Berkshire Hathaway Inc.; as a result, there is no market data with respect to registrant’s membership interests. |
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| Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: |
100% of the membership interests of Burlington Northern Santa Fe, LLC outstanding as of February 22, 201928, 2022 is held by National Indemnity Company, a wholly-owned subsidiary of Berkshire Hathaway Inc. |
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Documents Incorporated by Reference: None
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
Part I
Item 1. Business
Burlington Northern Santa Fe Corporation was incorporated in the State of Delaware on December 16, 1994. On February 12, 2010, Berkshire Hathaway Inc., a Delaware corporation (Berkshire), acquired 100% of the outstanding shares of Burlington Northern Santa Fe Corporation common stock that it did not already own. The acquisition was completed through the merger (Merger) of a Berkshire wholly-owned merger subsidiary and Burlington Northern Santa Fe Corporation with the surviving entity renamed Burlington Northern Santa Fe, LLC (BNSF)(BNSF, Registrant, or Company). Further information about the Merger is incorporated by reference from Note 1 to the Consolidated Financial Statements.
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, 2018, BNSF and its subsidiaries had approximately 45,000 employees. The rail operations of BNSF Railway Company (BNSF Railway), the Company’s principal operating subsidiary, comprise one of the largest railroad systems in North America. As of December 31, 2021, BNSF Railway had approximately 35,125 employees.
BNSF’s internet address is www.bnsf.com. Through this internet website (under the “About BNSF/Financial Information” 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 these reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission (SEC). BNSF makes available on its website other previously filed SEC reports, registration statements and exhibits via a link to the SEC’s website at www.sec.gov. BNSF’s Code of Conduct for officers and salaried employees, along with other information about ourits business, is also made available on the Company’s website. BNSF intends to disclose any amendments to the Code of Conduct or any waiver from a provision of the Code of Conduct on its website.
Further discussion of the Company’s business, including equipment and its business units, is incorporated by reference from Item 2, “Properties”.
Item 1A. Risk Factors
The information set forth in Item 1A should be read in conjunction with the rest of the information in this report, including Item 7, "Management’s Narrative Analysis of Results of Operations", and Item 8, "Financial Statements and Supplementary Data".
Legal and Regulatory Risks.
The Company’s success depends on its ability to continue to comply with the significant federal, state, and local governmental regulations to which it is subject.
The Company is subject to a significant amount of governmental laws and regulations with respect to its rates and practices, taxes, railroad operations, and a variety of health, safety, labor, environmental, and other matters. Failure to comply with applicable laws and regulations could have a material adverse effect on the Company. Governments may change the legislative and/or regulatory framework within which the Company operates without providing the Company with any recourse for any adverse effects that the change may have on its business. Complying with legislative and regulatory changes may pose significant operating and implementation risks and require significant capital expenditures.
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, regulation of greenhouse gas emissions, permitting, or other regulatory requirements could reduce the demand for coal and other fossil fuels, or other products and revenues from the transportation services provided by BNSF Railway. Also, changes in environmental laws and other laws and regulations could reduce the demand for drilling products and products produced by drilling. United States and foreign government tariffs or subsidies could affect the demand for products the Company hauls. 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 (STB) in various areas, including rates, services, and access to facilities could adversely impact the Company’s ability to determine prices for rail services and significantly affect the revenues, costs, and profitability of the Company’s business. Additionally, because of the significant costs to maintain its rail network, a reduction in profitability could hinder the Company’s ability to maintain, improve, or expand its rail network, facilities and equipment. Federal or state spending on infrastructure improvements or incentives that favor other modes of transportation could also adversely affect the Company’s revenues. Changes in tax rates, enactment of new tax laws and amendments to existing tax regulations could have a material adverse impact on the Company’s operating results, financial condition, or liquidity.
The Company’s success dependsCompany is subject to stringent environmental laws and regulations, which may impose significant costs on its abilitybusiness operations.
The Company’s operations are subject to continue to comply with the significantextensive federal, state, and local governmentalenvironmental laws and regulations concerning, among other things, emissions to the air; discharges to the ground or waters; the generation, handling, storage, transportation, and disposal of waste and hazardous materials; and the cleanup of hazardous material or petroleum releases. 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, other third parties in toxic tort litigation, or as a result of alleged damages to natural resources or environmental incidents. 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 may also incur fines, penalties and other sanctions to resolve any alleged violations of environmental law. In addition, delays, litigation, local concerns, special interest opposition, and difficulty in obtaining approvals for projects requiring federal, state, or local equivalent permitting could inhibit the Company’s ability to build strategic facilities and rail infrastructure, which it is subject.could adversely impact growth and operational efficiency.
Climate change, market or regulatory responses to climate change, and other emissions-related laws and regulations could adversely affect the Company’s operations and financial results.
Climate change and other emissions-related laws and regulations have been proposed, and in some cases adopted, on the federal, state, provincial, and local levels. These final and proposed laws and regulations take the form of restrictions, caps, taxes, or other controls on emissions. Changes in clean air laws, regulation of greenhouse gas emissions, and permitting or other regulatory requirements could reduce the demand for coal or other commodities we carry and, thereby, affect revenues from the transportation services provided by BNSF Railway. Emission regulations, including additional federal, state, or local carbon pricing, could also affect fuel efficiency and increase operating costs. Significant cost increases, government regulation, or changes in consumer preferences for goods and services relating to alternative sources of energy or emission reductions could materially affect the markets for the commodities we carry, which in turn could have a material adverse effect on operations, financial condition, and liquidity. Finally, changes to or limits on greenhouse gas emissions and other criteria air pollutants could also result in significant capital expenditures to comply with these regulations.
The Company is subject to a significantvarious claims and lawsuits, and increases in the amount or severity of governmental lawsthese claims and regulations with respect tolawsuits could adversely affect the Company’s operating results, financial condition, or liquidity.
As part of its rates and practices, taxes, railroad operations, the Company is exposed to various claims and a variety of health, safety, labor,litigation related to commercial disputes, personal injury, property damage, environmental liability, and other matters. FailurePersonal injury claims by BNSF Railway employees are subject to comply with applicable lawsthe Federal Employers’ Liability Act (FELA) rather than state workers’ compensation laws. The Company believes that the FELA system, which includes unscheduled awards and regulationsa reliance on the jury system, can contribute to increased expenses. Other proceedings include claims by third parties for punitive as well as compensatory damages and, from time to time, may include proceedings that have been certified as or purport to be class actions. Developments in legislative and judicial standards, material changes to litigation trends, or a catastrophic rail accident or series of accidents involving any or all of property damage, personal injury, and environmental liability could have a material adverse effect on the Company. GovernmentsCompany’s operating results, financial condition, or liquidity.
Operational Risks.
Fuel supply availability, fuel prices and dependency on certain key railroad equipment and material suppliers may changeadversely affect the legislative and/Company’s results of operations, financial condition, or regulatory framework within whichliquidity.
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 operates without providingexpects to be able to recover a significant portion of these higher fuel costs. However, to the extent that the Company with any recourse for anyis unable to recover these costs, increases in fuel prices could have an adverse effects thateffect on the change may have on its business. For example, enacted federal legislation mandated the implementation of positive train control technology (PTC) by December 31, 2018, on certain mainline track where intercity and commuter passenger railroads operate and where toxic-by-inhalation (TIH) hazardous materials are transported.Company’s operating results, financial condition, or liquidity. Due to the Federal Railroad Administration’s (FRA) interpretationcapital intensive nature and sophistication of certain railroad equipment and material, prospective new suppliers are subject to high barriers of entry. If railroad equipment and material suppliers experience a supply or capacity shortage or discontinue operations, or if they are unable to meet regulatory specifications, the PTC mandateCompany could experience significant cost increases as requiring all railroads that run onwell as limited supply of railroad equipment and material necessary for the Company’s tracks to be compliant before the Company can be compliant, the FRA has confirmed an extension of the deadline for the Company to December 31, 2020. Complying with legislative and regulatory changes may pose significant operating and implementation risks and require significant capital expenditures.operations.
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 and operating restrictions.
BNSF Railway frequently transports chemicals and other hazardous materials and is required to transport these commodities to the extent of its common carrier obligation. A release of TIHtoxic inhalation hazard chemicals or other hazardous commodities could result in significant personal injury or loss of life and extensive property damage as well as environmental remediation and restoration obligations and penalties. 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. Regulatory imposition of routing or speed or other restrictions on the transportation of such products could adversely affect train velocity and network fluidity and adversely affect the Company’s results of operations, financial condition, or liquidity.
Severe weather and natural disasters could disrupt normal business operations, the potential effects of which could 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, climate change, and natural disasters, such as tornados, fires, flooding, and earthquakes, could cause significant business interruptions and result in increased costs and liabilities and decreased revenues. In addition, damages to or loss of use of significant aspects of the Company’s infrastructure due to natural or man-made disruptions could have an adverse effect on the Company’s operating results, financial condition, or liquidity for an extended period of time until repairs or replacements could be made. Additionally, during natural disasters, the Company’s workforce may be unavailable, which could result in further delays. Extreme swings in weather could also negatively affect the performance of locomotives and rolling stock.
The Company depends on the stability and availability of its technology systems.
The Company relies on technology in all aspects of its business. A significant disruption or failure of its technology systems could result in service interruptions, safety failures, security events, regulatory compliance failures, the inability to protect corporate information or assets against unauthorized use, or other operational difficulties. Although the Company has taken steps to mitigate these risks, including business continuity planning, disaster recovery planning, systems testing, protection and monitoring, and business impact analysis, a significant disruption or cyber intrusion could adversely affect the Company’s results of operations, financial condition, or liquidity. Additionally, if the Company is unable to acquire, develop, implement, adopt, or protect rights around 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, passenger trains, 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.
Significant unexpected increases in demand for the Company’s services may adversely affect service levels and operational efficiency.
If increases in demand for the Company’s services significantly exceed expectations, including in a particular geographical region, the Company may experience network difficulties including congestion or reduced velocity, negatively impacting the level of service provided. Although investments to add capacity continue to be made to meet future anticipated demand, delays in or inability to complete permitting may delay or preclude implementation of these capacity improvements. This may impact operational efficiency and could adversely affect the Company’s results of operations, financial condition, or liquidity.
Industry and Economic Risks.
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.
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. 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, may 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, maintain, and privately fund its rail system, trucks and barges are able to use public rights-of-way maintained and funded by public entities. Any material increase in the capacity and quality or decrease in the cost of these alternative methods or the passage of legislation granting greater latitude to motor carriers with respect to size and weight restrictions or driver requirements 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 or trade policy could also have an adverse effect on the Company’s volumes and revenues. Further, low natural gas or oil prices could impact future energy-related commodities demand.
The Company is subject to various claims and lawsuits, and increases in the amount or severity
As part of its railroad operations, the Company is exposed to various claims and litigation related to commercial disputes, personal injury, property damage, environmental liability and other matters. Personal injury claims by BNSF Railway employees are subject to the Federal Employers’ Liability Act (FELA), rather than state workers’ compensation laws. The Company believes that the FELA system, which includes unscheduled awards and a reliance on the jury system, can contribute to increased expenses. Other proceedings include claims by third parties for punitive as well as compensatory damages, and from time to time may include proceedings that have been certified as or purport to be class actions. Developments in legislative and judicial standards, material changes to litigation trends, or a catastrophic rail accident or series of accidents involving any or all of property damage, personal injury, and environmental liability could have a material adverse effect on the Company’s operating results, financial condition or liquidity.
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 the ground or 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 greenhouse gas emissions could result in significant capital expenditures to comply with these regulations with respect to BNSF Railway’s locomotives, equipment, vehicles and machinery and its yards and intermodal facilities and the cranes and trucks serving those facilities. Emission regulations, including carbon pricing, could also adversely affect fuel efficiency and increase operating costs. Delays, litigation, local concerns, special interest opposition and difficulty in obtaining approvals for projects requiring federal, state or local equivalent permitting could inhibit the Company’s ability to build strategic facilities and rail infrastructure, which could adversely impact growth and operational efficiency. 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, other third parties in toxic tort litigation or as a result of alleged damages to natural resources or environmental incidents. 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 may also incur fines, penalties and other sanctions to resolve any alleged violations of environmental law.
Downturns in the economy could adversely affect demand for the Company’s services.
Significant, extended negative changes in domestic and global economic conditions that impact the producers and consumers of the commodities transported by the Company may have an adverse effect on the Company’s operating results, financial condition or liquidity. Declines in or muted manufacturing activity, economic growth and international trade all could result in reduced revenues in one or more business units.
Negative changes in general economic conditions could lead to disruptions in the credit markets, increase credit risks and could adversely affect the Company’s financial condition or liquidity.
Challenging economic conditions may not only affect revenues due to reduced demand for many goods and commodities, but could result in payment delays, increased credit risk and possible bankruptcies of customers. The Company’s business is capital-intensive and the Company may finance a portion of the building and maintenance of infrastructure as well as the acquisition of 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 to its cash investments. Adverse economic conditions could also affect the Company’s costs for insurance or its ability to acquire and maintain adequate insurance coverage for risks associated with the railroad business if insurance companies experience credit downgrades or bankruptcies. Declines in the securities and credit markets could also affect the Company’s pension fund and railroad retirement tax rates, which in turn could increase funding requirements.
Fuel supply availability, fuel prices and dependency on certain key railroad equipment and material suppliers may adversely affectHuman Capital Risks.
Most of the Company’s resultsemployees are represented by unions, and failure to resolve disputes or negotiate reasonable 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. For ongoing negotiations, 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 or congressional 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 or a significant dispute arises that is unable to be resolved through the procedures provided in the Railway Labor Act, it could result in strikes by the affected workers, loss of business, disruption of operations, financial condition or liquidity.
Fuel supply availability could be impactedand increased operating costs as a result of limitations in refining capacity, disruptionshigher wages or benefits paid 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. Eachunion members, any of these factorswhich could have an adverse effect on the Company’s operating results, financial condition, or liquidity. If
The unavailability of qualified personnel could adversely affect the priceCompany’s operations.
Changes in demographics, training requirements, and the unavailability of fuel increases substantially,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 expects to be able to recover a significant portion of these higher fuel costs. However, tobelieves that it has adequate personnel for the extent that the Company is unable to recover these costs,current business environment, unpredictable increases in fuel pricesdemand 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 an adverse effect on the Company’s operating results, financial condition, or liquidity. Due to the capital intensive nature and sophistication of certain railroad equipment and material, prospective new suppliers are subject to high barriers of entry. If railroad equipment and material suppliers experience a supply or capacity shortage or discontinue operations or if they are unable to meet regulatory specifications, the Company could experience significant cost increases, as well as limited supply of railroad equipment and material necessary for the Company’s operations.
Severe weather and natural disasters could disrupt normal business operations, the potential effects of which could result in increased costs and liabilities and decreases in revenues.General Risk Factors.
The Company’s success is dependent on its ability to operate its railroad system efficiently. Severe weather, climate change and natural disasters, such as tornados, fires, flooding and earthquakes, could cause significant business interruptions and result in increased costs and liabilities and decreased revenues. In addition, damages to or loss of use of significant aspects of the Company’s infrastructure due to natural or man-made disruptions could have an adverse effect on the Company’s operating results, financial condition or liquidity for an extended period of time until repairs or replacements could be made. Additionally, during natural disasters, the Company’s workforce may be unavailable, which could result in further delays. Extreme swings in weather could also negatively affect the performance of locomotives and rolling stock.
The Company’s operational dependencies may adversely affect results of operations, financial condition or liquidity.
Due to the integrated nature of the United States’ freight transportation infrastructure, the Company’s operations may be negatively affected by service disruptions of other entities such as ports, passenger trains 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.
Significant unexpected increases in demand for the Company’s services may adversely affect service levels and operational efficiency.
If increases in demand for the Company’s services significantly exceed expectations, including in a particular geographical region, the Company may experience network difficulties including congestion or reduced velocity, negatively impacting the level of service provided. Although investments to add capacity continue to be made to meet future anticipated demand, delays in or inability to complete permitting may delay or preclude implementation of these capacity improvements. This may impact operational efficiency and could adversely affect the Company’s results of operations, financial condition or liquidity.
Acts of terrorism or war, as well as the threat of terrorism or 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 and 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 of or a sustained increase of fuel prices, fuel shortages, general economic decline, and instability or weakness of financial markets. In addition, insurance premiums charged for some or all of the coverage currently maintained by the Company could increase dramatically, the coverage available may not adequately compensate it for certain types of incidents and certain coverages may not be available to the Company in the future.
The Company depends onfaces risks related to epidemics, pandemics, and other outbreaks, including the stabilityCOVID-19 coronavirus, which may adversely affect its business, results of operations, and availability of its technology systems.financial condition.
The Company relies on technologyfaces risks related to epidemics, pandemics, and other outbreaks, including the COVID-19 coronavirus (“COVID-19”) pandemic, which has impacted geographic areas in all aspects of its business. A significant disruption or failure of its technology systems could result in service interruptions, safety failures, security events, regulatory compliance failures, the inability to protect corporate information or assets against unauthorized use or other operational difficulties. Althoughwhich the Company has taken stepsoperations, suppliers, customers, and employees. The COVID-19 pandemic continues to mitigate these risks, including business continuity planning, disaster recovery planning, systems testing, protectionevolve, and monitoring, and businessthe full extent to which it may impact analysis, a significant disruption or cyber intrusion could adversely affect the Company’s business, operating results, of operations, financial condition, or liquidity. Additionally, ifliquidity will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the Company is unable to acquire, develop, implement, adopt or protect rights around 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.
Mostduration of the Company’s employees are represented by unions,outbreak, travel restrictions, business and failureworkforce disruptions, and the effectiveness and impacts of actions taken to negotiate reasonable collective bargaining agreements may result in strikes, work stoppagescontain and treat the disease. Any one or substantially higher ongoing labor costs.
A significant majoritymore 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 rulesthese consequences or other unpredictable events, including future epidemics, pandemics 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. For ongoing negotiations, 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 or congressional 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, itoutbreaks, could result in strikes by the affected workers, loss of business, disruption of operations and increased operating costs as a result of higher wages or benefits paid to union members, any of which could have an adverse effect onmaterially adversely affect the Company’s operating results, financial condition, or liquidity. Further, the COVID-19 pandemic and other like events could also precipitate or heighten the other risks discussed in this Item 1A.
The unavailability of qualified personnel could adversely affect the Company’s operations.
Changes in demographics, training requirements and the unavailability of qualified personnel, particularly engineers and trainmen, could negatively impact the Company’s ability to meet demand for rail service. Recruiting and retaining qualified personnel, particularly those with expertise in the railroad industry, are vital to operations. Although the Company believes that it 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 an adverse effect on the Company’s operating results, financial condition or liquidity.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Track Configuration
BNSF Railway operates one of the largest railroad networks in North America. BNSF Railway operates approximatelyover 32,500 route miles of track (excluding multiple main tracks, yard tracks, and sidings) in 28 states and also operates in three Canadian provinces. BNSF Railway owns over 23,000 route miles, including easements, and operates on over 9,000 route miles of trackage rights that permit BNSF Railway to operate its trains with its crews over other railroads’ tracks.
As of December 31, 2018,2021, the total BNSF Railway system including(including single and multiple main tracks, yard tracks, and sidings,sidings) consisted of over 50,000 operated miles of track, all of which are owned by or held under easement by BNSF Railway except for over 10,000 miles operated under trackage rights.track.
Property and Facilities
BNSF Railway operates various facilities and equipment to support its transportation system, including its infrastructure and locomotives and freight cars. It also owns or leases other equipment to support rail operations, such as 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 approximately 25 intermodal hubs located across the system.
As of December 31, 2018,2021, BNSF Railway owned or held under non-cancelable leases exceeding one year approximately 8,0007,500 locomotives and 70,000 freight 63,600 freight cars, in addition to maintenance of way and other equipment.
In the ordinary course of business, BNSF incurs significant costs in repairing and maintaining its properties. In 2018,2021, BNSF recorded approximately $2 billion in repairs and maintenance expense in the Consolidated Statements of Income.
Business Mix
In serving the Midwest, Pacific Northwest, 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 the manufacturing, agricultural, and natural resource industries. Freight revenues of the Company are covered by contractual agreements of varying durations or 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 western and southern ports in the 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 railroads. BNSF has also entered into marketing agreements with other rail carriers, expanding the marketing reach for each railroad and our collective customers.
Consumer Products:
The Consumer Products freight business provided 3538 percent of freight revenues for the year ended December 31, 2018,2021, and consisted of the following business units: Domestic Intermodal (including Truckload/Intermodal Marketing Companies and Expedited Truckload/Less-than-Truckload/Parcel), International Intermodal, and Automotive.
Industrial Products:
The Industrial Products freight business provided 2624 percent of freight revenues for the year ended December 31, 2018,2021, and consisted of the following five business units: Construction Products, Petroleum Products, Building Products, Chemicals and Plastics Products, and Food and Beverages.
Agricultural Products:
The transportation of Agricultural Products provided 2123 percent of freight revenues for the year ended December 31, 2018.2021. These products include corn, wheat, ethanol, soybeans, bulk foods, fertilizer, oil seeds and meals, feeds, oils, flour and mill products, specialty grains, milo, barley, oats and rye, and malt.
Coal:
The transportation of coal contributed 1815 percent of freight revenues for the year ended December 31, 2018,2021, with more than 90 percent of all of BNSF’s coal tons originating from the Powder River Basin of Wyoming and Montana.
Government Regulation and Legislation
The Company’s rail operations are subject to the regulatory jurisdiction of the STB, the Federal Railroad Administration 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.
Further discussion is incorporated by reference from Note 13 to the Consolidated Financial Statements.
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 seek to develop technology and implementother 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.
Item 3. Legal Proceedings
On June 22, 2018, a loaded BNSF Railway train derailed in Doon, Iowa due to flooding. Some of the derailed railcars released petroleum hydrocarbons into floodwaters. The extent of the damage from the derailment was largely limited to properties adjacent to the rail line. The Company is workingworked with federal and state authorities to remediate property impacted by the incident. In addition, although no noticeOn December 16, 2021, the United States filed a complaint against BNSF Railway in the federal District Court for the Northern District of penalty has yet been issued, regulatoryIowa Western Division seeking civil penalties could exceed $100,000. Whilefor a violation of the costsClean Water Act along with a stipulation of resolving this matter are subject to further developments,settlement negotiated by the Company does not believe thatparties, which provides for a payment by BNSF Railway of approximately $1.5 million. The District Court approved and entered the outcome will have a material adverse effectstipulation of settlement on its financial position, results of operations or liquidity.December 17, 2021.
Beginning May 14, 2007, some 30 similar class action complaints were filed in six federal district courts around the country by rail shippers against BNSF Railway and other Class I railroads alleging that they have conspired to fix fuel surcharges with respect to unregulated freight transportation services in violation of the antitrust laws. The complaints seek injunctive relief and unspecified treble damages. These cases were consolidated and are currently pending in the federal District Court for the District of Columbia for coordinated or consolidated pretrial proceedings. (In re: Rail Freight Fuel Surcharge Antitrust Litigation, MDL No. 1869). Consolidated amended class action complaints were filed against BNSF Railway and three other Class I railroads in April 2008. On June 21, 2012, the District Court certified the class sought by the plaintiffs. BNSF Railway and the other three Class I railroads appealed the class certification decision to the U.S. Court of Appeals. On August 9, 2013, the U.S. Court of Appeals vacated the District Court’s class certification decision and remanded the case to permit the District Court to reconsider its decision in light of the United States Supreme Court case of Comcast Corp. v. Behrend. In September 2016, the District Court held a hearing to determine whether to certify a class. On October 10, 2017, the District Court denied the plaintiffs’ motion to certify a class. The plaintiffs appealed the denial of class certification to the U.S. Court of Appeals. In September 2018, the U.S. Court of Appeals held a hearing on the appeal of the denial of class certification, but no order has been issued.certification. On August 16, 2019, the U.S. Court of Appeals affirmed the District Court’s denial of class certification. The Company continues to believe that these claimsallegations are without merit and continueswill continue to defend against the allegations vigorously.vigorously dispute any such claims in any subsequent litigation by individual parties involving such allegations. The Company does not believe that the outcome of these proceedings will have a material effect on its financial condition, results of operations, or liquidity.
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 13 to the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities
All of the membership interests in Burlington Northern Santa Fe, LLC are owned by a subsidiary of Berkshire Hathaway Inc. and therefore are not traded on any market.
Item 7. Management’s Narrative Analysis of Results of Operations
Management’s narrative analysis relates to the results of operations of Burlington Northern Santa Fe, LLC and its majority-owned subsidiaries (collectively, BNSF, Registrant, or Company). The principal operating subsidiary of BNSF is BNSF Railway Company (BNSF Railway) through which BNSF derives substantially all of its revenues. The following narrative analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes.
The COVID-19 pandemic caused a significant economic slowdown that adversely affected the demand for the Company's services in 2020. While volumes significantly improved in 2021, the effects of the COVID-19 pandemic are ongoing, including disruptions in the global supply chain and changes to domestic consumer behavior. On November 8, 2021, the Company announced its intent to comply with the federal contractor vaccine mandate and the associated deadlines for employees to be fully vaccinated against COVID-19, unless legally entitled to an accommodation. The Company has paused its implementation of the COVID-19 vaccine mandate due to ongoing legal challenges pending in federal court. The Company will continue to monitor litigation affecting the vaccine mandate and will comply with applicable law. COVID-19 vaccine mandates could affect workforce availability, which could have a material effect on the Company's business operations, financial results, liquidity, and financial position.
The following narrative analysis of results of operations includes a brief discussion of the factors that materially affected the Company’s operating results in the year ended December 31, 2018,2021, and a comparative analysis of the year ended December 31, 2017.2020.
Results of Operations
Revenues Summary
The following tables present BNSF’s revenue information by business group:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Revenues (in millions) | | Cars / Units (in thousands) |
| | Years Ended December 31, | | Years Ended December 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| Consumer Products | | $ | 8,256 | | | $ | 7,262 | | | 5,673 | | | 5,266 | |
| Industrial Products | | 5,291 | | | 5,039 | | | 1,709 | | | 1,622 | |
| Agricultural Products | | 5,100 | | | 4,822 | | | 1,224 | | | 1,189 | |
| Coal | | 3,227 | | | 2,655 | | | 1,529 | | | 1,404 | |
| Total freight revenues | | 21,874 | | | 19,778 | | | 10,135 | | | 9,481 | |
| Other revenues | | 1,408 | | | 1,091 | | | | | |
| Total operating revenues | | $ | 23,282 | | | $ | 20,869 | | | | | |
|
| | | | | | | | | | | | | | |
| | | Revenues (in millions) | | Cars / Units (in thousands) |
| | | Year Ended | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2018 | | December 31,
2017 |
| Consumer Products | | $ | 7,902 |
| | $ | 7,111 |
| | 5,597 |
| | 5,439 |
|
| Industrial Products | | 5,967 |
| | 5,133 |
| | 1,991 |
| | 1,813 |
|
| Agricultural Products | | 4,697 |
| | 4,316 |
| | 1,208 |
| | 1,108 |
|
| Coal | | 4,012 |
| | 3,846 |
| | 1,902 |
| | 1,917 |
|
| Total freight revenues | | 22,578 |
| | 20,406 |
| | 10,698 |
| | 10,277 |
|
| Other revenues | | 1,277 |
| | 981 |
| | | | |
| Total operating revenues | | $ | 23,855 |
| | $ | 21,387 |
| | | | |
| | | | | | | | | | | | | | |
| | | Average Revenue Per Car / Unit |
| | Years Ended December 31, |
| | | 2021 | | 2020 |
| Consumer Products | | $ | 1,455 | | | $ | 1,379 | |
| Industrial Products | | 3,096 | | | 3,107 | |
| Agricultural Products | | 4,167 | | | 4,056 | |
| Coal | | 2,111 | | | 1,891 | |
| Total freight revenues | | $ | 2,158 | | | $ | 2,086 | |
|
| | | | | | | | |
| | | Average Revenue Per Car / Unit |
| | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 |
| Consumer Products | | $ | 1,412 |
| | $ | 1,307 |
|
| Industrial Products | | 2,997 |
| | 2,831 |
|
| Agricultural Products | | 3,888 |
| | 3,895 |
|
| Coal | | 2,109 |
| | 2,006 |
|
| Total freight revenues | | $ | 2,110 |
| | $ | 1,986 |
|
Fuel Surcharges
Freight revenues include both revenue for transportation services and fuel surcharges. Where BNSF’s fuel surcharge program is applied, it is intended to recover BNSF's incremental fuel costs when fuel prices exceed a threshold fuel price. Fuel surcharges are calculated differently depending on the type of commodity transported. BNSF has two standard fuel surcharge programs - Percent of Revenue and Mileage-Based. In addition, in certain commodities, fuel surcharge is calculated using a fuel price from a time period that can be up to 60 days earlier. In a period of volatile fuel prices or changing customer business mix, changes in fuel expense and fuel surcharge may differ significantly.
The following table presents fuel surcharge and fuel expense information (in millions):
| | | | | | | | | | | |
| Years Ended December 31, |
| | 2021 | | 2020 |
Fuel expensea | $ | 2,766 | | | $ | 1,789 | |
| Fuel surcharges | $ | 1,334 | | | $ | 763 | |
|
| | | | | | | |
| | Year Ended | | Year Ended |
| | December 31,
2018 | | December 31,
2017 |
Total fuel expensea | $ | 3,346 |
| | $ | 2,518 |
|
| BNSF fuel surcharges | $ | 1,409 |
| | $ | 853 |
|
a Total fuelFuel expense includes locomotive and non-locomotive fuel.
Year Ended December 31, 20182021 vs. Year Ended December 31, 20172020
Revenues
Revenues for the year ended December 31, 20182021 were $23.9$23.3 billion, an increase of $2.5$2.4 billion, or 12 percent, as compared with the year ended December 31, 2017. The increase in revenue is2020 primarily due to a 47 percent increase in unit volume and ana 3 percent increase in average revenue per car /car/ unit. The changeRevenue changes were driven by continued improvements from the 2020 effects of the COVID-19 pandemic, partially offset by the ongoing disruptions in revenues is due tothe global supply chain, as well as the following:
Average revenue per car / unit increased 6 percent as a result of increased rates per car / unit, higher fuel surcharges driven by higher fuel prices, and business mix changes.
•Consumer Products volumes increased primarily due to highergrowth in intermodal in both international and domestic intermodal volumes, which wereshipments driven by economic growthincreased retail sales, inventory replenishments by retailers, and tight truck capacity leading to conversion from highway to rail, as well as growth in imports and containerized agricultural product exports, partially offset by a contract loss.increased e-commerce activity.
•Industrial Products volumes increased primarily due to strengthimprovement in the U.S. industrial economy driving higher volumes in the construction and building sectors, partially offset by lower petroleum volumes due to unfavorable market conditions in the energy sectors which drove higher demand for petroleum products, building products, construction products, and plastics.sector.
•Agricultural Products volumes increased primarily due to strong export and domestic cornhigher grain shipments, as well as higher fertilizervolumes of ethanol and other grain products volumes, partially offset by a reduction in soybean and wheat exports.related commodities.
•Coal volumes decreasedincreased primarily due mainly to plant retirements combined with competition fromincreased electricity generation, higher natural gas and renewables, mostly offset by market share gainsprices and improved export volumes.demand.
Expense Table
The following table presents BNSF’s expense information (in millions):
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | 2021 | | 2020 |
| Compensation and benefits | | $ | 4,767 | | | $ | 4,609 | |
| Purchased services | | 2,715 | | | 2,554 | |
| Depreciation and amortization | | 2,456 | | | 2,476 | |
| Fuel | | 2,766 | | | 1,789 | |
| Equipment rents | | 677 | | | 664 | |
| Materials and other | | 1,103 | | | 1,037 | |
| Total operating expenses | | $ | 14,484 | | | $ | 13,129 | |
| | | | |
| Interest expense | | $ | 1,032 | | | $ | 1,037 | |
| Other (income) expense, net | | $ | (95) | | | $ | (89) | |
| Income tax expense (benefit) | | $ | 1,871 | | | $ | 1,631 | |
|
| | | | | | | | |
| | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 |
| Compensation and benefits | | $ | 5,394 |
| | $ | 5,023 |
|
| Fuel | | 3,346 |
| | 2,518 |
|
| Purchased services | | 2,870 |
| | 2,514 |
|
| Depreciation and amortization | | 2,317 |
| | 2,352 |
|
| Equipment rents | | 732 |
| | 784 |
|
| Materials and other | | 1,396 |
| | 903 |
|
| Total operating expenses | | $ | 16,055 |
| | $ | 14,094 |
|
| | | | | |
| Interest expense | | $ | 1,041 |
| | $ | 1,016 |
|
| Other (income) expense, net | | $ | (104 | ) | | $ | (51 | ) |
| Income tax expense (benefit) | | $ | 1,644 |
| | $ | (4,972 | ) |
Expenses
Operating expenses for the year ended December 31, 20182021 were $16.1$14.5 billion, an increase of $2.0$1.4 billion, or 1410 percent, as compared with the year ended December 31, 2017.2020. A significant portion of thisthe increase is due to the following changes in expenses:
•Compensation and benefits expense increased primarily due to increased volume, wage inflation and health and welfare costs, partially offset by productivity improvements.
•Purchased services expense increased primarily due to higher headcountvolumes, insurance recoveries in 2020 related to 2019 flooding, and associated training costs.higher volume-driven purchased transportation costs of our logistics services business, offset by improved productivity.
•Fuel expense increased primarily due to higher average fuel prices and increased volumes.prices.
Purchased services expense increased as a result of higher purchased transportation costs of our logistics services business, which are offset in other revenues, as well as increased intermodal ramping, drayage, and other volume-related costs.
Materials and other expense increased primarily as a result of higher locomotive material, personal injury expenses, derailment-related costs, and property taxes as well as the 2017 benefit of the Tax Cuts and Jobs Act (the Tax Act) on an equity method investee.
•There were no significant changes in depreciation and amortization, equipment rents, materials and other, interest expense, and other (income) expense, net.
The effective tax rate was 24.023.8 percent and negative 78.624.0 percent for the years ended December 31, 20182021 and 2017,2020, respectively. The reduction in the U.S. statutory income tax rate under the Tax Act, effective January 1, 2018, drove most
Other Matters
On December 7, 2018, BNSF received a clarified interim award from the arbitration panel in its arbitration with J.B. Hunt Transport Services, Inc. (JBHT). While there are still matters to be finalized by the panel, the decision confirmed favorable revenue division adjustments to BNSF for 2016, 2017, 2018 and prospective periods. The panel issued an additional interim award on January 11, 2019 requiring JBHT to pay BNSF within the first quarter of 2019 approximately $89 million for additional revenue owed BNSF for 2016 and 2017. JBHT will also owe a similar annualized amount for 2018. Both parties have been instructed to provide additional submissions to the arbitration panel to facilitate a final decision on the other outstanding matters raised during the arbitration process. The awarded incremental revenue amounts for prior years discussed above have not been recognized in the financial statements.
Forward-Looking Information
To the extent that statements made by the Company relate to the Company’s future economic performance or business outlook, projections or expectations of financial or operational results, or refer to matters that are not historical facts, such statements are “forward-looking” statements within the meaning of the federal securities laws.
Forward-looking statements involve a number of risks and uncertainties, and actual performance or results may differ materially. For a discussion of material risks and uncertainties that the Company faces, see the discussion in Item 1A, “Risk Factors”. Important factors that could cause actual results to differ materially include, but are not limited to, the following:
•Economic and industry conditions: material adverse changes in economic or industry conditions, both in the United States and globally; volatility in the capital or credit markets including changes affecting the timely availability and cost of capital; changes in customer demand; effects of adverse economic conditions affecting shippers or BNSF’s supplier base; effects due to more stringent regulatory policies such as the regulation of greenhouse gas emissions that could reduce the demand for coal or governmental tariffs or subsidies that could affect the demand for products BNSF hauls; the impact of low natural gas or oil prices on energy-related commodities demand; changes in environmental laws and other laws and regulations that could affect the demand for drilling products and products produced by drilling; changes in prices of fuel and other key materials, the impact of high barriers to entry for prospective new suppliers and disruptions in supply chains for these materials; competition and consolidation within the transportation industry; and changes in crew availability, labor and benefits costs and labor difficulties, including stoppages affecting either BNSF’s operations or customers’ abilities to deliver goods to BNSF for shipment.
•Legal, legislative and regulatory factors: developments and changes in laws and regulations, including those affecting train operations, the marketing of services or regulatory restrictions on equipment; the ultimate outcome of shipper and rate claims subject to adjudication; claims, investigations or litigation alleging violations of the antitrust laws; increased economic regulation of the rail industry through legislative action and revised rules and standards applied by the U.S. Surface Transportation Board in various areas including rates and services; developments in environmental investigations or proceedings with respect to rail operations or current or past ownership or control of real property or properties owned by others impacted by BNSF operations; losses resulting from claims and litigation relating to personal injuries, asbestos and other occupational diseases; the release of hazardous materials, environmental contamination and damage to property; regulation, restrictions or caps, or other controls on transportation of energy-related commodities or other operating restrictions that could affect operations or increase costs; the availability of adequate insurance to cover the risks associated with operations; and changes in tax rates and tax laws.
•Operating factors: changes in operating conditions and costs; operational and other difficulties in implementing positive train control technology, including increased compliance or operational costs or penalties; restrictions on development and expansion plans due to environmental concerns; disruptions to BNSF’s technology network including computer systems and software, such as cybersecurity intrusions, misappropriation of assets or sensitive information, corruption of data or operational disruptions; network congestion, including effects of greater than anticipated demand for transportation services and equipment; as well as pandemics or natural events such as severe weather, fires, floods and earthquakes or man-made or other disruptions of BNSF’s or other railroads’ operating systems, structures, or equipment including the effects of acts of war or terrorism on the Company’s system or other railroads’ systems or other links in the transportation chain.
The Company cautions against placing undue reliance on forward-looking statements, which reflect its current beliefs and are based on information currently available to it as of the date a forward-looking statement is made. The Company undertakes no obligation to revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs. In the event the Company does update any forward-looking statement, no inference should be made that the Company will make additional updates with respect to that statement, related matters, or any other forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Sensitivity
AtAs of December 31, 2018,2021, BNSF maintained fuel inventories for use in normal operations which were not material to BNSF’s overall financial position and, therefore, represent no significant market exposure. The frequency of BNSF’s fuel inventory turnover also reduces market exposure, should fuel inventories become material to BNSF’s overall financial position.
Interest Rate Sensitivity
AtAs of December 31, 2018,2021, the fair value of BNSF’s debt, excluding capitalfinance leases, was $24.1$27.7 billion.
The following table is an estimate of the impact to the fair value of total debt, excluding capitalfinance leases, and unamortized gains on interest rate swaps, that could result from hypothetical interest rate changes during the twelve-month period ending December 31, 2019,2022, based on debt levels as of December 31, 2018:
|
| | | | | | | | | | |
| Sensitivity Analysis |
Hypothetical Change
in Interest Rates
| | Change in Fair Value |
| Total Debt |
| 1-percent decrease | |
$3.7 | $2.8 |
| billion increase |
| 1-percent increase | |
$3.0 | $2.3 |
| billion decrease |
Information on the Company’s debt, which may be sensitive to interest rate fluctuations, is incorporated by reference from Note 12 to the Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of BNSF and subsidiary companies, together with the report of the Company’s independent registered public accounting firm, are included as part of this filing.
The following documents are filed as a part of this report:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of ManagersDirectors and Member of
Burlington Northern Santa Fe, LLC
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheetsconsolidated balance sheets of Burlington Northern Santa Fe, LLC and subsidiaries (the “Company”"Company") as of December 31, 20182021 and 2017, and2020, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2018,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Property and Equipment – Self Constructed Assets – Appropriate Capitalization of Costs – Refer to Notes 2 and 7 to the financial statements.
Critical Audit Matter Description
The Company self-constructs portions of its track structure and rebuilds certain classes of rolling stock. Costs that increase capacity, enhance the safety or efficiency of operations, extend the useful life or increase the value of an asset, gain strategic benefit, or provide new service offerings to customers are capitalized by the Company. In addition to direct labor and materials, indirect costs that clearly relate to capital projects are also capitalized. The determination by management of costs considered normal repairs and maintenance operating expense versus costs that are capitalized requires significant management judgement.
We identified the capitalization of cost additions to self-constructed assets as a critical audit matter. Management makes significant judgements when evaluating whether the costs should be charged to the self-constructed asset project and if the specific project the costs are assigned to meet the generally accepted accounting principles requirements related to capitalization. This required a high degree of auditor judgement when performing audit procedures to evaluate compliance with the criteria for cost capitalization and to evaluate the sufficiency of audit evidence obtained.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to test management’s judgements included the following, among others:
•For the year ended December 31, 2021, the Company capitalized costs of $2.9 billion. We obtained the detail of all property additions for the year and segregated the additions into categories to isolate assets self-constructed by the Company from assets purchased by the Company from third parties. We made sample selections from the self-constructed asset detail and obtained the details of the specific selected cost and related supporting documents.
•We assessed whether the nature of the selected cost reasonably reflected the nature of the capital project to which it was charged.
•We inquired with individuals in the Company’s engineering and operating departments to understand the nature of projects that were selected for testing to determine if it was a normal repairs and maintenance type project or if it was a project that should be capitalized.
•Based on the audit evidence obtained, we evaluated management’s judgement that the selected cost on the selected self-constructed project should have been capitalized as an asset based on the nature of the project.
/s/ DELOITTE & TOUCHE LLP
Fort Worth, Texas
February 22, 201928, 2022
We have served as the Company’s auditor since 2010.
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Income
In millions
| | | | | Year Ended | | Year Ended | | Year Ended | | Years ended December 31, |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 | | | 2021 | | 2020 | | 2019 |
| Revenues | | $ | 23,855 |
| | $ | 21,387 |
| | $ | 19,829 |
| Revenues | | $ | 23,282 | | | $ | 20,869 | | | $ | 23,515 | |
| Operating expenses: | | | | | | | Operating expenses: | | | | | |
| Compensation and benefits | | 5,394 |
| | 5,023 |
| | 4,809 |
| Compensation and benefits | | 4,767 | | | 4,609 | | | 5,347 | |
| Fuel | | 3,346 |
| | 2,518 |
| | 1,934 |
| Fuel | | 2,766 | | | 1,789 | | | 2,944 | |
| Purchased services | | 2,870 |
| | 2,514 |
| | 2,418 |
| Purchased services | | 2,715 | | | 2,554 | | | 2,700 | |
| Depreciation and amortization | | 2,317 |
| | 2,352 |
| | 2,128 |
| Depreciation and amortization | | 2,456 | | | 2,476 | | | 2,403 | |
| Equipment rents | | 732 |
| | 784 |
| | 766 |
| Equipment rents | | 677 | | | 664 | | | 758 | |
| Materials and other | | 1,396 |
| | 903 |
| | 1,129 |
| Materials and other | | 1,103 | | | 1,037 | | | 1,292 | |
| Total operating expenses | | 16,055 |
| | 14,094 |
| | 13,184 |
| Total operating expenses | | 14,484 | | | 13,129 | | | 15,444 | |
| Operating income | | 7,800 |
| | 7,293 |
| | 6,645 |
| Operating income | | 8,798 | | | 7,740 | | | 8,071 | |
| Interest expense | | 1,041 |
| | 1,016 |
| | 992 |
| Interest expense | | 1,032 | | | 1,037 | | | 1,070 | |
| Other (income) expense, net | | (104 | ) | | (51 | ) | | (40 | ) | Other (income) expense, net | | (95) | | | (89) | | | (249) | |
| Income before income taxes | | 6,863 |
| | 6,328 |
| | 5,693 |
| Income before income taxes | | 7,861 | | | 6,792 | | | 7,250 | |
| Income tax expense (benefit) | | 1,644 |
| | (4,972 | ) | | 2,124 |
| |
| Income tax expense | | Income tax expense | | 1,871 | | | 1,631 | | | 1,769 | |
| Net income | | $ | 5,219 |
| | $ | 11,300 |
| | $ | 3,569 |
| Net income | | $ | 5,990 | | | $ | 5,161 | | | $ | 5,481 | |
See accompanying Notes to Consolidated Financial Statements.
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Comprehensive Income
In millions
| | | | | Year Ended | | Year Ended | | Year Ended | | Years ended December 31, |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 | | | 2021 | | 2020 | | 2019 |
| Net income | | $ | 5,219 |
| | $ | 11,300 |
| | $ | 3,569 |
| Net income | | $ | 5,990 | | | $ | 5,161 | | | $ | 5,481 | |
| | | | | | | | | | | |
| Other comprehensive income: | | | | | | | Other comprehensive income: | |
| Change in pension and retiree health and welfare benefits, net of taxes | | (127 | ) | | 112 |
| | 72 |
| |
| Change in pension and retiree health and welfare benefits, net of tax | | Change in pension and retiree health and welfare benefits, net of tax | | 255 | | | (48) | | | 16 | |
| Change in accumulated other comprehensive income (loss) of equity method investees | | 1 |
| | — |
| | (1 | ) | Change in accumulated other comprehensive income (loss) of equity method investees | | — | | | 1 | | | (1) | |
| Other comprehensive (loss) income, net of tax | | (126 | ) | | 112 |
| | 71 |
| |
| Other comprehensive income (loss), net of tax | | Other comprehensive income (loss), net of tax | | 255 | | | (47) | | | 15 | |
| Total comprehensive income | | $ | 5,093 |
| | $ | 11,412 |
| | $ | 3,640 |
| Total comprehensive income | | $ | 6,245 | | | $ | 5,114 | | | $ | 5,496 | |
See accompanying Notes to Consolidated Financial Statements.
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Balance Sheets
In millions
| | | | | | | | | | | | | | |
| | | December 31,
2021 | | December 31,
2020 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 1,758 | | | $ | 1,986 | |
| Accounts receivable, net | | 1,316 | | | 1,243 | |
| Materials and supplies | | 864 | | | 803 | |
| | | | |
| Other current assets | | 114 | | | 91 | |
| Total current assets | | 4,052 | | | 4,123 | |
| | | | |
| Property and equipment, net of accumulated depreciation of $14,978 and $13,175, respectively | | 65,714 | | | 65,088 | |
| Goodwill | | 14,852 | | | 14,851 | |
| Operating lease right-of-use assets | | 1,592 | | | 1,928 | |
| | | | |
| Other assets | | 5,227 | | | 2,670 | |
| Total assets | | $ | 91,437 | | | $ | 88,660 | |
| | | | |
| Liabilities and Equity | | | | |
| Current liabilities: | | | | |
| Accounts payable and other current liabilities | | $ | 3,896 | | | $ | 3,434 | |
| Long-term debt and finance leases due within one year | | 932 | | | 917 | |
| Total current liabilities | | 4,828 | | | 4,351 | |
| | | | |
| Long-term debt and finance leases | | 22,287 | | | 22,303 | |
| Deferred income taxes | | 15,156 | | | 14,626 | |
| Operating lease liabilities | | 1,015 | | | 1,286 | |
| Casualty and environmental liabilities | | 427 | | | 428 | |
| | | | |
| Pension and retiree health and welfare liability | | 291 | | | 314 | |
| Other liabilities | | 984 | | | 1,348 | |
| Total liabilities | | 44,988 | | | 44,656 | |
| Commitments and contingencies (see Note 13) | | 0 | | 0 |
| Equity: | | | | |
| Member’s equity | | 46,096 | | | 43,906 | |
| Accumulated other comprehensive income (loss) | | 353 | | | 98 | |
| Total equity | | 46,449 | | | 44,004 | |
| Total liabilities and equity | | $ | 91,437 | | | $ | 88,660 | |
|
| | | | | | | | |
| | | December 31,
2018 | | December 31,
2017 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 1,985 |
| | $ | 1,975 |
|
| Accounts receivable, net | | 1,499 |
| | 1,448 |
|
| Materials and supplies | | 793 |
| | 803 |
|
| Other current assets | | 257 |
| | 408 |
|
| Total current assets | | 4,534 |
| | 4,634 |
|
| | | | | |
| Property and equipment, net of accumulated depreciation of $10,004 and $8,627, respectively | | 63,185 |
| | 62,313 |
|
| Goodwill | | 14,851 |
| | 14,845 |
|
| Intangible assets, net | | 373 |
| | 394 |
|
| Other assets | | 2,150 |
| | 2,337 |
|
| Total assets | | $ | 85,093 |
| | $ | 84,523 |
|
| | | | | |
| Liabilities and Equity | | | | |
| Current liabilities: | | | | |
| Accounts payable and other current liabilities | | $ | 3,261 |
| | $ | 3,169 |
|
| Long-term debt due within one year | | 830 |
| | 740 |
|
| Total current liabilities | | 4,091 |
| | 3,909 |
|
| | | | | |
| Long-term debt | | 22,396 |
| | 21,759 |
|
| Deferred income taxes | | 13,795 |
| | 13,452 |
|
| Casualty and environmental liabilities | | 486 |
| | 499 |
|
| Intangible liabilities, net | | 381 |
| | 471 |
|
| Pension and retiree health and welfare liability | | 267 |
| | 310 |
|
| Other liabilities | | 1,028 |
| | 1,114 |
|
| Total liabilities | | 42,444 |
| | 41,514 |
|
| Commitments and contingencies (see Notes 12 and 13) | |
| |
|
| Equity: | | | | |
| Member’s equity | | 42,519 |
| | 42,778 |
|
| Accumulated other comprehensive income (loss) | | 130 |
| | 231 |
|
| Total equity | | 42,649 |
| | 43,009 |
|
| Total liabilities and equity | | $ | 85,093 |
| | $ | 84,523 |
|
See accompanying Notes to Consolidated Financial Statements.
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Cash Flows
In millions
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Operating Activities | | | | | | |
| Net income | | $ | 5,990 | | | $ | 5,161 | | | $ | 5,481 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 2,456 | | | 2,476 | | | 2,403 | |
| Deferred income taxes | | 446 | | | 289 | | | 553 | |
| Long-term casualty and environmental liabilities, net | | 9 | | | (19) | | | (49) | |
| Other, net | | (2,644) | | | (108) | | | (351) | |
| Changes in current assets and liabilities: | | | | | | |
| Accounts receivable, net | | (73) | | | 122 | | | 134 | |
| Materials and supplies | | (61) | | | (14) | | | 4 | |
| Other current assets | | 50 | | | 20 | | | (110) | |
| Accounts payable and other current liabilities | | 336 | | | (27) | | | 122 | |
| Net cash provided by operating activities | | 6,509 | | | 7,900 | | | 8,187 | |
| | | | | | |
| Investing Activities | | | | | | |
| Capital expenditures excluding equipment | | (2,735) | | | (2,819) | | | (3,193) | |
| Acquisition of equipment | | (174) | | | (244) | | | (415) | |
| Purchases of investments and investments in time deposits | | — | | | — | | | (6) | |
| Proceeds from sales of investments and maturities of time deposits | | 1 | | | 32 | | | 42 | |
| | | | | | |
| Other, net | | (17) | | | (32) | | | (170) | |
| Net cash used for investing activities | | (2,925) | | | (3,063) | | | (3,742) | |
| | | | | | |
| Financing Activities | | | | | | |
| Proceeds from issuance of long-term debt | | 1,550 | | | 575 | | | 825 | |
| Payments on long-term debt and finance leases | | (1,543) | | | (570) | | | (833) | |
| Cash distributions | | (3,800) | | | (4,830) | | | (4,425) | |
| Other, net | | (19) | | | (10) | | | (13) | |
| Net cash used for financing activities | | (3,812) | | | (4,835) | | | (4,446) | |
| Increase (decrease) in cash and cash equivalents | | (228) | | | 2 | | | (1) | |
| Cash and cash equivalents: | | | | | | |
| Beginning of period | | 1,986 | | | 1,984 | | | 1,985 | |
| End of period | | $ | 1,758 | | | $ | 1,986 | | | $ | 1,984 | |
| | | | | | |
| Supplemental Cash Flow Information | | | | | | |
| Interest paid, net of amounts capitalized | | $ | 1,032 | | | $ | 1,045 | | | $ | 1,064 | |
| Capital investments accrued but not yet paid | | $ | 238 | | | $ | 156 | | | $ | 245 | |
| Income taxes paid, net of refunds | | $ | 1,386 | | | $ | 1,278 | | | $ | 1,196 | |
| Non-cash asset financing | | $ | 16 | | | $ | 19 | | | $ | 11 | |
|
| | | | | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Operating Activities | | | | | | |
| Net income | | $ | 5,219 |
| | $ | 11,300 |
| | $ | 3,569 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 2,317 |
| | 2,352 |
| | 2,128 |
|
| Deferred income taxes | | 381 |
| | (6,435 | ) | | 998 |
|
| Long-term casualty and environmental liabilities, net | | (18 | ) | | (85 | ) | | (35 | ) |
| Other, net | | (147 | ) | | (289 | ) | | 27 |
|
| Changes in current assets and liabilities: | | | | | | |
| Accounts receivable, net | | (48 | ) | | (177 | ) | | (74 | ) |
| Materials and supplies | | 10 |
| | 22 |
| | 4 |
|
| Other current assets | | (52 | ) | | (163 | ) | | (129 | ) |
| Accounts payable and other current liabilities | | 246 |
| | (206 | ) | | 437 |
|
| Net cash provided by operating activities | | 7,908 |
| | 6,319 |
| | 6,925 |
|
| | | | | | | |
| Investing Activities | | | | | | |
| Capital expenditures excluding equipment | | (2,918 | ) | | (2,860 | ) | | (3,205 | ) |
| Acquisition of equipment | | (269 | ) | | (397 | ) | | (614 | ) |
| Purchases of investments and investments in time deposits | | (27 | ) | | (13 | ) | | (8 | ) |
| Proceeds from sales of investments and maturities of time deposits | | 45 |
| | 34 |
| | 27 |
|
| Other, net | | (11 | ) | | (247 | ) | | (181 | ) |
| Net cash used for investing activities | | (3,180 | ) | | (3,483 | ) | | (3,981 | ) |
| | | | | | | |
| Financing Activities | | | | | | |
| Proceeds from issuance of long-term debt | | 1,500 |
| | 1,250 |
| | 750 |
|
| Payments on long-term debt | | (746 | ) | | (735 | ) | | (292 | ) |
| Cash distributions | | (5,450 | ) | | (4,575 | ) | | (2,500 | ) |
| Other, net | | (22 | ) | | (19 | ) | | (13 | ) |
| Net cash used for financing activities | | (4,718 | ) | | (4,079 | ) | | (2,055 | ) |
| Increase (decrease) in cash and cash equivalents | | 10 |
| | (1,243 | ) | | 889 |
|
| Cash and cash equivalents: | | | | | | |
| Beginning of period | | 1,975 |
| | 3,218 |
| | 2,329 |
|
| End of period | | $ | 1,985 |
| | $ | 1,975 |
| | $ | 3,218 |
|
| | | | | | | |
| Supplemental Cash Flow Information | | | | | | |
| Interest paid, net of amounts capitalized | | $ | 1,072 |
| | $ | 1,062 |
| | $ | 1,016 |
|
| Capital investments accrued but not yet paid | | $ | 251 |
| | $ | 192 |
| | $ | 305 |
|
| Income taxes paid, net of refunds | | $ | 905 |
| | $ | 1,789 |
| | $ | 752 |
|
| Non-cash asset financing | | $ | 8 |
| | $ | — |
| | $ | — |
|
See accompanying Notes to Consolidated Financial Statements.
Burlington Northern Santa Fe, LLC and Subsidiaries
Consolidated Statements of Changes in Equity
|
| | | | | | | | | | | | | | | | | | |
| | | Member’s Equity |
| | Accumulated Other Comprehensive (Loss) Income |
| | Total Equity |
|
| Balance at December 31, 2015 | | $ | 34,984 |
| | $ | 48 |
| | $ | 35,032 |
|
| Comprehensive income, net of tax | | 3,569 |
| | 71 |
| | 3,640 |
|
| Cash distributions to Parent | | (2,500 | ) | | — |
| | (2,500 | ) |
| Balance at December 31, 2016 | | 36,053 |
| | 119 |
| | 36,172 |
|
| Comprehensive income, net of tax | | 11,300 |
| | 112 |
| | 11,412 |
|
| Cash distributions to Parent | | (4,575 | ) | | — |
| | (4,575 | ) |
| Balance at December 31, 2017 | | 42,778 |
| | 231 |
| | 43,009 |
|
| Adoption of ASC Topic 606 | | (3 | ) | | — |
| | (3 | ) |
Equity method investee adoption of ASU 2016-01a | | 1 |
| | (1 | ) | | — |
|
| Reclassification upon early adoption of ASU 2018-02 | | (26 | ) | | 26 |
| | — |
|
| Comprehensive income (loss), net of tax | | 5,219 |
| | (126 | ) | | 5,093 |
|
| Cash distributions to Parent | | (5,450 | ) | | — |
| | (5,450 | ) |
| Balance at December 31, 2018 | | $ | 42,519 |
| | $ | 130 |
| | $ | 42,649 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Member’s
Equity | | Accumulated
Other
Comprehensive Income (Loss) | | Total
Equity |
| Balance as of December 31, 2018 | | $ | 42,519 | | | $ | 130 | | | $ | 42,649 | |
| Cash distributions | | (4,425) | | | — | | | (4,425) | |
| Comprehensive income (loss), net of tax | | 5,481 | | | 15 | | | 5,496 | |
| Balance as of December 31, 2019 | | $ | 43,575 | | | $ | 145 | | | $ | 43,720 | |
| Cash distributions | | (4,830) | | | — | | | (4,830) | |
| Comprehensive income (loss), net of tax | | 5,161 | | | (47) | | | 5,114 | |
| Balance as of December 31, 2020 | | $ | 43,906 | | | $ | 98 | | | $ | 44,004 | |
| Cash distributions | | (3,800) | | | — | | | (3,800) | |
| Comprehensive income (loss), net of tax | | 5,990 | | | 255 | | | 6,245 | |
| Balance as of December 31, 2021 | | $ | 46,096 | | | $ | 353 | | | $ | 46,449 | |
a Accounting Standards Update No. 2016-01 Financial Instruments- Recognition and Measurement of Financial Assets and Financial Liabilities
See accompanying Notes to Consolidated Financial Statements.Statements.
Burlington Northern Santa Fe, LLC and Subsidiaries
Notes to Consolidated Financial Statements
1. The Company
Burlington Northern Santa Fe, LLC (BNSF or the Company) is a holding company that conducts no operating activities and owns no significant assets other than through its interests in its subsidiaries. BNSF’s principal, wholly-owned subsidiary is BNSF Railway Company (BNSF Railway), which operates one of the largest railroad networks in North America. BNSF Railway operates approximatelyover 32,500 route miles of track (excluding multiple main tracks, yard tracks and sidings) in 28 states and also operates in three3 Canadian provinces. Through one1 operating transportation services segment, BNSF Railway transports a wide range of products and commodities including the transportation of Consumer Products, Industrial Products, Agricultural Products, and Coal, derived from manufacturing, agricultural, and natural resource industries, which constituted 3538 percent, 2624 percent, 2123 percent, and 1815 percent, respectively, of total freight revenues for the year ended December 31, 2018.2021. These Consolidated Financial Statements include BNSF, BNSF Railway, and other majority-owned subsidiaries, all of which are separate legal entities.
Burlington Northern Santa Fe Corporation was incorporated in the State of Delaware on December 16, 1994. On February 12, 2010, Berkshire Hathaway Inc., a Delaware corporation (Berkshire), acquired 100 percent of the outstanding shares of Burlington Northern Santa Fe Corporation common stock that it did not already own. The acquisition was completed through the merger (Merger) of a Berkshire wholly-owned merger subsidiary and Burlington Northern Santa Fe Corporation, with the surviving entity renamed Burlington Northern Santa Fe, LLC. Berkshire’s cost of acquiring BNSF was pushed-down to establish a new accounting basis for BNSF beginning as of February 13, 2010. Earnings per share data is not presented because BNSF has only one1 holder of its membership interests.
2. Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of BNSF and all subsidiaries in which BNSF holds a controlling financial interest, including its principal operating subsidiary, BNSF Railway. All intercompany accounts and transactions have been eliminated. Investments in companies that are not majority-owned are carried at cost or are accounted for under the equity method if the Company has the ability to exercise significant influence but does not have a controlling financial interest. The Company also evaluates its less than majority-owned investments for consolidation pursuant to authoritative accounting guidance related to the consolidation of variable interest entities (VIEs). The Company consolidates a VIE when it possesses both the power to direct the activities of the VIEentities. We currently have no investments that most significantly impact its economic performance and when the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially be significant to the VIE.require consolidation under this guidance.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions are periodically reviewed by management. Actual results could differ from those estimates.
Revenue Recognition
The Company’s primary source of revenue is freight rail transportation services. The primary performance obligation for the Company is to move freight from a point of origin to a point of destination for its customers. The performance obligations are represented by bills of lading which create a series of distinct services that have a similar pattern of transfer to the customer. The revenues for each performance obligation are based on various factors including the product being shipped, the origin and destination pair, and contract incentives which are outlined in various private rate agreements, common carrier public tariffs, interline foreign road agreements, and pricing quotes. The transaction price is generally a per car amount to transport cars from a certain origin to a certain destination.
The associated freight revenues are recognized over time as the service is performed because the customer simultaneously receives and consumes the benefits of the service. The Company recognizes revenue based on the proportion of the service completed as of the balance sheet date. Bills for freight transportation services are generally issued to customers and paid within thirty days or less. As a result, no significant contract assets exist and there are no significant financing components in the Company’s revenue arrangements.
Customer incentives, which are primarily provided for shipping a specified cumulative volume or shipping to/from specific locations, are recorded as a reduction to revenue on a pro-rata basis based on actual or projected future customer shipments. A small portion of customer incentive agreements have a component where a different discount amount is provided for different levels of volumes, resulting in variable consideration. To determine the transaction price in these cases, the Company estimates the amount of variable consideration at each reporting period utilizing the most likely amount based on historical trends as well as economic and other indicators. These incentives are ratably applied to all units using an estimate of how much volume the customer will ship under the customer incentive agreement. Both the variable consideration and the associated contract liabilities resulting from these types of customer incentives are immaterial.
Other revenues are primarily generated from a wholly ownedwholly-owned, non-rail logistics subsidiary providingwhich provides logistics and transportation services and from accessorial services provided to railroad customers which are primarily storage and demurrage. The vast majority of revenues generated by the non-rail logistics subsidiary are recognized over time as the services are performed, and accessorial revenues are recognized when the service is performed.
Accounts Receivable, Net
Accounts receivable, net includes accounts receivable reduced by an allowance for bill adjustments and uncollectible accounts.credit losses. The allowance for bill adjustments and uncollectible accountscredit losses is based on historical experience as well as any known trends or uncertainties related to customer billing and accountexpected collectibility. Receivables are generally written off against allowances after all reasonable collection efforts are exhausted.
Cash and Cash Equivalents
All short-term investments with maturities of 90 days or less from the date of purchase are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value because of the short maturity of these instruments.
Investments in Equity and Fixed Maturity Securities
Investments in fixed maturity securities and equity securities are classified at the acquisition date and the classification is re-evaluated at each balance sheet date. Investments are carried at fair value and gains or losses are recorded in income.
Materials and Supplies
Materials and supplies, which consist mainly of rail, ties and other items for construction and maintenance of property and equipment, as well as diesel fuel, are valued at the lower of average cost or market.
Goodwill and Other Intangible Assets and Liabilities
Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed.
Goodwill is tested for impairment annually or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. TheA goodwill impairment test involves a two-step process. The first step isloss would be recognized to estimate the fair value of the reporting unit using valuation models such as discounting projected future net cash flows and/or a multiple of earnings. Ifextent that the carrying amount of a reporting unit including goodwill, exceeds the estimatedits fair value, a second step is performed. Underlimited to the second step, the identifiable assets and liabilities, including identifiable intangible assets and liabilities, of the reporting unit are estimated at fair value as of the current testing date. The excess of the estimated fair value of the reporting unit over the estimated fair value of net assets establishes the implied value of goodwill. If the carryingtotal amount of goodwill exceeds the implied value of goodwill, an impairment loss is recognized in an amount equalallocated to that excess.
Other intangible assets and liabilities are amortized based on the estimated pattern in which the economic benefits are expected to be consumed or on a straight-line basis over their estimated economic lives. Other intangible assets and liabilities are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable or realized.reporting unit.
See Note 98 to the Consolidated Financial Statements for further information related to goodwill and other intangible assets and liabilities.goodwill.
Property and Equipment, Net
BNSF’s railroad operations are highly capital intensive and its large base of homogeneous, network-type assets turns over on a continuous basis. BNSF self-constructs portions of its track structure and rebuilds certain classes of rolling stock. Each year, BNSF develops a capital program for the replacement of assets and for the acquisition or construction of assets intended to enable BNSF to increase capacity, enhance the safety or efficiency of operations, extend the useful life or increase the value of its assets, gain strategic benefit, or provide new service offerings to customers. AssetsCosts are capitalized if they meet these criteria as well as the applicable minimum units of property, including costs for assets purchased or constructed throughout the year, along with all costs necessary to make the assets ready for their intended use. In addition to direct labor and materials, indirect costs that clearly relate to capital projects are capitalized if they meet applicable minimum units of property criteria.
also capitalized. Normal repairs and maintenance are charged to operating expense as incurred, while costs incurred that extend the useful life of an asset, improve the safety of BNSF’s operations, improve operating efficiency, or significantly increase asset values are capitalized.incurred.
Property and equipment are stated at cost and are depreciated and amortized on a straight-line basis over their estimated useful lives. The Company useslives using the group method of depreciation in which a singleall items with similar characteristics, use, and expected lives are grouped together in asset classes and depreciated using composite depreciation rate is applied to the gross investment in a particular class of property, despite differences in the service life or salvage value of individual property units within the same class.rates. The Company conducts studies of depreciation rates and the required accumulated depreciation balance as required by the Surface Transportation Board (STB), which isstudies, generally every three years for equipment and every six years for track structure and other roadway property. property, and implements study results prospectively.
These detailed studies form the basis for the Company’s composite depreciation methods used in accordance with GAAP.
Depreciation studiesrates and take into account the following factors:
•Statistical analysis of historical patterns of use and retirements of each of BNSF’s asset classes;
•Evaluation of any expected changes in current operations and the outlook for continued use of the assets;
•Evaluation of technological advances and changes to maintenance practices; and
•Expected salvage to be received upon retirement.
Changes in the estimated service lives
Under group depreciation, the historical cost net of salvage of depreciable property that is retired or replaced in the ordinary course of business is charged to accumulated depreciation, and no gain or loss is recognized. This historical cost of certain assets is estimated as it is impracticable to track individual, homogeneous, network-type assets. Historical costs are estimated by deflating current costs using the Producer Price Index (PPI) or a unit cost method. These methods closely correlate with the major costs of the items comprising the asset classes. Because of the number of estimates inherent in the depreciation and retirement processes and because it is impossible to precisely estimate each of these variables until a group of property is completely retired, BNSF monitors the estimated service lives of its assets and the accumulated depreciation associated with each asset class to ensure its depreciation rates are appropriate.
For retirements of depreciable asset classes that do not occur in the normal course of business, a gain or loss may be recognized in operating expense if the retirement meets each of the following conditions:retirement: (i) is unusual, (ii) is significant in amount, and (iii) varies significantly from the retirement profile identified through BNSF’s depreciation studies. Gains or losses from disposals of land and non-rail property are recognized at the time of their occurrence. During the three fiscal years presented, no material gains or losses were recognized due to the retirement of depreciable assets. Gains or losses from disposals of land and non-rail property are recorded at the time of their occurrence.
When BNSF purchases an asset, all costs necessary to make the asset ready for its intended use are capitalized. BNSF self-constructs portions of its track structure and rebuilds certain classes of rolling stock. Expenditures that extend the useful life of an asset, improve the safety of BNSF’s operations, improve operating efficiency, or significantly increase asset values are capitalized. In addition to direct labor and material, certain indirect costs such as materials, small tools and project supervision are capitalized. Annually, a study is performed for the purpose of identifying indirect costs that clearly relate to capital projects. From those studies, an overhead application rate is developed. Indirect project costs are then allocated to capital projects using this overhead application rate.
BNSF incurs certain direct labor, contract service and other costs associated with the development and installation of internal-use computer software. Costs for newly developed software or significant enhancements to existing software are typically capitalized. Research, preliminary project, operations, maintenance and training costs are charged to operating expense when the work is performed.
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or at the fair value of the leased assets at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.
Leasehold improvements that meet capitalization criteria are capitalized and amortized on a straight-line basis over the lesser of their estimated useful lives or the remaining lease term.
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets, the carrying value is reduced to the estimated fair value as measured by the discounted cash flows.
Leases
The Company has substantial lease commitments for locomotives, freight cars, office buildings, operating facilities, and other property. Many of the Company’s leases provide the option to purchase the leased item at fair market value or a fixed purchase price at the end of the lease, and some leases include early buyout options at a fixed purchase price. Also, many of the Company’s leases include both fixed rate and fair market value renewal options.
As the implicit interest rate is not readily available for most operating leases, the Company uses its incremental borrowing rate based on information available at commencement date, including lease term, to determine the present value of lease payments. The Company has operating lease agreements that contain both lease and non-lease components, but only freight cars are accounted for as a single lease component. BNSF has applied the short-term lease exemption to all asset classes, and as a result, short-term leases are not recognized on the Consolidated Balance Sheets. Variable lease costs, sublease income, and lessor transactions are not significant.
Assets held under finance leases are recorded at the net present value of the minimum lease payments at the inception of the lease. Amortization expense for finance leases, as well as leasehold improvements, is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.
Planned Major Maintenance Activities
BNSF utilizes the deferral method of accounting for leased locomotive overhauls, which includes the complete refurbishment of the engine and related components which extendsto extend the useful life of the locomotive. Accordingly, BNSF has established an asset for overhauls that have been performed. This asset, which is included in property and equipment, net in the Consolidated Balance Sheets for overhauls that is amortized to expense using the straight-line method until the next overhaul is performed, typically between eight and ten years. performed.
Rail Grinding Costs
BNSF uses the direct expense method of accounting for rail grinding costs, under which the Company expenses rail grinding costs as incurred.
Environmental Liabilities
Liabilities for environmental cleanup costs are initially recorded when BNSF’s liability for environmental cleanup is both probable and reasonably estimable. Subsequent adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Estimates for these liabilities are undiscounted.
Personal Injury Claims
Liabilities for personal injury claims are initially recorded when the expected loss is both probable and reasonably estimable. Subsequent adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Liabilities recorded for unasserted personal injury claims, including those related to asbestos, are based on information currently available. Estimates of liabilities for personal injury claims are undiscounted.
Income Taxes
Deferred tax assets and liabilities are measured using the tax rates that apply to taxable income in the period in which the deferred tax asset or liability is expected to be realized or paid. Changes in the Company’s estimates regarding the statutory tax rate to be applied to the reversal of deferred tax assets and liabilities could materially affect the effective tax rate. Valuation allowances are established to reduce deferred tax assets if it is more likely than not that some or all of the deferred tax asset will not be realized. BNSF has not recorded a valuation allowance, as it believes that the deferred tax assets will be fully realized in the future. Investment tax credits are accounted for using the flow-through method.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
BNSF is included in the U.S. consolidated federal income tax return of Berkshire. In addition, BNSF files income tax returns in state, local, and foreign jurisdictions, as applicable. BNSF’s tax expense and liabilities have been computed on a stand alone basis, and all of its current federal income taxes payable is remitted to Berkshire.
Employment Benefit Plans
The Company estimates liabilities and expenses for pension and retiree health and welfare plans. Estimated amounts are based on historical information, current information, and estimates regarding future events and circumstances. Significant assumptions used in the valuation of pension and/or retiree health and welfare liabilities include the expected return on plan assets, discount rate, rate of increase in compensation levels, and the health care cost trend rate.
Fair Value Measurements
As defined under authoritative accounting guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Different valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction. Market participants are assumed to be independent, knowledgeable, able, and willing to transact an exchange and not under duress. Nonperformance or credit risk is considered in determining the fair value of liabilities. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.
The authoritative accounting guidance specifies a three-level hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures.
•Level 1–Quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.
•Level 2–Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable market data.
•Level 3–Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
3. Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. This new standard will require the present value of these leases to be recorded in the Consolidated Balance Sheets as a right of use asset and lease liability. The Company adopted the standard as of January 1, 2019, and the resulting increase in assets and liabilities is approximately $2.3 billion.
In March 2017,November 2021, the FASB issued Accounting Standards Update No. 2017-072021-10 (ASU 2017-07)2021-10), Compensation - Retirement BenefitsGovernment Assistance (Topic 715)832): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires an entity to present the service cost component of net benefit cost in the same line item as other current employee compensation costs (including being capitalized, if appropriate, as part of an asset). The other components of net benefit cost are presented below income from operations. BNSF adopted the standard as of January 1, 2018. Other components of net benefit costs previously recorded in compensation and benefits expense were reclassified to other income. See Note 14 to the Consolidated Financial Statements. The retrospective impact of the adoption is shown in the table below (in millions):
|
| | | | | | | | | | | | |
| | | Year ended December 31, 2017 |
| | | As Previously Reported | | Adjustments | | As Revised |
| Operating expenses | | $ | 14,040 |
| | $ | 54 |
| | $ | 14,094 |
|
| Operating income | | $ | 7,347 |
| | $ | (54 | ) | | $ | 7,293 |
|
| Other (income) expense, net | | $ | 3 |
| | $ | (54 | ) | | $ | (51 | ) |
|
| | | | | | | | | | | | |
| | | Year ended December 31, 2016 |
| | | As Previously Reported | | Adjustments | | As Revised |
| Operating expenses | | $ | 13,144 |
| | $ | 40 |
| | $ | 13,184 |
|
| Operating income | | $ | 6,685 |
| | $ | (40 | ) | | $ | 6,645 |
|
| Other (income) expense, net | | $ | — |
| | $ | (40 | ) | | $ | (40 | ) |
In February 2018, the FASB issued Accounting Standards Update No. 2018-02 (ASU 2018-02), Income Statement - Reporting Comprehensive Income (Topic 220). The guidance in ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company early adopted the guidance in ASU 2018-02 during the first quarter of 2018, and elected to reclassify $26 million of tax from accumulated other comprehensive income to retained earnings. See the Consolidated Statements of Changes in Equity.
In August 2018, the FASB issued Accounting Standards Update No. 2018-14 (ASU 2018-14), Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.Disclosures by Business Entities about Government Assistance. The amendments in ASU 2018-14 modify the disclosure requirements2021-10 require additional disclosures about transactions with a government that are accounted for employers that sponsor defined benefit pension and other postretirement plans.by applying a grant or contribution accounting model. ASU 2018-142021-10 is effective for the Company for the fiscal year endingbeginning after December 15, 2020,2021, with early adoption permitted. The CompanyAdoption of the standard is currently evaluatingnot expected to have a material impact on the effect this standard will have on itsCompany's Consolidated Financial Statement disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 (ASU 2018-15), Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance requires an entity in such an arrangement to capitalize costs for certain implementation activities in the application development stage, expense the capitalized implementation costs over the term
4. Revenue from Contracts with Customers
On January 1, 2018, the Company adopted ASC Topic 606 (new revenue guidance) using the modified retrospective transition method and the practical expedient for contracts not completed as of the date of adoption. The Company recorded the cumulative effect of adopting ASC Topic 606 as a $3 million net reduction to member’s equity as of January 1, 2018, primarily due to the timing impacts of variable consideration for certain customer incentives. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for the prior period. The impact of adoption to our Consolidated Statements of Income, Balance Sheets, and Statements of Cash Flows for the current year is immaterial as reflected in the Consolidated Statements of Changes in Equity. Therefore, financial statements showing 2018 reported under previous guidance are not presented.
In accordance with ASC Topic 606, the Company disaggregates revenue from contracts with customers based on the characteristics of the services being provided and the types of products being transported and other revenues (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Consumer Products | | $ | 8,256 | | | $ | 7,262 | | | $ | 7,860 | |
| Industrial Products | | 5,291 | | | 5,039 | | | 6,068 | |
| Agricultural Products | | 5,100 | | | 4,822 | | | 4,685 | |
| Coal | | 3,227 | | | 2,655 | | | 3,715 | |
| Total freight revenues | | 21,874 | | | 19,778 | | | 22,328 | |
| Non-rail logistics subsidiary | | 769 | | | 688 | | | 770 | |
| Accessorial and other | | 639 | | | 403 | | | 417 | |
| Total other revenues | | 1,408 | | | 1,091 | | | 1,187 | |
| Total operating revenues | | $ | 23,282 | | | $ | 20,869 | | | $ | 23,515 | |
|
| | | | | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| Consumer Products | | $ | 7,902 |
| | $ | 7,111 |
| | $ | 6,534 |
|
| Industrial Products | | 5,967 |
| | 5,133 |
| | 4,764 |
|
| Agricultural Products | | 4,697 |
| | 4,316 |
| | 4,240 |
|
| Coal | | 4,012 |
| | 3,846 |
| | 3,383 |
|
| Total freight revenues | | 22,578 |
| | 20,406 |
| | 18,921 |
|
| Non-rail logistics subsidiary | | 856 |
| | 640 |
| | 551 |
|
| Accessorial and other | | 421 |
| | 341 |
| | 357 |
|
| Total other revenues | | 1,277 |
| | 981 |
| | 908 |
|
| Total operating revenues | | $ | 23,855 |
| | $ | 21,387 |
| | $ | 19,829 |
|
Contract assets and liabilities are immaterial. Receivables from contracts with customers is a component of accounts receivable, net on the Consolidated Balance Sheets. AtAs of December 31, 20182021 and January 1, 2018, $1.32020, $1.1 billion and $1.2$1.0 billion, respectively, represent net receivables from contracts with customers.
Remaining performance obligations primarily consist of in-transit freight revenues, which will be recognized in the next reporting period. AtAs of December 31, 20182021 and January 1, 2018,2020, remaining performance obligations were $237$274 million and $192$204 million, respectively.
5. Income Taxes
Income tax expense (benefit) was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Current: | | | | | | |
| Federal | | $ | 1,173 | | | $ | 1,111 | | | $ | 989 | |
| State | | 252 | | | 231 | | | 226 | |
| Total current | | 1,425 | | | 1,342 | | | 1,215 | |
| Deferred: | | | | | | |
| Federal | | 422 | | | 256 | | | 470 | |
| State | | 24 | | | 33 | | | 84 | |
| Total deferred | | 446 | | | 289 | | | 554 | |
| Total | | $ | 1,871 | | | $ | 1,631 | | | $ | 1,769 | |
|
| | | | | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Current: | | | | | | |
| Federal | | $ | 1,037 |
| | $ | 1,286 |
| | $ | 999 |
|
| State | | 228 |
| | 163 |
| | 127 |
|
| Total current | | 1,265 |
| | 1,449 |
| | 1,126 |
|
| Deferred: | | | | | | |
| Federal | | 366 |
| | (6,555 | ) | | 901 |
|
| State | | 13 |
| | 134 |
| | 97 |
|
| Total deferred | | 379 |
| | (6,421 | ) | | 998 |
|
| Total | | $ | 1,644 |
| | $ | (4,972 | ) | | $ | 2,124 |
|
Reconciliation of the U.S. federal statutory income tax rate to the effective tax rate was as follows:
| | | | | Year Ended | | Year Ended | | Year Ended | | Years ended December 31, |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 | | | 2021 | | 2020 | | 2019 |
| U.S. Federal statutory income tax rate | | 21.0 | % | | 35.0 | % | | 35.0 | % | U.S. Federal statutory income tax rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State income taxes, net of federal tax benefit | | 2.8 |
| | 2.9 |
| | 2.5 |
| State income taxes, net of federal tax benefit | | 2.8 | | | 3.0 | | | 3.4 | |
| Tax law change | | — |
| | (116.0 | ) | | — |
| |
| Other, net | | 0.2 |
| | (0.5 | ) | | (0.2 | ) | |
| | Effective tax rate | | 24.0 | % | | (78.6 | )% | | 37.3 | % | Effective tax rate | | 23.8 | % | | 24.0 | % | | 24.4 | % |
The components of deferred tax assets and liabilities were as follows (in millions):
| | | | | December 31,
2018 | | December 31,
2017 | | | December 31,
2021 | | December 31,
2020 |
| Deferred tax liabilities: | | | | | Deferred tax liabilities: | | | | |
| Property and equipment | | $ | (13,860 | ) | | $ | (13,583 | ) | Property and equipment | | $ | (14,953) | | | $ | (14,622) | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | | (314) | | | (393) | |
| | Other | | (346 | ) | | (391 | ) | Other | | (621) | | | (489) | |
| Total deferred tax liabilities | | (14,206 | ) | | (13,974 | ) | Total deferred tax liabilities | | (15,888) | | | (15,504) | |
| Deferred tax assets: | | | | | Deferred tax assets: | | | | |
| Operating lease liabilities | | Operating lease liabilities | | 315 | | | 386 | |
| Compensation and benefits | | 165 |
| | 112 |
| Compensation and benefits | | 202 | | | 165 | |
| Casualty and Environmental | | 122 |
| | 159 |
| |
| Long-term debt fair value adjustment under acquisition method accounting | | 27 |
| | 32 |
| |
| Intangible assets and liabilities | | 16 |
| | 32 |
| |
| Pension and retiree health and welfare benefits | | 16 |
| | 16 |
| |
| Casualty and environmental | | Casualty and environmental | | 105 | | | 104 | |
| | Other | | 65 |
| | 171 |
| Other | | 110 | | | 223 | |
| Total deferred tax assets | | 411 |
| | 522 |
| Total deferred tax assets | | 732 | | | 878 | |
| Net deferred tax liability | | $ | (13,795 | ) | | $ | (13,452 | ) | Net deferred tax liability | | $ | (15,156) | | | $ | (14,626) | |
|
BNSF is included in the consolidated U.S. federal income tax return of Berkshire. BNSF’s tax expense and liabilities have been computed on a stand-alone basis, and all of its currently payable federal income taxes are remitted to Berkshire. See Note 15 to the Consolidated Financial Statements for information related to income taxes paid to Berkshire during 2018.2021.
All U.S. federal income tax returns of BNSF are closed for audit through the tax period ended December 31, 2011. BNSF is currently under examination for the years 2012 and 2013 through 2019 as part of Berkshire's consolidated U.S. federal income tax return.
BNSF and its subsidiaries have various state income tax returns in the process of examination, administrative appeal or litigation. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.
Tax Reform
As a result of the Tax Act signed into law on December 22, 2017, the provision for income taxes for the fourth quarter of 2017 was adjusted to reflect the revaluation of BNSF’s deferred tax liability by $7.3 billion as a result of the reduction of the federal income tax rate from 35 percent to 21 percent effective January 1, 2018. The effective tax rate for 2017 was negative 78.6 percent. Without the decrease to income tax expense arising from the Tax Act, the effective tax rate for 2017 would have been positive 37.4 percent.
Uncertain Tax Positions
The amount of unrecognized tax benefits for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, was $50$46 million, $57$41 million, and $62$46 million, respectively. The amount of unrecognized tax benefits atas of December 31, 20182021 that would affect the Company’s effective tax rate if recognized was $34 million, computed at the federal income tax rate expected to be applicable in the taxable period in which the amount may be incurred by the Company. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| | | | | Year Ended | | Year Ended | | Year Ended | | Years ended December 31, |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 | | | 2021 | | 2020 | | 2019 |
| Beginning balance | | $ | 57 |
| | $ | 62 |
| | $ | 69 |
| Beginning balance | | $ | 41 | | | $ | 46 | | | $ | 50 | |
| Additions for tax positions related to current year | | 2 |
| | 7 |
| | 4 |
| Additions for tax positions related to current year | | 9 | | | 7 | | | 8 | |
| Additions (reductions) for tax positions taken in prior years | | 5 |
| | (1 | ) | | (1 | ) | Additions (reductions) for tax positions taken in prior years | | — | | | (2) | | | (6) | |
| Additions (reductions) for tax positions as a result of: | | | | | | |
| Additions (reductions) for tax positions as a result of: | | |
| Settlements | | — |
| | — |
| | 1 |
| Settlements | | — | | | (3) | | | — | |
| Lapse of statute of limitations | | (14 | ) | | (11 | ) | | (11 | ) | Lapse of statute of limitations | | (4) | | | (7) | | | (6) | |
| Ending balance | | $ | 50 |
| | $ | 57 |
| | $ | 62 |
| Ending balance | | $ | 46 | | | $ | 41 | | | $ | 46 | |
It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, BNSF does not expect the change to have a significant impact on the results of operations, the financial position or the cash flows of the Company.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in income tax expense in the Consolidated Statements of Income. The Company had recorded a liability of approximately $7$6 million and $6$5 million for interest and penalties for the years ended December 31, 20182021 and 2017,2020, respectively.
6. Accounts Receivable, Net
Accounts receivable, net consists of freight and other receivables, reduced by an allowance for bill adjustments and uncollectible accounts,credit losses which is based upon expected collectibility. At each period endedAs of December 31, 20182021 and 2017, $872020, $40 million and $54 million, respectively, of such allowances had been recorded.
At December 31, 2018 and 2017, $65 million and $82 million, respectively, of accounts receivable were greater than 90 days old.
7. Investments
BNSF holds investments which are included in other assets on the Consolidated Balance Sheets. The following table summarizes the fair value of investments held as of December 31, 2018 and December 31, 2017 (in millions):
|
| | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| Debt securities | | $ | 36 |
| | $ | 43 |
|
| Equity securities | | 37 |
| | 54 |
|
| Total | | $ | 73 |
| | $ | 97 |
|
The fair value measurements of BNSF’s debt securities are based on Level 2 inputs and equity securities are based on Level 1 inputs, using a market approach. Gains and losses recognized in other (income) expense, net for the Company for the years ended December 31, 2018, 2017, and 2016 were not material.
8. Property and Equipment, Net
Property and equipment, net (in millions), and the corresponding ranges of estimated useful lives were as follows:
| | | | | | | 2018 | | | | | | | | | | | | | | | | | |
| | | December 31,
2018 | | December 31,
2017 | | Range of Estimated Useful Life | | | December 31,
2021 | | December 31,
2020 | | Range of
Estimated
Useful Life |
| Land for transportation purposes | | $ | 6,218 |
| | $ | 6,088 |
| | — |
| Land for transportation purposes | | $ | 6,431 | | | $ | 6,305 | | | — | |
| Track structure | | 24,214 |
| | 23,217 |
| | 15 – 50 years |
| Track structure | | 27,934 | | | 26,657 | | | 15 – 55 years |
| Other roadway | | 29,077 |
| | 28,103 |
| | 9 – 100 years |
| |
Other roadway a | | Other roadway a | | 31,478 | | | 30,862 | | | 10 – 100 years |
| Locomotives | | 8,660 |
| | 8,528 |
| | 8 – 36 years |
| Locomotives | | 8,496 | | | 8,440 | | | 8 – 37 years |
| Freight cars and other equipment | | 3,100 |
| | 2,940 |
| | 8 – 41 years |
| Freight cars and other equipment | | 3,808 | | | 3,746 | | | 8 – 43 years |
| Computer hardware, software and other | | 1,256 |
| | 1,075 |
| | 6 – 15 years |
| Computer hardware, software and other | | 1,518 | | | 1,337 | | | 6 – 15 years |
| Construction in progress | | 664 |
| | 989 |
| | — |
| Construction in progress | | 1,027 | | | 916 | | | — | |
| Total cost | | 73,189 |
| | 70,940 |
| | | Total cost | | 80,692 | | | 78,263 | | | |
| Less accumulated depreciation and amortization | | (10,004 | ) | | (8,627 | ) | | | Less accumulated depreciation and amortization | | (14,978) | | | (13,175) | | | |
| Property and equipment, net | | $ | 63,185 |
| | $ | 62,313 |
| | | Property and equipment, net | | $ | 65,714 | | | $ | 65,088 | | | |
a Other roadway includes grading, bridges, signals, buildings and other road assets. | | a Other roadway includes grading, bridges, signals, buildings and other road assets. |
The Consolidated Balance Sheets at as of both December 31, 20182021 and 2017,2020 included $479$1.2 billion of capitalized right-of-use fixed assets and related accumulated amortization of $395 million net of $282and $366 million, of amortization, and $687 million, net of $382 million of amortization, respectively, for property and equipment under capital leases, primarily for rolling stock.other assets.
The Company capitalized $24$25 million, $22$26 million and $26$15 million of interest for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively.
9.8. Goodwill and Other Intangible Assets and Liabilities
As a result of the Merger on February 12, 2010, the Company recorded $14.8 billion of goodwill. Subsequent to the Merger, the Company has recorded additional amounts of goodwill as a result of acquisitions made by its non-rail logistics subsidiary.
During the years ended December 31, 2018, 20172021, 2020 and 2016,2019, no impairment losses related to goodwill were incurred. As of December 31, 2018incurred and 2017, there were no accumulated impairment losses related to goodwill.
In July 2018, BNSF Logistics, LLC, a wholly-owned, third-party logistics company, made an immaterial acquisitiongoodwill as of a company, resulting in the recognition of $6 million in goodwill. Atboth December 31, 20182021 and 2017,2020. As of both December 31, 2021 and 2020, the carrying value of goodwill was $14,851 million and $14,845 million, respectively.$14.9 billion.
Intangible assets and liabilities were as follows
9. Leases
The following table shows the components of lease cost (in millions):
| | | | | | | | | | | | | | |
| Lease Cost | | Years ended December 31, |
| 2021 | | 2020 |
| Operating lease cost | | $ | 428 | | | $ | 451 | |
| Finance lease cost: | | | | |
| Amortization of right-of-use assets | | 27 | | | 38 | |
| Interest on lease liabilities | | 10 | | | 21 | |
| Short-term lease cost | | 32 | | | 24 | |
| Total lease cost | | $ | 497 | | | $ | 534 | |
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2018 | | As of December 31, 2017 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Intangible assets | | $ | 652 |
| | $ | 279 |
| | $ | 647 |
| | $ | 253 |
|
| Intangible liabilities | | $ | 1,403 |
| | $ | 1,022 |
| | $ | 1,403 |
| | $ | 932 |
|
As of December 31, 2018 and 2017, intangible assets primarily consisted of franchise and customer assets. Intangible liabilities primarily consisted of customer and shortline contracts which were in an unfavorable position at the date of Merger.
Amortizable intangible assets and liabilities are amortized based on the estimated pattern in which the economic benefits are expectedSupplemental balance sheet information related to be consumed or on a straight-line basis over their estimated economic lives.
Amortization of intangible assets and liabilitiesleases was as follows (in millions):
| | | | | | | | | | | | | | |
| Operating Leases | | December 31, 2021 | | December 31, 2020 |
| Operating lease right-of-use assets | | $ | 1,592 | | | $ | 1,928 | |
| | | | |
| Accounts payable and other current liabilities | | $ | 328 | | | $ | 391 | |
| Operating lease liabilities | | 1,015 | | | 1,286 | |
| Total operating lease liabilities | | $ | 1,343 | | | $ | 1,677 | |
| | | | | | | | | | | | | | |
| Finance Leases | | December 31, 2021 | | December 31, 2020 |
| Property and equipment | | $ | 425 | | | $ | 804 | |
| Accumulated depreciation | | (227) | | | (386) | |
| Property and equipment, net | | $ | 198 | | | $ | 418 | |
| | | | |
| Long-term debt due within one year | | $ | 29 | | | $ | 186 | |
| Long-term debt | | 110 | | | 139 | |
| Total finance lease liabilities | | $ | 139 | | | $ | 325 | |
Supplemental cash flow information related to leases was as follows (in millions): | | | | | | | | | | | | | | |
| Cash Flow | | Years ended December 31, |
| 2021 | | 2020 |
| | | | |
| Cash paid for amounts included in the measurement of lease obligations: | | | | |
| Operating cash flows for operating leases | | $ | 428 | | | $ | 504 | |
| Operating cash flows for finance leases | | $ | 14 | | | $ | 22 | |
| Financing cash flows for finance leases | | $ | 186 | | | $ | 48 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | | |
| Operating leases | | $ | 35 | | | $ | 27 | |
| | | | |
Other information related to leases was as follows:
| | | | | | | | | | | | | | |
| Other Information | | December 31, 2021 | | December 31,
2020 |
| Weighted-average remaining lease term (in years): | | | | |
| Operating leases | | 7 | | 7.3 |
| Finance leases | | 5.8 | | 3.5 |
| Weighted-average discount rate: | | | | |
| Operating leases | | 3.6 | % | | 3.7 | % |
| Finance leases | | 6.0 | % | | 6.4 | % |
|
| | | | | | | | | | | | |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Amortization of intangible assets | | $ | 36 |
| | $ | 36 |
| | $ | 39 |
|
| Amortization of intangible liabilities | | $ | 90 |
| | $ | 96 |
| | $ | 100 |
|
AmortizationMaturities of intangible assets andlease liabilities for the next five years is expected to approximate the followingas of December 31, 2021 are summarized as follows (in millions):
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| 2022 | | $ | 353 | | | $ | 36 | |
| 2023 | | 314 | | | 28 | |
| 2024 | | 265 | | | 24 | |
| 2025 | | 180 | | | 23 | |
| 2026 | | 73 | | | 23 | |
| Thereafter | | 341 | | | 30 | |
| Total lease payments | | 1,526 | | | 164 | |
| Less amount representing interest | | (183) | | | (25) | |
| Total | | $ | 1,343 | | | $ | 139 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Amortization of intangible assets | | $ | 36 |
| | $ | 36 |
| | $ | 33 |
| | $ | 31 |
| | $ | 31 |
|
| Amortization of intangible liabilities | | $ | 27 |
| | $ | 26 |
| | $ | 24 |
| | $ | 23 |
| | $ | 21 |
|
10. Other Assets
In July 2010, the Company entered into a low-income housing partnership (the Partnership) as the limited partner, holding a 99.9 percent interest in the Partnership. The Partnership is a VIE, with the purpose of developing and operating low-income housing rental properties. RecoveryOther Assets consisted of the Company’s investment is accomplished through the utilization of low-income housing tax credits and the tax benefits of Partnership losses. The general partner, who holds a 0.1 percent interest in the Partnership, is an unrelated third party and is responsible for controlling and managing the business and financial operation of the Partnership. As the Company does not have the power to direct the activities that most significantly impact the Partnership’s economic performance, the Company is not the primary beneficiary and therefore, does not consolidate the Partnership. The Company does not provide financial support to the Partnership that it was not previously contractually obligated to provide.
The Company has accounted for its investment in the Partnership using the effective yield method. The risk of loss of the Company’s investment in the Partnership is considered low as an affiliate of the general partner has provided certain guarantees of tax credits and minimum annual returns. For the years ended December 31, 2018, 2017, and 2016, the Company recognized a reduction to income tax expense of $20 million, $8 million, and $39 million, respectively. The Company’s maximum exposure to loss related to the Partnership is the unamortized investment balance. The following table provides information related to this Partnership (in millions):
| | | | | | | | | | | | | | |
| | | December 31,
2021 | | December 31,
2020 |
| Payments to Joint Facility Partners and Service Providers | | $ | 2,664 | | | $ | 568 | |
| Investment in Unconsolidated Subsidiaries | | 910 | | | 858 | |
| Pension Asset | | 947 | | | 520 | |
| Other | | 706 | | | 724 | |
| Total | | $ | 5,227 | | | $ | 2,670 | |
|
| | | | | | | |
| | Year Ended | | Year Ended |
| | December 31, 2018 | | December 31, 2017 |
| Unamortized investment balance classified as other assets | $ | 51 |
| | $ | 118 |
|
| Maximum exposure to loss | $ | 51 |
| | $ | 118 |
|
Certain payments to joint facility partners and service providers are amortized over the life of the related asset or agreement. The Company incurred $2.4 billion in 2021 and $73 million in 2020 pursuant to these agreements.
Included within other assets are capitalized right-to-use fixed assets of $1.1 billion and $958 million, and related accumulated amortization of $310 million and $287 million, at December 31, 2018 and 2017, respectively.
11. Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | | December 31,
2021 | | December 31,
2020 |
| Compensation and benefits payable | | $ | 1,034 | | | $ | 760 | |
| Property and income tax liabilities | | 492 | | | 435 | |
| Operating leases - current | | 328 | | | 391 | |
| Accounts payable | | 314 | | | 310 | |
| Customer incentives | | 288 | | | 224 | |
| Accrued interest | | 279 | | | 277 | |
| Casualty and environmental liabilities | | 120 | | | 110 | |
| Capital expenditure estimated liabilities | | 116 | | | 74 | |
| Rents and leases | | 97 | | | 101 | |
| Other | | 828 | | | 752 | |
| Total | | $ | 3,896 | | | $ | 3,434 | |
|
| | | | | | | | |
| | | December 31,
2018 | | December 31,
2017 |
| Compensation and benefits payable | | $ | 913 |
| | $ | 857 |
|
| Property and income tax liabilities | | 382 |
| | 301 |
|
| Accrued interest | | 270 |
| | 289 |
|
| Customer incentives | | 231 |
| | 201 |
|
| Capital expenditure estimated liabilities | | 188 |
| | 167 |
|
| Accounts payable | | 169 |
| | 309 |
|
| Casualty and environmental liabilities | | 120 |
| | 125 |
|
| Rents and leases | | 117 |
| | 109 |
|
| Other | | 871 |
| | 811 |
|
| Total | | $ | 3,261 |
| | $ | 3,169 |
|
12. Debt
Debt outstanding, excluding finance leases, was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 a | | December 31, 2020 a |
| Notes and debentures, due 2022 to 2097 | | $ | 22,519 | | | 4.6 | % | | $ | 22,294 | | | 4.6 | % |
| Equipment obligations, due 2022 to 2028 | | 402 | | | 3.6 | | | 424 | | | 3.6 | |
| | | | | | | | |
| Mortgage bonds, due 2045 to 2047 | | 47 | | | 3.1 | | | 47 | | | 3.1 | |
| Financing obligations, due 2022 to 2029 | | 203 | | | 6.1 | | | 196 | | | 6.1 | |
| Unamortized fair value adjustment under acquisition method accounting, discount, debt issuance costs, and other, net | | (91) | | | | | (66) | | | |
| Total | | 23,080 | | | | | 22,895 | | | |
| Less current portion of long-term debt | | (903) | | | 4.7 | % | | (731) | | | 3.7 | % |
| Long-term debt | | $ | 22,177 | | | | | $ | 22,164 | | | |
|
| | | | | | | | | | | | | | |
| | | December 31, 2018 a | | December 31, 2017 a |
| Notes and debentures, due 2019 to 2097 | | $ | 22,094 |
| | 4.7 | % | | $ | 21,245 |
| | 4.8 | % |
| Equipment obligations, due 2019 to 2028 | | 470 |
| | 3.6 |
| | 493 |
| | 3.6 |
|
| Capitalized lease obligations, due 2019 to 2029 | | 419 |
| | 6.1 |
| | 466 |
| | 6.1 |
|
| Mortgage bonds, due 2020 to 2047 | | 81 |
| | 4.5 |
| | 81 |
| | 4.5 |
|
| Financing obligations, due 2019 to 2029 | | 195 |
| | 6.1 |
| | 211 |
| | 6.3 |
|
| Unamortized fair value adjustment under acquisition method accounting, discount, debt issuance costs, and other, net | | (33 | ) | | | | 3 |
| | |
| Total | | 23,226 |
| | | | 22,499 |
| | |
| Less current portion of long-term debt | | (830 | ) | | 4.8 | % | | (740 | ) | | 5.7 | % |
| Long-term debt | | $ | 22,396 |
| | | | $ | 21,759 |
| | |
a Amounts represent debt outstanding and weighted average effective interest rates for 20182021 and 2017,2020, respectively. Maturities are as of December 31, 2018.2021.
As of December 31, 2018,2021, certain BNSF Railway properties and other assets were subject to liens securing $81$47 million of mortgage debt. Certain locomotives and rolling stock of BNSF Railway were subject to equipment obligations and capital leases.obligations.
The Company is required to maintain certain financial covenants in conjunction with $500$500 million of certain issued and outstanding junior subordinated notes. As of December 31, 2018,2021, the Company was in compliance with these financial covenants.
The fair value of BNSF’s debt is primarily based on market value price models using observable market-based data for the same or similar issues, or on the estimated rates that would be offered to BNSF for debt of the same remaining maturities (Level 2 inputs). Capital leases and unamortized gains on interest rate swaps have been excluded from the calculation of fair value for both 2018 and 2017.
The following table provides principal cash flows and fair value information for the Company’s debt obligations including principal cash flows, related weighted average interest rates by contractual maturity dates and fair value. The Company had no outstanding variable rate debt at December 31, 2018.obligations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| | | Maturity Date | | Total | | Fair Value |
| | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | |
Debt maturities
(in millions) | | $903 | | $1,585 | | $1,235 | | $1,232 | | $39 | | $18,086 | | $23,080 | | $27,728 |
|
| | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | Maturity Date | | Total Including Capital Leases | | Total Excluding Capital Leases a | | Fair Value Excluding Capital Leases |
| | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | |
Fixed-rate debt (in millions) | | $830 | | $572 | | $918 | | $1,558 | | $1,553 | | $17,795 | | $23,226 | | $22,807 | | $24,089 |
| Average interest rate | | 4.8% | | 5.6% | | 4.3% | | 4.1% | | 3.5% | | 4.8% | | 4.7% | | | | |
a Amount also excludes unamortized fair value adjustment under acquisition method accounting related to capital leases.
As of December 31, 2017,2020, the fair value of fixed-rate debt excluding capital leases was $25.1$29.3 billion.
Notes and Debentures
2018
In June 2021, the Board of Directors (the Board) authorized an additional $3.0 billion of debt securities that may be issued pursuant to the debt shelf registration statement filed with the SEC. As of December 31, 2021, $2.55 billion remained authorized by the Boardto be issued through the SEC debt shelf offering process.
In August 2018,December 2021, BNSF issued $750$625 million of 4.15 percent debentures due December 15, 2048, and in March 2018, BNSF issued $750 million of 4.052.875 percent debentures due June 15, 2048.2052, and in April 2021, BNSF issued $925 million of 3.30 percent debentures due September 15, 2051. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness and distributions.
2017
In March 2017, the Board authorized an additional $1.5 billion of debt securities that may be issued pursuant to the debt shelf registration statement filed with the SEC.
In March 2017, BNSF issued $500 million of 3.25 percent debentures due June 15, 2027 and $750 million of 4.125 percent debentures due June 15, 2047. The net proceeds from the sale of the debentures were used for general corporate purposes.
2016
In May 2016, BNSF issued $750 million of 3.9 percent debentures due August 1, 2046. The net proceeds from the sale of the debentures were used for general corporate purposes.
Capital Leases
There were no additions to capital leases in 2018. In 2017 and 2016, additions to capital leases were not material.
Guarantees
As of December 31, 2018,2021, BNSF has not been called upon to perform under the guarantees specifically disclosed in this footnote and does not anticipate a significant performance risk in the foreseeable future.
Debt and other obligations of non-consolidated entities guaranteed by the Company as of December 31, 2018,2021, were as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Guarantees | | | |
| | | BNSF
Ownership Percentage | | Principal
Amount Guaranteed | | Maximum
Future
Payments | | Maximum
Recourse
Amount a |
| Remaining
Term
(in years) | | Capitalized Obligations | |
| Kinder Morgan Energy Partners, L.P. | | 0.5 | % | | $ | 190 | | | $ | 190 | | | $ | — | | | Termination of Ownership | | $ | 2 | | b |
| Chevron Phillips Chemical Company LP | | — | % | | N/A | d | N/A | d | N/A | d | 6 | | $ | 12 | | c |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Guarantees | | | |
| | | BNSF Ownership Percentage |
| | Principal Amount Guaranteed |
| | Maximum Future Payments |
| | Maximum
Recourse
Amount a |
|
| Remaining Term (in years) | | Capitalized Obligations |
| |
| Kinder Morgan Energy Partners, L.P. | | 0.5 | % | | $ | 190 |
| | $ | 190 |
| | $ | — |
| | Termination of Ownership | | $ | 2 |
| b |
| Chevron Phillips Chemical Company LP | | — | % | | N/A |
| d | N/A |
| d | N/A |
| d | 9 | | $ | 18 |
| c |
a Reflects the maximum amount the Company could recover from a third party other than the counterparty.
b Reflects capitalized obligations that are recorded on the Company’s Consolidated Balance Sheets.
c Reflects the asset and corresponding liability for the fair value of these guarantees required by authoritative accounting guidance related to guarantees.
d There is no cap to the liability that can be sought from BNSF for BNSF’s negligence or the negligence of the indemnified party. However, BNSF could receive reimbursement from certain insurance policies if the liability exceeds a certain amount.
Kinder Morgan Energy Partners, L.P.
Santa Fe Pacific Pipelines, Inc., an indirect, wholly-owned subsidiary of BNSF, has a guarantee in connection with its remaining special limited partnership interest in Santa Fe Pacific Pipeline Partners, L.P. (SFPP), a subsidiary of Kinder Morgan Energy Partners, L.P., to be paid only upon default by the partnership. All obligations with respect to the guarantee will cease upon termination of ownership rights, which would occur upon a put notice issued by BNSF or the exercise of the call rights by the general partners of SFPP.
Chevron Phillips Chemical Company LP
BNSF has an indemnity agreement with Chevron Phillips Chemical Company LP (Chevron Phillips), granting certain rights of indemnity from BNSF, in order to facilitate access to a storage facility. Under certain circumstances, payment under this obligation may be required in the event Chevron Phillips were to incur certain liabilities or other incremental costs resulting from trackage access.
Indemnities
In the ordinary course of business, BNSF enters into agreements with third parties that include indemnification clauses. The Company believes that these clauses are generally customary for the types of agreements in which they are included. At times, these clauses may involve indemnification for the acts of the Company, its employees and agents, indemnification for another party’s acts, indemnification for future events, indemnification based upon a certain standard of performance, indemnification for liabilities arising out of the Company’s use of leased equipment or other property, or other types of indemnification. Despite the uncertainty whether events which would trigger the indemnification obligations would ever occur, the Company does not believe that these indemnity agreements will have a material adverse effect on the Company’s results of operations, financial position or liquidity. Additionally, the Company believes that, due to lack of historical payment experience, the fair value of indemnities cannot be estimated with any amount of certainty and that the fair value of any such amount would be immaterial to the Consolidated Financial Statements. Unless separately disclosed above, no fair value liability related to indemnities has been recorded in the Consolidated Financial Statements.
Variable Interest Entities - Leases
BNSF Railway has entered into various lease transactions in which the structure of the lease contains VIEs. These leases are primarily for equipment. These VIEs were created solely for the lease transactions and have no other activities, assets or liabilities outside of the lease transactions. In some of the arrangements, BNSF Railway has the option to purchase some or all of the leased assets at a fixed-price, thereby creating variable interests for BNSF Railway in the VIEs. The future minimum lease payments associated with the VIE leases were $1.5 billion as of December 31, 2018. The future minimum lease payments are included in future operating lease payments disclosed in Note 13 to the Consolidated Financial Statements.
In the event the leased asset is destroyed, BNSF Railway is generally obligated to either replace the asset or pay a fixed loss amount. The inclusion of the fixed loss amount is a standard clause within the lease arrangements. Historically, BNSF Railway has not incurred significant losses related to this clause. As such, it is not anticipated that the maximum exposure to loss would materially differ from the future minimum lease payments.
BNSF Railway does not provide financial support to the VIEs that it was not previously contractually obligated to provide.
BNSF Railway maintains and operates the leased assets based on contractual obligations within the lease arrangements, which set specific guidelines consistent within the industry. As such, BNSF Railway has no control over activities that could materially impact the fair value of the leased assets. BNSF Railway does not hold the power to direct the activities of the VIEs and therefore does not control the ongoing activities that have a significant impact on the economic performance of the VIEs. Additionally, BNSF Railway does not have the obligation to absorb losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs. Depending on market conditions, the fixed-price purchase options could potentially provide benefit to the Company; however, any benefits potentially received from a fixed-price purchase option are generally expected to be minimal. Based on these factors, BNSF Railway is not the primary beneficiary of the VIEs. As BNSF Railway is not the primary beneficiary and the majority of the VIE leases are operating leases, the assets and liabilities related to the VIEs recorded in the Company’s Consolidated Balance Sheets are immaterial.
13. Commitments and Contingencies
Lease Commitments
BNSF has substantial lease commitments for locomotives, freight cars, office buildings, operating facilities and other property, and many of these leases provide the option to purchase the leased item at fair market value at the end of the lease. However, some provide fixed price purchase options. Future minimum lease payments as of December 31, 2018, are summarized as follows (in millions):
|
| | | | | | | | |
| December 31, | | Capital Leases |
| | Operating Leasesa |
|
| 2019 | | $ | 72 |
| | $ | 400 |
|
| 2020 | | 69 |
| | 496 |
|
| 2021 | | 200 |
| | 421 |
|
| 2022 | | 35 |
| | 328 |
|
| 2023 | | 28 |
| | 289 |
|
| Thereafter | | 101 |
| | 787 |
|
| Total | | 505 |
| | $ | 2,721 |
|
| Less amount representing interest | | (86 | ) | | |
|
| Present value of minimum lease payments | | $ | 419 |
| | |
|
a Excludes leases having non-cancelable lease terms of less than one year and per diem leases. Minimum lease payments have not been reduced by minimum sublease rentals of $131 million due under future non-cancelable subleases.
Lease rental expense for all operating leases, excluding per diem leases, was $555 million, $587 million and $600 million for the years ended December 31, 2018, 2017 and 2016, respectively. When rental payments are not made on a straight-line basis, the Company recognizes rental expense on a straight-line basis over the lease term. Contingent rentals and sublease rental income were not significant for the years ended December 31, 2018, 2017 and 2016.
Other Commitments
In the normal course of business, the Company enters into long-term contractual requirements for future goods and services needed for the operations of the business. Such commitments are not in excess of expected requirements and are not reasonably likely to result in performance penalties or payments that would have a material adverse effect on the Company’s liquidity.
Personal Injury and Environmental Costs
Personal Injury
BNSF’s personal injury liability includes the cost of claims for employee work-related injuries, and third-party injuries (collectively, other personal injury)claims, and asbestos claims. BNSF records a liability for asserted and unasserted claims when the expected loss is both probable and reasonably estimable. Because of the uncertainty of the timing of future payments, the liability is undiscounted. Defense and processing costs, which are recorded on an as-reported basis, are not included in the recorded liability. Expense accruals and adjustments are classified as materials and other in the Consolidated Statements of Income.
Personal injury claims by BNSF Railway employees are subject to the provisions of the Federal Employers’ Liability Act (FELA) rather than state workers’ compensation laws. Resolution of these cases under FELA’s fault-based system of requiring therequires either a finding of fault coupled with unscheduled awards and reliance on theby a jury system, can contribute to increased expenses. Other proceedingsor an out-of-court settlement. Third-party claims include claims by non-employees for punitive as well as compensatory damages and may, from time to time, may include proceedings that have been certified as or purport to be class actions. The variability present in settling these claims, including non-employee personal injury and matters in whichrequests for punitive damages are alleged, could result in increased expenses in future years. BNSF has implementedor treatment of the claim as a number of safety programs designed to reduce the number of personal injuries as well as the associated claims and personal injury expense.class action.
BNSF records an undiscounted 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.
Other Personal Injury
BNSF estimates its personal injury liability claims and expense quarterlyusing standard actuarial methodologies 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 theThe Company cannot estimate the range of reasonably possible loss due to other non-work related contributing causes of such injuries and the fact that continued exposure is required for the potential injury to manifest itself as a claim. BNSF has not experienced any significant adverse trends related to these types of claims in recent years.
Key elements of the actuarial assessment include:
Size and demographics (employee age and craft) of the workforce.
Activity levels (manhours by employee craft and carloadings).
Expected claim frequency rates by type of claim (employee FELA or third-party liability) based on historical claim frequency trends.
Expected dismissal rates by type of claim based on historical dismissal rates.
Expected average paid amounts by type of claim for open and incurred but not reported claims that eventually close with payment.
From these assumptions, BNSF estimates the number of open claims by accident year that will likely require payment by the Company. The projected number of open claims by accident year that will require payment is multiplied by the expected average cost per claim by accident year and type to determine BNSF’s estimated liability for all asserted claims. Additionally, BNSF estimates the number of its incurred but not reported claims that will likely result in payment based upon historical emergence patterns by type of claim. The estimated number of projected claims by accident year requiring payment is multiplied by the expected average cost per claim by accident year and type to determine BNSF’s estimated liability for incurred but not reported claims.
BNSF monitors quarterly actual experience against the forecasted number of forecasted claims to be received, the forecasted number of claims closing with payment, and expected claim payments. Adjustments to the Company’s estimates are recorded quarterly as necessary or more frequentlypayments and records adjustments as new events or changes in estimates develop.
Asbestos
The CompanyBNSF is also party to asbestos claims by employees and non-employees who may have been exposed to asbestos. Based on BNSF’s estimateBecause of the potentiallyrelatively finite exposed employees and related mortality assumptions, it is anticipated that unasserted asbestos claims will continue to be filed throughpopulation, the year 2050. The Company has recorded an amountestimate for the full estimated filing periodamount of probable exposure. This is determined through 2050 because it had a relatively finite exposed population.
BNSF assesses its unasserted asbestos liability exposurean actuarial analysis based on an annual basis duringestimates of the third quarter. BNSF determines its asbestos
liability by estimating its exposed population, the number of claims likely to be filed, the number of claims that will likely require payment, and the estimated cost per claim. Estimated filing and dismissal rates and average cost per claim are determined utilizing recent claim data and trends.
During the third quarters of 2018, 2017, and 2016, the Company analyzed recent filing and payment trends to ensure the assumptions used by BNSF to estimate its future asbestos liability were reasonable. In 2018, management determined that the liability remained appropriate, and no change was recorded. In 2017, management recorded a decrease to the liability of $29 million. No adjustment was recorded in 2016. The Company plans to update its study again in the third quarter of 2019.
Throughout the year, BNSF monitors actual experience against the number of forecasted claims and expected claim payments and will record adjustments to the Company’s estimates as necessary.
The following table summarizes the activity in the Company’s accrued obligations for personal injury mattersclaims (in millions):
|
| | | | | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Beginning balance | | $ | 307 |
| | $ | 367 |
| | $ | 375 |
|
| Accruals / changes in estimates | | 76 |
| | (1 | ) | | 80 |
|
| Payments | | (75 | ) | | (59 | ) | | (88 | ) |
| Ending balance | | $ | 308 |
| | $ | 307 |
| | $ | 367 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Beginning balance | | $ | 273 | | | $ | 275 | | | $ | 308 | |
| Accruals / changes in estimates | | 61 | | | 45 | | | 80 | |
| Payments | | (38) | | | (47) | | | (113) | |
| Ending balance | | $ | 296 | | | $ | 273 | | | $ | 275 | |
| Current portion of ending balance | | $ | 85 | | | $ | 75 | | | $ | 75 | |
At December 31, 2018 and 2017, $80 million and $85 million was included in current liabilities, respectively. Defense and processing costs, which areThe amount recorded on an as-reported basis, were not included inby the recorded liability. The Company is primarily self-insured for the personal injury claims.
liability is based upon the best information currently available. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to settle personal injuryresolve these claims may be different from the recorded amounts. The Company estimates that costs to resolve the liability may range from approximately $270$250 million to $370$355 million. However, BNSF believes that the $308 million recorded at December 31, 2018 is the best estimate of the Company’s future obligation for the settlement of personal injury claims.
The amounts recorded by BNSF for personal injury liabilities were based upon currently known facts. Future events, such as the number of new claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties surrounding personal injury litigation in the United States, could cause the actual costs to be higher or lower than projected.
Although the final outcome of these personal injury matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded, it is the opinion of BNSF that none of these items, when finally resolved, will have a material adverse effect on the Company’sCompany's financial position or liquidity. However, the occurrence of a number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.
BNSF Insurance Company
The Company has a consolidated, wholly-owned subsidiary, Burlington Northern Santa Fe Insurance Company, Ltd. (BNSFIC), that offers insurance coverage for certain risks, FELA claims, railroad protective and force account insurance claims and certain excess general liability and property coverage, and certain other claims which are subject to reinsurance. BNSFIC has entered into annual reinsurance treaty agreements with several other companies. The treaty agreements insure workers compensation, general liability, auto liability and FELA risk. In accordance with the agreements, BNSFIC cedes a portion of its FELA exposure through the treaty and assumes a proportionate share of the entire risk. Each year BNSFIC reviews the objectives and performance of the treaty to determine its continued participation in the treaty. The treaty agreements provide for certain protections against the risk of treaty participants’ non-performance. On an ongoing basis, BNSF and/or the treaty manager reviews the creditworthiness of each of the participants. BNSF does not believe its exposure to treaty participants’ non-performance is material at this time. BNSFIC typically invests in time deposits and money market accounts. At December 31, 2018, there was $519 million related to these third-party investments, which were classified as cash and cash equivalents on the Company’s Consolidated Balance Sheets, as compared with $497 million at December 31, 2017.
Environmental
The Company’s operations, as well as those of its competitors, are
BNSF is subject to extensive federal, state, and local environmental regulation. BNSF’sThe Company’s operating procedures include practices to protect the environment from the risks inherent in railroad operations, which frequently involve transporting chemicals and other hazardous materials. Additionally, many of BNSF’s land holdings are andor 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. InUnder federal (in particular, the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), also known asAct) and state statutes, the Superfund law, as well as similar state laws, generally impose jointCompany may be held jointly and several liabilityseverally liable for cleanup and enforcement costs on current and former owners and operators ofassociated with a particular 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 generallyThe Company 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.
BNSF is involved in a number of administrative and judicial proceedings and other mandatory cleanup efforts for 205 sites, including 19 Superfund sites, at which it is participating in the study, or cleanup, or both of alleged environmental contamination.contamination at approximately 190 sites.
Liabilities for environmental cleanupEnvironmental costs may include, but are not limited to, site investigations, remediation, and restoration. The liability is recorded when BNSF’s liability for environmental cleanupthe expected loss is both probable and reasonably estimable. Subsequentestimable and is undiscounted due to uncertainty of the timing of future payments. Expense accruals and adjustments to initial estimates are recordedclassified as necessary based upon additional information developedmaterials and other in subsequent periods. Environmental costs include initial site surveys and environmental studies as well as costs for remediationthe Consolidated Statements of sites determined to be contaminated.Income.
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 currentexperience gained from cleanup efforts at similar sites, estimated percentage to closure ratios, possible remediation work plans, and estimates of the costs and likelihood of each possible outcome, historical payment patterns, and benchmark patterns developed from data accumulated from industry and public sources, including the Environmental Protection Agency and other governmental agencies. These factors incorporate into the estimates experience gained from cleanup efforts at other similar sites.sources. The most significant assumptions are the possible remediation work plans and estimates of the costs and likelihood of each possible outcome for the larger sites.
Annual studies do not include (i) contaminated sites of which the Company is not aware; (ii) additional amounts for third-party tort claims, which arise out of contaminants allegedly migrating from BNSF property, due to a limited number of sites; or (iii) natural resource damage claims. BNSF continues to estimate third-party tort claims on a site by site basis when the liability for such claims is probable and reasonably estimable. BNSF’s recorded liability for third-party tort claims as of December 31, 2018 and 2017 was $8 million and $9 million, respectively.
On a quarterly basis, BNSF monitors actual experience against the forecasted remediationexpectations and related payments made on existing sites and conducts ongoing environmental contingency analyses, which consider a combinationrecords adjustments as new events or changes in estimates develop.
The following table summarizes the activity in the Company’s accrued obligations for environmental matters (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Beginning balance | | $ | 265 | | | $ | 282 | | | $ | 298 | |
| Accruals / changes in estimates | | 3 | | | 2 | | | 5 | |
| Payments | | (17) | | | (19) | | | (21) | |
| Ending balance | | $ | 251 | | | $ | 265 | | | $ | 282 | |
| Current portion of ending balance | | $ | 35 | | | $ | 35 | | | $ | 40 | |
|
| | | | | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Beginning balance | | $ | 317 |
| | $ | 342 |
| | $ | 369 |
|
| Accruals / changes in estimates | | — |
| | 5 |
| | 5 |
|
| Payments | | (19 | ) | | (30 | ) | | (32 | ) |
| Ending balance | | $ | 298 |
| | $ | 317 |
| | $ | 342 |
|
At December 31, 2018 and 2017, $40 million was included in current liabilities for both periods.
During the third quarters of 2018, 2017 and 2016,The amount recorded by the Company analyzed recent data and trends to ensurefor the assumptions used by BNSF to estimate its future environmental liability were reasonable. As a result of this study, inis based upon the best information currently available. It has not been reduced by anticipated recoveries from third quarters of 2018, 2017parties and 2016, management recorded a reduction to expense of $8 million and additional expense of $2 million and $8 million as of the respective June 30 measurement dates. The Company plans to update its study again in the third quarter of 2019.
BNSF’s environmental liabilities are not discounted. BNSF anticipates that the majority of the accrued costs at December 31, 2018 will be paid over the next ten years, and no individual site is considered to be material.
Liabilities recorded for environmental costs represent BNSF’s best estimate of its probable future obligation for the remediation and settlement of these sites and includeincludes both asserted and unasserted claims. Although recorded liabilities include BNSF’s best estimate of all probable costs, without reduction for anticipated recoveries from third parties, BNSF’s total cleanup costs at these sites cannot be predicted with certainty due to various factors, such as the extent of corrective actions that may be required, evolving environmental laws and regulations, advances in environmental technology, the extent of other parties’ participation in cleanup efforts, developments in ongoing environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of contaminated sites.
Because of the uncertainty surrounding thesevarious factors, it is reasonably possible that future costs for environmental liabilitiesto settle these claims may be different from the recorded amounts. The Company estimates that costs to settle the liability may range from approximately $240$205 million to $390$340 million. However, BNSF believes that the $298 million recorded at December 31, 2018 is the best estimate of the Company’s future obligation for environmental costs.
Although the final outcome of these environmental matters cannot be predicted with certainty, it is the opinion of BNSF that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, the occurrence of a number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.
Other Claims and Litigation
In addition to personal injury and environmental matters, discussed above, BNSF and its subsidiaries are also parties to a number of other legal actions and claims, governmental proceedings, and private civil suits arising in the ordinary course of business, including those related to disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for punitive as well as compensatory damages and may, from time to time, may include proceedings that purport to berequests for punitive damages or treatment of the claim as a class actions.action. Although the final outcome of these matters cannot be predicted with certainty, considering among other thingsit is the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance,opinion of BNSF currently believes 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 resolutionthe occurrence of one or morea number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.
Other Commitments
In the normal course of business, the Company enters into long-term contractual requirements for future goods and services needed for the operations of the business. Such commitments are not in excess of expected requirements and are not reasonably likely to result in performance penalties or payments that would have a material adverse effect on the Company’s liquidity.
BNSF Insurance Company
BNSF has a consolidated, wholly-owned subsidiary, Burlington Northern Santa Fe Insurance Company, Ltd. (BNSFIC), that offers insurance coverage for certain risks, including FELA claims, railroad protective and force account insurance claims, certain excess general liability and property coverage, and certain other claims which are subject to reinsurance. BNSFIC has entered into annual reinsurance treaty agreements with several other companies. The treaty agreements insure workers’ compensation, general liability, auto liability, and FELA risk. In accordance with the agreements, BNSFIC cedes a portion of its FELA exposure through the treaties and assumes a proportionate share of the entire risk. Each year, BNSFIC reviews the objectives and performance of the treaties to determine its continued participation. The treaty agreements provide for certain protections against the risk of treaty participants’ non-performance. On an ongoing basis, BNSF and/or the treaty manager reviews the creditworthiness of each of the participants. The Company does not believe its exposure to treaty participants’ non-performance is material at this time. BNSFIC typically invests in time deposits, money market accounts and treasury bills. As of December 31, 2021 and 2020, there were $561 million and $548 million, respectively, related to these third-party investments which were classified as cash and cash equivalents on the Company’s Consolidated Balance Sheets.
14. Employment Benefit Plans
BNSF provides a funded, noncontributory qualified pension plan the BNSF(BNSF Retirement Plan,Plan), which coverscovered most non-union employees through March 31, 2019, and an unfunded non-tax-qualified pension plan the BNSF(BNSF Supplemental Retirement Plan,Plan), which coverscovered certain officers and other employees.employees through March 31, 2019. The benefits under these pension plans are based on years of credited service and the highest consecutive sixty months of compensation for the last ten years of salaried employment with BNSF. The Companythe Company. BNSF also provides twoa funded, noncontributory qualified pension plansplan which covercovers certain union employees of the former The Atchison, Topeka and Santa Fe Railway Company (Union Plans)Plan). The benefits under thesethis pension plansplan are based on elections made at the time the plan was implemented. With respect to the funded plans, were implemented. BNSF’sthe Company's funding policy is to contribute annually not less than the regulatory minimum and not more than the maximum amount deductible for income tax purposes with respectpurposes. The BNSF Retirement Plan, the BNSF Supplemental Retirement Plan, and the Union Plan are collectively referred to herein as the funded plans.Pension Plans.
Certain salariedDuring the first quarter of 2019, the Company amended the BNSF Retirement Plan and the BNSF Supplemental Retirement Plan. Non-union employees hired on or after April 1, 2019 are not eligible to participate in these retirement plans and instead receive an additional employer contribution as part of BNSF who have metthe qualified 401(k) plan based on the employees’ age and years of service requirementsservice. Current employees are being transitioned away from the retirement plans and upon transition are eligible for medical benefits, including prescription drug coverage, during retirement. For pre-Medicare participants, the postretirement medicaladditional employer contribution. As a result of the plan amendments, the Company recognized a curtailment gain of $120 million in the first quarter of 2019 consisting of $117 million for the reduction in projected benefit obligation and prescription drug benefit is contributory and provides benefits to retirees and their covered dependents. Retiree contributions are adjusted annually. The plan also contains fixed deductibles, coinsurance and out-of-pocket limitations. For Medicare eligible participants, a yearly stipend is recorded in a Health Reimbursement Account (HRA) established on their behalf. Retirees can use these HRAs to reimburse themselves$3 million for eligible out-of-pocket expenses, as well as premiums for personal supplemental insurance policies. HRAs are unfunded, so no funds are expended until the reimbursements are paid. Generally, employees beginning salaried employment with BNSF subsequent to September 22, 1995, are not eligible for medical benefits during retirement.recognition of prior service credits.
Components of the net (benefit) cost for certain employee benefit plansthe Pension Plans were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits |
| | Years ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Service cost | | $ | 25 | | | $ | 21 | | | $ | 32 | |
| Interest cost | | 56 | | | 70 | | | 81 | |
| Expected return on plan assets | | (176) | | | (167) | | | (160) | |
| Amortization of net loss | | 2 | | | 1 | | | — | |
| Amortization of prior service credit | | — | | | — | | | (3) | |
| Curtailment gain | | — | | | — | | | (117) | |
| Settlement loss (gain) | | (1) | | | (1) | | | 5 | |
| Net (benefit) cost recognized | | $ | (94) | | | $ | (76) | | | $ | (162) | |
|
| | | | | | | | | | | | |
| | | Pension Benefits |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Service cost | | $ | 46 |
| | $ | 42 |
| | $ | 46 |
|
| Interest cost | | 82 |
| | 88 |
| | 95 |
|
| Expected return on plan assets | | (157 | ) | | (149 | ) | | (142 | ) |
| Amortization of prior service credits | | (1 | ) | | — |
| | (1 | ) |
| Amortization of net loss | | 1 |
| | — |
| | 1 |
|
| Settlements | | (1 | ) | | — |
| | (1 | ) |
| Net (benefit) cost recognized | | $ | (30 | ) | | $ | (19 | ) | | $ | (2 | ) |
|
| | | | | | | | | | | | |
| | | Retiree Health and Welfare Benefits |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Service cost | | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
| Interest cost | | 8 |
| | 9 |
| | 10 |
|
| Amortization of prior service credits | | (2 | ) | | (2 | ) | | (2 | ) |
| Amortization of net loss | | — |
| | — |
| | 1 |
|
| Net (benefit) cost recognized | | $ | 7 |
| | $ | 8 |
| | $ | 10 |
|
The projected benefit obligation is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases and expected healthcare cost trend rate increases. The following tables show the change in projected benefit obligation for the Pension Plans (in millions):
| | | | | | | | | | | | | | |
| | | Pension Benefits |
| Change in Benefit Obligation | | December 31,
2021 | | December 31,
2020 |
| Projected benefit obligation at beginning of period | | $ | 2,499 | | | $ | 2,295 | |
| Service cost | | 25 | | | 21 | |
| Interest cost | | 56 | | | 70 | |
| Actuarial loss (gain) | | (110) | | | 262 | |
| Benefits paid | | (142) | | | (143) | |
| | | | |
| | | | |
| Settlements | | (6) | | | (6) | |
| Projected benefit obligation at end of period | | 2,322 | | | 2,499 | |
| Component representing future salary increases | | (42) | | | (51) | |
| Accumulated benefit obligation at end of period | | $ | 2,280 | | | $ | 2,448 | |
|
| | | | | | | | |
| | | Pension Benefits |
| Change in Benefit Obligation | | December 31,
2018 | | December 31,
2017 |
| Projected benefit obligation at beginning of period | | $ | 2,387 |
| | $ | 2,247 |
|
| Service cost | | 46 |
| | 42 |
|
| Interest cost | | 82 |
| | 88 |
|
| Actuarial (gain) loss | | (158 | ) | | 166 |
|
| Benefits paid | | (149 | ) | | (144 | ) |
| Settlements | | (10 | ) | | (12 | ) |
| Projected benefit obligation at end of period | | 2,198 |
| | 2,387 |
|
| Component representing future salary increases | | (136 | ) | | (135 | ) |
| Accumulated benefit obligation at end of period | | $ | 2,062 |
| | $ | 2,252 |
|
For the year ended December 31, 2021, the change in benefit obligation resulted from actuarial gains primarily attributable to an increase in the discount rate from the preceding year. For the year ended December 31, 2020, the change in benefit obligation resulted from actuarial losses primarily attributable to a decrease in the discount rate from the preceding year. |
| | | | | | | | |
| | | Retiree Health and Welfare Benefits |
| Change in Benefit Obligation | | December 31,
2018 | | December 31,
2017 |
| Projected benefit obligation at beginning of period | | $ | 241 |
| | $ | 237 |
|
| Service cost | | 1 |
| | 1 |
|
| Interest cost | | 8 |
| | 9 |
|
| Plan participants’ contributions | | 4 |
| | 4 |
|
| Actuarial (gain) loss | | (22 | ) | | 14 |
|
| Benefits paid | | (19 | ) | | (23 | ) |
| Plan amendment | | — |
| | (1 | ) |
| Projected benefit obligation at end of period | | $ | 213 |
| | $ | 241 |
|
The following tables show the change in plan assets of the plansPension Plans (in millions):
| | | | | | | | | | | | | | |
| | | Pension Benefits |
| Change in Plan Assets | | December 31,
2021 | | December 31,
2020 |
| Fair value of plan assets at beginning of period | | $ | 2,916 | | | $ | 2,672 | |
| Actual return (loss) on plan assets | | 392 | | | 383 | |
Employer contributionsa | | 10 | | | 10 | |
| Benefits paid | | (142) | | | (143) | |
| | | | |
| Settlements | | (6) | | | (6) | |
| Fair value of plan assets at end of period | | $ | 3,170 | | | $ | 2,916 | |
|
| | | | | | | | |
| | | Pension Benefits |
| Change in Plan Assets | | December 31,
2018 | | December 31,
2017 |
| Fair value of plan assets at beginning of period | | $ | 2,669 |
| | $ | 2,333 |
|
| Actual return on plan assets | | (189 | ) | | 479 |
|
Employer contributionsa | | 15 |
| | 13 |
|
| Benefits paid | | (149 | ) | | (144 | ) |
| Settlements | | (10 | ) | | (12 | ) |
| Fair value of plan assets at measurement date | | $ | 2,336 |
| | $ | 2,669 |
|
a Employer contributions were classified as Other, Net under Operating Activities in the Company’s Consolidated Statements of Cash Flows.
|
| | | | | | | | |
| | | Retiree Health and Welfare Benefits |
| Change in Plan Assets | | December 31,
2018 | | December 31,
2017 |
| Fair value of plan assets at beginning of period | | $ | 29 |
| | $ | — |
|
Employer contributionsa | | — |
| | 48 |
|
| Plan participants’ contributions | | 4 |
| | 4 |
|
| Benefits paid | | (19 | ) | | (23 | ) |
| Fair value of plan assets at measurement date | | $ | 14 |
| | $ | 29 |
|
a Employer contributions were classified as Other, Net under Operating Activities in the Company’s Consolidated Statements of Cash Flows.
The following table shows the funded status of the Pension Plans, defined as plan assets less the projected benefit obligation (in millions):
| | | | | | | | | | | | | | |
| | | Pension Benefits |
| | | December 31,
2021 | | December 31,
2020 |
| Funded status (plan assets less projected benefit obligations) | | $ | 848 | | | $ | 417 | |
|
| | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Retiree Health and Welfare Benefits |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2018 | | December 31,
2017 |
| Funded status (plan assets less projected benefit obligations) | | $ | 138 |
| | $ | 282 |
| | $ | (199 | ) | | $ | (212 | ) |
Of the net combined pension assets of $848 million and retiree health and welfare benefit obligation of $61$417 million recognized as of December 31, 20182021 and asset of $70 million recognized as of December 31, 2017, $342020, respectively, $10 million and $16$9 million were included in other current liabilities atas of December 31, 20182021 and 2017,2020, respectively, and $240$947 million and $396$520 million were included in other assets atas of December 31, 20182021 and 2017,2020, respectively.
The BNSF Supplemental Retirement Plan and the Union PlansPlan have accumulated and projected benefit obligations in excess of plan assets. The following table shows the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the three plans (in millions):
| | | | | December 31,
2018 | | December 31,
2017 | | December 31,
2021 | | December 31,
2020 |
| Projected benefit obligation | | $ | 138 |
| | $ | 157 |
| Projected benefit obligation | | $ | 112 | | | $ | 122 | |
| Accumulated benefit obligation | | $ | 138 |
| | $ | 157 |
| Accumulated benefit obligation | | $ | 106 | | | $ | 114 | |
| Fair value of plan assets | | $ | 36 |
| | $ | 43 |
| Fair value of plan assets | | $ | 13 | | | $ | 19 | |
Actuarial gains and losses and prior service credits are recognized in the Consolidated Balance Sheets through an adjustment to accumulated other comprehensive income (loss) (AOCI). The following tables show the pre-tax change in AOCI attributable to the components of the net cost and the change in benefit obligation (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits |
| | Years ended December 31, |
| Change in AOCI | | 2021 | | 2020 | | 2019 |
| Beginning balance | | $ | 182 | | | $ | 228 | | | $ | 182 | |
| Amortization of net loss | | 2 | | | 1 | | | — | |
| Amortization of prior service credits | | — | | | — | | | (3) | |
| | | | | | |
| Actuarial gain (loss) | | 326 | | | (46) | | | 44 | |
| Settlements | | (1) | | | (1) | | | 5 | |
| Ending balance | | $ | 509 | | | $ | 182 | | | $ | 228 | |
|
| | | | | | | | | | | | |
| | | Pension Benefits |
| | | Year Ended | | Year Ended | | Year Ended |
| Change in AOCI | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Beginning balance | | $ | 371 |
| | $ | 207 |
| | $ | 102 |
|
| Amortization of net loss | | 1 |
| | — |
| | 1 |
|
| Amortization of prior service credits | | (1 | ) | | — |
| | (1 | ) |
| Actuarial gain (loss) | | (188 | ) | | 164 |
| | 106 |
|
| Settlements | | (1 | ) | | — |
| | (1 | ) |
| Ending balance | | $ | 182 |
| | $ | 371 |
| | $ | 207 |
|
|
| | | | | | | | | | | | |
| | | Retiree Health and Welfare Benefits |
| | | Year Ended | | Year Ended | | Year Ended |
| Change in AOCI | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Beginning balance | | $ | (24 | ) | | $ | (9 | ) | | $ | (21 | ) |
| Amortization of net loss | | — |
| | — |
| | 1 |
|
| Amortization of prior service credits | | (2 | ) | | (2 | ) | | (2 | ) |
| Actuarial gain (loss) | | 22 |
| | (14 | ) | | 13 |
|
| Prior service credits | | — |
| | 1 |
| | — |
|
| Ending balance | | $ | (4 | ) | | $ | (24 | ) | | $ | (9 | ) |
Approximately $2 million, net of tax, of the actuarial gains and less than $1 million, net of tax, of the prior service credits from defined benefit pension plans in AOCI are required to be amortized into net periodic benefit cost over the next fiscal year. Less than $1 million, net of tax, of the prior service credits and actuarial losses from retiree health and welfare benefit plans in AOCI are required to be amortized into net periodic benefit cost over the next fiscal year. Pre-tax amounts currently recognized in AOCI consist of the following (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Retiree Health and Welfare Benefits |
| | | 2018 | | 2017 | | 2018 | | 2017 |
| Net gain (loss) | | $ | 183 |
| | $ | 370 |
| | $ | (6 | ) | | $ | (28 | ) |
| Prior service credits | | 3 |
| | 4 |
| | 2 |
| | 4 |
|
| Settlements | | (4 | ) | | (3 | ) | | — |
| | — |
|
Pre-tax amount recognized in AOCI at December 31, | | $ | 182 |
| | $ | 371 |
| | $ | (4 | ) | | $ | (24 | ) |
After-tax amount recognized in AOCI at December 31, | | $ | 108 |
| | $ | 251 |
| | $ | (2 | ) | | $ | (17 | ) |
| | | | | | | | | | | | | | |
| | | Pension Benefits |
| | Years ended December 31, |
| | | 2021 | | 2020 |
| Net gain (loss) | | $ | 509 | | | $ | 182 | |
| | | | |
| | | | |
| Pre-tax amount recognized in AOCI | | $ | 509 | | | $ | 182 | |
| | | | |
The assumptions used in accounting for the BNSF plansPension Plans were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits |
| | Years ended December 31, |
| Assumptions Used to Determine Net Cost | | 2021 | | 2020 | | 2019 |
| Discount rate | | 2.3 | % | | 3.2 | % | | 4.2 | % |
| Expected long-term rate of return on plan assets | | 6.7 | % | | 6.7 | % | | 6.7 | % |
| Rate of compensation increase | | 3.1 | % | | 3.1 | % | | 3.5 | % |
|
| | | | | | | | | |
| | | Pension Benefits |
| | | Year Ended | | Year Ended | | Year Ended |
| Assumptions Used to Determine Net Cost | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Discount rate | | 3.6 | % | | 4.1 | % | | 4.2 | % |
| Expected long-term rate of return on plan assets | | 6.6 | % | | 6.6 | % | | 6.6 | % |
| Rate of compensation increase | | 3.6 | % | | 3.3 | % | | 3.8 | % |
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | |
| Assumptions Used to Determine Benefit Obligations | | December 31,
2021 | | December 31,
2020 | | | | |
| Discount rate | | 2.7 | % | | 2.3 | % | | | | |
| Rate of compensation increase | | 3.1 | % | | 3.1 | % | | | | |
|
| | | | | | | | | |
| | | Retiree Health and Welfare Benefits |
| | | Year Ended | | Year Ended | | Year Ended |
| Assumptions Used to Determine Net Cost | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Discount rate | | 3.5 | % | | 3.9 | % | | 4.1 | % |
| Rate of compensation increase | | 3.6 | % | | 3.3 | % | | 3.8 | % |
|
| | | | | | | | | | | | |
| | | Pension Benefits | | Retiree Health and Welfare Benefits |
| Assumptions Used to Determine Benefit Obligations | | December 31,
2018 | | December 31,
2017 | | December 31,
2018 | | December 31,
2017 |
| Discount rate | | 4.2 | % | | 3.6 | % | | 4.1 | % | | 3.5 | % |
| Rate of compensation increase | | 3.5 | % | | 3.6 | % | | 3.5 | % | | 3.6 | % |
BNSFThe Company determined the discount rate based on a yield curve that utilized year-end market yields of high-quality corporate bonds to develop spot rates that are matched against the plans’ expected benefit payments. The discount rate used for the 20192022 calculation of pension net benefit cost increased to 4.22.7 percent, for pension and 4.1 percent for retiree health and welfare benefits, which reflects market conditions at the December 31, 20182021 measurement date.
Various other assumptions including retirement and withdrawal rates, compensation increases, payment form and benefit commencement age are based upon a five-year experience study. In 2016, BNSF2021, the Company obtained an updated study which had an immaterial impact on its pension and retiree health and welfare projected benefit obligation.
BNSFThe Company utilizes actuary-produced mortality tables and an improvement scale derived from the most recently available data, which were used in the calculation of its December 31, 20182021 and 20172020 liabilities.
Pension plan assets are generally invested with the long-term objective of earning sufficient amounts to cover expected benefit obligations while assuming a prudent level of risk. Allocations may change as a result of changing market conditions and investment opportunities. Generally, BNSF’s policy is to fund the retiree health and welfare benefits as they come due, however the Company pre-funded $29 million towards the plans in 2017. As of December 31, 2018, there is a balance of $14 million that is expected to be fully used by the end of 2019.opportunities.
The expected rates of return on plan assets reflect subjectivesubjective assessments of expected invested asset returns over a period of several years. Actual experience willmay differ from the assumed rates. The expected rate of return on pension plan assets was 6.66.7 percent for 20182021 and will be 6.76.5 percent for 2019. The expected rate of return on retiree health and welfare benefit plan assets was 1.7 percent for 2018 and will be 1.4 percent for 2019.2022.
The following table is an estimate of the impact on future net benefit cost that could result from hypothetical changes to the most sensitive assumptions, the discount rate and expected rate of return on plan assets:
|
| | | | | | | | | | |
| Sensitivity Analysis |
| | | Change in 2019 Net Benefit Cost |
| Hypothetical Discount Rate Change | | Pension | Retiree Health and Welfare |
| 50 basis point decrease | | $ | 3 | million | increase | | $ | — |
| decrease |
| 50 basis point increase | | $ | 9 | million | decrease | | $ | 1 | million | increase |
Hypothetical Expected Rate of Return on Plan Assets Change | | Pension | Retiree Health and Welfare |
| 50 basis point decrease | | $ | 12 | million | increase | | $ | — |
| increase |
| 50 basis point increase | | $ | 12 | million | decrease | | $ | — |
| decrease |
The following table presents assumed health care cost trend rates: | | | | | | | | | | | | | | |
| Sensitivity Analysis | | | |
| | Change in 2022 Net Benefit Cost | | | |
| Hypothetical Discount Rate Change | | Pension | |
| 50 basis point decrease | | $ | 6 | million | decrease | | | |
| 50 basis point increase | | $ | 3 | million | decrease | | | |
Hypothetical Expected Rate of Return
on Plan Assets Change | | Pension | |
| 50 basis point decrease | | $ | 14 | million | increase | | | |
| 50 basis point increase | | $ | 14 | million | decrease | | | |
|
| | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Assumed health care cost trend rate for next year (participants over 65) | | 3.0 | % | | 3.0 | % | | 3.0 | % |
| Assumed health care cost trend rate for next year (participants under 65) | | 6.7 | % | | 7.0 | % | | 7.4 | % |
| Rate to which health care cost trend rate for participants under 65 is expected to decline and remain | | 4.5 | % | | 4.5 | % | | 4.4 | % |
| Year that the rate reaches the ultimate trend rate | | 2039 |
| | 2039 |
| | 2039 |
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects (in millions):
|
| | | | | | | | |
| | | One Percentage- Point Increase |
| | One Percentage- Point Decrease |
|
| Effect on total service and interest cost | | $ | 1 |
| | $ | (1 | ) |
| Effect on postretirement benefit obligation | | $ | 14 |
| | $ | (12 | ) |
Investments are stated at fair value. The various types of investments are valued as follows:
(i) Cash and equivalents include investments in a money market fund and in a collective short-term investment fund, both of which are composed of high-grade instruments with short-term maturities. The money market fund is valued at the closing price reported by the active market on which the fund is traded (Level 1 input). The short-term investment fund is valued based on the price per share which is determined and published (although not publicly) and is the basis for current transactions (Level 2 input).
(ii) Equity securities are valued at the last trade price at primary exchange close time on the last business day of the year (Level 1 input). If the last trade price is not available, values are based on bid, ask/offer quotes from contracted pricing vendors, brokers, or investment managers (Level 3 input or Level 2 if corroborated).
(ii)(iii) Highly liquid government obligations, such as U.S. Treasury securities, are valued based on quoted prices in active markets for identical assets (Level 1 input). Other fixed maturity securities and government obligations are valued based on institutional bid evaluations from contracted vendors. Where available, vendors use observable market-based data to evaluate prices (Level 2 input). If observable market-based data is not available, unobservable inputs such as extrapolated data, proprietary models, and indicative quotes are used to arrive at estimated prices representing the price a dealer would pay for the security (Level 3 input).
(iii) Investment funds / other are valued at the daily net asset value of shares held at year end. Net asset value is considered a Level 1 input if net asset value is computed daily and redemptions at this value are available to all shareholders without restriction. Net asset value is considered a Level 2 input if the fund may restrict share redemptions under limited circumstances or if net asset value is not computed daily. Net asset value is considered a Level 3 input if shares could not be redeemed on the reporting date and net asset value cannot be corroborated by trading activity.
The following table summarizes the investments of BNSF’sthe funded pension plans as of December 31, 2018,2021, based on the inputs used to value them (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total as of | | | | | | |
| Asset Category | | December 31,
2021 | | Level 1 Inputs a | | Level 2 Inputs a | | Level 3 Inputs a |
| Cash and equivalents | | $ | 9 | | | $ | 1 | | | $ | 8 | | | $ | — | |
Equity securitiesb | | 2,900 | | | 2,900 | | | — | | | — | |
| Government obligations | | 256 | | | 256 | | | — | | | — | |
| Other fixed maturity securities | | 5 | | | — | | | 5 | | | — | |
| Total | | $ | 3,170 | | | $ | 3,157 | | | $ | 13 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | | Total as of | | | | | | |
| Asset Category | | December 31,
2018 | | Level 1 Inputs a | | Level 2 Inputs a | | Level 3 Inputs a |
| Cash and equivalents | | $ | 21 |
| | $ | 1 |
| | $ | 20 |
| | $ | — |
|
Equity securitiesb | | 1,895 |
| | 1,895 |
| | — |
| | — |
|
| Government obligations | | 403 |
| | 403 |
| | — |
| | — |
|
| Other fixed maturity securities | | 14 |
| | — |
| | 14 |
| | — |
|
| Investment funds and other | | 3 |
| | 3 |
| | — |
| | — |
|
Totalc | | $ | 2,336 |
| | $ | 2,302 |
| | $ | 34 |
| | $ | — |
|
a See Note 2 to the Consolidated Financial Statements under the heading “Fair Value Measurements” for a definition of each of these levels of inputs.
b As of December 31, 2018, three2021, four equity securities each exceeded 10 percent of total plan assets. These investments represent approximately 5178 percent of total plan assets.
c Excludes less than $1 million accrued for dividend and interest receivable.
In addition, there was $14 million and $29 million invested in cash and cash equivalents, valued using Level 1 inputs, related to the retiree health and welfare benefit plans as of December 31, 2018 and 2017, respectively.
Comparative Prior Year Information
The following table summarizes the investments of BNSF’sthe funded pension plans as of December 31, 2017,2020, based on the inputs used to value them (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total as of | | | | | | |
| Asset Category | | December 31,
2020 | | Level 1 Inputs a | | Level 2 Inputs a | | Level 3 Inputs a |
| Cash and equivalents | | $ | 19 | | | $ | 1 | | | $ | 18 | | | $ | — | |
Equity securitiesb | | 2,634 | | | 2,634 | | | — | | | — | |
| Government obligations | | 254 | | | 254 | | | — | | | — | |
| Other fixed maturity securities | | 9 | | | — | | | 9 | | | — | |
| Total | | $ | 2,916 | | | $ | 2,889 | | | $ | 27 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | | Total as of | | | | | | |
| Asset Category | | December 31,
2017 | | Level 1 Inputs a | | Level 2 Inputs a | | Level 3 Inputs a |
| Cash and equivalents | | $ | 13 |
| | $ | 2 |
| | $ | 11 |
| | $ | — |
|
Equity securitiesb | | 2,440 |
| | 2,440 |
| | — |
| | — |
|
| Government obligations | | 197 |
| | 197 |
| | — |
| | — |
|
| Other fixed maturity securities | | 14 |
| | — |
| | 14 |
| | — |
|
| Investment funds and other | | 5 |
| | 5 |
| | — |
| | — |
|
Total c | | $ | 2,669 |
| | $ | 2,644 |
| | $ | 25 |
| | $ | — |
|
a See Note 2 to the Consolidated Financial Statements under the heading “Fair Value Measurements” for a definition of each of these levels of inputs.
b As of December 31, 2017,2020, three equity securities each exceeded 10 percent of total plan assets. These investments represented approximately 4767 percent of total plan assets.
c Excludes less than $1 million accrued for dividend and interest receivable.
The Company is not required to make contributions to its funded pension plans in 2019. The Company expects to contribute $31 million to its unfunded non-qualified pension plan in 2019.2022.
The following table shows expected benefit payments from its defined benefit pension plans and expected claim payments for the retiree health and welfare planPension Plans for the next five fiscal years and the aggregate five years thereafter (in millions):
| | | | | | | | | | |
| Fiscal year | | Expected Pension Plan Benefit Paymentsa | | |
| 2022 | | $ | 148 | | | |
| 2023 | | $ | 138 | | | |
| 2024 | | $ | 134 | | | |
| 2025 | | $ | 132 | | | |
| 2026 | | $ | 129 | | | |
| 2027-2031 | | $ | 603 | | | |
|
| | | | | | | | |
| Fiscal year | | Expected Pension Plan Benefit Paymentsa |
| | Expected Retiree Health and Welfare Paymentsb |
|
| 2019 | | $ | 183 |
| | $ | 18 |
|
| 2020 | | $ | 150 |
| | $ | 17 |
|
| 2021 | | $ | 144 |
| | $ | 17 |
|
| 2022 | | $ | 139 |
| | $ | 16 |
|
| 2023 | | $ | 134 |
| | $ | 15 |
|
| 2024-2028 | | $ | 633 |
| | $ | 67 |
|
a Primarily consists of the BNSF Retirement Plan payments, which are made from the plan trust and do not represent an immediate cash outflow to the Company.
b Expected payments for a portion of 2019 will be made from the plan trust and do not represent an immediate cash outflow to the Company.
Defined ContributionOther Benefit Plans
BNSF sponsors qualified 401(k) plans that cover substantially all employees and a non-qualified defined contribution plan that covers certain officers and other employees. BNSF matched 75 percent of the first six percent ofmatches contributions made by non-union employees’ contributionsemployees and matched 25 percent on the first four percent of a limited number of union employees’ contributions, which areemployees subject to certain percentage limits of the employees’ earnings, at each pay period. Employer contributionsearnings. Non-union employees hired on or after April 1, 2019, and employees hired before that date who have transitioned from the BNSF Retirement Plan are subject to a five-year lengthalso eligible for an additional employer contribution based on the employees’ age and years of service vesting schedule. BNSF’sservice. The Company's 401(k) matching expense was $36$52 million, $35$49 million, and $34$41 million during the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively.
OtherCertain salaried employees of BNSF who met age and years of service requirements and who began salaried employment prior to September 22, 1995 are eligible for medical benefits, including prescription drug coverage, during retirement. For pre-Medicare participants, the postretirement medical and prescription drug benefit is contributory and provides benefits to retirees and their covered dependents. For Medicare eligible participants, a yearly stipend is recorded in a Health Reimbursement Account (HRA) established on their behalf. Retirees can use these HRAs to reimburse themselves for eligible out-of-pocket expenses, as well as premiums for personal supplemental insurance policies. HRAs are unfunded, so no funds are expended by the Company until the reimbursements are paid to participants. As of December 31, 2021 and 2020, the projected benefit obligation associated with the retiree health and welfare plans was $219 million and $237 million, respectively. For each of the years ended December 31, 2021, 2020 and 2019, the service cost associated with the health and welfare plans was approximately $1 million.
Under collective bargaining agreements, BNSF participates in multi-employer benefit plans that provide certain postretirement health care and life insurance benefits for eligible union employees. Health care claim payments and life insurance premiums paid attributable to retirees, which are generally expensed as incurred, were $64$46 million, $75$46 million and $61$59 million during the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. The average number of employees covered under these plans were 37 thousand, 35 thousand,was approximately 31,000, 33,000 and 36 thousand37,000 during the years ended December 31, 2018, 2017,2021, 2020 and 2016,2019, respectively.
15. Related Party Transactions
The companies identified as affiliates of BNSF include Berkshire and its subsidiaries. During the years ended December 31, 2018, 20172021, 2020 and 2016,2019, the Company declared and paid cash distributions of $5.5$3.8 billion, $4.6$4.8 billion and $2.5$4.4 billion, respectively, to its parent company.Berkshire. For the years ended December 31, 2018, 20172021, 2020 and 2016,2019, the Company received tax refunds of $222$47 million, $29$55 million and $235$1 million, respectively, from Berkshire, and made tax payments of $912 million, $1.6$1.1 billion, $1.1 billion and $893$934 million, respectively, to Berkshire. As of December 31, 2018,2021 and 2020, the Company had a payable to Berkshire of $21 million. As of December 31, 2017, the Company had a receivable from Berkshire of $235 million recorded in other current assets and a payable to Berkshire of $19 million. Uncertain tax positions will affect the tax payable to Berkshire if and when settled. As of December 31, 2018 and 2017, the Company had $33$124 million and $32$70 million, respectively, payable to Berkshire related to prior year tax audit settlements.respectively.
BNSF engages in various transactions with related parties in the ordinary course of business. The following table summarizes revenues earned by BNSF for services provided to related parties and expenditures to related parties (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Revenues | | $ | 106 | | | $ | 119 | | | $ | 158 | |
| Expenditures | | $ | 385 | | | $ | 367 | | | $ | 386 | |
|
| | | | | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| Revenues | | $ | 152 |
| | $ | 139 |
| | $ | 146 |
|
| Expenditures | | $ | 381 |
| | $ | 342 |
| | $ | 286 |
|
BNSF owns 17.3 percent of TTX Company (TTX) while other North American railroads own the remaining interest. As BNSF possesses the ability to exercise significant influence, but not control, over the operating and financial policies of TTX, BNSF applies the equity method of accounting to its investment in TTX. The investment in TTX recorded under the equity method is recorded in other assets. Equity income or losses are recorded in materials and other in the Consolidated Statements of Income. North American railroads pay TTX car hire to use TTX’s freight equipment to serve their customers. BNSF’s car hire expenditures incurred with TTX are included in the table above. BNSF had $609$749 million and $554$703 million recognized as investments related to TTX in its Consolidated Balance Sheets as of December 31, 20182021 and 2017,2020, respectively.
16. Accumulated Other Comprehensive Income
Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in accumulated other comprehensive income, a component of equity within the Consolidated Balance Sheets, rather than net income on the Consolidated Statements of Income. Under existing accounting standards, other comprehensive income may include, among other things, unrecognized gains and losses and prior service credit related to pension and other postretirement benefit plans.
The following tables provide the components of accumulated other comprehensive income (loss) (AOCI) by component (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | Pension and Retiree Health and Welfare Benefit Items | | Equity Method Investments | | Total |
| Balance as of December 31, 2018 | | $ | 133 | | | $ | (3) | | | $ | 130 | |
| Other comprehensive income (loss) before reclassifications, net of $4 million tax expense | | 16 | | | (1) | | | 15 | |
| Amounts reclassified from AOCI: | | | | | | |
Amortization of prior service creditsa | | (4) | | | — | | | (4) | |
Settlement (gain) lossa | | 5 | | | — | | | 5 | |
| Tax expense (benefit) | | (1) | | | — | | | (1) | |
| Balance as of December 31, 2019 | | $ | 149 | | | $ | (4) | | | $ | 145 | |
| Other comprehensive income (loss) before reclassifications, net of $17 million tax benefit | | (48) | | | 1 | | | (47) | |
| Amounts reclassified from AOCI: | | | | | | |
Amortization of actuarial lossesa | | 2 | | | — | | | 2 | |
| | | | | | |
Settlement (gain) lossa | | (1) | | | — | | | (1) | |
| Tax expense (benefit) | | (1) | | | — | | | (1) | |
| Balance as of December 31, 2020 | | $ | 101 | | | $ | (3) | | | $ | 98 | |
| Other comprehensive income (loss) before reclassifications, net of $81 million tax expense | | 251 | | | — | | | 251 | |
| Amounts reclassified from AOCI: | | | | | | |
Amortization of actuarial lossesa | | 6 | | | — | | | 6 | |
| | | | | | |
Settlement (gain) lossa | | (1) | | | — | | | (1) | |
| Tax expense (benefit) | | (1) | | | — | | | (1) | |
| Balance at December 31, 2021 | | $ | 356 | | | $ | (3) | | | $ | 353 | |
|
| | | | | | | | | | | | |
| | | Pension and Retiree Health and Welfare Benefit Itemsa | | Equity Method Investments | | Total |
| Balance at December 31, 2017 | | $ | 234 |
| | $ | (3 | ) | | $ | 231 |
|
| Other comprehensive (loss) income before reclassifications | | (126 | ) | | 1 |
| | (125 | ) |
| Amounts reclassified from AOCI | | 25 |
| | (1 | ) | | 24 |
|
| Balance at December 31, 2018 | | $ | 133 |
| | $ | (3 | ) | | $ | 130 |
|
| | | | | | | |
| Balance at December 31, 2016 | | $ | 122 |
| | $ | (3 | ) | | $ | 119 |
|
| Other comprehensive income (loss) before reclassifications | | 114 |
| | — |
| | 114 |
|
| Amounts reclassified from AOCI | | (2 | ) | | — |
| | (2 | ) |
| Balance at December 31, 2017 | | $ | 234 |
| | $ | (3 | ) | | $ | 231 |
|
a Amounts are net of tax. See Note 14 to theConsolidated Financial Statementsfor additional details.
|
| | | | | | | | | | |
Reclassifications out of AOCIb |
| | | Year Ended | | Year Ended | | |
| Details about AOCI Components | | December 31, 2018 | | December 31, 2017 | | Income Statement Line Item |
| Amortization of pension and retiree health and welfare benefit items | | | | | | |
| Actuarial losses | | $ | (1 | ) | | $ | — |
| | c |
| Prior service credits | | 3 |
| | 2 |
| | c |
| Reclassification due to ASU 2016-01 adoption | | 1 |
| | — |
| | |
| Reclassification due to ASU 2018-02 adoption | | (26 | ) | | — |
| | |
| | | (23 | ) | | 2 |
| | Total before tax |
| | | (1 | ) | | — |
| | Tax benefit / (expense) |
| Total reclassifications for the period | | $ | (24 | ) | | $ | 2 |
| | Net of tax |
b Amounts in parentheses indicate debits to the income statement.
cThis accumulated other comprehensive income component is included in the computation of net periodic pension and retiree health and welfare cost (see Note 14 to the Consolidated Financial Statements for additional details).
17. Quarterly Financial Data—Unaudited
Dollars in millions
|
| | | | | | | | | | | | | | | | |
| 2018 | | Fourth | | Third | | Second | | First |
| Revenues | | $ | 6,206 |
| | $ | 6,147 |
| | $ | 5,878 |
| | $ | 5,624 |
|
| Operating income | | $ | 2,061 |
| | $ | 2,109 |
| | $ | 1,883 |
| | $ | 1,747 |
|
| Net income | | $ | 1,372 |
| | $ | 1,393 |
| | $ | 1,309 |
| | $ | 1,145 |
|
|
| | | | | | | | | | | | | | | | |
| 2017 | | Fourth | | Third | | Second | | First |
| Revenues | | $ | 5,638 |
| | $ | 5,314 |
| | $ | 5,250 |
| | $ | 5,185 |
|
| Operating income | | $ | 1,999 |
| | $ | 1,940 |
| | $ | 1,774 |
| | $ | 1,580 |
|
| Net income | | $ | 8,462 |
| | $ | 1,042 |
| | $ | 958 |
| | $ | 838 |
|
Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, the Company’s principal executive officer and principal financial officer have concluded that BNSF’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by BNSF in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to BNSF’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of BNSF is responsible for establishing and maintaining adequate internal control over financial reporting. BNSF’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of BNSF’s financial statements for external reporting purposes in accordance with generally accepted accounting principles in the United States of America.
Management assessed the effectiveness of BNSF’s internal control over financial reporting as of December 31, 2018.2021. In making this assessment, management adopted and used the criteria set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s assessment, management concluded that as of December 31, 2018,2021, BNSF’s internal control over financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
As of the period covered by this report, the Company has concluded that there have been no changes in BNSF’s internal control over financial reporting that occurred during BNSF’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, BNSF’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 14. Principal Accountant Fees and Services
Independent Registered Public Accounting Firm Fees
The following table presents the fees incurred bybilled to BNSF, including its majority-owned subsidiaries, for services provided by Deloitte & Touche LLP, the independent registered public accounting firm, for the years ended December 31, 20182021 and 20172020 (in thousands):
| | | | | 2018 | | 2017 | | | 2021 | | 2020 |
| Audit fees | | $ | 2,710 |
| | $ | 2,546 |
| Audit fees | | $ | 3,117 | | | $ | 3,212 | |
| Audit-related fees | | 60 |
| | 11 |
| Audit-related fees | | — | | | — | |
| Tax fees | | — |
| | — |
| Tax fees | | — | | | — | |
| All other fees | | 25 |
| | 23 |
| All other fees | | — | | | — | |
| Total | | $ | 2,795 |
| | $ | 2,580 |
| Total | | $ | 3,117 | | | $ | 3,212 | |
Audit Fees
Audit fees consist of professional services rendered by the independent registered public accounting firm for audits of financial statements, quarterly reviews, internal control reviews, comfort letters provided in conjunction with the issuance of debt, and agreed-upon procedures performed on the Annual Report R-1 filed by BNSF Railway with the Surface Transportation Board.procedures.
Audit-Related Fees
This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of BNSF’s financial statements and are not reported above under "Audit Fees". These services include attestation services not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax Fees
Tax fees consist of professional services for tax compliance, tax audit and tax planning for specific transactions or potential transactions of the Company. No tax fees were billed in 20182021 or 2017.2020.
All Other Fees
All other fees consist of subscription-related fees.
Pre-Approval Policies and Procedures
The Registrant is an indirect, wholly-owned subsidiary of Berkshire Hathaway Inc. and does not have an audit committee. During 20182021 and 2017,2020, the Audit Committee of Berkshire Hathaway Inc. pre-approved all fees and services provided by the independent registered public accounting firm, subject to the exceptions for non-audit services described in the Securities Exchange Act of 1934 and rules and regulations thereunder.
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
| |
1. | Consolidated Financial Statements—see Item 8. |
1.Consolidated Financial Statements—see Item 8.
Schedules are omitted because they are not required or applicable, or the required information is included in the Consolidated Financial Statements or related notes.
2.Exhibits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Incorporated by Reference
(if applicable) |
| Exhibit Number and Description | | Form | | File Date | | File No. | | Exhibit |
| (3) | | Articles of Incorporation and Bylaws | | | | | | | | |
| | | | | | | 8-K | | 2/16/2010 | | 1-11535 | | 3.1 |
| | | | | | | 10-K | | 3/1/2021 | | 1-11535 | | 3.2 |
| (4) | | Instruments defining the rights of security holders, including indentures | | | | | | | | |
| | | | | | | S-3 | | 2/8/1999 | | 333-72013 | | 4 |
| | | | | | | 10-K | | 3/31/1999 | | 1-11535 | | 4.3 |
| | | | | | | 10-K | | 3/31/1999 | | 1-11535 | | 4.4 |
| | | | | | | 10-K | | 2/12/2001 | | 1-11535 | | 4.6 |
| | | | | | | 10-K | | 2/12/2001 | | 1-11535 | | 4.7 |
| | | | | | | S-3 ASR | | 12/8/2005 | | 333-130214 | | 4.1 |
| | | | | | | S-3 ASR | | 12/8/2005 | | 333-130214 | | 4.3 |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.4 |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.5 |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.6 |
| | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.4
(Exhibit C) |
| | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.4
(Exhibit D) |
| | | | | | 10-Q | | 10/24/2006 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 4/13/2007 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 4/13/2007 | | 1-11535 | | 4.2 |
Ø References to BNSF refer to Burlington Northern Santa Fe Corporation for all periods through February 12, 2010, and to Burlington Northern Santa Fe, LLC for all periods on or after February 13, 2010.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Incorporated by Reference
(if applicable) |
| Exhibit Number and Description | | Form | | File Date | | File No. | | Exhibit |
| | | | | | 8-K | | 3/14/2008 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 3/14/2008 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 12/3/2008 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 9/24/2009 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 9/24/2009 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 2/16/2010 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 2/16/2010 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 5/17/2010 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 5/17/2010 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 9/10/2010 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 9/10/2010 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 5/19/2011 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 5/19/2011 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 8/22/2011 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 8/22/2011 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 3/2/2012 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 3/2/2012 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 8/23/2012 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 8/23/2012 | | 1-11535 | | 4.2 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Incorporated by Reference
(if applicable) |
| Exhibit Number and Description | | Form | | File Date | | File No. | | Exhibit |
| | | | | | 8-K | | 3/12/2013 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 3/12/2013 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 8/22/2013 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 8/22/2013 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 3/7/2014 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 3/7/2014 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 8/18/2014 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 8/18/2014 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 3/9/2015 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 3/9/2015 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 8/20/2015 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 8/20/2015 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 5/16/2016 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 5/16/2016 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 3/9/2017 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 3/9/2017 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 3/5/2018 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 3/5/2018 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 8/2/2018 | | 1-11535 | | 4.1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Incorporated by Reference
(if applicable) |
| Exhibit Number and Description | | Form | | File Date | | File No. | | Exhibit |
| | | | | | | | | | | | |
| | | | | | 8-K | | 8/2/2018 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 7/24/2019 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 7/24/2019 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 4/13/2020 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 4/13/2020 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 4/6/2021 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 4/6/2021 | | 1-11535 | | 4.2 |
| | | | | | 8-K | | 12/8/2021 | | 1-11535 | | 4.1 |
| | | | | | 8-K | | 12/8/2021 | | 1-11535 | | 4.2 |
| | | |
| | | | | | | | |
| | Certain instruments evidencing long-term indebtedness of BNSF are not being filed as exhibits to this Report because the total amount of securities authorized under any single such instrument does not exceed 10% of BNSF’s total assets. BNSF will furnish copies of any material instruments upon request of the Securities and Exchange Commission. |
| | | | | | | | | | | | |
| (10) | | Material Contracts | | | | | | | | |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 10.1 |
| (23) | | Consents of experts and counsel | | | | | | | | |
| | | | | | | | | | | | | |
| (24) | | Power of Attorney | | | | | | | | |
| | | | | | | | | | | | |
| (31) | | Rule 13a-14(a)/15d-14(a) Certifications | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| (32) | | Section 1350 Certifications | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (101) | | XBRL-Related Documents | | | | | | | | |
| | 101 | | The following financial information from Burlington Northern Santa Fe, LLC’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) the Cover Page, (ii) the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019, (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019, (iv) the Consolidated Balance Sheets as of December 31, 2021 and 2020, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019, (vi) the Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019, and (vii) the Notes to the Consolidated Financial Statements. ‡ | | | | | | | | |
| (104) | | 104 | | Cover Page Interactive Data File (formatted as iXBRL and continued in Exhibit 101) | | | | | | | | |
‡ Filed herewith
Signatures
|
| | | | | | | | | | | | |
| | | | | | | Incorporated by Reference (if applicable) |
| Exhibit Number and Description | | Form | | File Date | | File No. | | Exhibit |
| (3) | | Articles of Incorporation and Bylaws | | | | | | | | |
| | | | | | | 8-K | | 2/16/2010 | | 1-11535 | | 3.1 |
| | | | | | | 8-K | | 2/16/2010 | | 1-11535 | | 3.2 |
| | | | | | | 8-K | | 4/13/2010 | | 1-11535 | | 3.1 |
| (4) | | Instruments defining the rights of security holders, including indentures | | | | | | | | |
| | | | | | | S-3 | | 2/8/1999 | | 333-72013 | | 4 |
| | | | | | | 10-K | | 3/31/1999 | | 1-11535 | | 4.3 |
| | | | | | | 10-K | | 3/31/1999 | | 1-11535 | | 4.4 |
| | | | | | | 10-K | | 2/12/2001 | | 1-11535 | | 4.6 |
| | | | | | | 10-K | | 2/12/2001 | | 1-11535 | | 4.7 |
| | | | | | | S-3 ASR | | 12/8/2005 | | 333-130214 | | 4.1 |
| | | | | | | S-3 ASR | | 12/8/2005 | | 333-130214 | | 4.3 |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.4 |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.5 |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.6 |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.4 (Exhibit C) |
| | | | | | | 8-K | | 12/15/2005 | | 1-11535 | | 4.4 (Exhibit D) |
| | | | | | | 10-Q | | 10/24/2006 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 4/13/2007 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 4/13/2007 | | 1-11535 | | 4.2 |
| |
Ø | References to BNSF refer to Burlington Northern Santa Fe Corporation for all periods through February 12, 2010, and to Burlington Northern Santa Fe, LLC for all periods on or after February 13, 2010. |
|
| | | | | | | | | | | | |
| | | | | | | Incorporated by Reference (if applicable) |
| Exhibit Number and Description | | Form | | File Date | | File No. | | Exhibit |
| | | | | | | 8-K | | 3/14/2008 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 3/14/2008 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 12/3/2008 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 9/24/2009 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 9/24/2009 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 2/16/2010 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 2/16/2010 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 5/17/2010 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 5/17/2010 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 9/10/2010 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 9/10/2010 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 5/19/2011 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 5/19/2011 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 8/22/2011 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 8/22/2011 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 3/2/2012 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 3/2/2012 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 8/23/2012 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 8/23/2012 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 3/12/2013 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 3/12/2013 | | 1-11535 | | 4.2 |
|
| | | | | | | | | | | | |
| | | Incorporated by Reference (if applicable) |
| Exhibit Number and Description | | Form |
| File Date |
| File No. |
| Exhibit |
| | | | | | | 8-K | | 8/22/2013 | | 1-11535 | | 4.1 |
|
| | | | | 8-K |
| 8/22/2013 |
| 1-11535 |
| 4.2 |
|
| | | | | 8-K |
| 3/7/2014 |
| 1-11535 |
| 4.1 |
|
| | | | | 8-K |
| 3/7/2014 |
| 1-11535 |
| 4.2 |
|
| | | | | 8-K |
| 8/18/2014 |
| 1-11535 |
| 4.1 |
|
| | | | | 8-K |
| 8/18/2014 |
| 1-11535 |
| 4.2 |
| | | | | | | 8-K | | 3/9/2015 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 3/9/2015 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 8/20/2015 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 8/20/2015 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 5/16/2016 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 5/16/2016 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 3/9/2017 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 3/9/2017 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 3/5/2018 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 3/5/2018 | | 1-11535 | | 4.2 |
| | | | | | | 8-K | | 8/2/2018 | | 1-11535 | | 4.1 |
| | | | | | | 8-K | | 8/2/2018 | | 1-11535 | | 4.2 |
|
| Certain instruments evidencing long-term indebtedness of BNSF are not being filed as exhibits to this Report because the total amount of securities authorized under any single such instrument does not exceed 10% of BNSF’s total assets. BNSF will furnish copies of any material instruments upon request of the Securities and Exchange Commission. |
|
| | | | | | | | | | | | |
| | | Incorporated by Reference
(if applicable) |
| Exhibit Number and Description | | Form | | File Date | | File No. | | Exhibit |
| (10) |
| Material Contracts | | |
| |
| |
| |
| |
| | | | | 8-K |
| 12/15/2005 |
| 1-11535 |
| 10.1 |
| (23) |
| Consents of experts and counsel | | |
| |
| |
| |
| |
| | | | | |
| |
| |
| |
| (24) |
| Power of Attorney | | |
| |
| |
| |
| | | | | | | | | | | | | |
| (31) | | Rule 13a-14(a)/15d-14(a) Certifications | | | | | | | | |
| | | | | | | | | | | | | |
| |
| | | | | |
| |
| |
| |
| (32) | | Section 1350 Certifications | | | | | | | | |
| | | | | | | | | | | | | |
| (101) | | XBRL-Related Documents | | | | | | | | |
| | | 101 | | eXtensible Business Reporting Language (XBRL) documents submitted electronically: 101.INS - XBRL Instance Document 101.SCH - XBRL Taxonomy Extension Schema Document 101.CAL - XBRL Extension Calculation Linkable Document 101.DEF - XBRL Taxonomy Extension Definition Linkable Document 101.LAB - XBRL Taxonomy Extension Label Linkbase Document 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document
The following financial information from Burlington Northern Santa Fe, LLC’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted in XBRL includes: (i) the Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016, (ii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016, (iii) the Consolidated Balance Sheets as of December 31, 2018 and 2017, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016, (v) the Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016, and (v) the Notes to the Consolidated Financial Statements. ‡ | | | | | | | | |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Burlington Northern Santa Fe, LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | | | | |
| | Burlington Northern Santa Fe, LLC |
| | By: | | /s/ Matthew K. RoseKathryn M. Farmer |
| Dated: | February 22, 201928, 2022 | | | Matthew K. Rose
Executive ChairmanKathryn M. Farmer
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Burlington Northern Santa Fe, LLC and in the capacities and on the date indicated.
| | | | | | | | | | | |
| Signature | | Title |
| | | |
| /s/ Kathryn M. Farmer | | President and Chief Executive Officer |
| Kathryn M. Farmer | | (Principal Executive Officer), and Director |
| | | |
| /s/ Paul W. Bischler | | Executive Vice President and Chief Financial Officer |
| Paul W. Bischler | | (Principal Financial Officer), and Director |
| | | |
| /s/ Candace I. Palmarozzi | | Vice President and Controller |
| Candace I. Palmarozzi | | (Principal Accounting Officer) |
| | | |
| /s/ Gregory E. Abel* | | Director |
| Gregory E. Abel | | |
| | | |
| /s/ Stevan B. Bobb | | Director |
| Stevan B. Bobb | | |
| | | |
| /s/ Warren E. Buffett* | | Director |
| Warren E. Buffett | | |
| | | |
| /s/ Marc D. Hamburg* | | Director |
| Marc D. Hamburg | | |
| | | |
| /s/ Carl R. Ice | | Director |
| Carl R. Ice | | |
| | | |
Signature | | Title |
| | | |
| /s/ Matthew K. RoseJ. Igoe | | Executive Chairman and Chief Executive OfficerDirector |
| Matthew K. RoseJ. Igoe | | (Principal Executive Officer), and Manager |
| | | |
| /s/ Carl R. Ice | | President and Chief Operating Officer |
| Carl R. Ice | | (Principal Operating Officer), and Manager |
| | | |
| /s/ Julie A. Piggott | | Executive Vice President and Chief Financial Officer |
| Julie A. Piggott | | (Principal Financial Officer), and Manager |
| | | |
| /s/ Paul W. Bischler | | Vice President - Controller and Chief Sourcing Officer
|
| Paul W. Bischler | | (Principal Accounting Officer) |
| | | |
| /s/ Gregory E. Abel* | | Manager |
| Gregory E. Abel | | |
| | | |
| /s/ Stevan B. Bobb | | Manager |
| Stevan B. Bobb | | |
| | | |
| /s/ Warren E. Buffett* | | Manager |
| Warren E. Buffett | | |
| | | |
| /s/ Kathryn M. Farmer | | Manager |
| Kathryn M. Farmer | | |
| | | |
| /s/ David L. Freeman | | Manager |
| David L. Freeman | | |
| | | |
| /s/ Marc D. Hamburg* | | Manager |
| Marc D. Hamburg | | |
| | | |
| /s/ Roger Nober | | ManagerDirector |
| Roger Nober | | |
|
| | | | | | | | | | | | | |
| | *By: | | /s/ Judy K. CarterDustin J. Almaguer |
| Dated: | February 22, 201928, 2022 | | | Judy K. Carter,Dustin J. Almaguer, Attorney-in-fact
|
