Question Description
The 2016 income statement and balance sheet (excerpts) for BNSF Railway are below.
|
BNSF Railway Consolidated Statements of Income |
| Year ended December 31, |
2016 |
2015 |
2014 |
| (In millions) | |||
| Revenues |
$19,829 |
$21,967 |
$23,239 |
| Operating expenses: | |||
| Compensation and benefits |
4,769 |
5,043 |
5,023 |
| Purchased services |
2,418 |
2,546 |
2,592 |
| Depreciation and amortization |
2,128 |
2,001 |
2,123 |
| Fuel |
1,934 |
2,656 |
4,478 |
| Equipment rents |
766 |
801 |
867 |
| Materials and other |
1,129 |
1,196 |
1,143 |
| Total operating expenses |
13,144 |
14,243 |
16,226 |
| Operating income |
6,685 |
7,724 |
7,013 |
| Interest expense |
992 |
928 |
833 |
| Other expense, net |
0 |
21 |
11 |
| Income before income taxes |
5,693 |
6,775 |
6,169 |
| Income tax expense |
2,124 |
2,527 |
2,300 |
| Net income |
$ 3,569 |
$ 4,248 |
$ 3,869 |
|
BNSF Railway Consolidated Balance Sheets |
| December 31, |
2016 |
2015 |
| (in millions) | ||
| Current assets | ||
| Cash and cash equivalents |
$ 3,218 |
$ 2,329 |
| Accounts receivable, net |
1,272 |
1,198 |
| Materials and supplies |
825 |
829 |
| Current portion of deferred income taxes |
0 |
245 |
| Other current assets |
235 |
337 |
| Total current assets |
5,550 |
4,938 |
|
Property and equipment, net of accumulated depreciation of $6,130 and $4,845, respectively |
61,250 |
59,510 |
| Goodwill |
14,845 |
14,845 |
| Intangible assets, net |
430 |
468 |
| Other assets |
2,047 |
1,942 |
| Total assets |
$84,122 |
$81,703 |
The footnotes to the financial statements included the following:
Property and equipment, net (in millions), and the corresponding ranges of estimated useful lives were as follows:
| December 31, |
2016 |
2015 |
2016 Range of Estimated Useful Life |
||
| Land for transportation purposes |
$ 6,063 |
$ 6,037 |
— |
||
| Track structure |
22,287 |
21,200 |
15-50 years |
||
| Other roadway |
25,990 |
24,767 |
7-100 years |
||
| Locomotives |
8,338 |
7,794 |
7-35 years |
||
| Freight cars and other equipment |
2,755 |
2,629 |
8-40 years |
||
| Computer hardware, software, and other |
982 |
897 |
6-9 years |
||
| Construction in progress |
965 |
1,031 |
— |
||
| |
67,380 |
64,355 |
|||
|
Less accumulated depreciation and amortization |
(6,130 |
) |
(4,845 |
) | |
| |
$61,250 |
$59,510 |
Required:
| a. | What proportion of total assets, does BNSF hold as property and equipment in 2016 and 2015? Does this surprise you? |
| b. | Compute property and equipment turnover for 2016 and 2015. Property and equipment, net for 2014 was $55,806 million. Explain this ratio. |
| c. | By what percentage are the assets ‘used up’ at year-end 2016? What implication does this ratio have for future cash flows at BNSF? |
| d. | Estimate the useful life on average for the BNSF depreciable assets at year-end 2016. Which of the assets listed in the footnote explain this estimated useful life? |
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