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BNI Burlington Northern Santa Fe

Filed: 9 Nov 20, 8:06am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  FOR THE TRANSITION PERIOD FROM ___________TO __________
Commission file number            1-11535


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BURLINGTON NORTHERN SANTA FE, LLC
(Exact name of registrant as specified in its charter)
Delaware 27-1754839
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

2650 Lou Menk Drive
Fort Worth, TX
(Address of principal executive offices)
76131-2830
(Zip Code)

(800) 795-2673
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
NoneNoneNone
Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Membership Interest

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YesNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).YesNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).YesNo
Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format permitted by General Instruction H (2).





Table of Contents
 
 
2

PART I
FINANCIAL INFORMATION

Item 1.Financial Statements

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions)
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Revenues$5,176 $6,021 $15,195 $17,676 
Operating expenses:
Compensation and benefits1,120 1,337 3,357 4,071 
Purchased services633 687 1,859 2,087 
Depreciation and amortization621 602 1,848 1,788 
Fuel394 725 1,335 2,211 
Equipment rents174 195 493 573 
Materials and other223 295 739 980 
Total operating expenses3,165 3,841 9,631 11,710 
Operating income2,011 2,180 5,564 5,966 
Interest expense257 271 779 806 
Other (income) expense, net(23)(32)(70)(219)
       Income before income taxes1,777 1,941 4,855 5,379 
Income tax expense430 475 1,187 1,322 
Net income$1,347 $1,466 $3,668 $4,057 

See accompanying Notes to Consolidated Financial Statements.
3

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net income$1,347 $1,466 $3,668 $4,057 
Other comprehensive income:
    Change in pension and retiree health and welfare benefits, net of tax0 1 63 
    Change in accumulated other comprehensive income (loss) of equity method investees0 1 (1)
Other comprehensive income (loss), net of tax0 2 62 
Total comprehensive income$1,347 $1,466 $3,670 $4,119 

See accompanying Notes to Consolidated Financial Statements.

4

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
September 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$1,969 $1,984 
Accounts receivable, net1,226 1,401 
Materials and supplies723 789 
Other current assets131 113 
Total current assets4,049 4,287 
Property and equipment, net of accumulated depreciation of $12,724 and $12,101, respectively65,146 64,533 
Goodwill14,851 14,851 
Operating lease right-of-use assets2,013 2,285 
Other assets2,674 2,618 
Total assets$88,733 $88,574 
Liabilities and Equity
Current liabilities:
Accounts payable and other current liabilities$3,184 $3,634 
Long-term debt and finance leases due within one year918 571 
Total current liabilities4,102 4,205 
Long-term debt and finance leases22,327 22,640 
Deferred income taxes14,626 14,353 
Operating lease liabilities1,300 1,632 
Casualty and environmental liabilities436 442 
Pension and retiree health and welfare liability277 285 
Other liabilities1,375 1,297 
Total liabilities44,443 44,854 
Commitments and contingencies (see Note 5)
Equity:
Member’s equity44,143 43,575 
   Accumulated other comprehensive income (loss)147 145 
Total equity44,290 43,720 
Total liabilities and equity$88,733 $88,574 

See accompanying Notes to Consolidated Financial Statements.
5

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

Nine Months Ended
September 30,
20202019
Operating Activities
Net income$3,668 $4,057 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,848 1,788 
Deferred income taxes272 423 
Long-term casualty and environmental liabilities, net(11)(35)
Other, net(95)(314)
Changes in current assets and liabilities:
Accounts receivable, net141 (80)
Materials and supplies66 34 
Other current assets(2)(147)
Accounts payable and other current liabilities(385)71 
Net cash provided by operating activities5,502 5,797 
Investing Activities
Capital expenditures excluding equipment(2,300)(2,363)
Acquisition of equipment(181)(181)
Purchases of investments and investments in time deposits0 (6)
Proceeds from sales of investments and maturities of time deposits30 19 
Other, net10 (37)
Net cash used in investing activities(2,441)(2,568)
Financing Activities
Proceeds from issuance of long-term debt575 825 
Payments on long-term debt and finance leases(541)(54)
Cash distributions(3,100)(3,400)
Other, net(10)(13)
Net cash used in financing activities(3,076)(2,642)
(Decrease) increase in cash and cash equivalents(15)587 
Cash and cash equivalents:
Beginning of period1,984 1,985 
End of period$1,969 $2,572 
Supplemental Cash Flow Information
Interest paid, net of amounts capitalized$827 $815 
Capital investments accrued but not yet paid$199 $227 
Income taxes paid, net of refunds$947 $959 
Non-cash asset financing$14 $

See accompanying Notes to Consolidated Financial Statements. 
6

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
(Unaudited)

Member’s
Equity
Accumulated
Other
Comprehensive Income (Loss)
Total
Equity
Balance as of December 31, 2018$42,519 $130 $42,649 
Cash distributions(1,200)(1,200)
Comprehensive income (loss), net of tax1,253 62 1,315 
Balance as of March 31, 201942,572 192 42,764 
Cash distributions(1,200)(1,200)
Comprehensive income (loss), net of tax1,338 1,338 
Balance as of June 30, 201942,710 192 42,902 
Cash distributions(1,000)(1,000)
Comprehensive income (loss), net of tax1,466 1,466 
Balance as of September 30, 2019$43,176 $192 $43,368 
Balance as of December 31, 2019$43,575 $145 $43,720 
Cash distributions(1,100)(1,100)
Comprehensive income (loss), net of tax1,190 1,191 
Balance as of March 31, 202043,665 146 43,811 
Cash distributions(1,300)(1,300)
Comprehensive income (loss), net of tax1,131 1,132 
Balance as of June 30, 202043,496 147 43,643 
Cash distributions(700)0 (700)
Comprehensive income (loss), net of tax1,347 0 1,347 
Balance as of September 30, 2020$44,143 $147 $44,290 

See accompanying Notes to Consolidated Financial Statements.
7

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.Accounting Policies and Interim Results
 
The Consolidated Financial Statements should be read in conjunction with Burlington Northern Santa Fe, LLC’s Annual Report on Form 10-K for the year ended December 31, 2019, including the financial statements and notes thereto. Burlington Northern Santa Fe, LLC (BNSF) is a holding company that conducts no operating activities and owns no significant assets other than through its interests in its subsidiaries. The Consolidated Financial Statements include the accounts of BNSF and its majority-owned subsidiaries, all of which are separate legal entities (collectively, the Company). BNSF’s principal operating subsidiary is BNSF Railway Company (BNSF Railway). All intercompany accounts and transactions have been eliminated.

On February 12, 2010, Berkshire Hathaway Inc., a Delaware corporation (Berkshire), acquired 100 percent of the outstanding shares of Burlington Northern Santa Fe Corporation common stock that it did not already own. The acquisition was completed through the merger (Merger) of a Berkshire wholly-owned merger subsidiary and Burlington Northern Santa Fe Corporation with the surviving entity renamed Burlington Northern Santa Fe, LLC. Earnings per share data is not presented because BNSF has only 1 holder of its membership interests.

The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the entire year. In the opinion of management, the unaudited financial statements reflect all adjustments (consisting of only normal recurring adjustments, except as disclosed) necessary for the fair statement of BNSF’s consolidated financial position as of September 30, 2020, and the results of operations for the three and nine months ended September 30, 2020 and 2019.

2.Revenue from Contracts with Customers
    
The Company disaggregates revenue from contracts with customers based on the characteristics of the services provided and the types of products transported (in millions):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Consumer Products$1,885 $1,973 $5,221 $5,878 
Industrial Products1,190 1,588 3,815 4,637 
Agricultural Products1,186 1,166 3,402 3,500 
Coal651 996 1,958 2,748 
     Total freight revenues4,912 5,723 14,396 16,763 
Non-rail logistics subsidiary175 199 497 595 
Accessorial and other89 99 302 318 
     Total other revenues264 298 799 913 
           Total operating revenues$5,176 $6,021 $15,195 $17,676 

Contract assets and liabilities are immaterial. Receivables from contracts with customers is a component of accounts receivable, net on the Consolidated Balance Sheets. As of September 30, 2020 and December 31, 2019, $1.0 billion and $1.1 billion, respectively, represented net receivables from contracts with customers.

Remaining performance obligations primarily consist of in-transit freight revenues, which will be recognized in the next reporting period. As of September 30, 2020 and December 31, 2019, remaining performance obligations were $211 million and $175 million, respectively.

3.Accounts Receivable, Net
 
Accounts receivable, net consists of freight and other receivables, reduced by an allowance for credit losses which is based upon expected collectability. As of September 30, 2020 and December 31, 2019, $56 million and $51 million, respectively, of such allowance had been recorded.

8

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
4.Debt
 
Notes and Debentures

In April 2020, BNSF issued $575 million of 3.05 percent debentures due February 15, 2051. The net proceeds from the sale of the debentures will be used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness and distributions. As of September 30, 2020, $1.1 billion remained authorized by the Board of Managers to be issued through the Securities and Exchange Commission debt shelf offering process.

On June 1, 2020, BNSF redeemed all of its $250 million 3.60 percent debentures maturing on September 1, 2020.

The Company is required to maintain certain financial covenants in conjunction with $500 million of certain issued and outstanding junior subordinated notes. As of September 30, 2020, the Company was in compliance with these financial covenants.

Fair Value of Debt Instruments
 
As of September 30, 2020 and December 31, 2019, the fair value of BNSF’s debt, excluding finance leases, was $28.6 billion and $26.6 billion, respectively, while the book value, which also excludes finance leases, was $22.9 billion and $22.8 billion, respectively. The fair value of BNSF’s debt is primarily based on market value price models using observable market-based data for the same or similar issues, or on the estimated rates that would be offered to BNSF for debt of the same remaining maturities (Level 2 inputs).

Guarantees 

As of September 30, 2020, BNSF has not been called upon to perform under the guarantees specifically disclosed in this footnote and does not anticipate a significant performance risk in the foreseeable future.

Debt and other obligations of non-consolidated entities guaranteed by the Company as of September 30, 2020, were as follows (dollars in millions):
Guarantees
BNSF
Ownership
Percentage
Principal
Amount
Guaranteed
Maximum
Future
Payments
Maximum
Recourse
Amounta
Remaining
Term
(in years)
Capitalized Obligations
Kinder Morgan Energy Partners, L.P.0.5 %$190 $190 $Termination of Ownership$b
Chevron Phillips Chemical Company LP%
N/Ad
N/Ad
N/Ad
7$15 c
aReflects the maximum amount the Company could recover from a third party other than the counterparty.
bReflects capitalized obligations that are recorded on the Company’s Consolidated Balance Sheets.
cReflects the asset and corresponding liability for the fair value of these guarantees required by authoritative accounting guidance related to guarantees.
dThere 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.

9

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
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.

5.Commitments and Contingencies

Personal Injury
 
BNSF’s personal injury liability includes the cost of claims for employee work-related injuries, third-party claims, and asbestos claims. BNSF records a liability for asserted and unasserted claims when the expected loss is both probable and reasonably estimable. Because of the uncertainty of the timing of future payments, the liability is undiscounted. Defense and processing costs, which are recorded on an as-reported basis, are not included in the recorded liability. Expense accruals and adjustments are classified as materials and other in the Consolidated Statements of Income.

Personal injury claims by BNSF Railway employees are subject to the provisions of the Federal Employers’ Liability Act (FELA) rather than state workers’ compensation laws. Resolution of these cases under the FELA’s fault-based system requires either a finding of fault by a jury or an out of court settlement. Third-party claims include claims by non-employees for compensatory damages and may, from time to time, include requests for punitive damages or treatment of the claim as a class action.

BNSF estimates its personal injury liability claims and expense using standard actuarial methodologies based on the covered population, activity levels and trends in frequency, and the costs of covered injuries. The Company monitors actual experience against the forecasted number of claims to be received, the forecasted number of claims closing with payment, and expected claim payments and records adjustments as new events or changes in estimates develop.

BNSF is party to asbestos claims by employees and non-employees who may have been exposed to asbestos. Because of the relatively finite exposed population, the Company has recorded an estimate for the full amount of probable exposure. This is determined through an actuarial analysis based on estimates of the exposed population, the number of claims likely to be filed, the number of claims that will likely require payment, and the cost per claim. Estimated filing and dismissal rates and average cost per claim are determined utilizing recent claim data and trends.
 
10

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
The following table summarizes the activity in the Company’s accrued obligations for personal injury claims (in millions):
Nine Months Ended September 30,
20202019
Beginning balance$275 $308 
Accruals / changes in estimates36 69 
Payments(34)(88)
     Ending balance$277 $289 
Current portion of ending balance$75 $85 

The amount recorded by the Company for the personal injury liability is based upon the best information currently available. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to resolve these claims may be different from the recorded amounts. The Company estimates that costs to resolve the liability may range from approximately $235 million to $330 million.

Although the final outcome of these personal injury matters cannot be predicted with certainty, it is the opinion of BNSF that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, the occurrence of a number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

Environmental
 
BNSF is subject to extensive federal, state, and local environmental regulation. The Company’s operating procedures include practices to protect the environment from the risks inherent in railroad operations, which frequently involve transporting chemicals and other hazardous materials. Additionally, many of BNSF’s land holdings are or have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in discharges onto the property. Under federal (in particular, the Comprehensive Environmental Response, Compensation, and Liability Act) and state statutes, the Company may be held jointly and severally liable for cleanup and enforcement costs associated with a particular site without regard to fault or the legality of the original conduct. The Company participates in the study, cleanup, or both of environmental contamination at approximately 200 sites.
    
Environmental costs may include, but are not limited to, site investigations, remediation, and restoration. The liability is recorded when the expected loss is both probable and reasonably estimable and is undiscounted due to uncertainty of the timing of future payments. Expense accruals and adjustments are classified as materials and other in the Consolidated Statements of Income.
    
BNSF estimates the cost of cleanup efforts at its known environmental sites based on experience gained from cleanup efforts at similar sites, estimated percentage to closure ratios, possible remediation work plans, estimates of the costs and likelihood of each possible outcome, historical payment patterns, and benchmark patterns developed from data accumulated from industry and public sources. The Company monitors actual experience against expectations and records adjustments as new events or changes in estimates develop.

The following table summarizes the activity in the Company’s accrued obligations for environmental costs (in millions):
Nine Months Ended September 30,
20202019
Beginning balance$282 $298 
Accruals / changes in estimates2 
Payments(15)(16)
     Ending balance$269 $282 
Current portion of ending balance$35 $40 

11

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
The amount recorded by the Company for the environmental liability is based upon the best information currently available. It has not been reduced by anticipated recoveries from third parties and includes both asserted and unasserted claims. BNSF’s total cleanup costs at these sites cannot be predicted with certainty due to various factors, such as the extent of corrective actions that may be required, evolving environmental laws and regulations, advances in environmental technology, the extent of other parties’ participation in cleanup efforts, developments in ongoing environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of contaminated sites. Because of the uncertainty surrounding various factors, it is reasonably possible that future costs to settle these claims may be different from the recorded amounts. The Company estimates that costs to settle the liability may range from approximately $220 million to $360 million.

Although the final outcome of these environmental matters cannot be predicted with certainty, it is the opinion of BNSF that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, the occurrence of a number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

Other Claims and Litigation
 
In addition to personal injury and environmental matters, BNSF and its subsidiaries are also parties to a number of other legal actions and claims, governmental proceedings, and private civil suits arising in the ordinary course of business, including those related to disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for compensatory damages and may, from time to time, include requests for punitive damages or treatment of the claim as a class action. Although the final outcome of these matters cannot be predicted with certainty, it is the opinion of BNSF that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, the occurrence of a number of these items in the same period could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

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 treasuries. As of September 30, 2020, there was $531 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 $492 million as of December 31, 2019.

In 2019, the Company experienced significant flooding across parts of the network. The Company is insured for certain costs incurred as a result of the flooding, including property damage, business interruption, and extra expense. As of September 30, 2020, the Company had recognized and resolved $250 million, which is the full amount that may be recovered for the claim.

6.Employment Benefit Plans

BNSF provides a funded, noncontributory qualified pension plan (BNSF Retirement Plan), which covers most non-union employees, and an unfunded non-tax-qualified pension plan (BNSF Supplemental Retirement Plan), which covers certain officers and other employees. 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 the Company. BNSF also provides a funded, noncontributory qualified pension plan which covers certain union employees of the former The Atchison, Topeka and Santa Fe Railway Company (Union Plan). The benefits under this pension plan are based on elections made at the time the plan was implemented. With respect to the funded plans, the 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. The BNSF Retirement Plan, the BNSF Supplemental Retirement Plan, and the Union Plan are collectively referred to herein as the Pension Plans.

12

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
During 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 the qualified 401(k) plan based on the employees’ age and years of service. Current employees are being transitioned away from the retirement plans within the next ten years, which began October 1, 2019, and upon transition are eligible for the additional 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 $3 million for the recognition of prior service credits.

Components of the net (benefit) cost for the Pension Plans were as follows (in millions):
Pension Benefits
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Service cost$6 $$16 $24 
Interest cost18 20 53 62 
Expected return on plan assets(42)(41)(126)(120)
Amortization of net gain0 1 (1)
Amortization of prior service credits0 0 (3)
Curtailment gain0 0 (117)
Net (benefit) cost recognized$(18)$(14)$(56)$(155)

Service cost is included in compensation and benefits expense and the other components of net periodic benefit costs are included in other (income) expense, net in the Consolidated Statements of Income.

7.Related Party Transactions

The companies identified as affiliates of BNSF include Berkshire and its subsidiaries. During the nine months ended September 30, 2020 and 2019, the Company declared and paid cash distributions of $3.1 billion and $3.4 billion, respectively, to Berkshire. In the nine-months ended September 30, 2020 and 2019, the Company made tax payments of $781 million and $741 million to Berkshire, respectively. Additionally, in the nine months ended September 30, 2020, the Company received $29 million of tax refunds from Berkshire. As of September 30, 2020 and December 31, 2019, the Company had a tax payable to Berkshire of $3 million and $31 million, 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):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Revenues$28 $39 $94 $118 
Expenditures$85 $93 $259 $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 $691 million and $656 million recognized as investments related to TTX in its Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively.

13

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
8.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 table provides the components of accumulated other comprehensive income (loss) (AOCI) by component (in millions):
Pension and Retiree Health and Welfare Benefit ItemsEquity Method InvestmentsAccumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2018$133 $(3)$130 
Other comprehensive income (loss), net before reclassifications66 (1)65 
Amounts reclassified from AOCI:
    Amortization of net gaina
(1)(1)
    Amortization of prior service creditsa
(3)(3)
    Tax expense (benefit)
Balance as of September 30, 2019$196 $(4)$192 
Balance as of December 31, 2019$149 $(4)$145 
Other comprehensive income (loss), net before reclassifications0 1 1 
Amounts reclassified from AOCI:
    Amortization of net gaina
1 0 1 
Balance as of September 30, 2020$150 $(3)$147 
a     This accumulated other comprehensive income component is included in the computation of net periodic pension cost (see Note 6 for additional details).


9.Accounting Pronouncements

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 of the hosting arrangement, and present the expense with the associated hosting fees in the Consolidated Statements of Income. BNSF adopted the standard as of January 1, 2020. Adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements and disclosures.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13), Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the use of an "expected loss" model on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. BNSF adopted the standard as of January 1, 2020. Adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements and disclosures.

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Item 2.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.

BNSF is an important part of the national and global supply chain and, as an essential business, has continued to operate throughout the duration of the COVID-19 pandemic. However, the COVID-19 pandemic caused a significant economic slowdown that adversely affected the demand for the Company's services. The COVID-19 pandemic continues to evolve, and the full extent to which it may impact the Company's business, operating results, financial condition, or liquidity will depend on future developments which are highly uncertain and cannot be predicted with confidence. The fundamentals of the Company remain strong, and BNSF believes it has sufficient liquidity to continue business operations during this volatile period.
 
The following narrative analysis of results of operations includes a brief discussion of the factors that materially affected the Company’s operating results in the nine months ended September 30, 2020, and a comparative analysis to the nine months ended September 30, 2019.

Results of Operations

Revenues Summary
 
The following tables present BNSF’s revenue information by business group:
Revenues (in millions)Cars / Units (in thousands)
Nine Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Consumer Products$5,221 $5,878 3,766 4,014 
Industrial Products3,815 4,637 1,218 1,474 
Agricultural Products3,402 3,500 855 856 
Coal1,958 2,748 1,036 1,338 
Total freight revenues14,396 16,763 6,875 7,682 
Other revenues799 913   
Total operating revenues$15,195 $17,676   
Average Revenue Per Car / Unit
Nine Months Ended September 30,
20202019
Consumer Products$1,386 $1,464 
Industrial Products3,132 3,146 
Agricultural Products3,979 4,089 
Coal1,890 2,054 
Total freight revenues$2,094 $2,182 

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.

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The following table presents fuel surcharge and fuel expense information (in millions):
Nine Months Ended September 30,
20202019
Fuel expense a
$1,335 $2,211 
Fuel surcharges$600 $973 
a  Fuel expense includes locomotive and non-locomotive fuel.

    Nine Months Ended September 30, 2020 vs. Nine Months Ended September 30, 2019

Revenues
 
Revenues for the nine months ended September 30, 2020 were $15.2 billion, a decrease of $2.5 billion, or 14 percent, as compared with the nine months ended September 30, 2019. The decrease in revenue is primarily due to an 11 percent decrease in unit volume and a 4 percent decrease in average revenue per car / unit. The overall volume decrease was primarily due to the COVID-19 pandemic, which severely impacted volumes in the first half of the year. Volumes sequentially improved from earlier periods, but continued to be impacted during the third quarter. The decrease in revenue also resulted from the following:

Consumer Products volumes decreased primarily due to the impact of the COVID-19 pandemic. Increased retail sales and inventory replenishments by retailers, along with increased e-commerce activity, offset earlier declines, resulting in higher domestic intermodal volumes while international intermodal volumes and automotive volumes remained lower.

Industrial Products volumes decreased primarily due to a decline in U.S. industrial production driven by the aforementioned pandemic, including reduced production and demand in the energy sector, which drove lower sand and petroleum products volume.

Agricultural Products volumes were about equal as the adverse impacts of the COVID-19 pandemic on volumes, primarily for ethanol and sweeteners shipments, along with lower soybean exports, were substantially offset by higher grain and meal exports.

Coal volumes decreased primarily due to lower electricity demand driven by the COVID-19 pandemic and mild winter weather in the first quarter, low natural gas prices, and utility coal plant retirements.

Average revenue per car/unit decreased as a result of business mix changes, lower fuel surcharges driven by lower fuel prices, and a one-time favorable outcome of an arbitration hearing recognized in the first quarter of 2019.
Expenses

Operating expenses for the nine months ended September 30, 2020 were $9.6 billion, a decrease of $2.1 billion, or 18 percent, as compared with the nine months ended September 30, 2019. The decrease in expenses is primarily due to lower volume-related costs, productivity improvements, the effects of cost control initiatives, and lower costs related to improved weather conditions compared to 2019, including the following changes in expenses:

Compensation and benefits expense decreased primarily due to lower employee counts associated with lower volume and due to improved workforce productivity.

Purchased services expense decreased primarily due to lower volume and improved productivity, lower purchased transportation costs of the Company's logistics services business, as well as insurance recoveries in the first half of 2020 related to network flooding in 2019.

Fuel expense decreased primarily due to lower average fuel prices, lower volumes, and improved fuel efficiency.

Materials and other expenses decreased primarily as a result of lower volume-related costs, the effects of cost controls, and lower personal injury expense.

There were no significant changes in depreciation and amortization and equipment rents expense.

Other (income) expense, net income decreased primarily due to a curtailment gain recognized in the first quarter of 2019 related to the Company’s retirement plans.

The effective tax rate was 24.5 percent and 24.6 percent for the nine months ended September 30, 2020 and 2019, respectively.
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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 "Part I, Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K as supplemented by the risk factor in this quarterly report on Form 10-Q in "Part II, 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.

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Item 4.Controls and Procedures
 
Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company’s principal executive officer and principal financial officer have concluded that BNSF’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by BNSF in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to BNSF’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Additionally, as of the end of the period covered by this report, BNSF’s principal executive officer and principal financial officer have concluded that there have been no changes in BNSF’s internal control over financial reporting that occurred during BNSF’s third fiscal quarter that have materially affected, or are reasonably likely to materially affect, BNSF’s internal control over financial reporting.

18

BURLINGTON NORTHERN SANTA FE, LLC and SUBSIDIARIES

PART II
OTHER INFORMATION

Item 1.     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 Company worked with federal and state authorities to remediate property impacted by the incident. On August 11, 2020, the Company received notice from the U.S. Department of Justice that it is considering initiating a civil judicial action against BNSF Railway for the above-referenced release. Although no penalty has yet been issued, regulatory penalties could exceed $300,000. While the costs of resolving this matter are subject to further developments, the Company does not believe that the outcome will have a material adverse effect on its financial position, results of operations or liquidity.

Item 1A.     Risk Factors

In addition to the information set forth in this report, you should carefully consider the risks discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, under the heading “Part I, Item 1A. Risk Factors” as supplemented by the risk factor below, which risks could materially affect the Company’s business, financial condition or future results.
 
The Company faces risks related to epidemics, pandemics, and other outbreaks, including the COVID-19 coronavirus, which may adversely affect its business, results of operations, and financial condition.

The Company faces risks related to epidemics, pandemics, and other outbreaks, including the COVID-19 coronavirus (“COVID-19”) pandemic, which has impacted geographic areas in which the Company has operations, suppliers, customers, and employees. The COVID-19 pandemic caused a significant economic slowdown that adversely affected demand for the Company’s services. The COVID-19 pandemic continues to evolve, and the full extent to which it may impact the Company’s business, operating results, financial condition, or liquidity will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.  Any one or more of these consequences or other unpredictable events, including future epidemics, pandemics and other outbreaks, could materially 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, under the heading ���Part I, Item 1A. Risk Factors”.

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Item 6.Exhibits
  
Incorporated by Reference
(if applicable)
 Exhibit Number and DescriptionFormFile DateFile No.Exhibit
8-K2/16/2010001-115353.1
8-K2/16/2010001-115353.2
8-K4/13/2010001-115353.1
    
    
101The following unaudited information from Burlington Northern Santa Fe, LLC’s Form 10-Q for the three and nine months ended September 30, 2020 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) the Cover Page (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019, (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iv) the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, (vi) the Consolidated Statements of Changes in Equity for the periods ended September 30, 2020 and 2019, and (vii) the Notes to the Consolidated Financial Statements. *
104Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
Certain instruments evidencing long-term indebtedness of BNSF are not being filed as exhibits to this report because the total amount of securities authorized under any single instrument does not exceed 10 percent of BNSF’s total assets. BNSF will furnish copies of any material instruments upon request of the Securities and Exchange Commission.
__________________
* Filed herewith
20

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 BURLINGTON NORTHERN SANTA FE, LLC
(Registrant)
   
 By:/s/    Julie A. Piggott       
  Julie A. Piggott
Executive Vice President and Chief Financial Officer
(On behalf of the Registrant and
as principal financial officer)

Date:  November 9, 2020

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