ii
Part
I
Item
1.
Burlington
Northern Santa Fe Corporation (BNSF, Registrant or Company) was incorporated in
the State of Delaware on December 16, 1994. On September 22, 1995, the
shareholders of Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation
(SFP) became the shareholders of BNSF pursuant to a business combination of the
two companies.
On
December 30, 1996, BNI merged with and into SFP. On December 31, 1996, The
Atchison, Topeka and Santa Fe Railway Company merged with and into Burlington
Northern Railroad Company (BNRR), and BNRR changed its name to The Burlington
Northern and Santa Fe Railway Company. On January 2, 1998, SFP merged with and
into The Burlington Northern and Santa Fe Railway Company. On January 20, 2005,
The Burlington Northern and Santa Fe Railway Company changed its name to BNSF
Railway Company (BNSF Railway).
BNSF is a
holding company that conducts no operating activities and owns no significant
assets other than through its interests in its subsidiaries. Through its
subsidiaries, BNSF is engaged primarily in the freight rail transportation
business. At December 31, 2009, BNSF and its subsidiaries had approximately
35,000 employees. The rail operations of BNSF Railway Company (BNSF Railway),
the principal operating subsidiary, comprise one of the largest railroad systems
in North America.
Berkshire
Hathaway Inc., a Delaware corporation (Berkshire), R Acquisition Company, LLC, a
Delaware limited liability company and an indirect wholly owned subsidiary of
Berkshire (Merger Sub), and the Company have entered into a definitive Agreement
and Plan of Merger (the Merger Agreement) dated as of November 2,
2009. Pursuant to the Merger Agreement and subject to the conditions set
forth therein, the Company will merge with and into Merger Sub (the Merger) with
Merger Sub surviving as an indirect wholly owned subsidiary of Berkshire. The
Merger is subject to the approval of (i) the holders of at least 66-2/3% of
the issued and outstanding shares of Company common stock not owned by Berkshire
or any of its affiliates or associates and (ii) the holders of a majority
of the issued and outstanding shares of Company common stock, as well as to the
satisfaction or waiver of other conditions as provided in the Merger Agreement.
The Merger is expected to be completed on February 12, 2010. Further information
on the proposed Merger is incorporated by reference from Note 1 to the
Consolidated Financial Statements.
BNSF’s
internet address is www.bnsf.com. Through this internet Web site (under the
“Investors” link), BNSF makes available, free of charge, its Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as all amendments to those reports, as soon as reasonably practicable after
these reports are electronically filed with or furnished to the Securities and
Exchange Commission (the SEC). Filings on Forms 3, 4 and 5 are also available on
this Web site as is BNSF’s annual proxy statement. BNSF makes available on its
Web site other previously filed SEC reports, registration statements and
exhibits via a link to the SEC’s Web site at www.sec.gov. The following
documents are also made available on the Company’s Web site:
•
Code
of Conduct for Directors, Officers and Salaried
Employees;
•
Code
of Business Conduct and Ethics for Scheduled
Employees;
•
Corporate
Governance Guidelines; and
Charters
of the Audit, Compensation and Development and Directors and Corporate
Governance Committees.
Further
discussion of the Company’s business, including equipment and business sectors,
is incorporated by reference from Item 2, “Properties.”
1
Item
1A.
Changes
in government policy could negatively impact demand for the Company’s services,
impair its ability to price its services or increase its costs or liability
exposure.
Changes
in United States and foreign government policies could change the economic
environment and affect demand for the Company’s services. For example, changes
in clean air laws or regulation of carbon dioxide emissions could reduce the
demand for coal and revenues from the coal transportation services provided by
BNSF Railway. Also, United States and foreign government agriculture tariffs or
subsidies could affect the demand for grain. Developments and changes in laws
and regulations as well as increased economic regulation of the rail industry
through legislative action and revised rules and standards applied by the U.S.
Surface Transportation Board in various areas, including rates, 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.
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 regulation
with respect to its rates and practices, railroad operations and a variety of
health, safety, labor, environmental and other matters. Failure to comply with
applicable laws and regulations could have a material adverse effect on the
Company. Governments may change the legislative 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.
Federal legislation enacted in 2008 mandates the implementation of positive
train control technology by December 31, 2015, on certain mainline track where
intercity and commuter passenger railroads operate and where toxic-by-inhalation
hazardous materials are transported. This type of technology is new and
deploying it across BNSF Railway’s system and other railroads may pose
significant operating and implementation risks and will require significant
capital expenditures.
As
part of its railroad operations, the Company frequently transports chemicals and
other hazardous materials, which could expose it to the risk of significant
claims, losses and penalties.
BNSF
Railway is required to transport these commodities to the extent of its common
carrier obligation. An accidental release of these commodities could result in a
significant loss of life and extensive property damage as well as environmental
remediation obligations. The associated costs could have an adverse effect on
the Company’s operating results, financial condition or liquidity as the Company
is not insured above a certain threshold. Further, the rates BNSF Railway
receives for transporting these commodities do not adequately compensate it
should there be some type of accident. In addition, insurance premiums charged
for some or all of the coverage currently maintained by the Company could
increase dramatically or certain coverage may not be available to the Company in
the future if there is a catastrophic event related to rail transportation of
these commodities.
The
Company faces intense competition from rail carriers and other transportation
providers, and its failure to compete effectively could adversely affect its
results of operations, financial condition or liquidity.
The
Company operates in a highly competitive business environment. Depending on the
specific market, the Company faces intermodal, intramodal, product and
geographic competition. This competition from other railroads and motor
carriers, as well as barges, ships and pipelines in certain markets, may be
reflected in pricing, market share, level of services, reliability and other
factors. For example, the Company believes that high service truck lines, due to
their ability to deliver non-bulk products on an expedited basis, have had and
will continue to have an adverse effect on the Company’s ability to compete for
deliveries of non-bulk, time-sensitive freight. While the Company must build or
acquire and maintain its rail system, trucks and barges are able to use public
rights-of-way maintained by public entities. Any material increase in the
capacity and quality of these alternative methods or the passage of legislation
granting greater latitude to motor carriers with respect to size and weight
restrictions could have an adverse effect on the Company’s results of
operations, financial condition or liquidity. In addition, a failure to provide
the level of service required by the Company’s customers could result in loss of
business to competitors. Changes in the ports used by ocean carriers or the use
of all-water routes from the Pacific Rim to the East Coast or other changes in
the supply chain could also have an adverse effect on the Company’s volumes and
revenues.
2
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.