-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VI0/fTG365/dFIjb/6YURC1sqJI23lq6iqiMqNTYJMy8KA0kOFcrq+uAoRIirdh0 DwJPefJZmf70aIBeuhrVwQ== 0000950134-94-000115.txt : 19940215 0000950134-94-000115.hdr.sgml : 19940215 ACCESSION NUMBER: 0000950134-94-000115 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BURLINGTON NORTHERN RAILROAD CO CENTRAL INDEX KEY: 0000015511 STANDARD INDUSTRIAL CLASSIFICATION: 4011 IRS NUMBER: 416034000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06324 FILM NUMBER: 94507467 BUSINESS ADDRESS: STREET 1: 3800 CONTINENTAL PLZ STREET 2: 777 MAIN ST CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8178782000 MAIL ADDRESS: STREET 1: 3800 CONTINENTAL PLAZA STREET 2: 777 MAIN STREET CITY: FORT WORTH STATE: TX ZIP: 76102-5384 FORMER COMPANY: FORMER CONFORMED NAME: BURLINGTON NORTHERN INC DATE OF NAME CHANGE: 19810602 10-K 1 BURLINGTON NORTHERN RAILROAD COMPANY 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /XX/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1993 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________ to ________ Commission file number 1-6324 BURLINGTON NORTHERN RAILROAD COMPANY (Exact name of registrant as specified in its charter) Delaware 41-6034000 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3800 Continental Plaza, 777 Main St. Fort Worth, Texas 76102-5384 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (817) 333-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: ----------------------------------------------------------- The securities listed below are registered on the New York Stock Exchange. Title of each class ------------------- Burlington Northern Inc. Northern Pacific Railway Company (Now Burlington Northern Railroad Company) Prior Lien Railway and Land Consolidated Mortgage Bonds Grant 4% Bonds, due 1997 9 1/4 %, Series H, due 2006 General Lien Railway and Land 10%, Series J, due 1997 Grant 3% Bonds, due 2047 6.55%, Series K, due 2020 3.80%, Series L, due 2020 Great Northern Railway Company 3.20%, Series M, due 2045 General Mortgage Bonds 8.15%, Series N, due 2020 3 1/8%, Series O, due 2000 6.55%, Series O, due 2020 2 5/8%, Series Q, due 2010 8.15%, Series P, due 2020 St. Louis-San Francisco Railway Company First Mortgage Bonds, 4%, Series A, due 1997 Income Debentures, 5%, Series A, due 2006 2 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: ----------------------------------------------------------- None 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. Yes X No --- --- Class Outstanding ----- ----------- Common Stock, without par value as of January 31, 1994* 1,000 shares *Burlington Northern Railroad Company is a wholly owned subsidiary of Burlington Northern Inc. (BNI) and there is no market data with respect to such shares. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- None REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION J. 3 Table of Contents ----------------- Item Page ---- ---- Part I 1. Business.......................................... 1 2. Properties........................................ 1 3. Legal Proceedings................................. 8 4. Submission of Matters to a Vote of Security Holders......................................... 9 Part II 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 9 6. Selected Financial Data........................... 9 7. Management's Narrative Analysis of Results of Operations...................................... 10 8. Financial Statements and Supplementary Data....... 17 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............. 36 Part III 10. Directors and Executive Officers of the Registrant 36 11. Executive Compensation............................ 36 12. Security Ownership of Certain Beneficial Owners and Management.................................. 36 13. Certain Relationships and Related Transactions.... 36 Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 36 NOTE: Part I, Item Four; Part II, Item Six; Part III, Items Ten, Eleven, Twelve and Thirteen; and Part IV Exhibit 22 have been omitted pursuant to General Instruction J(1)(a) and (b) of Form 10-K relating to wholy owned subsidaries. 4 PART I ITEM 1. BUSINESS AND ITEM 2. PROPERTIES Burlington Northern Railroad Company's (Railroad) principal business activity is railroad transportation. Railroad is the principal subsidiary of Burlington Northern Inc. (BNI). RAILROAD TRANSPORTATION Railroad operates the largest railroad system in the United States based on miles of road and second main track, with approximately 24,500 total miles at December 31, 1993. The principal cities served include Chicago, Minneapolis-St. Paul, Fargo-Moorhead, Billings, Spokane, Seattle, Portland, St. Louis, Kansas City, Des Moines, Omaha, Lincoln, Cheyenne, Denver, Fort Worth, Dallas, Houston, Galveston, Tulsa, Wichita, Springfield (Missouri), Memphis, Birmingham, Mobile and Pensacola. During 1993, Railroad refined its customer oriented business units by creating smaller, more focused business units. The following table presents Railroad's revenue information by business unit, and includes reclassification of prior-year information to conform to current year presentation. Percent of revenues was calculated before consideration of shortline payments and other miscellaneous revenues. The principal contributors to rail transportation revenues were as follows (revenues and revenue ton miles in millions, carloadings in thousands):
Year ended December 31, ------------------------------------------ 1993 1992 1991 -------- -------- -------- Coal: Revenues................................ $ 1,532 $ 1,520 $ 1,554 Percent of revenues..................... 32% 32% 33% Revenue ton miles....................... 122,832 117,139 119,028 Revenues per revenue ton mile........... 1.25cents 1.30cents 1.31cents Carloadings............................. 1,468 1,448 1,472 Agricultural Commodities: Revenues................................ $ 784 $ 777 $ 778 Percent of revenues..................... 16% 16% 17% Revenue ton miles....................... 35,451 36,831 38,123 Revenues per revenue ton mile........... 2.21cents 2.11cents 2.04cents Carloadings............................. 423 454 450 Intermodal: Revenues................................ $ 730 $ 711 $ 687 Percent of revenues..................... 15% 15% 15% Revenue ton miles....................... 23,726 22,749 22,191 Revenues per revenue ton mile........... 3.08cents 3.13cents 3.10cents Carloadings............................. 1,003 1,017 1,018 Forest Products: Revenues................................ $ 483 $ 489 $ 469 Percent of revenues..................... 10% 10% 10% Revenue ton miles....................... 19,724 20,030 18,747 Revenues per revenue ton mile........... 2.45cents 2.44cents 2.50cents Carloadings............................. 280 283 278
-1- 5
Year ended December 31, ------------------------------------------ 1993 1992 1991 -------- -------- -------- Chemicals: Revenues................................ $ 405 $ 388 $ 346 Percent of revenues..................... 8% 8% 7% Revenue ton miles....................... 14,625 14,142 12,952 Revenues per revenue ton mile........... 2.77cents 2.74cents 2.67cents Carloadings............................. 262 244 218 Consumer Products: Revenues................................ $ 257 $ 258 $ 250 Percent of revenues..................... 5% 5% 5% Revenue ton miles....................... 9,052 9,098 8,879 Revenues per revenue ton mile........... 2.84cents 2.84cents 2.82cents Carloadings............................. 145 146 141 Minerals Processors: Revenues................................ $ 195 $ 180 $ 184 Percent of revenues..................... 4% 4% 4% Revenue ton miles....................... 7,982 7,410 7,625 Revenues per revenue ton mile........... 2.44cents 2.43cents 2.41cents Carloadings............................. 178 170 163 Iron & Steel: Revenues................................ $ 172 $ 178 $ 170 Percent of revenues..................... 4% 4% 4% Revenue ton miles....................... 8,178 8,086 7,615 Revenues per revenue ton mile........... 2.10cents 2.20cents 2.23cents Carloadings............................. 225 244 238 Vehicles & Machinery: Revenues................................ $ 187 $ 166 $ 166 Percent of revenues..................... 4% 4% 3% Revenue ton miles....................... 2,416 2,165 2,209 Revenues per revenue ton mile........... 7.74cents 7.67cents 7.51cents Carloadings............................. 123 101 102 Aluminum, Non-Ferrous Metals & Ores: Revenues................................ $ 103 $ 108 $ 103 Percent of revenues..................... 2% 2% 2% Revenue ton miles....................... 3,919 4,180 3,632 Revenues per revenue ton mile........... 2.63cents 2.58cents 2.84cents Carloadings............................. 68 71 69
COAL The transportation of coal is Railroad's largest source of revenues, accounting for approximately one-third of the total. Based on carloadings and tons hauled, Railroad is the largest transporter of Western low-sulfur coal in the United States. Over 90 percent of Railroad's coal traffic originated in the Powder River Basin of Montana and Wyoming during the three years ended December 31, 1993. These coal shipments were destined for coal-fired electric generating stations primarily in the North Central, South Central and Mountain regions of the United States with smaller quantities exported. Railroad also handles increasing amounts of low-sulfur coal from the Powder River Basin for delivery to markets in the eastern and southeastern portion of the United States. The low-sulfur coal from the Powder River Basin is abundant, inexpensive to mine and clean-burning. Since the Clean Air Act of 1990 requires power plants to reduce harmful emissions either by burning coal with a lower sulfur content or by installing expensive scrubbing units, opportunities for increased shipments of this low-sulfur coal still exist. -2- 6 AGRICULTURAL COMMODITIES Based on carloadings and tons hauled, Railroad is the largest rail transporter of grain in North America. Railroad's system is strategically located to serve the Midwest and Great Plains grain producing regions where Railroad serves most major terminal, storage, feeding and food-processing locations. Additionally, Railroad has access to major export markets in the Pacific Northwest, western Great Lakes and Texas Gulf regions as well as direct entry to consuming markets in southern Mexico through its Protexa Burlington International affiliate. INTERMODAL Intermodal transportation moves traffic on specially designed flatcars or doublestack equipment which competes with motor carriers. Railroad's intermodal transportation system integrates the movement of approximately 46 daily trains operating between 30 rail hubs and 28 satellite rail hubs (Railroad-operated marshalling points for trailer/container movements). These operations are strategically located across Railroad's rail network and also serve major distribution centers outside Railroad's system. Strategic alliances have been formed to enhance Railroad's market access both with other railroads and with major truck transportation providers. FOREST PRODUCTS The Forest Products business unit is primarily comprised of lumber, plywood, pulpmill feedstock, wood pulp and paper products. These products primarily come from the Pacific Northwest, upper Midwest and Southeast areas of the United States. CHEMICALS The Chemicals business unit is comprised of fertilizer, petroleum and chemical commodities as well as Railroad's environmental logistics business. Primary origin markets for Railroad include the Gulf Coast, the Pacific Northwest, and various Canadian ports of entry. Environmental logistics is an area of significant opportunity as municipalities exhaust their traditional disposal sources and must increasingly transport their waste longer distances. CONSUMER PRODUCTS Products included in Railroad's Consumer Products business unit represent a wide variety of commodities. Some of the major products in this group are food products, beverages, frozen foods, canned foods, appliances and electronics. Because this business unit handles a wide variety of consumer goods, the business unit performance typically mirrors the country's economy. MINERALS PROCESSORS Commodities in this group include clays, cements, sands and other minerals and aggregates. This group services both the oil and construction industries. IRON & STEEL The Iron & Steel business unit handles virtually all of the commodities included in or resulting from the production of steel. Taconite, an iron ore derivative produced in northern Minnesota, scrap steel and coal coke are the business unit's primary input products, while finished steel products range from structural beams and coil to wire and nails. -3- 7 VEHICLES & MACHINERY The Vehicles & Machinery business unit is responsible for both domestic and international vehicle manufacturers as well as an assortment of primary and secondary markets for heavy machinery. Through the development and implementation of Autostack technology (using containers to move motor vehicles), Railroad is redefining transit time and ride quality. Heavy machinery includes primary markets for aircraft, construction, farm and railroad equipment and secondary markets for used equipment. The business unit is also responsible for military and other miscellaneous traffic for the United States government. ALUMINUM, NON-FERROUS METALS & ORES The Aluminum, Non-Ferrous Metals & Ores business unit handles alumina and aluminum products, petroleum coke and a variety of other metals and ores such as zinc, copper and lead. OPERATING FACTORS Certain significant operating statistics were as follows:
Year ended December 31, --------------------------------------------------------------- 1993 1992 1991 1990 1989* ------- ------- ------- ------- ------- Carloadings (in thousands)........................ 4,175 4,178 4,149 4,335 4,215 Freight revenues per carload...................... $1,099 $1,080 $1,071 $1,052 $1,063 Revenue ton miles (in millions)................... 237,339 232,799 232,441 234,291 232,527 Revenues per revenue ton mile..................... 1.98cents 1.99cents 1.96cents 1.99cents 1.98cents Revenue tons per carload.......................... 83 82 82 79 75 Revenue tons per train............................ 3,315 3,193 3,188 3,141 3,032 Freight train miles (in millions)................. 72 73 73 75 77 Average length of haul (miles).................... 778 764 770 766 783 Gross ton miles, excluding locomotives (in millions)................................... 409,808 400,917 402,527 409,991 395,878 Operating ratio (excluding the 1991 special charge)......................................... 86% 87% 90% 87% 86% Operating expense per gross ton mile (excluding the 1991 special charge)........................ .99cents 1.01cents 1.02cents .99cents 1.00cents Gallons of fuel used (in millions)................ 588 560 562 593 591 Average fuel price per gallon..................... 61.5cents 62.2cents 65.5cents 69.5cents 55.5cents Gross ton miles per gallon of fuel used........... 697 716 716 691 670 Revenue ton miles per employee (in thousands)..... 7,781 7,461 7,317 7,120 7,060 Revenues per employee (in thousands).............. $154 $148 $144 $142 $140 *Beginning in 1990, Railroad reduced revenues and mileage for the effects of shortline railroads, which complete hauls for Railroad. In prior years, payments to shortline railroads were classified in operating expenses.
-4- 8 PROPERTIES In 1993, approximately 96 percent of the total ton miles, both revenue and non-revenue generating, carried by Railroad were handled on its main lines. At December 31, 1993, approximately 18,828 miles of Railroad's track consisted of 112-lb. per yard or heavier rail, including approximately 10,461 track miles of 132-lb. per yard or heavier rail. Additions and replacements to properties were as follows:
Year ended December 31, ---------------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ Track miles of rail additions and replacements: New.......................................... 387 461 380 301 326 Used......................................... 356 299 281 299 208 Track miles surfaced or reballasted............ 7,854 7,610 7,710 7,119 6,974 Ties inserted (in thousands): Wood......................................... 1,914 1,684 1,515 1,331 1,342 Concrete..................................... 195 500 527 691 651
Equipment Railroad owned or leased, under both capital and operating leases, with an initial lease term in excess of one year, the following units of railroad rolling stock at December 31, 1993: Number of Units ------------------------- Owned Leased Total Locomotives: ----- ------ ----- Freight...................................... 581 1,334 1,915 Passenger.................................... - 2 2 Multi-purpose................................ 151 58 209 Switching.................................... 176 18 194 ------ ------ ------ Total locomotives.......................... 908 1,412 2,320 ====== ====== ====== Freight Cars: Box-general purpose.......................... 776 2,813 3,589 Box-specially equipped....................... 4,587 689 5,276 Gondola...................................... 4,811 2,013 6,824 Hopper-open top.............................. 7,744 1,210 8,954 Hopper-covered............................... 16,528 12,640 29,168 Refrigerator................................. 3,347 9 3,356 Flat......................................... 3,280 494 3,774 Caboose...................................... 498 - 498 Other........................................ 552 7 559 ------ ------ ------ Total freight cars......................... 42,123 19,875 61,998 ====== ====== ====== Commuter passenger cars........................ - 141 141 ====== ====== ====== In addition to the owned and leased locomotives identified above, Railroad operates 199 freight locomotives under power purchase agreements. The average age of locomotives and freight cars was 14.5 years and 18.6 years, respectively, at December 31, 1993, compared with 13.5 years and 18.4 years, respectively, at December 31, 1992. The average percentage of Railroad's locomotives and freight cars awaiting repairs during 1993 was 7.4 and 3.3, respectively, compared with 7.4 and 4.1, respectively, in 1992. The average time between locomotive failures was 67.9 days in 1993 compared with 71 days in 1992. -5- 9 During 1993, Railroad entered into an agreement to acquire 350 new-technology alternating current traction motor locomotives. Railroad anticipates reduced locomotive operating costs as well as an increase in both horsepower and traction, meaning fewer locomotives will be needed for many freight operations. Railroad accepted delivery of one locomotive during 1993 and anticipates delivery of between approximately 60 and 100 each year from 1994 through 1997. EMPLOYEES Railroad employed an average of 30,502 employees in 1993 compared with 31,204 in 1992 and 31,760 in 1991. Railroad's payroll and employee benefits costs, including capitalized labor costs, were approximately $1.9 billion for each of the years ended December 31, 1993, 1992 and 1991. Almost 90 percent of Railroad's employees are covered by collective bargaining agreements with 14 different labor organizations. In October 1991, Railroad entered into an agreement (Crew Consist Agreement No. 1) with the United Transportation Union (UTU) covering the southern portion of Railroad's system. Crew Consist Agreement No. 1 provided for crews on most through-freight trains to consist of one conductor and one engineer and for crews on all other trains to consist of one brakeman, one conductor and one engineer. Under the terms of Crew Consist Agreement No. 1, Railroad offered the opportunity for voluntary separation from employment in return for severance payments of up to $60,000 per employee. Remaining conductors or brakemen who, as a result of Crew Consist Agreement No. 1, were unable to hold a position in active service, due to relative seniority, were placed on a reserve board. Employees in reserve status received compensation at a rate equal to either 75 percent of their previous 12-month earnings, or 75 percent of the basic five-day yard helper rate of pay, whichever is greater, and are required to be available for return to active service on 15 days' notice. Each UTU member on the southern portion of Railroad's system received a lump-sum payment of $1,000 upon ratification of Crew Consist Agreement No. 1. In May 1993, Railroad entered into an agreement (Crew Consist Agreement No. 2) with the UTU covering approximately 3,400 UTU members in the northern portion of Railroad's system. Crew Consist Agreement No. 2 provides for crews on most through-freight trains to consist of one conductor and one engineer and for crews on all other trains to consist of one brakeman, one conductor and one engineer. It is similar to Crew Consist Agreement No. 1, covering the southern portion of Railroad's system. Each UTU member on the northern portion of Railroad's system received a one-time lump-sum payment of $5,000, pursuant to Crew Consist Agreement No. 2. Under the terms of Crew Consist Agreement No. 2, Railroad offered the opportunity for voluntary separation from employment in return for severance payments of up to $80,000 per employee. Conductors and brakemen who choose not to accept the voluntary separation offer can elect volunteer surplus status pursuant to which they will receive $60,000 to be paid out over a period of 18 to 48 months, as each selects. If such employee has not been recalled to active service by the time such payments cease upon expiration of the selected period, such employee will remain in volunteer surplus status, without further compensation or benefits, until recalled to active service. Employees in volunteer surplus status may be called back to service only after the individuals in reserve status, within their own subdivided seniority -6- 10 district, have been recalled. Remaining conductors and brakemen who, as a result of Crew Consist Agreement No. 2, are not needed in train service, and who do not elect one of the above severance options, will be placed on a reserve board. Employees in reserve status will receive compensation equal to either 75 percent of their previous 12-month earnings, or 75 percent of the basic five-day yard helper rate of pay, whichever is greater, and are required to be available for return to active service on 15 days' notice. In October 1993, the UTU elected to adopt Crew Consist Agreement No. 2 for those southern portion UTU members who were previously covered by Crew Consist Agreement No. 1. Crew Consist Agreement No. 2 was implemented on the southern portion of the Railroad's system during the fourth quarter of 1993. Upon implementation, each of the approximately 3,300 UTU members on the southern portion of Railroad's system received a one-time lump-sum payment of $4,000, which was the incremental difference between the $1,000 lump-sum payment received following ratification of Crew Consist Agreement No. 1 and the amount received by UTU members following adoption of Crew Consist Agreement No. 2. Railroad will continue to remove excess positions from train service through the implementation of Crew Consist Agreement No. 2. Approximately 1,350 excess positions have been removed as a result of employees accepting severance or voluntary surplus payments. Other excess positions have been eliminated and personnel formerly in those positions have been assigned to reserve boards, absorbed through additional train starts and/or utilized in quality and safety initiatives. Based upon its experience under Crew Consist Agreement No. 1, Railroad anticipates that the number of employees on reserve status will decline over time. In July 1993, the American Train Dispatchers Association ratified an April agreement which will facilitate the consolidation of all dispatching functions into a centralized train dispatching office in Fort Worth, Texas by the end of 1995. COMPETITION The general environment in which Railroad operates remains highly competitive. Depending on the specific market, deregulated motor carriers, other railroads and river barges exert pressure on various price and service combinations. The presence of advanced, high service truck lines with expedited delivery, subsidized infrastructure and minimal empty mileage continues to impact the market for non-bulk, time sensitive freight. The potential expansion of long combination vehicles could further encroach upon markets traditionally served by railroads. In order to remain competitive, Railroad and other railroads continue to develop and implement technologically supported operating efficiencies to improve productivity. As railroads streamline, rationalize and otherwise enhance their franchises, competition among rail carriers intensifies. Railroad's primary rail competitors in the western region of the United States consist of Atchison, Topeka & Santa Fe Railway Company; Chicago & Northwestern Transportation Company (C&NW); Southern Pacific Transportation Company; and Union Pacific Railroad Company (UP). Coal, one of Railroad's primary commodities, has experienced significant pressure on rates due to competition from the joint effort of C&NW/UP and Railroad's efforts to penetrate into new markets. In addition to the railroads discussed above, numerous regional railroads and motor carriers operate in parts of the same territory served by Railroad. -7- 11 ENVIRONMENTAL Railroad's operations, as well as those of its competitors, are subject to extensive federal, state and local environmental regulation. In order to comply with such regulation and to be consistent with Railroad's corporate environmental policy, Railroad's operating procedures include practices to protect the environment. Amounts expended relating to such practices are inextricably contained in the normal day-to-day costs of Railroad's business operations. ITEM 3. LEGAL PROCEEDINGS WHEAT AND BARLEY TRANSPORTATION RATES In September 1980 a class action lawsuit was filed against Railroad in United States District Court for the District of Montana (District Court) challenging the reasonableness of Railroad's export wheat and barley rates. The class consists of Montana grain producers and elevators. The plaintiffs sought a finding that Railroad's single car export wheat and barley rates for shipments moving from Montana to the Pacific Northwest were unreasonably high and requested damages in the amount of $64 million. In March 1981 the District Court referred the rate reasonableness issue to the Interstate Commerce Commission (ICC). Subsequently, the State of Montana filed a complaint at the ICC challenging Railroad's multiple car rates for Montana wheat and barley movements occurring after October 1, 1980. The ICC issued a series of decisions in this case from 1988 to 1991. Under these decisions, the ICC applied a revenue to variable cost test to the rates and determined that Railroad owed $9,685,918 in reparations plus interest. In its last decision, dated November 26, 1991, the ICC found Railroad's total reparations exposure to be $16,559,012 through July 1, 1991. The ICC also found that Railroad's current rates were below a reasonable maximum and vacated its earlier rate prescription order. Railroad appealed to the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) those portions of the ICC's decisions concerning the post-October 1, 1980 rate levels. Railroad's primary contention on appeal was that the ICC erred in using the revenue to variable cost rate standard to judge the rates instead of Constrained Market Pricing/Stand Alone Cost principles. The limited portions of decisions that cover pre-October 1, 1980 rates were appealed to the Montana District Court. On March 24, 1992, the Montana District Court dismissed plaintiffs' case as to all aspects other than those relating to pre-October 1, 1980 rates. On February 9, 1993, the D.C. Circuit served its decision regarding the appeal of the several ICC decisions in this case. The Court held that the ICC did not adequately justify its use of the revenue to variable cost standard as Railroad had argued and remanded the case to the ICC for further administrative proceedings. On July 22, 1993, the ICC served an order in response to the D.C. Circuits' February 9, 1993 decision. In its order, the ICC stated it would use the Constrained Market Pricing/Stand Alone Cost standards in assessing the reasonableness of Railroad wheat and barley rates moving from Montana to Pacific Coast ports from 1978 forward. The ICC assigned the case to the Office of Hearings to develop a procedural schedule. The parties are now engaged in discovery. -8- 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable-see Table of Contents note. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All of the outstanding Common Stock of Railroad is owned of record by BNI and therefore not traded on any market. ITEM 6. SELECTED FINANCIAL DATA Not applicable-see Table of Contents note. -9- 13 ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1993 COMPARED WITH YEAR ENDED DECEMBER 31, 1992 Railroad had net income of $332 million for 1993 compared with net income of $334 million for 1992. Results for 1993 included the effects of severe flooding in the Midwest, most notably in the third quarter. The floods slowed and often halted operations, forced extensive detours, increased car, locomotive and crew costs and resulted in extensive rebuilding of damaged track and bridges. Railroad estimated that the third quarter flooding reduced revenues during 1993 by $44 million and increased operating expenses by $35 million, for a combined reduction of $79 million. Net income for 1993 included the retroactive effects of the Omnibus Budget Reconciliation Act of 1993 (the Act), which was passed into law during August 1993. The Act increased the corporate federal income tax rate by one percent, effective January 1, 1993, which reduced net income by $28 million through the date of enactment. Railroad recognized a one-time, non-cash charge of $27 million to income tax expense to adjust deferred taxes as of the enactment date and a charge of $1 million to current income tax expense. Net income for 1992 included settlement payments received for the reimbursement of attorneys' fees and costs incurred by Railroad in connection with litigation filed by Energy Transportation Systems, Inc., and others, and reimbursement of a portion of the amount paid by Railroad in settlement of that action. The pre-tax amount recorded in other income (expense), net was approximately $47 million. Also during 1992, Railroad's net income included a $21 million cumulative effect of changes in accounting methods and a $17 million favorable tax settlement with the Internal Revenue Service (IRS). REVENUES During 1993, Railroad refined its customer oriented business units by creating smaller, more focused business units. The following table presents Railroad's revenue information by business unit, and includes reclassification of prior-year information to conform to current year presentation:
Revenues Per Revenues Revenue Ton Miles Revenue Ton Mile --------------- ----------------- ------------------ 1993 1992 1993 1992 1993 1992 ------ ------ ------ ------ ------ ------ (In Millions) (In Millions) (In Cents) Coal................................. $1,532 $1,520 122,832 117,139 1.25 1.30 Agricultural Commodities............. 784 777 35,451 36,831 2.21 2.11 Intermodal........................... 730 711 23,726 22,749 3.08 3.13 Forest Products...................... 483 489 19,724 20,030 2.45 2.44 Chemicals............................ 405 388 14,625 14,142 2.77 2.74 Consumer Products.................... 257 258 9,052 9,098 2.84 2.84 Minerals Processors.................. 195 180 7,982 7,410 2.44 2.43 Iron & Steel......................... 172 178 8,178 8,086 2.10 2.20 Vehicles & Machinery................. 187 166 2,416 2,165 7.74 7.67 Aluminum, Non-Ferrous Metals & Ores.. 103 108 3,919 4,180 2.63 2.58 Shortlines and other................. (149) (145) (10,566) (9,031) - - ------ ------ ------- ------- Total................................ $4,699 $4,630 237,339 232,799 1.98 1.99 ====== ====== ======= =======
Coal revenues improved $12 million compared with 1992, primarily as a result of increased traffic caused by a rise in the demand for electricity. Higher revenues resulting from volume increases were partially offset by lower yields arising from competitive pricing pressures in contract renegotiations, traffic mix and other factors. Additionally, Railroad estimated lost coal revenues of -10- 14 approximately $35 million for the third quarter of 1993 as a result of flood-related problems in July and August which interrupted service to several utilities. Agricultural Commodities revenues were $7 million higher than 1992 as stronger yields were partially offset by lower volumes. Improved yields resulted from a traffic mix with a greater portion of wheat traffic in 1993. Stronger export demand, for high-quality wheat grown in regions served by Railroad, contributed to a $74 million improvement in wheat revenues. Reduced crop quality and production problems, stemming from poor planting and growing conditions, resulted in lower corn volumes and produced a year-over-year decline in corn revenues of $45 million. Intermodal revenues were $19 million higher in 1993 compared with 1992. BN AMERICA revenues in 1993 surpassed revenues in 1992 as a result of continued escalating demand for containerized transportation and an increased demand for intermodal service due generally to a shortage in truck capacity. As import traffic expanded and shifted from ports in California to ports served by Railroad in the Pacific Northwest, intermodal-international revenues increased. Domestic trailer revenues declined as trailer traffic continued to convert to containers, partially offsetting other Intermodal increases. Chemicals revenues for 1993 were $17 million greater than in 1992. Increased plastics shipments for existing customers led improvements in overall Chemicals revenues. Environmental logistics and fertilizer traffic in 1993 surpassed 1992 levels, also contributing to the higher revenues for Chemicals. Revenues for Minerals Processors increased $15 million when compared with 1992. As drilling activity increased, export traffic for clays and aggregates expanded, contributing to greater revenues in 1993 than in 1992. Glass minerals and cement revenues exceeded 1992 levels. This increase was due to expanded sand traffic, which also benefited from increased drilling activity, and increased cement traffic, related to certain highway and airport construction projects. Vehicles & Machinery revenues were $21 million greater than in 1992. This improvement was due in part to growth in production and sales of light vehicles which increased domestic traffic volumes. A rise in demand for heavy machinery also contributed to greater revenues. Yields increased in 1993 primarily as a result of a decline in the average length of haul. Forest Products, Iron & Steel and Aluminum, Non-Ferrous Metals & Ores had lower revenues in 1993 compared with 1992. Current year Forest Products revenues were $6 million less than in 1992 because of reduced lumber traffic, resulting from a weak timber industry market, which was partially offset by increased particle and construction board traffic. Iron & Steel revenues declined $6 million compared with 1992, primarily due to lower taconite traffic caused by labor strikes at two large customers. Aluminum, Non-Ferrous Metals & Ores revenues decreased by $5 million as aluminum production declined. Revenues for Consumer Products were relatively flat compared with 1992. EXPENSES Total operating expenses for 1993 were $4,049 million compared with $4,043 million for 1992. Despite the adverse effects of the Midwest flooding on operating expenses during the third quarter of 1993, Railroad's year-to-date operating ratio improved one percentage point, to 86 percent, compared with 87 percent for 1992. -11- 15 Compensation and benefits expenses for 1993 decreased $3 million compared with 1992. Cost of living allowances for union employees were $24 million lower during 1993 compared with 1992 due to timing differences of vesting periods. Work force reductions and a decrease in railroad unemployment taxes also lowered expenses in 1993. The majority of these savings were offset by increases in incentive compensation, wages and salaries, and higher costs for union health, welfare and life insurance benefits. Increased wages were partially caused by a scheduled three percent basic wage increase effective July 1993 and inefficiencies associated with the Midwest flooding during 1993. Fuel expenses were $14 million higher during 1993 compared with 1992, primarily due to weather-related reductions in fuel efficiency. Increased fuel consumption due to higher traffic volume was substantially offset by the decrease in the average price paid for diesel fuel, 61.5 cents per gallon in 1993 compared with 62.2 cents per gallon in 1992. Included in the 1993 average price per gallon is a 4.3 cents per gallon increase in the federal fuel tax effective October 1, 1993, as part of the Omnibus Budget Reconciliation Act of 1993. This increase added approximately $7 million to expense in the fourth quarter. Materials expenses for 1993 increased $5 million compared with 1992. The combination of flood-related problems and a larger fleet size increased materials costs for locomotive repairs. Also, safety and protective equipment expenditures were higher due to continued emphasis of Railroad's safety programs. Offsetting these increases were lower car materials expenses. Equipment rents expenses were $15 million higher in 1993 compared with 1992 due to increases in both car-hire expenses and locomotive rentals. Increased equipment rentals from an affiliate also contributed to this increase. A reduction in car-hire expenses during the first half of 1993, due to improved utilization of equipment, was more than offset by flood-related inefficiencies which increased car-hire expenses during the second half of 1993. Purchased services expenses for 1993 were $7 million higher than in 1992. Contributing to this increase were cost increases for intermodal logistics, training, moving and derailments. Lower trackage rights credits, which reduces purchased services expenses, were received from the Southern Pacific Transportation Company (SPTC) as the floods reduced SPTC volumes over Railroad track. These increases were partially offset by decreases in contracted locomotive repairs and consultant fees. Depreciation expense for 1993 was $10 million higher compared with 1992 primarily due to an increase in the asset base. The $42 million decrease in other operating expenses compared with 1992 was primarily due to a $35 million decline in costs associated with personal injury claims. Railroad has introduced a number of programs to improve worker safety and counter increasing personal injury costs. Reductions in bad debt expense and various other costs were partially offset by losses on property retired due to flood damages and increased moving expenses. Interest expense declined $17 million in 1993 compared with 1992. This decline was mainly due to a lower average long-term debt balance outstanding during 1993. Other income (expense), net was $45 million lower in 1993 than in 1992. The higher 1992 income was due to a first quarter net gain of $47 million for payments and reimbursements received for the settlement of prior litigation. This decline was partially offset by an increase in the net gain on property dispositions in 1993 compared with 1992. -12- 16 The effective tax rate was 42.4 percent for 1993 compared with 34.4 percent for 1992. This increase resulted primarily from the retroactive increase, effective January 1, 1993, in tax rates as part of the Omnibus Budget Reconciliation Act of 1993. Excluding the retroactive effect of the tax rate change on deferred tax balances at January 1, 1993, Railroad's effective tax rate was 37.9 percent for 1993. Additionally, a favorable tax settlement with the IRS reduced the 1992 effective tax rate by 3.1 percent. Other matters In October 1991, Railroad entered into an agreement (Crew Consist Agreement No. 1) with the United Transportation Union (UTU) covering the southern portion of Railroad's system. Crew Consist Agreement No. 1 provided for crews on most through-freight trains to consist of one conductor and one engineer and for crews on all other trains to consist of one brakeman, one conductor and one engineer. Under the terms of Crew Consist Agreement No. 1, Railroad offered the opportunity for voluntary separation from employment in return for severance payments of up to $60,000 per employee. Remaining conductors or brakemen who, as a result of Crew Consist Agreement No. 1, were unable to hold a position in active service, due to relative seniority, were placed on a reserve board. Employees in reserve status received compensation at a rate equal to either 75 percent of their previous 12-month earnings, or 75 percent of the basic five-day yard helper rate of pay, whichever is greater, and are required to be available for return to active service on 15 days' notice. Each UTU member on the southern portion of Railroad's system received a lump-sum payment of $1,000 upon ratification of Crew Consist Agreement No. 1. In May 1993, Railroad entered into an agreement (Crew Consist Agreement No. 2) with the UTU covering approximately 3,400 UTU members in the northern portion of Railroad's system. Crew Consist Agreement No. 2 provides for crews on most through-freight trains to consist of one conductor and one engineer and for crews on all other trains to consist of one brakeman, one conductor and one engineer. It is similar to Crew Consist Agreement No. 1, covering the southern portion of Railroad's system. Each UTU member on the northern portion of Railroad's system received a one-time lump-sum payment of $5,000, pursuant to Crew Consist Agreement No. 2. Under the terms of Crew Consist Agreement No. 2, Railroad offered the opportunity for voluntary separation from employment in return for severance payments of up to $80,000 per employee. Conductors and brakemen who choose not to accept the voluntary separation offer can elect volunteer surplus status pursuant to which they will receive $60,000 to be paid out over a period of 18 to 48 months, as each selects. If such employee has not been recalled to active service by the time such payments cease upon expiration of the selected period, such employee will remain in volunteer surplus status, without further compensation or benefits, until recalled to active service. Employees in volunteer surplus status may be called back to service only after the individuals in reserve status, within their own subdivided seniority district, have been recalled. Remaining conductors and brakemen who, as a result of Crew Consist Agreement No. 2, are not needed in train service, and who do not elect one of the above severance options, will be placed on a reserve board. Employees in reserve status will receive compensation equal to either 75 percent of their previous 12-month earnings, or 75 percent of the basic five-day yard helper rate of pay, whichever is greater, and are required to be available for return to active service on 15 days' notice. -13- 17 In October 1993, the UTU elected to adopt Crew Consist Agreement No. 2 for those southern portion UTU members who were previously covered by Crew Consist Agreement No. 1. Crew Consist Agreement No. 2 was implemented on the southern portion of the Railroad's system during the fourth quarter of 1993. Upon implementation, each of the approximately 3,300 UTU members on the southern portion of Railroad's system received a one-time lump-sum payment of $4,000, which was the incremental difference between the $1,000 lump-sum payment received following ratification of Crew Consist Agreement No. 1 and the amount received by UTU members following adoption of Crew Consist Agreement No. 2. Railroad will continue to remove excess positions from train service through the implementation of Crew Consist Agreement No. 2. Approximately 1,350 excess positions have been removed as a result of employees accepting severance or voluntary surplus payments. Other excess positions have been eliminated and personnel formerly in those positions have been assigned to reserve boards, absorbed through additional train starts and/or utilized in quality and safety initiatives. Based upon its experience under Crew Consist Agreement No. 1, Railroad anticipates that the number of employees on reserve status will decline over time. In July 1993, the American Train Dispatchers Association ratified an April agreement which will facilitate the consolidation of all dispatching functions into a centralized train dispatching office in Fort Worth, Texas by the end of 1995. Since 1935, Railroad has participated in the national railroad retirement system which is separate from the national social security system. Under this system, an independent Railroad Retirement Board administers the determination and payment of benefits to all railroad workers. Both Railroad and its employees are subject to a tax on employee earnings which is above the normal social security rate assessed to those who are employed outside the railroad industry. Personal injury claims, including work-related injuries to employees, are a significant expense for the railroad industry. Employees of Railroad are compensated for work-related injuries according to the provisions of the Federal Employers' Liability Act (FELA). FELA's system of requiring finding of fault, coupled with unscheduled awards and reliance on the jury system, has resulted in significant increases in expense. The result has been a trend during the last several years of significant increases in Railroad's personal injury expense which reflects the combined effects of increasing medical expenses, legal judgments and settlements. To improve worker safety and counter increasing costs, Railroad has introduced a number of programs to reduce the number of personal injury claims and the dollar amount of claims settlements which helped reduce cost in 1993. If these efforts continue to be successful, future expenses could be further reduced. The total amount of personal injury expenses (including wage continuation payments) were $216 million, $253 million and $224 million in 1993, 1992 and 1991, respectively. Railroad is also working with others through the Association of American Railroads to seek changes in legislation to provide a more equitable program for injury compensation in the railroad industry. Railroad's operations, as well as those of its competitors, are subject to extensive federal, state and local environmental regulation. In order to comply with such regulation and to be consistent with Railroad's corporate environmental policy, Railroad's operating procedures include practices to protect the environment. Amounts expended relating to such practices are inextricably contained in the normal day-to-day costs of Railroad's business operations. -14- 18 Under the requirements of the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and certain other laws, Railroad is potentially liable for the cost of clean-up of various contaminated sites identified by the U.S. Environmental Protection Agency and other agencies. Railroad has been notified that it is a potentially responsible party (PRP) for study and clean-up costs at a number of sites and, in many instances, is one of several PRPs. Railroad generally participates in the clean-up of these sites through cost-sharing agreements with terms that vary from site to site. Costs are typically allocated based on 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. However, under Superfund and certain other laws, as a PRP, Railroad can be held jointly and severally liable for all environmental costs associated with a site. Environmental costs include initial site surveys and environmental studies of potentially contaminated sites as well as costs for remediation and restoration of sites determined to be contaminated. Liabilities for environmental clean-up costs are initially recorded when Railroad's liability for environmental clean-up is both probable and a reasonable estimate of associated costs can be made. Adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Railroad conducts an ongoing environmental contingency analysis, which considers a combination of factors, including independent consulting reports, site visits, legal reviews, analysis of the likelihood of participation in and ability to pay for clean-up by other PRPs, and historical trend analysis. Railroad is involved in a number of administrative and judicial proceedings in which it is being asked to participate in the clean-up of sites contaminated by material discharged into the environment. Railroad paid $27 million, $20 million and $21 million during 1993, 1992 and 1991, respectively, relating to mandatory clean-up efforts, including amounts expended under federal and state voluntary clean-up programs. At this time, Railroad expects to spend approximately $120 million in future years to remediate and restore these sites. Liabilities for environmental costs represent Railroad's best estimates for remediation and restoration of these sites and include asserted and unasserted claims. Railroad's best estimate of unasserted claims was approximately $5 million as of the end of 1993. Although recorded liabilities include Railroad's best estimates of all costs, without reduction for anticipated recovery from insurance, Railroad's total clean-up 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 PRPs participation in clean-up efforts, developments in ongoing environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of potentially contaminated sites. As a result, charges to income for environmental liabilities could possibly have a significant effect on results of operations in a particular quarter or fiscal year as individual site studies and remediation and restoration efforts proceed or as new sites arise. However, expenditures associated with such liabilities are typically paid out over a long period, in some cases up to 40 years, and are therefore not expected to have a material adverse effect on Railroad's consolidated financial position, cash flow or liquidity. -15- 19 In November 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." This standard requires employers to recognize benefits provided to former or inactive employees after employment but before retirement, if certain conditions are met. In the first quarter of 1994, Railroad will adopt SFAS No. 112. The principal effect of adopting this standard will be to establish liabilities for long-term and short-term disability plans. The effect upon earnings to adopt this standard is expected to be approximately $15 to $20 million. The initial effect of applying this standard will be reported as the effect of a change in accounting method and previously issued financial statements will not be restated. In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses the accounting and reporting requirements for investments in equity securities that have readily determinable fair values and for all investments in debt securities, and is effective for fiscal years beginning after December 15, 1993. The initial effect of applying this standard is to be reported as the effect of a change in accounting method and previously issued financial statements may not be restated. No material effect on Railroad's financial condition or results of operations is anticipated from the adoption of SFAS No. 115. -16- 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF OPERATIONS Burlington Northern Railroad Company and Subsidiaries (Dollars in millions) Year ended December 31, 1993 1992 1991 - ----------------------- ------ ------ ------ Revenues............................................ $4,699 $4,630 $4,559 Costs and expenses: Compensation and benefits......................... 1,701 1,704 1,753 Fuel.............................................. 362 348 368 Materials......................................... 300 295 283 Equipment rents................................... 425 410 413 Purchased services................................ 464 457 444 Depreciation...................................... 334 324 340 Other............................................. 463 505 489 Special charge.................................... - - 708 ------ ------ ------ Total costs and expenses........................ 4,049 4,043 4,798 ------ ------ ------ Operating income (loss)............................. 650 587 (239) Interest expense.................................... 86 103 136 Other income (expense), net......................... 12 57 (10) ------ ------ ------ Income (loss) before income taxes and cumulative effect of changes in accounting methods........... 576 541 (385) Income tax expense (benefit)........................ 244 186 (140) ------ ------ ------ Income (loss) before cumulative effect of changes in accounting methods............................. 332 355 (245) Cumulative effect of change in accounting methods, net of tax........................................ - (21) - ------ ------ ------ Net income (loss)............................. $ 332 $ 334 $ (245) ====== ====== ====== See accompanying notes to consolidated financial statements. -17- 21 CONSOLIDATED BALANCE SHEETS Burlington Northern Railroad Company and Subsidiaries (Dollars in millions) December 31, 1993 1992 - ------------ ------ ------ ASSETS Current assets: Cash and cash equivalents....................... $ 17 $ 57 Accounts receivable, net........................ 591 474 Materials and supplies.......................... 91 106 Current portion of deferred income taxes........ 167 144 Other current assets............................ 23 22 ------ ------ Total current assets.......................... 889 803 Property and equipment, net....................... 5,488 5,285 Investments in and advances to affiliates......... 104 133 Other assets...................................... 130 116 ------ ------ Total assets.............................. $6,611 $6,337 ====== ====== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable................................ $ 498 $ 479 Casualty and environmental reserves............. 286 249 Compensation and benefits payable............... 269 319 Taxes payable................................... 131 124 Accrued interest................................ 22 24 Other current liabilities....................... 69 71 Current portion of long-term debt............... 177 37 Commercial paper................................ 26 - ------ ------ Total current liabilities..................... 1,478 1,303 Long-term debt.................................... 702 921 Deferred income taxes............................. 1,329 1,178 Casualty and environmental reserves............... 426 482 Other liabilities................................. 182 217 ------ ------ Total liabilities............................. 4,117 4,101 ------ ------ Common stockholder's equity: Common stock, without par value (1,000 shares authorized, issued and outstanding)........... 1,191 1,190 Retained earnings............................... 1,303 1,046 ------ ------ Total common stockholder's equity............. 2,494 2,236 ------ ------ Total liabilities and stockholder's equity $6,611 $6,337 ====== ====== See accompanying notes to consolidated financial statements. -18- 22 CONSOLIDATED STATEMENTS OF CASH FLOWS Burlington Northern Railroad Company and Subsidiaries (Dollars in millions) Year ended December 31, 1993 1992 1991 - ----------------------- ------ ------ ------ Cash flows from operating activities: Net income (loss)............................... $ 332 $ 334 $(245) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting methods..................................... - 21 - Depreciation.................................. 334 324 340 Deferred income taxes......................... 128 25 (259) Special charge................................ - - 708 Changes in current assets and liabilities: Accounts receivable, net.................... (117) (30) (104) Materials and supplies...................... 6 2 9 Other current assets........................ (1) 1 (9) Accounts payable............................ 19 19 (14) Casualty and environmental reserves......... 37 2 10 Compensation and benefits payable........... (50) 16 (58) Taxes payable............................... 7 4 7 Accrued interest............................ (2) (9) (2) Other current liabilities................... (2) 3 24 Changes in long-term casualty and environmental reserves...................... (56) 16 (13) Other, net.................................... (60) (22) (1) ----- ----- ----- Net cash provided by operating activities... 575 706 393 ----- ----- ----- Cash flows from investing activities: Additions to property and equipment............. (530) (469) (355) Collections from (advances to) affiliates, net.. 29 266 (48) Proceeds from property and equipment dispositions.................................. 35 33 57 Other, net...................................... (16) (19) (10) ----- ----- ----- Net cash used in investing activities....... (482) (189) (356) ----- ----- ----- Cash flows from financing activities: Net increase (decrease) in commercial paper..... 26 (353) 118 Payments on long-term debt...................... (83) (71) (70) Dividends paid.................................. (75) (50) (125) Other, net...................................... (1) (2) - ----- ----- ----- Net cash used in financing activities....... (133) (476) (77) ----- ----- ----- Increase (decrease) in cash and cash equivalents............................... (40) 41 (40) Cash and cash equivalents: Beginning of year............................... 57 16 56 ----- ----- ----- End of year..................................... $ 17 $ 57 $ 16 ===== ===== ===== Supplemental cash flow information: Interest paid, net of amounts capitalized....... $ 92 $ 110 $ 131 Income taxes paid, net of refunds............... 109 163 102 See accompanying notes to consolidated financial statements. -19- 23 CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S EQUITY Burlington Northern Railroad Company and Subsidiaries (Dollars in millions)
Amount Number of ------------------------------------------- Common Common Retained Three years ended December 31, 1993 Shares Stock Earnings Total - ----------------------------------- --------- ------ -------- ------ Balance at December 31, 1990........ 1,000 $1,190 $1,132 $2,322 Net loss............................ (245) (245) Dividends........................... (125) (125) ----- ------ ------ ------ Balance at December 31, 1991........ 1,000 1,190 762 1,952 Net income.......................... 334 334 Dividends........................... (50) (50) ----- ------ ------ ------ Balance at December 31, 1992........ 1,000 1,190 1,046 2,236 Net income.......................... 332 332 Dividends........................... (75) (75) Capital contribution from parent.... 1 1 ----- ------ ------ ------ Balance at December 31, 1993........ 1,000 $1,191 $1,303 $2,494 ===== ====== ====== ======
See accompanying notes to consolidated financial statements. -20- 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Burlington Northern Railroad Company and Subsidiaries 1. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION Burlington Northern Railroad Company (Railroad) is a wholly owned subsidiary of Burlington Northern Inc. (BNI). The consolidated financial statements include the accounts of Railroad and its majority-owned subsidiaries. All significant intercompany accounts and transactions between Railroad and its affiliates have been eliminated. PROPERTY AND EQUIPMENT Main line track is depreciated on a group basis using a units-of-production method. All other property and equipment are depreciated on a straight-line basis over estimated useful lives. Interstate Commerce Commission (ICC) regulations require periodic formal studies of ultimate service lives for all railroad assets. Resulting service life estimates are subject to review and approval by the ICC. An annual review of rates and accumulated depreciation is performed and appropriate adjustments are recorded. Significant premature retirements are recorded as gains or losses at the time of their occurrence, which would include major casualty losses, abandonments, sales and obsolescence of assets. Expenditures which significantly increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed. All properties are stated at cost. MATERIALS AND SUPPLIES Materials and supplies consist mainly of diesel fuel, repair parts for equipment and other railroad property and are valued at average cost. REVENUE RECOGNITION Transportation revenues are recognized proportionately as a shipment moves from origin to destination. INCOME TAXES Income taxes are provided based on earnings reported for tax return purposes in addition to a provision for deferred income taxes. The provision for income taxes includes deferred taxes determined by the change in the deferred tax liability, which is computed based on the differences between the financial statement and tax basis of assets and liabilities as measured by applying enacted tax laws and rates. Deferred tax expense is the result of changes in the net liability for deferred taxes. Investment tax credits were accounted for under the "flow-through" method. CASH AND CASH EQUIVALENTS All short-term investments which mature in less than 90 days when purchased are considered cash equivalents for purposes of disclosure in the consolidated balance sheets and consolidated statements of cash flows. Cash equivalents are stated at cost, which approximates market value. -21- 25 RECLASSIFICATIONS Certain prior year data has been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net income, stockholder's equity or cash flows. 2. ACCOUNTS RECEIVABLE, NET Railroad has an agreement to sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable with limited recourse. As of December 31, 1993, the agreement allowed for the sale of accounts receivable up to a maximum of $175 million. The agreement expires not later than December 1994. Average monthly proceeds from the sale of accounts receivable were $182 million, $190 million and $269 million in 1993, 1992 and 1991, respectively. At December 31, 1993 and 1992, accounts receivable were net of $100 million and $189 million, respectively, representing receivables sold. Included in other income (expense), net were expenses of $9 million, $11 million and $20 million in 1993, 1992 and 1991, respectively, relating to the sale. Railroad maintains an allowance for doubtful accounts based upon the expected collectibility of all trade accounts receivable, including receivables sold with recourse. Allowances for doubtful accounts and recourse on receivables sold of $17 million and $16 million have been recorded at December 31, 1993 and 1992. 3. PROPERTY AND EQUIPMENT, NET Property and equipment, net was as follows (in millions): December 31, 1993 1992 - ------------ ------ ------ Road, roadway structures and real estate.......... $7,342 $7,024 Equipment......................................... 1,784 1,744 ------ ------ Total cost..................................... 9,126 8,768 Less accumulated depreciation..................... 3,638 3,483 ------ ------ Property and equipment, net.................. $5,488 $5,285 ====== ====== Certain noncancellable leases were classified as capital leases and were included in property and equipment. The consolidated balance sheets at December 31, 1993 and 1992 included $36 million and $35 million, respectively, of property and equipment under capital leases. The related depreciation was included in depreciation expense. Accumulated depreciation for property and equipment under capital leases was $31 million and $29 million at December 31, 1993 and 1992, respectively. Main line track is depreciated on a group basis using a units-of-production method. The accumulated depreciation and annual depreciation accrual rates for railroad assets other than main line track are calculated using a straight-line method and statistical group measurement techniques, which closely approximate unit depreciation. The group techniques project depreciation expense and estimated accumulated depreciation utilizing historical experience and expected future conditions relating to the timing of asset retirements, cost of removal, salvage proceeds, maintenance practices and technological changes. In this manner, the net book value of reported assets reflects estimated remaining asset utility on a historical cost basis. Due to the imprecision of annual reviews using statistical group measurement techniques for long-term asset retirement, replacement and deterioration patterns, Railroad adjusts accumulated depreciation for -22- 26 significant differences between recorded accumulated depreciation and computed requirements. Differences between recorded accumulated depreciation and computed requirements are recognized prospectively on a straight-line basis. Under ICC regulations, Railroad conducts service life studies on an annual basis. Results of service life studies are recorded over the remaining life of the asset group studied. During 1993, Railroad completed service life studies of equipment and road property. During 1992, the service life studies consisted of rail. The effect of implementing the results of new service life studies and similar rate adjustments were to decrease depreciation expense in 1993 by $2 million compared with 1992 and to decrease depreciation expense in 1992 by $28 million compared with 1991. In future periods, service life studies will be conducted on other asset groups as well as these same assets under ICC requirements. However, the impact of such studies is not determinable at this time. In 1993, capitalization of certain software development costs increased as a result of new strategic initiatives. Capitalization of software development costs begins upon establishment of technological feasibility. The establishment of technological feasibility is based upon completion of planning, design and other technical performance requirements. Capitalized software development costs are amortized over a seven-year estimated useful life using the straight-line method. No amortization was recorded for the year ended December 31, 1993. Unamortized capitalized software costs were $6 million as of December 31, 1993. 4. DEBT Debt outstanding was as follows (in millions): December 31, 1993 1992 - ------------ ---- ---- LONG-TERM DEBT Consolidated mortgage bonds, 3 1/5% to 10%, due serially to 2045............................... $622 $673 Equipment and other obligations, weighted average rate of 7.33% and 7.72%, respectively, due serially to 2009................................... 113 139 General mortgage bonds, 3 1/8% and 2 5/8%, due 2000 and 2010, respectively............................. 62 62 Prior lien railway and land grant bonds, 4%, due 1997 57 57 General lien railway and land grant bonds, 3%, due 2047........................................... 35 35 First mortgage bonds, series A, 4%, due 1997......... 24 26 Capitalized lease obligations, weighted average rate of 8.20% and 7.92%, respectively, expiring 1996 and 2003...................................... 10 13 Income debentures, series A, 5%, due 2006............ 8 8 Commercial paper..................................... 26 - Unamortized discount.................................... (52) (55) ---- ---- Total.............................................. 905 958 Less: Current portion of long-term debt.................... 177 37 Commercial paper..................................... 26 - ---- ---- Long-term debt................................... $702 $921 ==== ==== -23- 27 Railroad maintains an effective program for the issuance, from time to time, of commercial paper. These borrowings are supported by Railroad's bank credit agreement, thus outstanding commercial paper balances reduce available borrowings under this agreement. The bank credit agreement allows borrowings of up to $500 million on a short-term basis. The agreement is currently scheduled to expire in November 1994. At Railroad's option, borrowing rates are based on prime, certificate of deposit or London Interbank Offered rates. Annual facility fees are 0.25 percent. The maturity value of commercial paper outstanding at December 31, 1993 was $27 million, leaving a total of $473 million of the credit agreement available, while no commercial paper was outstanding at December 31, 1992. The financial covenants of the bank credit agreement require that Railroad's consolidated tangible net worth, as defined in the agreement, be at least $1.4 billion, and its debt, as defined in the agreement, cannot exceed the lesser of 140 percent of its consolidated tangible net worth or $2.5 billion. The agreement contains an event of default arising out of the occurrence and continuance of a "Change in Control." A "Change in Control" is generally defined as the acquisition of more than 50 percent of the voting securities of BNI, which has not been approved by the BNI Board of Directors, a change in the control relationship between BNI and Railroad, and finally, a "Change in Control" is deemed to occur when a majority of the seats on the BNI Board of Directors is occupied by persons who are neither nominated by BNI management nor appointed by directors so nominated. The commercial paper program is further summarized as follows (dollars in millions): December 31, 1993 1992 - ------------ ---- ---- Balance at year end................................. $ 26 $ - Weighted average interest rate...................... 3.55% - Maximum outstanding during the year................. $ 179 $ 427 Average daily amount outstanding during the year.... $ 41 $ 129 Weighted daily average interest rate during the year 3.27% 4.07% Maturities of commercial paper averaged 4 and 14 days in 1993 and 1992, respectively. Aggregate long-term debt scheduled maturities for 1994 through 1998 and thereafter are $177 million, $24 million, $18 million, $235 million, $11 million and $466 million, respectively. Substantially all Railroad properties and certain other assets are pledged as collateral to or are otherwise restricted under the various Railroad long-term debt agreements. 5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of Railroad's financial instruments at December 31, 1993 and 1992 and the methods and assumptions used to estimate the fair value of each class of financial instruments held by Railroad, were as follows: CASH AND SHORT-TERM INVESTMENTS The carrying amount approximated fair value because of the short maturity of these instruments. -24- 28 NOTES RECEIVABLE The fair value of notes receivable was estimated by discounting the anticipated cash flows. Discount rates of 8.7 percent and 10 percent at December 31, 1993 and 1992, were determined to be appropriate when considering current U.S. Treasury rates and the credit risk associated with these notes. ACCRUED INTEREST PAYABLE The carrying amount approximated fair value as the majority of interest payments are made semiannually. LONG-TERM DEBT AND COMMERCIAL PAPER The fair value of Railroad's long-term debt, excluding unamortized discount, was primarily based on secondary market indicators. For those issues not actively quoted, estimates were based on each obligation's characteristics. Among the factors considered were the maturity, interest rate, credit rating, collateral, amortization schedule, liquidity and option features such as optional redemption or optional sinking funds. These features were compared to other similar outstanding obligations to determine an appropriate increment or spread, above U.S. Treasury rates, at which the cash flows were discounted to determine the fair value. The carrying amount of commercial paper approximated fair value because of the short maturity of these instruments. RECOURSE LIABILITY FROM SALE OF RECEIVABLES It is unlikely that Railroad would be able to pay a second entity to assume its recourse obligation. Therefore, the carrying value of the allowance for doubtful accounts on receivables sold approximated the fair value of the recourse liability related to those receivables. The carrying amount and estimated fair values of Railroad's financial instruments were as follows (in millions): December 31, 1993 1992 - ------------ ---------------- ---------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ------ -------- ------ Cash and short-term investments...... $ 17 $ 17 $ 57 $ 57 Notes receivable..................... 9 11 9 9 Accrued interest payable............. 22 22 24 24 Long-term debt and commercial paper.. 957 978 1,013 1,007 Recourse liability from sale of receivables....................... 4 4 5 5 Railroad also holds investments in, and has advances to, several unconsolidated transportation affiliates. It was not practicable to estimate the fair value of these financial instruments, which were carried at their original cost of $17 million and $16 million in the December 31, 1993 and 1992 consolidated balance sheets. There were no quoted market prices available for the shares held in the affiliated entities, and the cost of obtaining an independent valuation would have been excessive considering the materiality of these investments to Railroad. In addition, Railroad has a note receivable, from a shortline railroad, that has principal payments which are based on traffic volume over a segment of line. The carrying value of the note was $5 million at December 31, 1993 and 1992. As it is not practicable to forecast the traffic volume over the remaining life of the note, it was not included in the notes receivable amount shown above. -25- 29 In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses the accounting and reporting requirements for investments in equity securities that have readily determinable fair values and for all investments in debt securities, and is effective for fiscal years beginning after December 15, 1993. The initial effect of applying this standard is to be reported as the effect of a change in accounting method and previously issued financial statements may not be restated. No material effect on Railroad's financial condition or results of operations is anticipated from the adoption of SFAS No. 115. 6. INCOME TAXES Effective January 1, 1993, Railroad adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 modifies SFAS No. 96, which established the liability method of accounting for income taxes, and had been adopted by Railroad effective January 1, 1986. Railroad adopted SFAS No. 109 consistent with the transitional guidelines of SFAS No. 109. The effect of the adoption was to increase the current portion of the deferred income tax asset with a corresponding increase in the noncurrent deferred income tax liability of $26 million at January 1, 1993. There was no effect on net income, stockholder's equity or cash flows. Income tax expense (benefit), excluding the cumulative effect of changes in accounting methods, was as follows (in millions): Year ended December 31, 1993 1992 1991 - ----------------------- ----- ---- ----- Current: Federal ................................... $ 102 $138 $ 107 State ..................................... 14 23 12 ----- ---- ----- 116 161 119 ----- ---- ----- Deferred: Federal ................................... 111 24 (227) State ..................................... 18 1 (32) ----- ---- ----- 129 25 (259) ----- ---- ----- Total.................................... $ 244 $186 $(140) ===== ==== ===== Reconciliation of the federal statutory income tax rate to the effective tax rate, excluding the cumulative effect of changes in accounting methods, was as follows: Year ended December 31, 1993 1992 1991 - ----------------------- ----- ---- ----- Federal statutory income tax rate................. 35.0% 34.0% 34.0% State income taxes, net of federal tax benefit.... 3.5 3.3 3.4 Effect of one percent federal tax rate increase on deferred tax balances at January 1, 1993....... 4.5 - - Internal Revenue Service settlement............... - (3.1) - Other, net........................................ (.6) .2 (1.0) ----- ---- ----- Effective tax rate............................. 42.4% 34.4% 36.4% ===== ==== ===== -26- 30 The components of deferred tax assets and liabilities were as follows (in millions): December 31, 1993 1992 - ------------ ------- ------- Deferred tax liabilities: Accelerated depreciation and amortization...... $(1,616) $(1,510) Other.......................................... (89) (81) ------- ------- Total deferred tax liabilities............... (1,705) (1,591) ------- ------- Deferred tax assets: Casualty and environmental reserves............ 267 270 Pensions....................................... 29 28 Other.......................................... 247 259 ------- ------- Total deferred tax assets.................... 543 557 ------- ------- Valuation allowance............................ - - ------- ------- Net deferred tax liability................. $(1,162) $(1,034) ======= ======= Noncurrent deferred income tax liability........ $(1,329) $(1,178) Current deferred income tax asset............... 167 144 ------- ------- Net deferred tax liability................. $(1,162) $(1,034) ======= ======= On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 (the Act) was signed into law. The Act increased the corporate federal income tax rate by one percent, effective January 1, 1993, which reduced net income by $28 million through the date of enactment. A one-time, non-cash charge of $27 million to income tax expense was recorded as an adjustment to deferred taxes as of the enactment date and a charge of $1 million to income tax expense was recorded as an adjustment to current income taxes. In December 1992, Railroad received notification that an Appeals Division settlement of the Internal Revenue Service audits for the years 1981 through 1985 had been approved by the Joint Committee on Taxation. This action settled all unagreed issues for those years. The tax effect of the settlement was included in the 1992 tax provision as shown below (in millions): Current tax expense.............................. $ 2 Deferred tax benefit............................. (19) ---- Total tax benefit.............................. $(17) ==== 7. RETIREMENT PLANS Railroad participates in BNI's pension plans, which are non-contributory defined benefit plans covering substantially all non-union employees. The benefits are based on years of credited service and the highest five-year average compensation levels. Contributions to the plans are determined by BNI and are limited to amounts that are currently deductible for tax purposes. Railroad's pension expense was $26 million, $31 million and $23 million in 1993, 1992 and 1991, respectively. Net pension cost for 1993 was lower than 1992 primarily due to a decrease in the rate of future compensation growth from 6 percent to 5.5 percent. The changes in pension cost for the two years ended December 31, 1992 were primarily attributable to the expected year-to-year changes in the discount rates. -27- 31 Railroad participates in a 401(k) thrift and profit sharing plan, sponsored by BNI, which covers substantially all non-union employees. BNI matches 35 percent of the first 6 percent of the employees' contributions, which is subject to certain percentage limits of the employees' earnings, at the end of each quarter. Depending on BNI's consolidated performance, an additional matching contribution of 20 or 40 percent can be made at the end of the year. Railroad's expense was $6 million, $4 million and $6 million in 1993, 1992 and 1991, respectively. Effective January 1, 1994, Railroad also participates in a 401(k) retirement savings plan, sponsored by BNI, which covers substantially all union employees which is non-contributory on the part of Railroad. 8. OTHER BENEFIT PLANS POSTRETIREMENT BENEFITS Effective January 1, 1992, Railroad adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." BNI provides certain postretirement health care benefits, payable until age 65, for a small number of retirees who retired on or before March 1986. BNI provides life insurance benefits for eligible non-union employees. Railroad participates in these plans and adopted accrual accounting for the expense of these plans in 1992 by taking a $16 million cumulative effect charge to income in order to establish a liability for those benefits. Railroad pays benefits as claims are processed. In addition, Railroad's expense for these plans was approximately $1 million in both 1993 and 1992. Under collective bargaining agreements, Railroad participates in multi-employer benefit plans which provide certain postretirement health care and life insurance benefits for eligible union employees. Insurance premiums attributable to retirees, which are expensed as incurred, were $10 million in 1993 and $11 million in both 1992 and 1991. POSTEMPLOYMENT BENEFITS In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This standard requires employers to recognize benefits provided to former or inactive employees after employment but before retirement, if certain conditions are met. In the first quarter of 1994, Railroad will adopt SFAS No. 112. The principal effect of adopting this standard will be to establish liabilities for long-term and short-term disability plans. The effect upon earnings to adopt this standard is expected to be approximately $15 to $20 million. The initial effect of applying this standard will be reported as the effect of a change in accounting method and previously issued financial statements will not be restated. 9. CASUALTY AND ENVIRONMENTAL RESERVES Casualty reserves consist primarily of personal injury claims, including work-related injuries to employees. Employees of Railroad are compensated for work-related injuries according to the provisions of the Federal Employers' Liability Act. Liabilities for personal injury claims are estimated through an actuarial model that considers historical data and trends and is designed to record those costs in the period of occurrence. Railroad conducts an ongoing review and analysis of claims and other information to ensure the continued adequacy of casualty reserves. To the extent costs exceed recorded -28- 32 accruals they will not materially affect Railroad's financial condition, results of operations or liquidity. Under the requirements of the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and certain other laws, Railroad is potentially liable for the cost of clean-up of various contaminated sites identified by the U.S. Environmental Protection Agency and other agencies. Railroad has been notified that it is a potentially responsible party (PRP) for study and clean-up costs at a number of sites and, in many instances, is one of several PRPs. Railroad generally participates in the clean-up of these sites through cost-sharing agreements with terms that vary from site to site. Costs are typically allocated based on 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. However, under Superfund and certain other laws, as a PRP, Railroad can be held jointly and severally liable for all environmental costs associated with a site. Environmental costs include initial site surveys and environmental studies of potentially contaminated sites as well as costs for remediation and restoration of sites determined to be contaminated. Liabilities for environmental clean-up costs are initially recorded when Railroad's liability for environmental clean-up is both probable and a reasonable estimate of associated costs can be made. Adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Railroad conducts an ongoing environmental contingency analysis, which considers a combination of factors, including independent consulting reports, site visits, legal reviews, analysis of the likelihood of participation in and ability to pay for clean-up by other PRPs, and historical trend analysis. Liabilities for environmental costs represent Railroad's best estimates for remediation and restoration of these sites and include asserted and unasserted claims. Railroad's best estimate of unasserted claims was approximately $5 million as of the end of 1993. Although recorded liabilities include Railroad's best estimates of all costs, without reduction for anticipated recovery from insurance, Railroad's total clean-up cost 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 PRPs participation in clean-up efforts, developments in ongoing environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of potentially contaminated sites. As a result, charges to income for environmental liabilities could possibly have a significant effect on results of operations in a particular quarter or fiscal year as individual site studies and remediation and restoration efforts proceed or as new sites arise. However, expenditures associated with such liabilities are typically paid out over a long period, in some cases up to 40 years, and are therefore not expected to have a material adverse effect on Railroad's consolidated financial position, cash flow or liquidity. 10. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS Railroad has substantial lease commitments for railroad, highway and data processing equipment, office buildings and a taconite dock facility. Most of these leases provide the option to purchase the equipment at fair market value at the end of the lease. However, some provide fixed purchase price options. -29- 33 Lease rental expense for operating leases was $205 million, $222 million and $211 million for the years ended December 31, 1993, 1992 and 1991, respectively. Minimum annual rental commitments were as follows (in millions): Capital Operating Year ended December 31, Leases Leases - ----------------------- ------- --------- 1994......................................... $ 5 $ 209 1995......................................... 4 185 1996......................................... 2 162 1997......................................... - 146 1998......................................... - 145 Thereafter................................... 1 911 --- ------ Total.................................... 12 $1,758 Less amount representing interest............ 2 ====== --- Present value of minimum lease payments.. $10 === In addition to the above, Railroad also receives and pays rents for railroad equipment on a per diem basis, which is included in equipment rents. OTHER COMMITMENTS AND CONTINGENCIES During 1993, Railroad entered into an agreement to acquire 350 new-technology alternating current traction motor locomotives. Railroad accepted delivery of one locomotive in 1993 and anticipates delivery of between approximately 60 and 100 each year from 1994 through 1997. Railroad has two locomotive electrical power purchase agreements, expiring in 1998 and 2001, that currently involve 199 locomotives. Payments required by the agreements are based upon the number of megawatt hours of energy consumed, subject to specified take-or-pay minimums. The rates specified in the two agreements are renegotiable every two years. Railroad's 1994 minimum commitment obligation is $48 million. Based on projected locomotive power requirements, Railroad's payments in 1994 are expected to be in excess of the minimum. Payments under the agreements totaled $53 million, $56 million and $55 million in 1993, 1992 and 1991, respectively, which exceeded the applicable minimums in each year. In 1990, Railroad entered into a letter of credit for the benefit of a vendor. This letter of credit is a performance guarantee for up to $15 million in major overhauls to be performed on the power purchase equipment. In connection with its program to transfer certain rail lines to independent operators, Railroad has agreed to make certain payments for services performed by the operators in connection with traffic that involves the shortlines and Railroad as carriers. These payments are not fixed in amount, will vary with such factors as traffic volumes and shortline costs and are not expected to exceed normal business requirements for services received. These payments are reflected as reductions to revenue to conform with reporting to the ICC. Revenues for these joint moves, including amounts applicable to the independent operator portion of the line haul, are reflected by Railroad as revenue from operations. There are no other commitments or contingent liabilities which Railroad believes would have a material adverse effect on the consolidated financial position, results of operations or liquidity. -30- 34 11. OTHER INCOME (EXPENSE), NET Other income (expense), net includes the following (in millions): Year ended December 31, 1993 1992 1991 - ----------------------- ---- ---- ---- Gain on property dispositions..................... $19 $ 9 $ 4 Interest income................................... 9 11 5 Loss on sale of receivables....................... (9) (11) (20) Litigation settlement agreement................... - 47 - Miscellaneous, net................................ (7) 1 1 --- ---- ---- Total......................................... $12 $ 57 $(10) === ==== ==== In the first quarter of 1992, both Railroad and BNI were parties to a settlement agreement relating to the reimbursement of attorneys' fees and costs incurred by Railroad in connection with litigation filed by Energy Transportation Systems, Inc., and others, and reimbursement of a portion of the amount paid in prior years by Railroad in settlement of that action. Under the terms of the settlement, Railroad received approximately $50 million before legal fees. 12. ACCOUNTING CHANGES Effective January 1, 1993, Railroad adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 modifies SFAS No. 96, which established the liability method of accounting for income taxes, and had been adopted by Railroad effective January 1, 1986. Railroad adopted SFAS No. 109 consistent with the transitional guidelines of SFAS No. 109. The effect of the adoption was to increase the current portion of the deferred income tax asset with a corresponding increase in the noncurrent deferred income tax liability of $26 million at January 1, 1993. There was no effect on net income, stockholder's equity or cash flows. In January 1992, the Emerging Issues Task Force of the FASB reached a consensus that origination of service revenue recognition was not an acceptable method beginning in 1992 for the freight services industry. Accordingly, effective January 1, 1992, Railroad changed its method of revenue recognition from one which recognized transportation revenue at the origination point, to a method whereby transportation revenue is recognized proportionately as a shipment moves from origin to destination. The cumulative effect, net of a $7 million income tax benefit, of the change on the prior year's revenue, at the time of adoption, decreased 1992 net income by $11 million. In the fourth quarter of 1992, effective January 1, 1992, Railroad adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and elected immediate recognition of the $16 million transition obligation. The cumulative effect, net of a $6 million income tax benefit, of the change on prior years', at the time of adoption, decreased 1992 net income by $10 million. -31- 35 Financial results for the first quarter of 1992 have previously been restated for the cumulative effect of the change in accounting method for revenue recognition, which had previously been reported in other income (expense), net and for the cumulative effect of the implementation of the accounting standard for postretirement benefits. There was no material effect on the second and third quarter, and those quarters were not restated for the adoption of SFAS No. 106. 13. 1991 SPECIAL CHARGE Included in 1991 results was a pre-tax special charge of $708 million related to railroad restructuring costs and increases in liabilities for casualty claims and environmental clean-up costs. The 1991 special charge included the following components: RESTRUCTURING This program provided for work force reduction of employees. The restructuring program and related charge had two components: . $185 million to provide for employee related costs for the elimination of surplus crew positions. . $40 million to provide for employee related costs for a separation program. OTHER . $350 million to increase casualty reserves based on an actuarial valuation and escalations in both the cost and number of projected hearing loss claims. . $133 million to increase environmental reserves based on studies and analyses of potential environmental clean-up and restoration costs. The special charge reduced 1991 net income by $442 million. -32- 36 14. RELATED PARTY TRANSACTIONS In addition to various corporate-related transactions with its parent, BNI, Railroad also rents under operating leases rolling stock and other property from BN Leasing Corporation (BNLC), a wholly owned subsidiary of BNI. The following is a summary of balances representing the result of transactions with related parties (in millions): December 31, 1993 1992 - ------------ ---- ---- Short-term: Payable to BNLC for rent associated with property and equipment....................... $ 8 $ 6 ==== ==== Receivable from BNLC for accrued interest associated with the notes receivable for hub centers and rail facilities........................................ $ 2 $ 2 ==== ==== Long-term: Receivable from BNI, representing net settlement account for dividends, taxes and other............ $ 9 $ 43 Notes receivable from BNLC for hub centers.......... 28 28 Note receivable from BNLC for rail facilities....... 41 41 Investments in affiliates........................... 7 7 Receivable from other affiliates.................... 19 14 ---- ---- Total investments in and advances to affiliates... $104 $133 ==== ==== Railroad recorded the following amounts for transactions with related parties (in millions): Year ended December 31, 1993 1992 1991 - ----------------------- ---- ---- ---- Rental expense.......................... $ 39 $ 32 $ 18 Interest income......................... 7 8 3 In prior years, Railroad transferred the Denver and Houston hub centers to Burlington Northern Railroad Holdings, Inc. (BNRRHI), a wholly owned subsidiary of Railroad. BNRRHI subsequently sold the hub centers to BNLC. The hub centers, with a combined book value of $22 million, were sold for the fair market value of $28 million. BNRRHI received two promissory notes due October 31, 2000, with interest at 10.05 percent from BNLC for the total sale price. The notes will be paid off using proceeds generated from rental payments from Railroad to BNLC for use of the facilities at the rate of $3 million per year. No gain was recorded on the sale of the property. In prior years, Railroad purchased certain rail facilities at and between Ortonville, Minnesota and Terry, Montana from the South Dakota Rail Authority. These properties were subsequently sold to BNLC for the recorded net book value of the property. Railroad received a promissory note from BNLC for the purchase price of $41 million. Interest at a rate of 10.0 percent is due annually. Principal is due at maturity on August 31, 2001. Railroad will make rental payments of $5 million per year until 2001 for use of these facilities. No gain or loss was recorded on the sale of the property. -33- 37 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholder and Directors of Burlington Northern Railroad Company and Subsidiaries We have audited the consolidated financial statements and financial statement schedules of Burlington Northern Railroad Company and Subsidiaries listed in Item 14 of this Form 10-K. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits according to generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Burlington Northern Railroad Company and Subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Note 12 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 and for revenue recognition and postretirement benefits other than pensions in 1992. COOPERS & LYBRAND Fort Worth, Texas January 17, 1994 -34- 38 QUARTERLY FINANCIAL DATA-UNAUDITED
(Dollars in millions) QUARTER - --------------------- ------------------------------------------- Fourth Third Second First ------ ----- ------ ----- 1993 Revenues.................................. $1,246 $1,141 $1,142 $1,170 Operating income.......................... 220 118 146 166 Net income (1)............................ 125 34 81 92 1992 Revenues.................................. $1,196 $1,158 $1,091 $1,185 Operating income.......................... 196 145 102 144 Income before cumulative effect of changes in accounting methods (2)............... 128 75 50 102 Cumulative effect of changes in accounting methods, net of tax..................... - - - (21) ------ ------ ------ ------ Net income (3)............................ $ 128 $ 75 $ 50 $ 81 ====== ====== ====== ====== (1) Results for the third quarter of 1993 include the effects of the Omnibus Budget Reconciliation Act of 1993 (the Act) which was signed into law on August 10, 1993. The Act increased the corporate federal income tax rate by one percent, effective January 1, 1993, which reduced net income by $28 million through the date of enactment. Results for the third quarter of 1993 also include the effects of the severe flooding in the Midwest. Railroad estimates the flooding reduced revenues and operating income during the quarter by $44 million and $79 million, respectively, and reduced net income by $49 million. (2) Results for 1992 reflect the cumulative effect of the change in accounting method for revenue recognition, and the cumulative effect of the implementation of the accounting standard for postretirement benefits (Statement of Financial Accounting Standards No. 106). The cumulative effect of the change in accounting method for revenue recognition decreased 1992 net income by $11 million. The cumulative effect of the change in accounting method for postretirement benefits decreased 1992 net income by $10 million and had no immediate effect on cash flows. (3) Results for the fourth quarter of 1992 include a $17 million reduction in income tax expense as a result of a favorable Internal Revenue Service settlement which allowed Railroad to recognize additional depreciation deductions for income taxes.
-35- 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS TEN, ELEVEN, TWELVE AND THIRTEEN DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable - see Table of Contents note. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page ---- Financial Statements: Consolidated Statements of Operations for the three years ended December 31, 1993................................ 17 Consolidated Balance Sheets at December 31, 1993 and 1992 18 Consolidated Statements of Cash Flows for the three years ended December 31, 1993................................ 19 Consolidated Statements of Changes in Common Stockholder's Equity for the three years ended December 31, 1993.................................... 20 Notes to Consolidated Financial Statements............... 21 Report of Independent Accountants.......................... 34 Quarterly financial data-unaudited......................... 35 Consolidated Financial Statement Schedules for the three years ended December 31, 1993: Schedule V-Property, Plant And Equipment................. 40 Schedule VI-Accumulated Depreciation, Depletion, And Amortization of Property, Plant And Equipment...... 41 Schedule VIII-Valuation And Qualifying Accounts.......... 42 Schedule X-Supplementary Income Statement Information.... 43 Schedules other than those listed above are omitted for the reason that they are not required or not applicable, or the required information is included in the consolidated financial statements or related notes. -36- 40 Exhibit Index The following exhibits are filed as part of this report. Exhibit Page Number Description Number - ------- ----------- ------ 3.1 Certificate of Incorporation of Burlington Northern ** Railroad Company as amended through July 20, 1987. 3.2 By-Laws of Burlington Northern Railroad Company ** as amended through July 17, 1991. 4.1 The Company has either previously filed with the * Securities and Exchange Commission or upon request will furnish a copy of any instrument with respect to the long-term debt of the Company (1989 Form 10-K, filed March 1990). 10.1 Trade Receivables Purchase and Sale Agreement, dated as * of December 15, 1989, as amended by Amendment dated as of December 15, 1989, by and among Burlington Northern Railroad Company, Corporate Asset Funding Company, Inc. and Citicorp North America, Inc. (1989 Form 10-K Amendment No. 1, filed March 1990). 10.2 Trade Receivables Purchase and Sale Agreement, dated as * of December 15, 1989, as amended by Amendment dated as of December 15, 1989, by and among Burlington Northern Railroad Company, the banks parties thereto and Citicorp North America, Inc. (1989 Form 10-K Amendment No. 1, filed March 1990). 10.3 $500,000,000 Competitive Advance Facility and Revolving * Credit Facility Agreement, dated October 18, 1991, between Burlington Northern Railroad Company and a consortium of lenders (Form 10-Q for the quarter ended September 30, 1991, filed October 1991). 10.4 Employment Agreement, dated as of September 4, 1990, by * and between Burlington Northern Railroad Company and Mr. John T. Chain (1990 Form 10-K, filed March 1991). 10.5 Employment Agreement, dated as of September 18, 1991, by * and between Burlington Northern Railroad Company and Mr. Richard A. Russack (1991 Form 10-K, filed February 1992). * Exhibit is incorporated by reference as indicated. ** Exhibit is filed with Form 10-K for the year ended December 31, 1993. -37- 41 REPORTS ON FORM 8-K During the fourth quarter of 1993, there were no reports filed on Form 8-K. -38- 42 SIGNATURES Pursuant to the requirements of 13 or 15(d) of the Securities Exchange Act of 1934, Burlington Northern Railroad Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BURLINGTON NORTHERN RAILROAD COMPANY By /s/ GERALD GRINSTEIN ------------------------------------ Gerald Grinstein, Chairman and Chief Executive Officer Date February 14, 1994 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 Railroad Company and in the capacities and on the dates indicated. /s/ GERALD GRINSTEIN Chairman and - ------------------------- Chief Executive Officer February 14, 1994 Gerald Grinstein /s/ DAVID C. ANDERSON Executive Vice President and - ------------------------- Chief Financial Officer February 14, 1994 David C. Anderson /s/ DON S. SNYDER Vice President, Controller and - ------------------------- Chief Accounting Officer February 14, 1994 Don S. Snyder /s/ EDMUND W. BURKE Director - ------------------------- February 14, 1994 Edmund W. Burke /s/ WILLIAM E. GREENWOOD Director - ------------------------- February 14, 1994 William E. Greenwood -39- 43 SCHEDULE V BURLINGTON NORTHERN RAILROAD COMPANY AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN MILLIONS)
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Balance Balance at Beginning Additions at End Classification of Period at Cost Retirements Other(1) of Period -------------- ------------ --------- ----------- -------- --------- DECEMBER 31, 1993: Road, roadway structures and real estate... $7,024 $455 $145 $ 8 $7,342 Equipment.................................. 1,744 75 40 5 1,784 ------ ---- ---- --- ------ Total...................................... $8,768 $530 $185 $13 $9,126 ====== ==== ==== === ====== DECEMBER 31, 1992: Road, roadway structures and real estate... $6,759 $401 $152 $16 $7,024 Equipment.................................. 1,748 68 73 1 1,744 ------ ---- ---- --- ------ Total...................................... $8,507 $469 $225 $17 $8,768 ====== ==== ==== === ====== DECEMBER 31, 1991: Road, roadway structures and real estate... $6,713 $313 $279 $12 $6,759 Equipment.................................. 1,757 42 52 1 1,748 ------ ---- ---- --- ------ Total...................................... $8,470 $355 $331 $13 $8,507 ====== ==== ==== === ====== (1) Relates primarily to reused track materials from Materials and Supplies inventory used for additions to property.
See accompanying notes to consolidated financial statements for information regarding depreciation methods and other matters. -40- 44 SCHEDULE VI BURLINGTON NORTHERN RAILROAD COMPANY AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN MILLIONS)
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Balance Additions Balance at Beginning Charged at End Classification of Period to Income Retirements Other(1) of Period -------------- ------------ --------- ----------- -------- --------- DECEMBER 31, 1993: Road, roadway structures and real estate.. $2,565 $257 $ 83 $(62) $2,677 Equipment................................. 918 77 28 (6) 961 ------ ---- ---- ---- ------ Total..................................... $3,483 $334 $111 $(68) $3,638 ====== ==== ==== ==== ====== DECEMBER 31, 1992: Road, roadway structures and real estate.. $2,483 $241 $ 88 $(71) $2,565 Equipment................................. 896 83 53 (8) 918 ------ ---- ---- ---- ------ Total..................................... $3,379 $324 $141 $(79) $3,483 ====== ==== ==== ==== ====== DECEMBER 31, 1991: Road, roadway structures and real estate.. $2,464 $265 $158 $(88) $2,483 Equipment................................. 867 75 38 (8) 896 ------ ---- ---- ---- ------ Total..................................... $3,331 $340 $196 $(96) $3,379 ====== ==== ==== ==== ====== (1) Relates primarily to estimated net book value of retirements plus the cost to remove property before determination of excess depreciation on assets retained.
See accompanying notes to consolidated financial statements for information regarding depreciation methods and other matters. -41- 45 SCHEDULE VIII BURLINGTON NORTHERN RAILROAD COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN MILLIONS)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Charged Balance at Description Beginning of Period to Income Deductions(1) End of Period(2) ----------- ------------------- ----------------- ------------- ---------------- DECEMBER 31, 1993: Casualty and environmental reserves.. $731 $261 $280 $712 ==== ==== ==== ==== DECEMBER 31, 1992: Casualty and environmental reserves.. $713 $312 $294 $731 ==== ==== ==== ==== DECEMBER 31, 1991: Casualty and environmental reserves.. $219 $798 $304 $713 ==== ==== ==== ==== Notes: (1) Principally represents cash payments. (2) Classified in the consolidated balance sheets as follows: 1993 1992 1991 ---- ---- ---- Casualty and environmental reserves (current liabilities)............ $286 $249 $247 Casualty and environmental reserves (noncurrent liabilities)......... 426 482 466 ---- ---- ---- $712 $731 $713 ==== ==== ====
-42- 46 SCHEDULE X BURLINGTON NORTHERN RAILROAD COMPANY AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN MILLIONS)
Column A Column B -------- -------- Charged to Costs and Item Expenses ---- ---------- 1993: Maintenance and repairs.......................... $1,765 Taxes, other than payroll and income taxes: Property....................................... 73 Other.......................................... 31 1992: Maintenance and repairs.......................... $1,748 Taxes, other than payroll and income taxes: Property....................................... 72 Other.......................................... 33 1991: Maintenance and repairs.......................... $1,781 Taxes, other than payroll and income taxes: Property....................................... 71 Other.......................................... 37 Note: Items omitted are either less than one percent of consolidated revenues or are disclosed elsewhere in the consolidated financial statements or notes thereto.
-43- 47 Exhibit Index
Sequentially Exhibit Numbered Number Description Page - ------- ----------- ------------ 3.1 Certificate of Incorporation of Burlington Northern Railroad Company as amended through July 20, 1987. 3.2 By-Laws of Burlington Northern Railroad Company as amended through July 17, 1991.
EX-3.1 2 AMENDED CERTIFICATE OF INCORPORATION 1 BURLINGTON NORTHERN RAILROAD RESTATED CERTIFICATE OF INCORPORATION OF BURLINGTON NORTHERN RAILROAD COMPANY As Amended July 20, 1987 2 RESTATED CERTIFICATE OF INCORPORATION OF BURLINGTON NORTHERN RAILROAD COMPANY This Restated Certificate of Incorporation was duly adopted by the Board of Directors of Burlington Northern Railroad Company, a Delaware corporation, in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware, and only restates and integrates and does not further amend the provisions of the corporation's Certificate of Incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. The corporation was originally incorporated in the State of Delaware under the name "Great Northern Pacific & Burlington Lines, Inc." and its original Certificate of Incorporation was filed with the Secretary of State of Delaware on January 13, 1961. FIRST: The name of the corporation is Burlington Northern Railroad Company. SECOND: The registered office of the corporation in the State of Delaware is located at 1209 Orange Street in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company. THIRD: The nature of the business, or objects or purposes to be transacted, promoted or carried on by the corporation are as follows: 1. To engage in any and all branches of the business of transportation, whether by railroad, motor vehicle, pipe line, water, air, or any other means of conveyance whatsoever now in existence or hereafter invented or developed. 2. To acquire by purchase, merger, consolidation, lease, sublease, or otherwise, and pay for in cash or in stocks, bonds, or other securities of the corporation or otherwise, the whole or any part of the franchises, goodwill, rights, assets and property of any railroad or transportation company or any oil, gas, coal or other mineral company or any timber or other natural resource company or other person, firm, association, corporation, joint-stock company, syndicate, trust, body politic or other entity. 3. To purchase, invest in, lease, sublease or otherwise acquire and to own, mortgage, lease, sublease, sell or otherwise dispose of franchises, rights of way, 3 easements, permits and other rights and privileges of every type, whether granted by the United States, any state, district or territory thereof, any municipality, any foreign country, any other body politic, or any subdivision or agency of any of the foregoing, or any person, firm, association, corporation, joint-stock company, syndicate, trust, or other entity, and to exercise, insofar as may be permitted by any general or special law of any state or body politic, the right of eminent domain. 4. To take, purchase, invest in, lease, sublease or otherwise acquire improved and unimproved real property (including without limitation property granted to it by any government or individual and property deemed suitable for, or for use in connection with, the production of oil, gas, coal or other minerals and timber or other natural resources), and any interest of any kind therein, and to own, improve, develop, manage, mortgage, lease, sublease, sell or otherwise dispose of any real property or interest therein now owned or hereafter acquired by the corporation, and to build, rebuild, alter, improve and remove any buildings or other structures on real property now or hereafter owned by the corporation, or in which the corporation holds or shall hereafter hold any interest, and to engage in any and all branches of the hotel, innkeeping and restaurant business. 5. To drill for, mine, produce, manufacture, refine, handle and dispose of oil, gas, coal and other minerals, to build, repair and maintain wells, mines, pipe lines, refineries, plants and other facilities in connection therewith, and generally to engage in the oil, gas, coal and other mineral business and all branches thereof. 6. To do a timberland and general lumber and wood products business in all of the branches thereof, to build, repair and maintain plants, mills and other facilities in connection therewith, and to manufacture, own, sell and otherwise dispose of all lumber, lumber products, pulp, paper, logs and timber of every description. 7. To purchase, invest in, lease, sublease or otherwise acquire water rights and water supplies and any interest of any kind therein, and to own, improve, develop, manage, mortgage, lease, sublease, sell or otherwise dispose of any water rights or water supplies now owned or hereafter acquired by the corporation, and to build, rebuild, alter, improve and remove any pipe lines, reservoirs, dams, ditches and appurtenances useful or necessary in connection with the ownership, improvement, development or management of such water rights and water supplies. -2- 4 8. To engage in the elevator business, the warehouse business and in any service business of any kind or character whatsoever which may lawfully be performed by a Delaware corporation. 9. To manufacture, purchase, invest in, lease, sublease or otherwise acquire and to own, mortgage, lease, sublease, sell or otherwise dispose of, and to trade, deal in and deal with, goods, wares and merchandise and personal property of every class and description. 10. To purchase, subscribe for, 1ease, sublease or otherwise acquire and to own, hold for investment, mortgage, pledge, lease, sublease or otherwise dispose of the stocks, bonds, debentures, notes, bank acceptances and other evidences of indebtedness or other securities of any person, firm, association, corporation, joint-stock company, syndicate, trust, government or body politic, and to loan and advance money upon mortgages on real property and pledges of personal property or upon either of them, whether the objective of any of the foregoing be current income or gain in capital or principal or acquisition of interests useful in the business of the corporation. 11. To promote, finance, aid or assist, financially or otherwise, in any manner, whether by loan, subsidy, guaranty or otherwise, those issuing or having power to issue, creating or responsible for any securities referred to in the foregoing paragraph 10, or those in whose business or affairs the corporation shall have an interest, and in connection therewith to guarantee or become surety for the performance of any undertaking or obligation or the payment of dividends on stock. 12. To enter into, make and perform contracts of every kind and description, with any person, firm, association, corporation, joint-stock company, syndicate, trust, body politic or any other entity. 13. To borrow money and from time to time to make, accept, endorse, execute and issue bonds, debentures, promissory notes, bills of exchange, or other evidences of indebtedness of the corporation for moneys borrowed or in payment for property acquired, or for any of the other objects or purposes of the corporation or its business, and to secure the payment of any such evidences of indebtedness by mortgage, pledge, deed, indenture, agreement or other instrument of trust, or by other lien upon, assignment of or agreement with regard to, all or any part of the property, real or personal, or rights or privileges of the corporation wherever situated, whether now owned or hereafter to be acquired, or to make, accept, endorse, execute and issue -3- 5 bonds, debentures, promissory notes, bills of exchange, or other evidences of indebtedness without any such security, and to sell, pledge or otherwise dispose of any or all such bonds, debentures, promissory notes, bills of exchange, or other evidences of indebtedness. 14. To purchase, invest in, lease, sublease or otherwise acquire and to own, grant licenses in respect of, mortgage, lease, sublease, sell or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, relating to or useful in connection with any business of the corporation. 15. To purchase, lease, sublease or otherwise acquire and to own, mortgage, pledge, lease, sublease, sell or otherwise dispose of, and deal in and with, shares of its own capital stock and its bonds, debentures, other evidences of indebtedness and other securities to the extent permitted by the laws of the State of Delaware. 16. To have one or more offices, and to carry on all or any of its operations and business in any of the states, districts, territories or possessions of the United States, and in any and all foreign countries, subject to applicable law. 17. To engage in any other lawful business for the transaction of which corporations may be organized under the General Corporation Law of the State of Delaware and to have and exercise all the powers conferred by the laws of Delaware upon corporations formed under the General Corporation Law of the State of Delaware, and to do any or all of the things hereinbefore set forth to the same extent as any natural person might or could do, and to exercise any of the aforesaid powers, directly or through one or more subsidiaries, domestic or foreign, by itself or in collaboration with others. Notwithstanding any other provision contained herein, the corporation shall not be authorized to construct, maintain or operate public utilities within the State of Delaware. The provisions of this Article Third shall be construed both as purposes and powers and each as an independent purpose and power. The enumeration of specific purposes and powers shall not be held to limit or restrict in any manner the purposes and powers of the corporation, and the purposes and powers therein specified shall be in nowise limited or restricted by reference to, or inference -4- 6 from, the terms of any provision of this or any other Article of this Certificate of Incorporation. FOURTH: The total number of all classes of stock which the corporation shall have authority to issue is 1,000 shares which shall be Common Stock without par value. 1. At all times each holder of Common Stock of the corporation shall be entitled to one vote for each share of such Stock standing in the name of such holder on the books of the corporation. 2. No holder of the Common Stock as such shall have any pre-emptive right to subscribe to stock, obligations, warrants, right to subscribe to stock or other securities of the corporation of any class, whether now or hereafter authorized. FIFTH: The minimum amount of capital with which the corporation will commence business is one thousand dollars ($l,000.00). SIXTH: The corporation is to have perpetual existence. SEVENTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. EIGHTH: The number of directors of the corporation shall be as from time to time fixed by, or in the manner provided in, its By-Laws and may be increased or decreased as therein provided, but the number thereof shall not be less than three. NINTH: In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized: 1. To make, amend or repeal the By-Laws of the corporation subject to the power of the stockholders of the corporation having voting power to amend or repeal By-Laws made or amended by the Board of Directors. 2. To remove at any time any officer elected or appointed by the Board of Directors by such vote of the Board of Directors as may be provided for in the By-Laws. Any other officer of the corporation may be removed at any time by a vote of the Board of Directors, or by any committee or superior officer upon whom such power of removal may be conferred by the By-Laws or by a vote of the Board of Directors. -5- 7 3. To establish bonus, profit sharing, stock option, stock purchase, retirement or other types of incentive or compensation plans for the employees (including officers and directors) of the corporation and to fix the terms of such plans and to determine, or prescribe the method for determining, the persons to participate in any such plans and the amount of their respective participations. 4. From time to time to determine whether and to what extent, and at what time and places and under what conditions and regulations, the accounts and books of the corporation (other than the stock ledger) or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the corporation, except as conferred by the laws of the State of Delaware or as authorized by the Board of Directors. 5. To authorize, and to cause to be executed mortages, pledges, liens and charges upon the real and personal property of the corporation and to issue obligations secured thereby. Both stockholders and directors shall have power to hold their meetings, and the corporation may have one or more offices, within or without the State of Delaware, and the books of the corporation may, subject to the laws of the State of Delaware, be kept outside of such State at such places as may be from time to time determined by the Board of Directors. TENTH: No contract or other transaction between the corporation and any other corporation and no other act of the corporation with relation to any other corporation shall, in the absence of fraud, in any way be invalidated or otherwise affected by the fact that any one or more of the directors of the corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation. Any director of the corporation individually, or any firm or association of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the corporation, provided that the fact that he individually or as a member of such firm or association is such a party or so interested shall be disclosed or shall have been known to the Board of Directors; and any director of the corporation who is such a party or so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors which shall authorize any such contract or transaction, with like force and effect as if he were not such director or officer of such other corporation or not so interested. Any director of the corporation may vote upon -6- 8 any contract or other transaction between the corporation and any subsidiary or affiliated corporation without regard to the fact that he is also a director, officer or employee of such subsidiary or affiliated corporation. ELEVENTH: 1. To the full extent that the Delaware General Corporation Law, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors, a director of the corporation shall not be liable to the corporation or its stockholders for-monetary damages for breach of fiduciary duty as a director. Any amendment to or repeal of this Section of this Article shall not adversely affect any right or protection of a director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 2. Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the full extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that except as provided in Section 3 of this Article with respect to proceedings seeking to enforce rights to indemnification, the corporation shall -7- 9 indemnify any such indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee while a director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking, by on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined that such indemnitee is not entitled to be indemnified under this Section 2, or otherwise. 3. If a claim under Section 2 of this Article is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the indemnitee shall be entitled to be paid also the expense of prosecuting such suit. The indemnitee shall be presumed to be entitled to indemnification under this Article upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses where the required undertaking, if any is required, has been tendered to the corporation), and thereafter the corporation shall have the burden of proof to overcome the presumption that the indemnitee is not so entitled. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee is not entitled to indemnification shall be a defense to the suit or create a presumption that the indemnitee is not so entitled. 4. The rights to indemnification and to the advancement of expenses conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the -8- 10 Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. 5. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. The corporation may enter into contracts with any indemnitee in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. 6. Any person who is or was serving as a director or officer of a wholly owned subsidiary of the corporation shall be deemed, for purposes of this Article only, to be a director or officer of the corporation entitled to indemnification under this Article. 7. The corporation may, by action of its Board of Directors from time to time, grant rights to indemnification and advancement of expenses to employees and agents of the corporation with the same scope and effect as the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the corporation. TWELFTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights conferred upon stockholders therein are granted subject to this reservation. -9- 11 EXHIBIT B BY-LAWS OF BURLINGTON NORTHERN RAILROAD COMPANY (Amended July 17, 1991) 12 BY-LAWS OF BURLINGTON NORTHERN RAILROAD COMPANY (Amended July 17, 1991) TABLE OF CONTENTS -----------------
OFFICES PAGE ------- ---- ARTICLE I. Section 1 - Registered Office and Agent ................ 1 Section 2 - Other Offices .............................. 1 ARTICLE II. MEETINGS OF STOCKHOLDERS 1 Section 1 - Annual Meetings ............................ 1 Section 2 - Special Meetings ........................... 1 Section 3 - Place of Meetings .......................... 2 Section 4 - Notice of Meetings ......................... 2 Section 5 - Quorum ..................................... 2 Section 6 - Organization ............................... 3 Section 7 - Voting ..................................... 3 Section 8 - Inspectors ................................. 3 Section 9 - List of Stockholders ....................... 3 ARTICLE III. BOARD OF DIRECTORS 4 Section 1 - Number, Qualification and Term of Office ................................... 4 Section 2 - Vacancies .................................. 4 Section 3 - Resignations ............................... 4 Section 4 - Removals ................................... 4 Section 5 - Place of Meetings; Books & Records ......... 5 Section 6 - Annual Meeting of the Board ................ 5 Section 7 - Regular Meetings ........................... 5 Section 8 - Special Meetings ........................... 5 Section 9 - Quorum and Manner of Acting ................ 5 Section 10 - Organization ............................... 6 Section 11 - Consent of Directors in Lieu of Meeting .................................. 6 Section 12 - Telephonic Meetings ........................ 6 Section 13 - Compensation ............................... 6
-i- 13 ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS 6 Section 1 - Executive Committee ............................. 6 Section 2 - Alternates ...................................... 7 Section 3 - Other Committees ................................ 7 ARTICLE V. OFFICERS 8 Section 1 - Elected Officers ................................ 8 Section 2 - Appointed Officers .............................. 8 Section 3 - Resignations .................................... 8 Section 4 - Removals ........................................ 8 Section 5 - Vacancies ....................................... 8 Section 6 - Compensation of Officers ........................ 9 Section 7 - Chairman of the Board ........................... 9 Section 8 - President ....................................... 9 Section 9 - Vice President, Law ............................. 9 Section 10 - Secretary ....................................... 9 Section 11 - Treasurer ....................................... 10 Section 12 - Absence or Disability of Officers ............... 10 ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF 10 Section 1 - Stock Certificates .............................. 10 Section 2 - Designation of Preferences ...................... 11 Section 3 - Transfer of Stock ............................... 11 Section 4 - Transfer Agent and Registrar .................... 11 Section 5 - Additional Regulations .......................... 11 Section 6 - Lost, Destroyed or Mutilated Certificates ....... 11 Section 7 - Record Date ..................................... 12 ARTICLE VII. DIVIDENDS, SURPLUS, ETC. 12 ARTICLE VIII. SEAL 12 ARTICLE IX. FISCAL YEAR 13 ARTICLE X. NOTICES 13 ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 13 Section 1 - Checks, Drafts, Etc.; Loans ..................... 13 Section - Deposits ........................................ 13 ARTICLE XII. AMENDMENTS 14
-ii- 14 BY-LAWS OF BURLINGTON NORTHERN RAILROAD COMPANY (AMENDED JULY 17, 1991) ARTICLE I. OFFICES. Section 1. -- Registered Office and Agent. The registered office of the Corporation is located at 100 West 10th Street in the City of Wilmington, County of New Castle, State of Delaware, and the name of its registered agent at such address is The Corporation Trust Company. Section 2. -- Other Offices. The Corporation may have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II. MEETINGS OF STOCKHOLDERS. Section. 1. -- Annual Meetings. A meeting of the stockholders for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting shall be held annually at ten o'clock a.m. on the second Thursday of May, or at such other time on such other day as shall be fixed by resolution of the Board of Directors. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. Section 2. -- Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called at any time by a majority of the Board of Directors or by the Chairman of the Board, and shall be called by the Secretary at the request of the holders of not less than one-third of all issued and outstanding shares of the Corporation entitled to vote at the meeting. 15 Section 3. -- Place of Meetings. The annual meeting of the stockholders of the Corporation shall be held at the general offices of the Corporation in the City of Fort Worth, State of Texas, or at such other place in the United States as may be stated in the notice of the meeting. All other meetings of the stockholders shall be held at such places within or without the State of Delaware as shall be stated in the notice of the meeting. Amended 2/15/90, effective 2/15/90. Section 4. -- Notice of Meetings. Except as otherwise provided by statute, written notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice will be given when deposited in the United States mail, postage prepaid, directed to such stockholder at his address as it appears in the stock ledger of the Corporation. Each such notice shall state the place, date, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. When a meeting is adjourned to another time and place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is given. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 5. -- Quorum. At any meeting of the stockholders, the holders of record of a majority of the total number of outstanding shares of stock of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum for all purposes, provided that at any meeting at which the holders of any series or class of stock shall be entitled, voting as a class, to elect Directors, the holders of record of a majority of the total number of outstanding shares of such series or class, present in person or represented by proxy, shall constitute a quorum for the purpose of such election. If a quorum is present at any meeting of stockholders, the vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting shall be sufficient for the transaction of any business, unless otherwise provided by statute or the Restated Certificate of Incorporation. In the absence of a quorum at any meeting, the holders of a majority of the shares of stock entitled to vote thereat, present in person or represented by proxy at the meeting, may adjourn the meeting, from time to time, until the holders of the number of shares requisite to constitute a quorum shall be present in person or represented at the meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally convened. -2- 16 Section 6. -- Organization. At each meeting of the stockholders, the Chairman of the Board, or in his absence such person as shall have been designated by the Board of Directors, or in the absence of such designation a person elected by the holders of a majority in number of shares of stock present in person or represented by proxy and entitled to vote, shall act as Chairman of the meeting. The Secretary, or in his absence, an Assistant Secretary or, in the absence of the Secretary and all of the Assistant Secretaries, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting. Section 7. -- Voting. At each meeting of the stockholders, each holder of shares of any series or class of stock entitled to vote at such meeting shall be entitled to one vote for each share of stock having voting power in respect of each matter upon which a vote is to be taken, standing in his name on the stock ledger of the corporation on the record date fixed as provided in these By-Laws for determining the stockholders entitled to vote at such meeting or, if nor record date be fixed, at the close of business on the day next preceding the day on which notice of the meeting is given. Shares of its own capital stock belonging to the Corporation, or to another Corporation if a majority of the shares entitled to vote the election of Directors of such other Corporation is held by the Corporation, shall neither be entitled to vote nor counted for quorum purposes. At each election of Directors the voting shall be by ballot, and the persons having the greatest number of votes shall be deemed and declared elected. Except as otherwise required by statute, the Restated Certificate of Incorporation or these By-Laws, all matters shall be decided by a majority of the votes cast, a quorum being present. Section 8. -- Inspectors. Prior to each meeting of stockholders, the Board of Directors shall appoint two Inspectors who are not Directors, candidates for Directors or officers of the Corporation, who shall receive and determine the validity of proxies and the qualifications of voters, and receive, inspect, count and report to the meeting in writing the votes cast on all matters submitted to a vote at such meeting. In case of failure of the Board of Directors to make such appointments or in case of failure of any Inspector so appointed to act, the Chairman of the Board shall make such appointment or fill such vacancies. Each Inspector, immediately before entering upon his duties, shall subscribe to an oath or affirmation faithfully to execute the duties of Inspector at such meeting with strict impartiality and according to the best of his ability. Section 9. -- List of stockholders. The Secretary or other officer or agent having charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares of each class and series registered in the name of each such -3- 17 stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section, or the books of the Corporation, or to vote in person or by proxy at any such meeting. ARTICLE III. BOARD OF DIRECTORS. Section 1. -- Number, Qualification and Term of Office. The business, property and affairs of the Corporation shall be managed by a Board consisting of not less than three nor more than seven Directors. The Board of Directors shall from time to time by a vote of a majority of the Directors then in office fix within the maximum and minimum limits the number of Directors to constitute the Board. At each annual meeting of stockholders a Board of Directors shall be elected by the stockholders for a term of one year. Each person elected as a Director shall forthwith be notified of his election by the Secretary. Each Director shall serve until his successor is elected and shall qualify. Amended 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Section 2. -- Vacancies. Vacancies in the Board of Directors and newly created Directorships resulting from any increase in the authorized number of Directors may be filled by a majoritv of the Directors then in office, although less than a quorum, or by a sole remaining Director, at any regular or special meeting of the Board of Directors. Section 3. -- Resignations. Any Director may resign at any time upon written notice to the Secretary of the Corporation. Such resignation shall take effect on the date of receipt of such notice or at any later date specified therein; and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. When one or more Directors shall resign effective at a future date, a majority of the Directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies to take effect when such resignation or resignations shall become effective. Section 4. -- Removals. Any director may be removed, with cause, at any special meeting of the stockholders called for that purpose, by the affirmative vote of the holders of a majority in number of shares of the Corporation entitled to vote for the election of Directors, and the vacancy in the Board caused by any such removal may be filled by the stockholders at such meeting. -4- 18 Section 5. -- Place of Meetings; Books and Records. The Board of Directors may hold its meetings, and have an office or offices, at such place or places within or without the State of Delaware as the Board from time to time may determine, unless otherwise provided the Restated Certificate of Incorporation or in these By-Laws. The Board of Directors, subject to the provisions of the laws of Delaware, may authorize the books and records of the Corporation, and offices or agencies for the issue, transfer and registration of the capital stock of the Corporation, to be kept at such place or places outside of the State of Delaware as, from time to time, may be designated by the Board of Directors. Section 6. -- Annual Meeting of the Board. The first meeting of each newly elected Board of Directors, to be known as the Annual Meeting of the Board, for the purpose of electing officers, designating committees and the transaction of such other business as may come before the Board, shall be held at the same place as and immediately after the adjournment of the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held due to the absence of a quorum, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the newly elected Directors. Section 7. -- Regular Meetings. The Board of Directors shall, by resolution, provide for regular meetings of the Board at such times and at such places as it deems desirable. Notice of regular meetings need not be given. Section 8. -- Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Secretary on the written request of three Directors on such notice as the person or persons calling the meeting shall deem appropriate in the circumstances. Notice of each such special meeting shall be mailed to each Director or sent to him by telephone, telegraph, cable or wireless, in each case addressed to his residence or usual place of business, or delivered to him in person or given to him orally. The notice of meeting shall state the time and place of the meeting but need not state the purpose thereof. Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting except when a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. Section 9. -- Quorum and Manner of Acting. Except as otherwise provided by the laws of Delaware, the Restated Certificate of Incorporation, or these By-Laws, the presence of a majority of the total number of Directors shall constitute a quorum for the transaction of business -5- 19 at any regular or special meeting of the Board of Directors, and the act of a majority of the Directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting, from time to time, until a quorum is present. Notice of any such adjourned meeting need not be given. Section 10. -- Organization. At every meeting of the Board of Directors, the Chairman of the Board, or in his absence, the President and/or, if both of the said officers are absent, a Chairman chosen by a majority of the Directors present shall act as Chairman of the meeting. The Secretary, or in his absence, an Assistant Secretary, or in the absence of the Secretary and all the Assistant Secretaries, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting. Section 11. -- Consent of Directors in Lieu of Meeting. Unless otherwise restricted by the Restated Certificate of Incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee designated by the Board, may be taken without a meeting if all members of the Board or committee consent thereto in writing, and such written consent is filed with the minutes of the proceedings of the Board or committee. Section 12. -- Telephonic Meetings. Members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. Section 13. -- Compensation. Each Director, who is not a full-time salaried officer of the Corporation or its parent, or a subsidiary or affiliated corporation, when authorized by resolution of the Board of Directors may receive as a Director a stated salary or an annual retainer and in addition may be allowed a fixed fee and his reasonable expenses for attendance at each regular or special meeting of the Board or any Committee thereof. No fuII-time salaried officer of the Corporation shall receive compensation for serving as a Director of any of the Corporation's wholly-owned subsidiaries. Amended 2/15/90, effective 2/15/90. ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS. Section 1. -- Executive Committee. The Board of Directors may, in its discretion, designate annuaIly an Executive Committee consisting of not less than three Directors as it may from time -6- 20 to time determine. The Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it, but the Committee shall have no power or authority to amend the Certificate of Incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, amend the By-Laws of the Corporation, eject officers or fill vacancies on the Board of Directors or any Committee of the Board, declare a dividend, authorize the issuance of stock, or such other powers as the Board may from time to time eliminate. At each meeting of the Committee, the presence of a majority of the members of the Committee, whether regular or alternate, shall be necessary to constitute a quorum for the transaction of business, and if a quorum is present, the concurrence of a majority of those present shall be necessary for the taking of any action. The Committee shall elect a Chairman to serve for such term as it may determine, shall fix its own rules of procedure and shall meet at such times and places and upon such call or notice as shall be provided by such rules. It shall keep a record of its acts and proceedings, and all actions of the committee shall be reported to the Board of Directors at the next meeting of the Board. Amended 1/24/83, effective 2/1/83. Section 2.-- Alternates. Alternate members of any committee may be designated by the Board of Directors from among the Directors to serve as occasion may require. Whenever a quorum cannot be secured for any Committee meeting from among the regular members thereof and designated alternates, the member or members of such Committee present at such meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of such absent or disqualified member. Alternate members of a Committee shall receive reimbursement for expenses and compensation at the same rate as a regular member of such Committee. Section 3. -- Other Committees. The Board of Directors may elect such other Committees, each to consist of two or more Directors, as it may from time to time determine, and each such Committee shall serve for such term and shall have and may exercise, during intervals between meetings of the Board of Directors, such duties, functions and powers as the Board of Directors may from time to time prescribe. -7- 21 ARTICLE V. OFFICERS. Section 1.-- Elected Officers. The officers of the Corporation shall be a Chairman of the Board, a Vice President and Chief Financial Officer, a Vice President, Law, a Secretary, a Treasurer, and such other officers as may be elected or appointed by the Board of Directors. Any number of offices may be held by the same person. Any officer may hold such additional title descriptions or qualifiers such as "Chief Executive Officer", "Chief Operating Officer", "Senior Vice President", "Executive Vice President" or "Assistant Secretary" or such other title as the Board of Directors shall determine. In addition, at the discretion of the Board of Directors, a President may be, but need not be, elected. Amended 6/1/83, effective 6/1/83. Amended 2/15/90, effective 2/15/90. Amended 7/17/91, effective 7/17/91. Section 2.-- Appointed Officers. In addition to the elected officers of the Corporation, the Corporation shall have such other Vice Presidents and officers as may be appointed by the Chairman of the Board. Any number of offices may be held by the same person. The exact title held by each appointed officer or Vice President may contain such modifiers, such as "senior", "executive" or "assistant", and/or titles, such as "chief executive officer", "chief operating officer", "chief financial officer", "chief accounting officer" or "comptroller", as the Chairman, in his discretion, may bestow. In addition, at the discretion of the Chairman, a President may, but need not be, appointed by the Chairman. Each appointed officer, unless removed in the manner hereinafter provided, shall hold office until his successor shall have been duly appointed and qualified, or until he shall have died, resigned or been removed in the manner hereinafter provided. Amended 2/25/90, effective 2/15/90. Amended 7/17/91, effective 7/17/91. Section 3.-- Resignations. Any officer may resign at any time upon written notice to the Secretary of the Corporation. Such resignation shall take effect at the date of its receipt, or at any later date specified therein; and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. Section 4. -- Removals. Any officer elected or appointed by the Board of Directors may be removed, either with or without cause, by the Board of Directors at a regular or special meeting of the Board. Any officer or agent appointed by any officer or committee may be removed, either with or without cause, by such appointing officer or committee. Section 5.-- Vacancies. Any vacancy occurring in any office of the Corporation by reason of death, retirement, resignation, removal, or otherwise shall be filled for the unexpired -8- 22 portion of the term in the same manner as prescribed in these By-Laws for regular election or appointment to such office. Section 6. -- Compensation of Officers. The compensation of all officers elected by the Board of Directors and of all other officers whose compensation is prescribed by the Board of Directors shall be fixed from time to time by the Board of Directors, by any committee thereof upon whom such power may be conferred by the Board of Directors, or by the Chairman when so authorized by the Board of Directors. Amended 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Section 7. -- Chairman of the Board. The Chairman of the Board shall have general authority over the property, business and affairs of the Corporation and over all other officers, agents and employees of the Corporation, subject to the control and direction of the Board of Directors including the power to sign and acknowledge in the name and on behalf of the Corporation, all stock certificates, contracts or other documents and instruments, except when the signing thereof shall have been expressly delegated to some other officer or agent, or required by law to be otherwise signed or executed, and unless otherwise provided by law or by the Board, may authorize any officer, employee or agent of the Corporation to sign, execute and acknowledge in his place and stead all such documents and instruments; and he shall preside at all meetings of the Board and have authority to call special meetings of the Board or committees of the Board. He shall have power to appoint Vice Presidents and other officers not elected by the Board of Directors and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors. He shall have power to delegate to other officers of the Corporation, through written delegations or otherwise, such authority to transact the business affairs of the Corporation. Adopted 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Section 8.-- President. When a President is elected or appointed, he or she shall, during the absence or disability of the Chairman of the Board, perform the powers and duties of that office and shall have other duties as may be assigned to him or her by the Board of Directors or by the Chairman of the Board. Adopted 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Amended 7/17/91, effective 7/17/91. Section 9. -- Vice President, Law. The Vice President, Law shall be the chief legal advisor of the Corporation and shall have charge of the management and direction of the legal affairs and litigation of the Corporation. In addition, such officer shall be responsible for all government relations and legislative activities of the Corporation. Amended 6/1/83, effective 6/1/83. Amended 2/15/90, effective 2/15/90. Amended 7/17/91, effective 7/17/91. Section 10.-- Secretary. The Secretary shall attend and keep minutes of meetings of the stockholders and Directors, and of all committees of the Board of Directors, in books of the -9- 23 Corporation provided for that purpose; shall have custody of the corporate records of the Corporation; shall see that notices are given and records and reports properly kept and filed by the Corporation, as required bv the By-Laws or as required by law; shall be the custodian of the corporate seal of the Corporation and see that it is affixed to all documents to be executed on behalf of the Corporation under its seal; and in general, shall have such other powers and perform such other duties as are incident to the office of Secretany and as may from time to time be assigned to him by the Board of Directors, the Chairman of the Board or the President. Section 11. -- Treasurer. The Treasurer shall have responsibilitv for the custody and safekeeping of all funds of the Corporation and shall have charge of their collection, receipt and disbursement; shall receive and have authority to sign receipts for all monies paid to the Corporation and shall deposit the same in the name and to the credit of the Corporation in such banks or depositories as the Board of Directors shall approve; shall endorse for collection on behalf of the Corporation all checks, drafts, notes and other obligations payable to the Corporation; shall disburse the funds of the Corporation only in such manner as provided in the By-Laws or as the Board of Directors may require; shall sign or countersign all notes, endorsements, guarantees and acceptances made on behalf of the Corporation when and as directed by the Board of Directors; shall keep full and accurate accounts of the transactions in his office in books belonging to the Corporation and render to the Board of Directors whenever it may require an account of his transactions as Treasurer; shall give bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may require; shall have the responsibility for the custody and safekeeping of all securities of the Corporation; and in general, shall have such other power and perform such other duties as are incident to the office of Treasurer and as from time to time may be prescribed by the Board of Directors, or be delegated to him by the Chairman of the Board or by the President or by their designees. Amended 2/15/90, Effective 2/15/90. Section 12. -- Absence or Disability of Officers. In the absence or disability of the Chairman of the Board or the President, the Board of Directors may designate, by resolution, individuals to perform the duties of those absent or disabled. The Board of Directors may also delegate this power to a committee or to a senior corporate officer. Amended 1/24/83, Effective 2/1/83. ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF. Section 1. -- Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by or in the name of the Corporation by the Chairman of the Board, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares, and the class and series thereof, owned by him in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In -10- 24 case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. -- Designation of Preferences. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, except that in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. Section 3. - Transfer of Stock. Transfer of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by his attorney thereunto duly authorized, and on surrender of the certificate or certificates for such shares. A person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, and the Corporation shall not, except as expressly required by statute, be bound to recognize any equitable or other claim to, or interest in, such shares on the part of any other person whether or not it shall have express or other notice thereof. Section 4.-- Transfer Agent and Registrar. The Corporation may, if and whenever the Board of Directors shall so determine, maintain in such place or places as the Board shall so determine, one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board where the shares of the Capital stock of the Corporation of any class or classes shall be transferable, and also one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock of any class or classes shall be registered. Amended 1/24/83, effective 2/1/83. Section 5. -- Additional Regulations. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Corporation. Section 6.-- Lost, Destroyed or Mutilated Certificates. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificate therefor, and the Board of Directors may, in its discretion, cause a new certificate to be issued to him in case of mutilation of the certificate upon surrender of the mutilated -11- 25 certificate, or in case of loss, theft or destruction of the certificate upon satisfactory proof of such loss or destruction, and in any case, if the Board of Directors shall so determine, upon the delivery of a bond in such form and sum, and with such surety or sureties, as the Board of Directors may direct, to indemnify the Corporation and its agent against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 7 - Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII. DIVIDENDS, SURPLUS, ETC. Except as otherwise provided by statute or the Restated Certificate of Incorporation, the Board of Directors may declare dividends upon the shares of its capital stock either (1) out of its surplus, or (2) in case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared or its preceding fiscal year, whenever, and in such amounts as, in its opinion, the condition of the affairs of the Corporation shall render it advisable. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation. The Board of Directors may use and apply any of such surplus or net profits in purchasing or acquiring any of the bonds, debentures, notes, scrip, other securities or evidences of indebtedness of the Corporation or of any of its controlled or subsidiary corporations, or may set apart from any of the funds of the Corporation available for dividends such sum or sums as it, in its absolute discretion, may think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for the purpose of maintaining or increasing the property or business of the Corporation, or for any other purpose it may think conducive to the best interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII. SEAL. The Board of Directors shall adopt a suitable corporate seal which shall be in the form imprinted hereon. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. -12- 26 ARTICLE IX. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of January of each year. ARTICLE X. NOTICES. Notices to stockholders and Directors shall be given in the manner and form hereinbefore provided, and (a) if given by mail shall be deemed to be given at the time deposited in the United States mail, enclosed in a sealed envelope properly addressed and postage prepaid, and (b) if given by telegraph, cable or wireless shall be deemed to be given at the time delivered to a representative of a telegraph, cable or wireless company, as the case may be, properly addressed, with instructions that it be transmitted. Whenever any notice is required to be given under the provisions of the statute, the Restated Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 1.-- Checks, Drafts, Etc.; Loans. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall, from time to time, be determined by resolution of the Board of Directors. No loans shall be contracted on behalf of the Corporation unless authorized by the Board of Directors. Section 2. -- Deposits. All funds of the Corporation shall be deposited, from time to time, to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select, or as may be selected by any officer or officers, agent or agents of the Corporation to whom such power may, from time to time, be delegated by the Board of Directors; and for the purpose of such deposit, the Chairman, the President, any Vice President, the Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary, or any other officer or agent to whom such power may be delegated by the Board of Directors, may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Amended 7/17/91, effective 7/17/91. -13- 27 ARTICLE XII. Amendments. These By-Laws may be altered or repealed and new By-Laws may be made by the affirmative vote, at any meeting of the Board, of a majority of the whole Board of Directors, subject to the right of the stockholders of the Corporation to amend or repeal By-Laws made or amended by the Board of Directors by the affirmative vote of the holders of record of a majority in number of shares of the outstanding stock of the Corporation present or represented at any meeting of the stockholders and entitled to vote thereon, provided that notice of the proposed action be included in the notice of such meeting. -14- EX-3.2 3 AMENDED BY-LAWS 1 BURLINGTON NORTHERN RAILROAD BY-LAWS OF BURLINGTON NORTHERN RAILROAD COMPANY AMENDED JULY 17, 1991 2 BY-LAWS OF BURLINGTON NORTHERN RAILROAD COMPANY (AMENDED JULY 17, 1991) TABLE OF CONTENTS
OFFICES PAGE ARTICLE I. Section 1 - Registered Office and Agent ................................................. 1 Section 2 - Other Offices ............................................................... 1 ARTICLE II. MEETINGS OF STOCKHOLDERS 1 Section 1 - Annual Meetings ............................................................. 1 Section 2 - Special Meetings ............................................................ 1 Section 3 - Place of Meetings ........................................................... 2 Section 4 - Notice of Meetings .......................................................... 2 Section 5 - Quorum ...................................................................... 2 Section 6 - Organization ................................................................ 3 Section 7 - Voting ...................................................................... 3 Section 8 - Inspectors ................................................................... 3 Section 9 - List of Stockholders ........................................................ 3 ARTICLE III. BOARD OF DIRECTORS 4 Section 1 - Number, Qualification and Term of Office ..................................................................... 4 Section 2 - Vacancies ................................................................... 4 Section 3 - Resignations ................................................................. 4 Section 4 - Removals ..................................................................... 4 Section 5 - Place of Meetings; Books & Records............................................ 5 Section 6 - Annual Meeting of the Board ................................................. 5 Section 7 - Regular Meetings ............................................................. 5 Section 8 - Special Meetings ............................................................. 5 Section 9 - Quorum and Manner of Acting ................................................. 5 Section 10 - Organization ................................................................ 6 Section 11 - Consent of Directors in Lieu of Meeting ..................................................................... 6 Section 12 - Telephonic Meetings .......................................................... 6 Section 13 - Compensation ................................................................ 6
-i- 3 ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS 6 Section 1 - Executive Committee ...................................................... 6 Section 2 - Alternates ................................................................ 7 Section 3 - Other Committees .......................................................... 7 ARTICLE V. OFFICERS 8 Section 1 - Elected Officers .......................................................... 8 Section 2 - Appointed Officers ........................................................ 8 Section 3 - Resignations ............................................................. 8 Section 4 - Removals .................................................................. 8 Section 5 - Vacancies ................................................................ 8 Section 6 - Compensation of Officers .................................................. 9 Section 7 - Chairman of the Board ..................................................... 9 Section 8 - President ................................................................ 9 Section 9 - Vice President, Law ....................................................... 9 Section 10 - Secretary ................................................................ 9 Section 11 - Treasurer ................................................................ 10 Section 12 - Absence or Disability of Officers ........................................ 10 ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF 10 Section 1 - Stock Certificates ....................................................... 10 Section 2 - Designation of Preferences ............................................... 11 Section 3 - Transfer of Stock ........................................................ 11 Section 4 - Transfer Agent and Registrar ............................................. 11 Section 5 - Additional Regulations ................................................... 11 Section 6 - Lost, Destroyed or Mutilated Certificates ................................ 11 Section 7 - Record Date .............................................................. 12 ARTICLE VII. DIVIDENDS, SURPLUS, ETC. 12 ARTICLE VIII. SEAL 12 ARTICLE IX. FISCAL YEAR 13 ARTICLE X. NOTICES 13 ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 13 Section 1 - Checks, Drafts, Etc.; Loans .............................................. 13 Section - Deposits ................................................................. 13 ARTICLE XII. AMENDMENTS 14
-ii- 4 BY-LAWS OF BURLINGTON NORTHERN RAILROAD COMPANY (AMENDED JULY 17, 1991) ARTICLE I. OFFICES. Section 1.-- Registered Office and Agent. The registered office of the Corporation is located at 100 West 10th Street in the City of Wilmington, County of New Castle, State of Delaware, and the name of its registered agent at such address is The Corporation Trust Company. Section 2. -- Other Offices. The Corporation may have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II. MEETINGS OF STOCKHOLDERS. Section 1.-- Annual Meetings. A meeting of the stockholders for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting shall be held annually at ten o'clock a.m. on the second Thursday of May, or at such other time on such other day as shall be fixed by resolution of the Board of Directors. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. Section 2. -- Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called at any time by a majority of the Board of Directors or by the Chairman of the Board, and shall be called by the Secretary at the request of the holders of not less than one-third of all issued and outstanding shares of the Corporation entitled to vote at the meeting. 5 Section 3. -- Place of Meetings. The annual meeting of the stockholders of the Corporation shall be held at the general offices of the Corporation in the City of Fort Worth, State of Texas, or at such other place in the United States as may be stated in the notice of the meeting. All other meetings of the stockholders shall be held at such places within or without the State of Delaware as shall be stated in the notice of the meeting. Amended 2/15/90, effective 2/15/90. Section 4. -- Notice of Meetings. Except as otherwise provided by statute, written notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice will be given when deposited in the United States mail, postage prepaid, directed to such stockholder at his address as it appears in the stock ledger of the Corporation. Each such notice shall state the place, date, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. When a meeting is adjourned to another time and place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is given. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 5. -- Quorum. At any meeting of the stockholders, the holders of record of a majority of the total number of outstanding shares of stock of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum for all purposes, provided that at any meeting at which the holders of any series or class of stock shall be entitled, voting as a class, to elect Directors, the holders of record of a majority of the total number of outstanding shares of such series or class, present in person or represented by proxy, shall constitute a quorum for the purpose of such election. If a quorum is present at any meeting of stockholders, the vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting shall be sufficient for the transaction of any business, unless otherwise provided by statute or the Restated Certificate of Incorporation. In the absence of a quorum at any meeting, the holders of a majority of the shares of stock entitled to vote thereat, present in person or represented by proxy at the meeting, may adjourn the meeting, from time to time, until the holders of the number of shares requisite to constitute a quorum shall be present in person or represented at the meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally convened. -2- 6 Section 6. -- Organization. At each meeting of the stockholders, the Chairman of the Board, or in his absence such person as shall have been designated by the Board of Directors, or in the absence of such designation a person elected by the holders of a majority in number of shares of stock present in person or represented by proxy and entitled to vote, shall act as Chairman of the meeting. The Secretary, or in his absence, an Assistant Secretary or, in the absence of the Secretary and all of the Assistant Secretaries, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting. Section 7.-- Voting. At each meeting of the stockholders, each holder of shares of any series or class of stock entitled to vote at such meeting shall be entitled to one vote for each share of stock having voting power in respect of each matter upon which a vote is to be taken, standing in his name on the stock ledger of the corporation on the record date fixed as provided in these By-Laws for determining the stockholders entitled to vote at such meeting or, if no record date be fixed, at the close of business on the day next preceding the day on which notice of the meeting is given. Shares of its own capital stock belonging to the Corporation, or to another Corporation if a majority of the shares entitled to vote in the election of Directors of such other Corporation is held by the Corporation, shall neither be entitled to vote nor counted for quorum purposes. At each election of Directors the voting shall be by ballot, and the persons having the greatest number of votes shall be deemed and declared elected. Except as otherwise required by statute, the Restated Certificate of Incorporation or these By-Laws, all matters shall be decided by a majority of the votes cast, a quorum being present. Section 8.-- Inspectors. Prior to each meeting of stockholders, the Board of Directors shall appoint two Inspectors who are not Directors, candidates for Directors or officers of the Corporation, who shall receive and determine the validity of proxies and the qualifications of voters, and receive, inspect, count and report to the meeting in writing the votes cast on all matters submitted to a vote at such meeting. In case of failure of the Board of Directors to make such appointments or in case of failure of any Inspector so appointed to act, the Chairman of the Board shall make such appointment or fill such vacancies. Each Inspector, immediately before entering upon his duties, shall subscribe to an oath or affirmation faithfully to execute the duties of Inspector at such meeting with strict impartiality and according to the best of his ability. Section 9. -- List of stockholders. The Secretary or other officer or agent having charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares of each class and series registered in the name of each such -3- 7 stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section, or the books of the Corporation, or to vote in person or by proxy at any such meeting. ARTICLE 111. BOARD OF DIRECTORS. Section 1. -- Number, Qualification and Term of Office. The business, property and affairs of the Corporation shall be managed by a Board consisting of not less than three nor more than seven Directors. The Board of Directors shall from time to time by a vote of a majority of the Directors then in office fix within the maximum and minimum limits the number of Directors to constitute the Board. At each annual meeting of stockholders a Board of Directors shall be elected by the stockholders for a term of one year. Each person elected as a Director shall forthwith be notified of his election by the Secretary. Each Director shall serve until his successor is elected and shall qualify. Amended 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Section 2.-- Vacancies. Vacancies in the Board of Directors and newly created Directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, at any regular or special meeting of the Board of Directors. Section 3. -- Resignations. Any Director may resign at any time upon written notice to the Secretary of the Corporation. Such resignation shall take effect on the date of receipt of such notice or at any later date specified therein; and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. When one or more Directors shall resign effective at a future date, a majority of the Directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies to take effect when such resignation or resignations shall become effective. Section 4.-- Removals. Any director may be removed, with cause, at any special meeting of the stockholders called for that purpose, by the affirmative vote of the holders of a majority in number of shares of the Corporation entitled to vote for the election of Directors, and the vacancy in the Board caused by any such removal may be filled by the stockholders at such meeting. -4- 8 Section 5. -- Place of Meetings; Books and Records. The Board of Directors may hold its meetings, and have an office or offices, at such place or places within or without the State of Delaware as the Board from time to time may determine, unless otherwise provided in the Restated Certificate of Incorporation or in these By-Laws. The Board of Directors, subject to the provisions of the laws of Delaware, may authorize the books and records of the Corporation, and offices or agencies for the issue, transfer and registration of the capital stock of the Corporation, to be kept at such place or places outside of the State of Delaware as, from time to time, may be designated by the Board of Directors. Section 6.-- Annual Meeting of the Board. The first meeting of each newly elected Board of Directors, to be known as the Annual Meeting of the Board, for the purpose of electing officers, designating committees and the transaction of such other business as may come before the Board, shall be held at the same place as and immediately after the adjournment of the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held due to the absence of a quorum, the meeting may be held at such time and place as shall be specifled in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the newly elected Directors. Section 7.-- Regular Meetings. The Board of Directors shall, by resolution, provide for regular meetings of the Board at such times and at such places as it deems desirable. Notice of regular meetings need not be given. Section 8. -- Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Secretary on the written request of three Directors on such notice as the person or persons calling the meeting shall deem appropriate in the circumstances. Notice of each such special meeting shall be mailed to each Director or sent to him by telephone, telegraph, cable or wireless, in each case addressed to his residence or usual place of business, or delivered to him in person or given to him orally. The notice of meeting shall state the time and place of the meeting but need not state the purpose thereof. Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting except when a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. Section 9. -- Quorum and Manner of Acting. Except as otherwise provided by the laws of Delaware, the Restated Certificate of Incorporation, or these By-Laws, the presence of a majority of the total number of Directors shall constitute a quorum for the transaction of business -5- 9 at any regular or special meeting of the Board of Directors, and the act of a majority of the Directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting, from time to time, until a quorum is present. Notice of any such adjourned meeting need not be given. Section 10.-- Organization. At every meeting of the Board of Directors, the Chairman of the Board, or in his absence, the President and/or, if both of the said officers are absent, a Chairman chosen by a majority of the Directors present shall act as Chairman of the meeting. The Secretary, or in his absence, an Assistant Secretary, or in the absence of the Secretary and all the Assistant Secretaries, any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting. Section 11. -- Consent of Directors in Lieu of Meeting. Unless otherwise restricted by the Restated Certificate of Incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee designated by the Board, may be taken without a meeting if all members of the Board or committee consent thereto in writing, and such written consent is filed with the minutes of the proceedings of the Board or committee. Section 12. -- Telephonic Meetings. Members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. Section 13.-- Compensation. Each Director, who is not a full-time salaried officer of the Corporation or its parent, or a subsidiary or affiliated corporation, when authorized by resolution of the Board of Directors may receive as a Director a stated salary or an annual retainer and in addition may be allowed a fixed fee and his reasonable expenses for attendance at each regular or special meeting of the Board or any Committee thereof. No full-time salaried officer of the Corporation shall receive compensation for serving as a Director of any of the Corporation's wholly-owned subsidiaries. Amended 2/15/90, effective 2/15/90. ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS. Section 1.-- Executive Committee. The Board of Directors may, in its discretion, designate annually an Executive Committee consisting of not less than three Directors as it may from time -6- 10 to time determine. The Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it, but the Committee shall have no power or authority to amend the Certificate of Incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, amend the By-Laws of the Corporation, elect officers or fill vacancies on the Board of Directors or any Committee of the Board, declare a dividend, authorize the issuance of stock, or such other powers as the Board may from time to time eliminate. At each meeting of the Committee, the presence of a majority of the members of the Committee, whether regular or alternate, shall be necessary to constitute a quorum for the transaction of business, and if a quorum is present, the concurrence of a majority of those present shall be necessary for the taking of any action. The Committee shall elect a Chairman to serve for such term as it may determine, shall fix its own rules of procedure and shall meet at such times and places and upon such call or notice as shall be provided by such rules. It shall keep a record of its acts and proceedings, and all actions of the committee shall be reported to the Board of Directors at the next meeting of the Board. Amended 1/24/83, effective 2/1/83. Section 2. -- Alternates. Alternate members of any committee may be designated by the Board of Directors from among the Directors to serve as occasion may require. Whenever a quorum cannot be secured for any Committee meeting from among the regular members thereof and designated alternates, the member or members of such Committee present at such meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of such absent or disqualified member. Alternate members of a Committee shall receive reimbursement for expenses and compensation at the same rate as a regular member of such Committee. Section 3. -- Other Committees. The Board of Directors may elect such other Committees, each to consist of two or more Directors, as it may from time to time determine, and each such Committee shall serve for such term and shall have and may exercise, during intervals between meetings of the Board of Directors, such duties, functions and powers as the Board of Directors may from time to time prescribe. -7- 11 ARTICLE V. OFFICERS. Section 1.-- Elected Officers. The officers of the Corporation shall be a Chairman of the Board, a Vice President and Chief Financial Officer, a Vice President, Law, a Secretary, a Treasurer, and such other officers as may be elected or appointed by the Board of Directors. Any number of offices may be held by the same person. Any officer may hold such additional title descriptions or qualifiers such as "Chief Executive Officer", "Chief Operating Officer", "Senior Vice President", "Executive Vice President" or "Assistant Secretary" or such other title as the Board of Directors shall determine. In addition, at the discretion of the Board of Directors, a President may be, but need not be, elected. Amended 6/1/83, effective 6/1/83. Amended 2/15/90, effective 2/15/90. Amended 7/17/91, effective 7/17/91. Section 2. -- Appointed Officers. In addition to the elected officers of the Corporation, the Corporation shall have such other Vice Presidents and officers as may be appointed by the Chairman of the Board. Any number of offices may be held by the same person. The exact title held by each appointed officer or Vice President may contain such modifiers, such as "senior", "executive" or "assistant", and/or titles, such as "chief executive officer", "chief operating officer", "chief financial officer", "chief accounting officer" or "comptroller", as the Chairman, in his discretion, may bestow. In addition, at the discretion of the Chairman, a President may, but need not be, appointed by the Chairman. Each appointed officer, unless removed in the manner hereinafter provided, shall hold office until his successor shall have been duly appointed and qualified, or until he shall have died, resigned or been removed in the manner hereinafter provided. Amended 2/15/90, effective 2/15/90. Amended 7/17/91, effective 7/17/91. Section 3. -- Resignations. Any officer may resign at any time upon written notice to the Secretary of the Corporation. Such resignation shall take effect at the date of its receipt, or at any later date specified therein; and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. Section 4. -- Removals. Any officer elected or appointed by the Board of Directors may be removed, either with or without cause, by the Board of Directors at a regular or special meeting of the Board. Any officer or agent appointed by any officer or committee may be removed, either with or without cause, by such appointing officer or committee. Section 5. -- Vacancies. Any vacancy occurring in any office of the Corporation by reason of death, retirement, resignation, removal, or otherwise shall be filled for the unexpired -8- 12 portion of the term in the same manner as prescribed in these By-Laws for regular election or appointment to such office. Section 6. -- Compensation of Officers. The compensation of all officers elected by the Board of Directors and of all other officers whose compensation is prescribed by the Board of Directors shall be fixed from time to time by the Board of Directors, by any committee thereof upon whom such power may be conferred by the Board of Directors, or by the Chairman when so authorized by the Board of Directors. Amended 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Section 7. -- Chairman of the Board. The Chairman of the Board shall have general authority over the property, business and affairs of the Corporation and over all other officers, agents and employees of the Corporation, subject to the control and direction of the Board of Directors including the power to sign and acknowledge in the name and on behalf of the Corporation, all stock certificates, contracts or other documents and instruments, except when the signing thereof shall have been expressly delegated to some other officer or agent, or required by law to be otherwise signed or executed, and unless otherwise provided by law or by the Board, may authorize any officer, employee or agent of the Corporation to sign, execute and acknowledge in his place and stead all such documents and instruments; and he shall preside at all meetings of the Board and have authority to call special meetings of the Board or committees of the Board. He shall have power to appoint Vice Presidents and other officers not elected by the Board of Directors and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors. He shall have power to delegate to other officers of the Corporation, through written delegations or otherwise, such authority to transact the business affairs of the Corporation. Adopted 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Section 8. -- President. When a President is elected or appointed, he or she shall, during the absence or disability of the Chairman of the Board, perform the powers and duties of that office and shall have other duties as may be assigned to him or her by the Board of Directors or by the Chairman of the Board. Adopted 1/24/83, effective 2/1/83. Amended 2/15/90, effective 2/15/90. Amended 7/17/91, effective 7/17/91. Section 9.-- Vice President, Law. The Vice President, Law shall be the chief legal advisor of the Corporation and shall have charge of the management and direction of the legal affairs and litigation of the Corporation. In addition, such officer shall be responsible for all government relations and legislative activities of the Corporation. Amended 6/1/83, effective 6/1/83. Amended 2/15/90, effective 2/15/90. Amended 7/17/91, effective 7/17/19. Section 10.-- Secretary. The Secretary shall attend and keep minutes of meetings of the stockholders and Directors, and of all committees of the Board of Directors, in books of the -9- 13 Corporation provided for that purpose; shall have custody of the corporate records of the Corporation; shall see that notices are given and records and reports properly kept and filed by the Corporation, as required by the By-Laws or as required by law; shall be the custodian of the corporate seal of the Corporation and see that it is affixed to all documents to be executed on behalf of the Corporation under its seal; and in general, shall have such other powers and perform such other duties as are incident to the office of Secretary and as may from time to time be assigned to him by the Board of Directors, the Chairman of the Board or the President. Section 11. -- Treasurer. The Treasurer shall have responsibility for the custody and safekeeping of all funds of the Corporation and shall have charge of their collection, receipt and disbursement; shall receive and have authority to sign receipts for all monies paid to the Corporation and shall deposit the same in the name and to the credit of the Corporation in such banks or depositories as the Board of Directors shall approve; shall endorse for collection on behalf of the Corporation all checks, drafts, notes and other obligations payable to the Corporation; shall disburse the funds of the Corporation only in such manner as provided in the By-Laws or as the Board of Directors may require; shall sign or countersign all notes, endorsements, guarantees and acceptances made on behalf of the Corporation when and as directed by the Board of Directors; shall keep full and accurate accounts of the transactions in his office in books belonging to the Corporation and render to the Board of Directors whenever it may require an account of his transactions as Treasurer; shall give bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may require; shall have the responsibility for the custody and safekeeping of all securities of the Corporation; and in general, shall have such other power and perform such other duties as are incident to the office of Treasurer and as from time to time may be prescribed by the Board of Directors, or be delegated to him by the Chairman of the Board or by the President or by their designees. Amended 2/15/90, Effective 2/15/90. Section 12. -- Absence or Disability of Officers. In the absence or disability of the Chairman of the Board or the President, the Board of Directors may designate, by resolution, individuals to perform the duties of those absent or disabled. The Board of Directors may also delegate this power to a committee or to a senior corporate officer. Amended 1/24/83, Effective 2/1/83. ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF. Section 1.-- Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by or in the name of the Corporation by the Chairman of the Board, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares, and the class and series thereof, owned by him in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In -10- 14 case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. -- Designation of Preferences. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, except that in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. Section 3. -- Transfer of Stock. Transfer of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by his attorney thereunto duly authorized, and on surrender of the certificate or certificates for such shares. A person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, and the Corporation shall not, except as expressly required by statute, be bound to recognize any equitable or other claim to, or interest in, such shares on the part of any other person whether or not it shall have express or other notice thereof. Section 4. -- Transfer Agent and Registrar. The Corporation may, if and whenever the Board of Directors shall so determine, maintain in such place or places as the Board shall so determine, one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board where the shares of the Capital stock of the Corporation of any class or classes shall be transferable, and also one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock of any class or classes shall be registered. Amended 1/24/83, effective 2/1/83. Section 5. -- Additional Regulations. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Corporation. Section 6. -- Lost, Destroyed or Mutilated Certificates. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificate therefor, and the Board of Directors may, in its discretion, cause a new certificate to be issued to him in case of mutilation of the certificate upon surrender of the mutilated -11- 15 certificate, or in case of loss, theft or destruction of the certificate upon satisfactory proof of such loss or destruction, and in any case, if the Board of Directors shall so determine, upon the delivery of a bond in such form and sum, and with such surety or sureties, as the Board of Directors may direct, to indemnify the Corporation and its agent against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 7. -- Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII. DIVIDENDS, SURPLUS, ETC. Except as otherwise provided by statute or the Restated Certificate of Incorporation, the Board of Directors may declare dividends upon the shares of its capital stock either (1) out of its surplus, or (2) in case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared or its preceding fiscal year, whenever, and in such amounts as, in its opinion, the condition of the affairs of the Corporation shall render it advisable. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation. The Board of Directors may use and apply any of such surplus or net profits in purchasing or acquiring any of the bonds, debentures, notes, scrip, other securities or evidences of indebtedness of the Corporation or of any of its controlled or subsidiary corporations, or may set apart from any of the funds of the Corporation available for dividends such sum or sums as it, in its absolute discretion, may think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for the purpose of maintaining or increasing the property or business of the Corporation, or for any other purpose it may think conducive to the best interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII. SEAL. The Board of Directors shall adopt a suitable corporate seal which shall be in the form imprinted hereon. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. -12- 16 ARTICLE IX. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of January of each year. ARTICLE X. NOTICES. Notices to stockholders and Directors shall be given in the manner and form hereinbefore provided, and (a) if given by mail shall be deemed to be given at the time deposited in the United States mail, enclosed in a sealed envelope properly addressed and postage prepaid, and (b) if given by telegraph, cable or wireless shall be deemed to be given at the time delivered to a representative of a telegraph, cable or wireless company, as the case may be, properly addressed, with instructions that it be transmitted. Whenever any notice is required to be given under the provisions of the statute, the Restated Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 1.-- Checks, Drafts, Etc.; Loans. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall, from time to time, be determined by resolution of the Board of Directors. No loans shall be contracted on behalf of the Corporation unless authorized by the Board of Directors. Section 2. -- Deposits. All funds of the Corporation shall be deposited, from time to time, to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select, or as may be selected by any officer or officers, agent or agents of the Corporation to whom such power may, from time to time, be delegated by the Board of Directors; and for the purpose of such deposit, the Chairman, the President, any Vice President, the Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary, or any other officer or agent to whom such power may be delegated by the Board of Directors, may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Amended 7/17/91, effective 7/17/91. -13- 17 ARTICLE XII. AMENDMENTS. These By-Laws may be altered or repealed and new By-Laws may be made by the affirmative vote, at any meeting of the Board, of a majority of the whole Board of Directors, subject to the right of the stockholders of the Corporation to amend or repeal By-Laws made or amended by the Board of Directors by the affirmative vote of the holders of record of a majority in number of shares of the outstanding stock of the Corporation present or represented at any meeting of the stockholders and entitled to vote thereon, provided that notice of the proposed action be included in the notice of such meeting. -14- -----END PRIVACY-ENHANCED MESSAGE-----