-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BYR199c9InAPCWmbOtSqKc1iSIzkcFWdCnaHDYE3XrgUtpJs04ddoFofjtJSARJe Qh4UHCKT903Q4jgk5d8Qbg== 0000930661-99-001851.txt : 19990812 0000930661-99-001851.hdr.sgml : 19990812 ACCESSION NUMBER: 0000930661-99-001851 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BURLINGTON NORTHERN SANTA FE CORP CENTRAL INDEX KEY: 0000934612 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 411804964 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11535 FILM NUMBER: 99684514 BUSINESS ADDRESS: STREET 1: 2650 LOU MENK DR STREET 2: 777 MAIN ST CITY: FT WORTH STATE: TX ZIP: 76131 BUSINESS PHONE: 8173526856 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 SANTE FE CORP DATE OF NAME CHANGE: 19950913 FORMER COMPANY: FORMER CONFORMED NAME: BNSF CORP DATE OF NAME CHANGE: 19941223 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-11535 BURLINGTON NORTHERN SANTA FE CORPORATION (Exact name of registrant as specified in its charter) Delaware 41-1804964 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2650 Lou Menk Drive Fort Worth, Texas 76131 (Address of principal executive offices) (Zip Code) (817) 333-2000 (Registrant's telephone number, including area code) 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 ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares Class Outstanding at July 31, 1999 ----- ---------------------------- Common stock, $.01 par value 464,905,844 shares PART I FINANCIAL INFORMATION Item 1. Financial Statements BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Dollars In Millions, Except Per Share Data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------------------- ----------------------------------- 1999 1998 1999 1998 --------------- ---------------- ---------------- --------------- Revenues $2,194 $2,205 $4,384 $4,353 --------------- ---------------- ---------------- --------------- Operating expenses: Compensation and benefits 679 690 1,369 1,392 Purchased services 236 219 472 436 Depreciation and amortization 222 205 441 407 Equipment rents 181 203 374 394 Fuel 169 181 334 362 Materials and other 222 178 429 386 Reorganization costs 48 - 48 - Merger severance adjustment (54) - (54) - --------------- ---------------- ---------------- --------------- Total operating expenses 1,703 1,676 3,413 3,377 --------------- ---------------- ---------------- --------------- Operating income 491 529 971 976 Interest expense 98 85 192 173 Other income (expense), net (12) (4) (21) 73 --------------- ---------------- ---------------- --------------- Income before income taxes 381 440 758 876 Income tax expense 143 163 284 334 --------------- ---------------- ---------------- --------------- Net income $ 238 $ 277 $ 474 $ 542 =============== ================ ================ =============== Earnings per share: Basic $ 0.51 $ 0.59 $ 1.01 $ 1.15 =============== ================ ================ =============== Diluted $ 0.50 $ 0.58 $ 1.00 $ 1.14 =============== ================ ================ =============== Average shares (in millions): Basic 467.5 472.1 468.4 470.6 Dilutive effect of stock options 4.0 6.2 4.6 6.3 --------------- ---------------- ---------------- --------------- Diluted 471.5 478.3 473.0 476.9 =============== ================ ================ =============== Dividends declared per share $ 0.12 $ 0.10 $ 0.24 $ 0.20
See accompanying notes to consolidated financial statements. -1- BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Shares in thousands. Dollars in millions.) (Unaudited)
June 30, December 31, ASSETS 1999 1998 ---------------- ---------------- Current assets: Cash and cash equivalents $ 28 $ 25 Accounts receivable, net 486 594 Materials and supplies 244 244 Current portion of deferred income taxes 318 335 Other current assets 40 34 ---------------- ---------------- Total current assets 1,116 1,232 Property and equipment, net 21,183 20,662 Other assets 1,181 822 ---------------- ---------------- Total assets $ 23,480 $ 22,716 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other current liabilities $ 1,866 $ 1,955 Long-term debt due within one year 163 268 ---------------- ---------------- Total current liabilities 2,029 2,223 Long-term debt and commercial paper 5,917 5,188 Deferred income taxes 5,812 5,662 Casualty and environmental liabilities 417 389 Employee merger and separation costs 348 409 Other liabilities 1,024 1,075 ---------------- ---------------- Total liabilities 15,547 14,946 ---------------- ---------------- Commitments and contingencies (See notes 5 and 6) Stockholders' equity: Common stock, $.01 par value, 600,000 shares authorized; 483,019 shares and 477,436 shares issued, respectively 5 5 Additional paid-in capital 5,327 5,177 Retained earnings 3,173 2,811 Treasury stock, at cost, 17,611 shares and 6,961 shares, respectively (563) (213) Accumulated other comprehensive deficit (8) (8) Other (1) (2) ---------------- ---------------- Total stockholders' equity 7,933 7,770 ---------------- ---------------- Total liabilities and stockholders' equity $ 23,480 $ 22,716 ================ ================
See accompanying notes to consolidated financial statements. -2- BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Millions) (Unaudited)
Six Months Ended June 30, ----------------------------- 1999 1998 ------------ ------------- Operating Activities: Net income $ 474 $ 542 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 441 407 Deferred income taxes 167 141 Employee merger and separation costs paid (40) (45) Other, net (65) (91) Changes in current assets and liabilities: Accounts receivable 108 65 Materials and supplies - (6) Other current assets (6) (37) Accounts payable and other current liabilities (61) 25 ------------ ------------- Net cash provided by operating activities 1,018 1,001 ------------ ------------- Investing Activities: Capital expenditures (921) (952) Other, net (376) (240) ------------ ------------- Net cash used for investing activities (1,297) (1,192) ------------ ------------- Financing Activities: Net increase in commercial paper and bank borrowings 227 64 Proceeds from issuance of long-term debt 629 192 Payments on long-term debt (227) (50) Dividends paid (113) (94) Proceeds from stock options exercised 101 84 Purchase of BNSF common stock (334) (6) Other, net (1) 1 ------------ ------------- Net cash provided by financing activities 282 191 ------------ ------------- Increase in cash and cash equivalents 3 - Cash and cash equivalents: Beginning of period 25 31 ============ ============= End of period $ 28 $ 31 ============ ============= Supplemental cash flow information: Interest paid, net of amounts capitalized $ 183 $ 180 Income taxes paid, net of refunds 32 141
See accompanying notes to consolidated financial statements. -3- BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. ACCOUNTING POLICIES AND INTERIM RESULTS The consolidated financial statements should be read in conjunction with the Burlington Northern Santa Fe Corporation Annual Report on Form 10-K for the year ended December 31, 1998, as amended, including the financial statements and notes thereto incorporated by reference from the Registrant's 1998 Annual Report to Shareholders. The consolidated financial statements include the accounts of Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries, all of which are separate legal entities (collectively, BNSF or Company). BNSF was incorporated in Delaware on December 16, 1994. The Company's principal operating subsidiary is The Burlington Northern and Santa Fe Railway Company (BNSF Railway). All significant intercompany accounts and transactions have been eliminated. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the entire year. In the opinion of management, all adjustments (consisting of only normal recurring adjustments, except as disclosed) necessary to present fairly BNSF's consolidated financial position as of June 30, 1999 and December 31, 1998 and the consolidated results of operations for the three and six month periods ended June 30, 1999 and 1998 have been included. For the three and six month periods ended June 30, 1999 and 1998, the Company's comprehensive income was equal to net income. Certain comparative prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation. 2. SPECIAL ITEMS Included in the Statement of Income for the second quarter of 1999 are the following special items: . The Company incurred during the quarter $48 million of reorganization costs for severance, pension, medical and other benefit costs for approximately 325 involuntarily terminated salaried employees that were part of the program announced in May 1999 to reduce operating costs. Components of the charge include approximately $29 million relating to estimated severance costs for salaried employees, approximately $16 million for special termination benefits to be received under the Company's retirement and medical plans, and approximately $3 million of costs incurred for relocating approximately 60 salaried employees as a result of the reorganization. The majority of these costs have not been paid out as of June 30, 1999. The program sought to eliminate approximately 400 salaried and 1,000 scheduled (union) positions. Approximately half of the planned reductions were made by June 30, 1999 with substantially all of the 325 salaried employees eliminated through severance and the remainder of the 400 through the elimination of contractors and normal attrition. The remaining union positions will be substantially eliminated during the third quarter of 1999. No significant costs have been or are anticipated to be incurred as a result of eliminating the 1,000 scheduled positions. . The Company recorded a $54 million credit for the reversal of certain liabilities associated with its clerical consolidation plan. These liabilities were related to planned work-force reductions that are no longer anticipated due to the Company's ability to utilize a series of job swaps between certain locations to achieve the advantages of functional work consolidation. This change in the clerical consolidation plan was communicated to Company employees in May 1999. . The Company accrued an additional $37 million for environmental expense as a result of significant developments at certain sites, primarily related to new information on the extent of contamination and other related developments. None of the sites are individually considered material in relation to the Company's results of operations, financial position or liquidity. These costs are classified as materials and other expenses on the Statement of Income. On a combined basis, the three items increased operating expenses $31 million in the second quarter of 1999. -4- 3. DEBT In February 1999, the Company filed a new shelf registration statement that became effective in March 1999 for the issuance of debt securities, including medium-term notes, which may be issued in one or more series at an aggregate offering price not to exceed $750 million. Additionally, in February 1999, prior to the effective date of the new shelf registration, the Company amended its March 1998 shelf registration to combine it with the February 1999 shelf registration. Subsequently, the Company had $1.1 billion of borrowing capacity available under its shelf registration statement. In March 1999, BNSF issued $200 million of 6.125 percent notes due March 2009 and $200 million of 6.75 percent debentures due March 2029 under the February 1999 shelf registration statement. The net proceeds were used for general corporate purposes including the repayment of commercial paper. At the time of issuing the $400 million of debt discussed above, the Company closed out a $100 million treasury lock transaction at a gain of approximately $8 million which has been deferred and is being amortized to interest expense over the life of the debt. On April 29, 1999, the holder of a call option on $200 million of the Company's puttable reset debentures due 2029 exercised the call option. As a result, on May 13, 1999, the holder repurchased the debentures which were subsequently resold to investors. The interest rate on the debentures was reset to a fixed interest rate of 7.082 percent. The Company did not receive any proceeds from the resale of these debentures; however, the resale of these debentures reduced the amount available for borrowing under the Company's February 1999 shelf registration statement to $500 million. During the second quarter of 1999, BNSF Railway entered into $212 million of equipment secured debt. 4. EMPLOYEE MERGER AND SEPARATION COSTS Current and long-term employee merger and separation liabilities totaling $409 million are included in the consolidated balance sheet at June 30, 1999, and principally represent: (i) employee-related severance costs for the consolidation of clerical functions; (ii) deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers; and (iii) certain salaried employee severance costs. During the first six months of 1999, the Company made employee merger and separation payments of $40 million. As discussed in Note 2: Special Items, during the second quarter, the Company recorded a $29 million liability for estimated severance costs for involuntarily terminated salaried employees and a $54 million credit for the reversal of certain liabilities associated with the clerical consolidation plan. Liabilities related to the consolidation of clerical functions are paid to affected union employees in the form of a lump-sum payment or payments made over five to ten years, or in some cases, through retirement. Liabilities related to deferred benefits payable to certain active conductors, trainmen and locomotive engineers are paid upon the employee's separation or retirement. Liabilities principally related to certain remaining salaried employee severances will be paid in the form of a lump sum payment or over the next several years based on deferral elections made by affected employees. At June 30, 1999, $61 million of the remaining liabilities are included within current liabilities for anticipated costs to be paid over the next twelve months. 5. ENVIRONMENTAL AND OTHER CONTINGENCIES The Company's operations, as well as those of its competitors, are subject to extensive federal, state and local environmental regulation. BNSF's operating procedures include practices to protect the environment from the risks inherent in railroad operations, which include transporting chemicals and other hazardous materials. Additionally, many of BNSF's land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in discharges onto the property. As a result, BNSF is subject to environmental clean-up and enforcement actions. In particular, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also known as the "Superfund" law, as well as similar state laws generally impose joint and several liability for clean-up and enforcement costs without regard to fault or the legality of the original conduct on current and former owners and operators of a site. BNSF has been notified that it is a potentially responsible party (PRP) for study and clean-up costs at approximately 32 Superfund sites for which investigation and remediation payments are or will be made or are yet to be determined (the Superfund sites) and, in many instances, is one of several PRPs. In addition, BNSF may be considered a PRP under certain other laws. Accordingly, under CERCLA and other federal and state statutes, BNSF may be held jointly and -5- severally liable for all environmental costs associated with a particular site. If there are other PRPs, BNSF 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. 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 BNSF'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. BNSF 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 the ability of other PRPs to pay for clean-up, and historical trend analyses. During the first six months of 1999, BNSF recorded total environmental expense of $56 million, including $37 million of additional expense as a result of significant second quarter developments at certain existing sites, primarily related to new information on the extent of contamination and other related developments. BNSF is involved in a number of administrative and judicial proceedings and other clean-up efforts at approximately 400 sites, including the Superfund sites, at which it is participating in the study or clean-up, or both, of alleged environmental contamination. BNSF paid approximately $24 million during the first six months of 1999 for mandatory and unasserted clean-up efforts, including amounts expended under federal and state voluntary clean-up programs. BNSF has accruals of approximately $217 million for remediation and restoration of all known sites. BNSF anticipates that the majority of the accrued costs at June 30, 1999, will be paid over the next five years. No individual site is considered to be material. Liabilities recorded for environmental costs represent BNSF's best estimates for remediation and restoration of these sites and include both asserted and unasserted claims. Unasserted claims are not considered to be a material component of the liability. Although recorded liabilities include BNSF's best estimates of all costs, without reduction for anticipated recoveries from third parties, BNSF'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 parties' 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, future charges to income for environmental liabilities could 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, management believes that it is unlikely that any identified matters, either individually or in the aggregate, will have a material adverse effect on BNSF's consolidated financial position or liquidity. The railroad industry, including BNSF Railway, is subject to future requirements regulating air emissions from diesel locomotives. Final regulations applicable to new and rebuilt locomotive engines were promulgated by the United States Environmental Protection Agency (EPA) and became effective June 15, 1998. The new standards will be phased in between 2000 and 2005. BNSF Railway has evaluated compliance requirements and associated costs and believes the costs will not be material in any given year. BNSF Railway has also entered into agreements with the California State Air Resources Board and the EPA regarding a program to reduce emissions in Southern California through accelerated deployment of locomotives which comply with the federal standards. OTHER CLAIMS AND LITIGATION BNSF and its subsidiaries are parties to a number of legal actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to environmental matters and personal injury claims. While the final outcome of these items cannot be predicted with certainty, considering among other things the meritorious legal defenses available, it is the opinion of management that none of these items, when finally resolved, will have a material adverse effect on the annual results of operations, financial position or liquidity of BNSF, although an adverse resolution of a number of these items in a single period could have a material adverse effect on the results of operations in a particular quarter or fiscal year. -6- 6. HEDGING ACTIVITIES AND OTHER COMMITMENTS FUEL During the past three years, fuel expenses approximated 11 percent of total operating expenses. Due to the significance of diesel fuel expenses to the operations of BNSF and the historical volatility of fuel prices, the Company has established a program to hedge against fluctuations in the price of its diesel fuel purchases. The intent of the program is to protect the Company's operating margins and overall profitability from adverse fuel price changes. However, to the extent the Company hedges portions of its fuel purchases, it may not realize the impact of decreases in fuel prices. The fuel-hedging program includes the use of commodity swap transactions that are accounted for as hedges. Any gains or losses associated with changes in the market value of the fuel swaps are deferred and recognized as a component of fuel expense in the period in which the fuel is purchased and used. Based on annualized fuel consumption during the first six months of 1999 and excluding the impact of the hedging program, each one-cent increase in the price of fuel would result in approximately $12 million of additional fuel expense on an annual basis. As of June 30, 1999, BNSF had entered into fuel swaps for approximately 1,323 million gallons at an average price of approximately 49 cents per gallon. The above price does not include taxes, transportation costs, certain other fuel handling costs, and any differences which may occur from time to time between the prices of commodities hedged and the purchase price of BNSF's diesel fuel. Currently, BNSF's fuel hedging program covers approximately 78 percent of estimated fuel purchases for the remaining six months of 1999, and approximately 40 percent, 22 percent and 7 percent of estimated annual and quarterly fuel purchases for 2000, 2001, and 2002, respectively. Hedge positions are closely monitored to ensure that they will not exceed actual fuel requirements in any period. Unrecognized losses from BNSF's fuel swap transactions were approximately $47 million as of June 30, 1999, of which $17 million relates to swap transactions that will expire in 1999. BNSF also monitors its hedging positions and credit ratings of its counterparties and does not anticipate losses due to counterparty nonperformance. INTEREST RATE As of June 30, 1999, the Company has outstanding treasury lock transactions, based on the 10-year and 30-year U.S. treasury rates, totaling $200 million and $200 million, respectively. The 10-year and 30-year treasury lock transactions have average interest rates of approximately 4.6 percent and 5.0 percent, respectively, and expire between 2000 and 2001. Unrecognized gains on the treasury lock transactions were approximately $44 million as of June 30, 1999. 7. SHARE REPURCHASE PROGRAM During the first six months of 1999, the Company repurchased 10.1 million shares of its common stock at an average price of $33.10 per share under the Company's share repurchase program. Since June 30, 1999, the Company repurchased 1.3 million shares of its common stock at an average price of $31.74 per share. Since commencing its share repurchase program in January 1998, the Company has repurchased 16.4 million shares at an average cost of $32.28 per share through August 10, 1999. In connection with its share repurchase program, BNSF sold equity put options in April 1999 for 0.1 million shares of BNSF common stock to an independent third party and received cash proceeds of $0.1 million. The option contract has an exercise price of $29.00 per share with an expiration date of October 12, 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis relates to the financial condition and results of operations of Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries (collectively BNSF, Registrant or Company). The principal operating subsidiary of BNSF is The Burlington Northern and Santa Fe Railway Company (BNSF Railway). All earnings per share information is stated on a diluted basis. -7- Results of Operations - --------------------- Three months ended June 30, 1999 compared with three months ended June 30, 1998 BNSF recorded net income for the second quarter of 1999 of $238 million ($0.50 per share), compared with second quarter 1998 net income of $277 million ($0.58 per share). The decrease in net income is primarily due to the Company recording pre-tax special items in 1999 of $48 million ($30 million after-tax or $0.06 per share) and $37 million ($23 million after-tax or $0.05 per share) for reorganization costs and environmental expenses, respectively, partially offset by a $54 million ($34 million after-tax or $0.07 per share) credit for the reversal of liabilities associated with the consolidation of certain clerical work-forces. These special items are further discussed in Note 2: Special Items and in the section Other Matters: Reorganization Costs. Excluding the after-tax effects of the special items, BNSF's adjusted net income was $257 million or $0.54 per share for the second quarter of 1999. The decrease in adjusted net income is primarily due to a small decrease in total revenues, an increase of $13 million in interest expense and an increase in other expense, net as discussed below. Revenues The following table presents BNSF's revenue information by commodity for the three months ended June 30, 1999 and 1998 and includes certain reclassifications of prior year information to conform to current year presentation:
Average Revenue Revenues Cars/Units Per Car/Unit ----------------------- ----------------------- ----------------------- 1999 1998 1999 1998 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- (In Millions) (In Thousands) Carload $ 642 $ 672 450 470 $ 1,427 $ 1,430 Intermodal 603 597 765 754 788 792 Coal 543 554 514 513 1,056 1,080 Agricultural Commodities 287 275 158 154 1,816 1,786 Automotive 112 101 63 60 1,778 1,683 ---------- ---------- ---------- ---------- ---------- ---------- Total Freight Revenues 2,187 2,199 1,950 1,951 $ 1,122 $ 1,127 ========== ========== ========== ========== Other Revenues 7 6 ---------- ---------- Total Operating Revenues $ 2,194 $ 2,205 ========== ==========
Total revenues of $2,194 million for the second quarter of 1999 were $11 million or slightly lower than revenues of $2,205 million for the second quarter of 1998. The decrease primarily reflects decreases in the carload and coal sectors, partially offset by higher intermodal, agricultural commodities and automotive revenues. Carload revenues of $642 million for the second quarter of 1999 were $30 million or 4 percent lower than the second quarter of 1998 due to decreases in the chemicals, metals, and minerals and machinery sectors, partially offset by increased forest product revenues. Weaknesses in the chemicals sector due to soft fertilizer markets and weaknesses in the metals sector due to increased steel imports and a decrease in special train movements of heavy machinery for Boeing contributed to the decrease. These decreases were partially offset by increased inland shipments of forest products. Intermodal revenues of $603 million for the second quarter of 1999 increased $6 million or 1 percent reflecting increases in the direct marketing and international sectors. Direct marketing revenues benefited from increased units shipped for UPS, less than truckload (LTL) customers and the United States Postal Service. International revenues were up due to new business established with Sealand, NYK, Maersk and K-Line. Coal revenues of $543 million for the second quarter of 1999 decreased $11 million or 2 percent primarily due to traffic congestion in the Powder River Basin and operating difficulties at two utility plants in early 1999, which resulted in plant closures during the second quarter. Agricultural commodities revenues of $287 million for the second quarter of 1999 were $12 million or 4 percent higher than revenues for the second quarter of 1998 due primarily to increased Pacific Northwest corn exports. Automotive revenues of $112 million for the second quarter of 1999 were $11 million or 11 percent higher than the second quarter of 1998 reflecting growth in both vehicle and parts shipments. -8- Expenses Total operating expenses for the second quarter of 1999 were $1,703 million, an increase of $27 million or 2 percent, over second quarter 1998. As discussed above, the Company recorded special items which increased operating expenses $31 million ($19 million after-tax). Excluding the special items, operating expenses for the second quarter of 1999 were $1,672 or slightly lower than the second quarter of 1998. The adjusted operating ratio increased to 76.2 percent for the second quarter of 1999, compared with a 76.0 percent operating ratio for the second quarter 1998. Compensation and benefits expenses of $679 million were $11 million or 2 percent lower than the second quarter of 1998 primarily due to lower employment levels and lower incentive compensation expense. Purchased services of $236 million for the second quarter of 1999 were $17 million or 8 percent higher than the second quarter of 1998 principally due to increased equipment maintenance, intermodal ramping and other costs. Equipment rents expenses for the second quarter of 1999 of $181 million were $22 million or 11 percent lower than the second quarter of 1998 reflecting lower intermodal leased equipment expense and lower leased locomotive expense. Fuel expenses of $169 million for the second quarter of 1999 were $12 million or 7 percent lower than the second quarter of 1998, as a result of a 5 cent or 8 percent decrease in the average all-in cost per gallon of diesel fuel, partially offset by a 2 percent volume driven increase in consumption from 284 million to 289 million gallons. The decrease in the average all-in cost per gallon of diesel fuel includes a 4-cent decrease in the average purchase price and a 1- cent per gallon decrease in losses related to the Company's fuel hedging program. Materials and other expenses of $222 million for the second quarter of 1999 were $44 million or 25 percent higher than the second quarter of 1998 principally reflecting additional environmental expense accruals of $37 million, as discussed above, and higher personal injury and casualties expenses. Interest expense of $98 million for the second quarter of 1999 was $13 million or 15 percent higher than in the second quarter of 1998, reflecting higher debt levels which increased to $6,080 million at June 30, 1999 from $5,225 million at June 30, 1998. Other income (expense), net was unfavorable $8 million compared to second quarter 1998 primarily due to the second quarter 1998 gains of $7 million from the sale of a real estate portfolio. Six months ended June 30, 1999 compared with six months ended June 30, 1998 BNSF recorded net income for the first six months of 1999 of $474 million ($1.00 per share), compared with the first six months of 1998 net income of $542 million ($1.14 per share). The decrease in net income is primarily due to the Company recording pre-tax special items in 1999 of $48 million ($30 million after-tax or $0.06 per share) and $37 million ($23 million after-tax or $0.05 per share) for reorganization costs and environmental expenses, respectively, partially offset by a $54 million ($34 million after-tax or $0.07 per share) credit for the reversal of liabilities associated with the consolidation of certain clerical work-forces and a first quarter 1998 pre-tax gain of $67 million ($32 million after-tax or $0.07 per share) on the sale of substantially all of the Company's interest in Santa Fe Pacific Pipeline Partners, L.P. Excluding the after-tax effects of these items, BNSF's adjusted net income was $493 million ($1.04 per share) and $510 million ($1.07 per share) for the first six months of 1999 and 1998, respectively. The decrease in adjusted net income is primarily due to a decrease in other income (expense), net as discussed below. Revenues The following table presents BNSF's revenue information by commodity for the six months ended June 30, 1999 and 1998 and includes certain reclassifications of prior year information to conform to the current year presentation: -9-
Average Revenue Revenues Cars/Units Per Car/Unit ----------------------- ------------------------ ------------------------- 1999 1998 1999 1998 1999 1998 ---------- ---------- ---------- ---------- ----------- ----------- (In Millions) (In Thousands) Carload $ 1,261 $ 1,292 880 898 $ 1,433 $ 1,439 Intermodal 1,181 1,149 1,503 1,448 786 794 Coal 1,109 1,113 1,041 1,022 1,065 1,089 Agricultural Commodities 597 599 326 327 1,831 1,832 Automotive 220 194 126 118 1,746 1,644 ---------- ---------- ----------- ---------- ----------- ----------- Total Freight Revenues 4,368 4,347 3,876 3,813 $ 1,127 $ 1,140 =========== ========== =========== =========== Other Revenues 16 6 ---------- ---------- Total Operating Revenues $ 4,384 $ 4,353 ========== ==========
Total revenues for the first six months of 1999 were $4,384 million or 1 percent higher compared with revenues of $4,353 million for the first six months of 1998. The increase primarily reflects increases in the intermodal and automotive sectors, partially offset by lower carload, coal, and agricultural commodities revenues. Average revenue per car/unit decreased in the first six months of 1999 to $1,127 from $1,140 in the first six months of 1998. Carload revenues of $1,261 million for the first six months of 1999 were $31 million or 2 percent lower than the first six months of 1998 due to decreases in the chemicals, metals, and minerals and machinery sectors, partially offset by increased forest product revenues. Weaknesses in the chemicals sector due to soft fertilizer markets and weaknesses in the metals sector due to increased steel imports and a decrease in special train movements of heavy machinery for Boeing contributed to the decrease. These decreases were partially offset by increased inland shipments of forest products. Intermodal revenues of $1,181 million for the first six months of 1999 increased $32 million or 3 percent compared with the first six months of 1998 reflecting increases in the direct marketing and international sectors. Direct marketing revenues benefited from increased units shipped for UPS, less than truckload (LTL) customers and the United States Postal Service. International revenues were up due to new business established with Sealand, NYK, Maersk and K-Line. Coal revenues of $1,109 million for the first six months of 1999 were $4 million or slightly lower than the first six months of 1998 primarily due to traffic congestion in the Powder River Basin and operating difficulties at two utility plants in early 1999, which resulted in plant closures during the second quarter. Agricultural commodities revenues of $597 million for the first six months of 1999 were $2 million or slightly lower than revenues for the first six months of 1998 due to poor northern wheat exports, partially offset by increased Pacific Northwest corn exports. Automotive revenues of $220 million for the first six months of 1999 were $26 million or 13 percent higher than the first six months of 1998 reflecting growth in both vehicle and parts shipments. Expenses Total operating expenses for the first six months of 1999 were $3,413 million, an increase of $36 million or 1 percent, over the first six months of 1998. As discussed above, the Company recorded three special items in the second quarter of 1999 which increased operating expenses $31 million ($19 million after-tax). Excluding the special items, operating expenses for the first six months of 1999 were $3,382 or slightly higher than the first six months of 1998. The adjusted operating ratio improved to 77.1 percent for the first six months of 1999, compared with a 77.6 percent operating ratio for the first six months of 1998. Compensation and benefits expenses of $1,369 million were $23 million or 2 percent lower than the first six months of 1998 primarily due to lower employment levels and lower incentive compensation expense. Purchased services of $472 million for the first six months of 1999 were $36 million or 8 percent higher than the first six months of 1998 principally due to increased equipment maintenance, intermodal ramping and other costs. -10- Equipment rents expenses for the first six months of 1999 of $374 million were $20 million or 5 percent lower than the first six months of 1998 reflecting lower intermodal equipment expenses. Fuel expenses of $334 million for the first six months of 1999 were $28 million or 8 percent lower than the first six months of 1998, as a result of a 6 cent or 9 percent decrease in the average all-in cost per gallon of diesel fuel, partially offset by a 2 percent volume driven increase in consumption from 572 million to 582 million gallons. The decrease in the average all-in cost per gallon of diesel fuel includes a 9-cent decrease in the average purchase price, partially offset by a 3-cent per gallon increase in losses related to the Company's fuel hedging program. Materials and other expenses of $429 million for the first six months of 1999 were $43 million or 11 percent higher than the first six months of 1998 principally reflecting additional environmental expense accruals of $37 million as discussed above and higher personal injury and casualties expenses. Interest expense of $192 million for the first six months of 1999 was $19 million or 11 percent higher than in the first six months of 1998, reflecting higher debt levels which increased to $6,080 million at June 30, 1999 from $5,225 million at June 30, 1998. Other income (expense), net was unfavorable by $94 million compared to the first six months of 1998 primarily due to the $67 million pre-tax gain on the sale of substantially all of the Company's interest in Santa Fe Pacific Pipeline Partners, L.P. in the first quarter of 1998, and gains of $26 million from the sale of a real estate portfolio during the first six months of 1998. Capital Resources and Liquidity - ------------------------------- Cash generated from operations is BNSF's principal source of liquidity. BNSF generally funds any additional liquidity requirements through debt issuance, including commercial paper, or leasing of assets. BNSF issues commercial paper from time to time, which is supported by bank revolving credit agreements. Outstanding commercial paper balances are considered as reducing the amount of borrowings available under these agreements. The bank revolving credit agreements, which were renewed and extended effective June 28, 1999, allow borrowings of up to $750 million on a short-term basis and $750 million on a long-term basis. Annual facility fees are currently 0.10 percent and 0.125 percent, respectively, and are subject to change based upon changes in BNSF's senior unsecured debt ratings. Borrowing rates are based upon i) LIBOR plus a spread based upon BNSF's senior unsecured debt ratings, ii) money market rates offered at the option of the lenders, or iii) an alternate base rate. The commitments of the lenders under the short-term agreement are scheduled to expire in June 2000. The commitments of the lenders under the long-term agreement are scheduled to expire in June 2004. At June 30, 1999, there were no borrowings against the revolving credit agreements and the maturity value of commercial paper outstanding was $727 million, leaving a total remaining capacity of $773 million available under the bank revolving credit agreements. OPERATING ACTIVITIES Net cash provided by operating activities was $1,018 million for the six months ended June 30, 1999, compared with $1,001 million for the six months ended June 30, 1998. The increase in cash from operations was primarily due to higher adjusted net income before depreciation and amortization. Other net-operating activities for 1999 include a net accrual of $28 million for all of the special items except $3 million relating to relocations which was reported as a change in accounts payable and other current liabilities (see Note 2: Special Items). INVESTING ACTIVITIES Net cash used for investing activities for the six months ended June 30, 1999, was $1,297 million comprised of $921 million in capital expenditures, as discussed below, and $376 million of other investing activities that primarily reflects the temporary acquisition of equipment which will ultimately be sold and leased back through operating leases. BNSF reduced planned 1999 cash capital expenditures by approximately $250 million to $1.85 billion. The reductions primarily relate to various expansion projects that will be deferred beyond 1999. -11- A breakdown of cash capital expenditures for the six months ended June 30, 1999 and 1998, is set forth in the following table (in millions):
Six Months Ended June 30, 1999 1998 - ------------------------------------------- ------------ ------------- Maintenance of Way $ 392 $ 487 Equipment 342 210 Expansion Projects 114 206 Other 73 49 - ------------------------------------------- ------------ ------------- Total $ 921 $ 952 - ------------------------------------------- ============ =============
Maintenance of Way expenditures for 1999 decreased primarily due to timing of scheduled projects. Equipment expenditures increased in 1999 reflecting higher locomotive purchases. Expansion Project expenditures, principally relating to double and triple tracking of main line track, decreased primarily due to the reduced capital plan. Through June 30, 1999, BNSF has acquired 283 of the 460 locomotives it has committed to acquire in 1999. Remaining locomotive commitments will be financed from one or a combination of sources including, but not limited to, cash from operations, capital or operating leases, and debt issuances. The decision on the method used will depend upon the current market conditions at the time of financing. FINANCING ACTIVITIES Net cash provided by financing activities during the six months of 1999 was $282 million, primarily related to net proceeds from total debt of $629 million and proceeds from stock options exercised of $101 million, partially offset by common stock repurchases of $334 million and dividend payments of $113 million. In February 1999, the Company filed a new shelf registration statement that became effective in March 1999 for the issuance of debt securities, including medium-term notes, which may be issued in one or more series at an aggregate offering price not to exceed $750 million. Additionally, in February 1999, prior to the effective date of the new shelf registration, the Company amended its March 1998 shelf registration to combine it with the February 1999 shelf registration. Subsequently, the Company had $1.1 billion of borrowing capacity available under its shelf registration statement. In March 1999, BNSF issued $200 million of 6.125 percent notes due March 2009 and $200 million of 6.75 percent debentures due March 2029 under the February 1999 shelf registration statement. The net proceeds were used for general corporate purposes including the repayment of commercial paper. During March 1999, at the time of issuing $400 million of debt as discussed above, the Company closed out a $100 million treasury lock transaction at a gain of approximately $8 million which has been deferred and is being amortized to interest expense over the life of the debt. On April 29, 1999, the holder of a call option on $200 million of the Company's puttable reset debentures due 2029 exercised the call option. As a result, on May 13, 1999, the holder repurchased the debentures which were subsequently resold to investors. The interest rate on the debentures was reset to a fixed interest rate of 7.082 percent. The Company did not receive any proceeds from the resale of these debentures; however, the resale of these debentures reduced the amount available for borrowing under the Company's February 1999 shelf registration statement to $500 million. BNSF's ratio of total debt to total capital was 43.4 percent and 41.3 percent at June 30, 1999 and December 31, 1998, respectively. During the first six months of 1999, the Company repurchased 10.1 million shares of its common stock at an average price of $33.10 per share. Since commencing its share repurchase program in January 1998, the Company has repurchased 16.4 million shares at an average cost of $32.28 per share through August 10, 1999. Repurchased shares are available to satisfy future requirements of various stock-based employee compensation programs. In evaluating the timing of share repurchases, management considers many factors including, among other things, economic, market and business conditions and outlook, alternative uses of cash and debt, balance sheet ratios, and stockholder returns. In connection with its share repurchase program, BNSF sold equity put options in April 1999 for 0.1 million shares of BNSF common stock to an independent third party and received cash proceeds of $0.1 million. The option contract has an exercise price of $29.00 per share with an expiration date of October 12, 1999. -12- DIVIDENDS Common stock dividends declared for the six months ended June 30, 1999 and 1998 were $0.24 and $0.20 per share, respectively. Dividends paid on common stock during the first six months of 1999 and 1998 were $113 million and $94 million, respectively. On April 15, 1999, the Board of Directors declared a regular quarterly common stock dividend of 12 cents per share upon its outstanding shares of common stock, $0.01 par value, payable on July 1, 1999, to shareholders of record on June 9, 1999. Other Matters - ------------- Reorganization Costs The Company incurred during the quarter $48 million of reorganization costs for severance, pension, medical and other benefit costs for approximately 325 involuntarily terminated salaried employees that were part of the program announced in May 1999 to reduce operating costs. Components of the charge include approximately $29 million relating to estimated severance costs for salaried employees, approximately $16 million for special termination benefits to be received under the Company's retirement and medical plans, and approximately $3 million of costs incurred for relocating approximately 60 salaried employees as a result of the reorganization. The majority of these costs have not been paid out as of June 30, 1999. The program sought to eliminate approximately 400 salaried and 1,000 scheduled (union) positions. Approximately half of the planned reductions were made by June 30, 1999 with substantially all of the 325 salaried employees eliminated through severance and the remainder of the 400 through the elimination of contractors and normal attrition. The remaining union positions will be substantially eliminated during the third quarter of 1999. No significant costs have been or are anticipated to be incurred as a result of eliminating the 1,000 scheduled positions. Total savings related to the reorganization are expected to be approximately $40 million in the remainder of 1999 and to approximate $100 million on an annual basis. Year 2000 BACKGROUND The Company has established a committee of managers and employees, chaired by the Company's Chief Information Officer, to evaluate and manage the costs and risks associated with becoming Year 2000 compliant and to minimize the impact of the Year 2000 problem on the Company. Because many existing computer programs and microprocessors recognize only the last two digits of years (and not the century designation), they may be unable to accurately recognize and process dates beyond December 31, 1999, and consequently may fail or produce erroneous data. The Year 2000 problem may adversely affect the Company's operations and financial performance if its remediation efforts are not successfully implemented or if the railroads with which the Company connects, critical customers or suppliers fail to become Year 2000 compliant. STATE OF READINESS Year 2000 issues were reviewed in September 1995 following the approval of the merger of the two railroads that now constitute BNSF Railway. The core mainframe systems for the merged railroad were selected in part because they were substantially Year 2000 compliant. These systems integrate all transportation- related activities and computer systems that support BNSF's transportation network, including operations, customer information, and revenue data. This merger-related information systems integration and upgrade activity was substantially completed by July 1997. Following this systems integration, BNSF adopted a three-phase approach to Year 2000: Inventory and Assessment; Remediation; and Certification Testing. Separate teams address technologies administered or maintained by the Information Systems Services department (ISS technologies) and other enterprise-wide products and technologies used by the Company, including embedded microprocessor technology (Enterprise technologies). BNSF has completed the Inventory and Assessment phase for both ISS and Enterprise technologies. During this phase, BNSF inventoried all ISS-administered source code, hardware, software and communications equipment that could be affected by the Year 2000 problem, and identified items potentially needing remediation. In addition, the Enterprise team completed a company-wide audit of Enterprise technologies and associated suppliers and service providers for potential Year 2000 problems. The Remediation phase is more than 98 percent complete. Remediation includes converting source code and replacing or upgrading purchased software and hardware. Remediation is complete for ISS technologies and is expected to be completed by October 1999 for Enterprise technologies. -13- The Certification Testing phase addresses validating the performance of ISS and Enterprise technologies in a Year 2000 test environment. The Certification Testing phase also includes validating Year 2000 compliance for critical third party suppliers and service providers. This phase, which is ongoing, overlaps with the Remediation phase. Certification testing for ISS technologies began in November 1998, with critical applications receiving priority. Certification testing for existing ISS critical applications was completed in July 1999. Testing for all applications is scheduled for completion by the end of September 1999. Certification testing of all critical and non-critical Enterprise technologies began in May 1998 and is scheduled for completion in October 1999. COSTS As a result of its merger-related systems integration that was completed in 1997, BNSF achieved substantial Year 2000 compliance on its core mainframe systems. In addition, spending on Year 2000 activities approximates $12 million to date. Currently, the total cost of achieving Year 2000 compliance for the Company's ISS and Enterprise technologies is estimated to be approximately $16 million. YEAR 2000 RISKS AND CONTINGENCY PLANS Certain BNSF business processes rely on third parties for the efficient functioning of its transportation network. The Association of American Railroads (AAR) administers systems that benefit all North American railroads and their customers, including interline settlement, shipment tracing and waybill processing. BNSF and other AAR-member railroads are participating in a process to test and certify these systems for Year 2000 compliance. The AAR expects that these systems will be compliant and pilot tested by specific carriers by the end of August 1999, with open carrier testing through October 1999. BNSF has developed contingency plans for critical business processes supported by AAR systems. Certain BNSF routes and resulting revenues are dependent on the use of trackage rights over other railroads, including Union Pacific Corporation, Montana Rail Link and the Arizona and California Railroad. Other BNSF traffic may originate or terminate on other carriers' lines or may otherwise involve use of a foreign connection en route. Approximately 60 percent of units handled by BNSF run over BNSF facilities only. BNSF's traffic levels and revenues could be significantly reduced and/or its operational network significantly impaired through congestion and other factors if other railroads are not able to accommodate BNSF trains or interchange traffic for any extended period of time due to Year 2000 problems. However, as a result of its work with other railroads to address Year 2000 problems on an industry-wide basis, management believes that the possibility of extended failures on other railroads is not significant. At present, the Company is in the process of determining which of its larger customers may have Year 2000 problems that could result in reduced traffic for the Company. It is the opinion of management that Year 2000 problems in BNSF's internal information systems and technology infrastructure will not have a materially adverse effect on the results of operations, liquidity or financial position of the Company. However, there can be no assurance that the systems or equipment of other parties which interact with BNSF's systems will be compliant on a timely basis. BNSF believes that the failure of systems or equipment of one or more of its key third parties or customers is the most reasonably likely worst case Year 2000 scenario, and that an extended failure could have a material adverse effect on the results of operations, liquidity or financial position of the Company. Where appropriate, BNSF continues to develop contingency plans in the event that BNSF's key third parties do not become Year 2000 compliant on a timely basis, which effort includes the formalization of existing disaster recovery plans. Other Claims and Litigation BNSF and its subsidiaries are parties to a number of legal actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to environmental matters and personal injury claims. While the final outcome of these items cannot be predicted with certainty, considering among other things the meritorious legal defenses available, it is the opinion of management that none of these items, when finally resolved, will have a material adverse effect on the annual results of operations, financial position or liquidity of BNSF, although an adverse resolution of a number of these items in a single period could have a material adverse effect on the results of operations in a particular quarter or fiscal year. -14- Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities." The Statement is effective for the Company's fiscal year 2001; however, early adoption is permitted. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair value hedge transactions in which the Company is hedging changes in the fair value of an asset, liability or an unrecognized firm commitment, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income to the extent it offsets changes in the cash flows related to the variable rate asset, liability or forecasted transaction, with the difference reported in current period earnings. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified in earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current-period earnings. The Company is currently evaluating SFAS No. 133 and whether it will adopt this pronouncement prior to the effective date. Based on interest rate and fuel hedging instruments outstanding at June 30, 1999, and previously deferred losses from past interest rate hedging transactions, all of which are cash-flow hedge transactions, the Company currently estimates that the impact of SFAS No. 133 would result in a net-of-tax cumulative-effect charge to accumulated other comprehensive deficit of approximately $25 million if adopted June 30, 1999. The Company is presently evaluating the impact SFAS No. 133 will have on its ongoing results of operations. Forward Looking Information The Year 2000 discussion above contains forward-looking statements, including those concerning the Company's plans and estimated completion dates, cost estimates, assessments of Year 2000 readiness of BNSF Railway and third parties, and possible consequences of any failure on the part of the Company or third parties to be Year 2000 compliant on a timely basis. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to, the following: continued availability of qualified personnel to assess, remediate, and test ISS and Enterprise technologies at current estimated costs; emergence of unforeseen software or hardware problems, including where applications interact with each other in ways not anticipated, which could delay or hinder commercial transactions or other operations; the ability to locate and remediate Year 2000 problems with software source code and embedded computer chips in equipment; the failure, in whole or in part, of other railroads or AAR-supported systems to be Year 2000 compliant; the Year 2000 compliance of its business partners and customers and reduced traffic levels due to their failure, in whole or part, to be Year 2000 compliant; business interruption due to delays in obtaining supplies, parts, or equipment from key vendors or suppliers that are affected by Year 2000 problems; the ripple effect of Year 2000-related failures in industries supporting the nation's basic infrastructure, including fuel vendors and pipelines, gas, electric, and water utilities, communications companies, banks and financial institutions, and highway, water, and air transportation systems; and any significant downturn in the general economy, and adverse industry-specific economic conditions at the international, national, and regional levels, wholly or partially caused by Year 2000 problems. To the extent that all other written statements include predictions concerning future operations and results of operations, such statements are forward-looking statements that involve risks and uncertainties, and actual results may differ materially. Factors that could cause actual results to differ materially include, but are not limited to, general economic downturns, which may limit demand and pricing; labor matters, which may affect the costs and feasibility of certain operations; and competition and commodity concentrations, which may affect traffic and pricing levels. -15- Item 3. Quantitative and Qualitative Disclosure About Market Risk In the ordinary course of business, BNSF utilizes various financial instruments which inherently have some degree of market risk. The qualitative and quantitative information presented in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the 1998 Annual Report to Shareholders and in Item 7A of the Company's Annual Report on Form 10- K, as amended, for the year ended December 31, 1998, describes significant aspects of BNSF's financial instrument programs which have material market risk. Presented below is updated quantitative information for those programs that have changed significantly from the information reported in BNSF's Form 10-K, as amended, for the year ended December 31, 1998. COMMODITY PRICE SENSITIVITY As discussed in Note 6 to the Company's consolidated financial statements, BNSF has a program to hedge against fluctuations in the price of its diesel fuel purchases. The table below provides information about BNSF's diesel fuel hedging instruments that are sensitive to changes in diesel fuel prices. The table presents notional amounts in gallons and the weighted average contract price by contractual maturity date as of June 30, 1999. The prices included in the table below do not include taxes, transportation costs, certain other fuel handling costs and any differences which may occur from time to time between the prices of commodities hedged and the purchase price of BNSF's diesel fuel.
June 30, 1999 ------------------------------------------------------------------------- Maturity Date --------------------------------------------- Fair 1999 2000 2001 2002 Total Value (1) --------- -------- ------- ------- ------- ----------- Diesel Fuel Swaps: Gallons (in millions) 454 491 277 101 1,323 $ (47) Weighted average price per gallon $0.48 $0.50 $0.49 $0.50 $0.49 -
(1) Represents unrecognized loss (in millions) based on the price of Gulf Coast #2 heating oil. TREASURY LOCK TRANSACTIONS In anticipation of future debt issuances, BNSF has entered into treasury lock transactions, based on the 10-year and 30-year U.S. treasury rates, as reflected in the following table as of June 30, 1999. The interest rates in the table below exclude a credit spread which will be determined at the time of the actual debt issuance and will be included in the all-in interest rate. Components of the Company's total cost of borrowing include the all-in interest rate and any debt issuance costs.
June 30, 1999 ------------------------------------------ Maturity Date -------------------- Fair 2000 2001 Total Value (1) -------- -------- --------- ---------- Fixed Rate Treasury Locks (in millions) $ 200 $ 200 $400 $44 Average Pay Rate 4.80% 4.84% 4.82% -
(1) Represents unrecognized gains (in millions). PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K A. Exhibits See Index to Exhibits on page E-1 for a description of the exhibits filed as part of this report. B. Reports on Form 8-K The Registrant has filed no Current Reports on Form 8-K since those reported in its Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BURLINGTON NORTHERN SANTA FE CORPORATION (Registrant) By: /s/ Dennis R. Johnson ----------------------------- Dennis R. Johnson Vice President and Controller (On behalf of the Registrant and as principal accounting officer) Fort Worth, Texas August 11, 1999 -17- BURLINGTON NORTHERN SANTA FE CORPORATION Exhibit Index 10.1 The Burlington Northern and Santa Fe Railway Company Severance Plan 10.2 Amendments to the Burlington Northern Santa Fe Estate Enhancement Program 12 Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule for the quarter ended June 30, 1999 EX-10.1 2 BNSF RAILWAY COMPANY SERVERANCE PLAN Exhibit 10.1 Effective January 1, 1998 Amended effective June 1, 1999 THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY SEVERANCE PLAN PURPOSE OF THE PLAN - ------------------- The Burlington Northern and Santa Fe Railway Company Severance Plan ("Plan") is intended to provide separation pay to salaried, exempt employees of The Burlington Northern and Santa Fe Railway Company ("Company") whose employment is terminated by the Company under the circumstances outlined in this Plan. This amended and restated Plan is effective during the period June 1, 1999, through December 31, 1999. After December 31, 1999, the Plan, without further action, shall be amended and restated to read as originally adopted effective January 1, 1998. With the adoption of the Plan, the Company has also terminated all prior severance arrangements adopted by predecessor companies prior to June 1, 1999, except to the extent that an individual is eligible to receive benefits under such program. ELIGIBILITY - ----------- A person shall be an "Eligible Employee" if he or she is an active, regularly assigned, full-time salaried employee not covered by a collective bargaining agreement, who is terminated by the Company for other than Cause, and who executes a general release agreement in the form as established by the Company or the Committee under this Plan; provided, however, an employee who is party to an individual severance agreement with the Company or its affiliates and under which benefits are paid upon termination shall not constitute an Eligible Employee, and provided further that an employee who is terminated as the result of a sale of assets or other corporate divestiture shall not constitute an Eligible Employee. Notwithstanding the foregoing, an employee who does not execute a general release and who otherwise satisfies the requirements of an Eligible Employee shall be entitled to two weeks' Base Salary as severance, but no other benefits under this Plan. On an exception basis, the Company may, in its sole discretion, offer the benefit of this Plan on an individual basis as an inducement to a mutually- agreed termination of employment. DEFINITIONS - ----------- 1. "Credited Service" shall be defined as months of vesting service for which each employee is credited under the BNSF Retirement Plan. A partial month of service shall be credited as a full month. 2. "Base Salary" means the Eligible Employee's highest regular base salary during the 24 month period prior to the date of termination of employment, excluding overtime and bonuses, computed on a weekly basis. -1- 3. "Committee" means a committee comprised of the Senior Vice President Law and Chief of Staff and Vice President- Human Resources. The Committee shall have discretionary authority to administer, to construe and interpret the Plan, to decide all questions of eligibility, to determine the amount, manner and time of payment of any benefits hereunder, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Company or the President of the Company reserves the right to amend or terminate all or any portion of the Plan at any time. 4. "Company" means The Burlington Northern and Santa Fe Railway Company, and its wholly owned subsidiaries which elect to participate. 5. "Severance Allowance" means the total Severance Allowance available to an Eligible Employee pursuant to the Plan. 6. "BNSF Retirement Plan" means the qualified retirement plan maintained by the Company. 7. "Vacation" means the vacation amount as provided under the Company's existing vacation policy. In the event an Eligible Employee has a written agreement providing additional vacation benefits, that agreement will govern. 8. "Cause" shall mean (a) the failure by the employee to substantially perform the assigned duties with the Company in accordance with the standards of the Company (other than any such failure resulting from incapacity due to physical or mental illness), or (b) the willful engaging by the employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, shall be deemed "willful" unless done, or omitted to be done, by the employee not in good faith and without reasonable belief that such action or omission was in the best interest of the Company. DURATION AND TIMETABLE - ---------------------- 1. This Plan shall continue in effect, as amended, through December 31, 1999; provided, however, that commencing on January 1, 2000, and each January 1 thereafter, the Plan shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Board of Directors determines that the Plan shall not be so extended. -2- 2. The Company will determine the date an Eligible Employee's termination will be effective (the "Date of Termination"). In the event an Eligible Employee resigns or otherwise terminates employment with the Company prior to the effective Date of Termination, he/she forfeits all further participation in this Plan. 3. The adoption of this Plan is entirely voluntary on the part of the Company and is not intended nor shall be construed as creating a contract of employment between the Company or its successors and an Eligible Employee, nor be construed as a term of employment. SEVERANCE ALLOWANCE - ------------------- The Plan will provide an Eligible Employee a specified amount of money based upon the Employee's annual salary (excluding bonus) at the time of separation and certain other benefits. The amount of the Severance Allowance will be determined under one of the following schedules: A lump sum allowance in an amount equal to the higher of (1) or (2) 1. One week base salary times years of Credited Service, plus One week base salary per $4,000 of annual base salary, plus One week base salary for each year over 40 years of age. 2. Two weeks' Base Salary times the years of Credited Service. The minimum payment will be eight (8) weeks' Base Salary, and the maximum benefit will be two (2) years' Base Salary. With respect to Eligible Employees who are covered by Northern Lines merger protection, the amount of the severance allowance shall be two times annual Base Salary and such other benefits as are set forth in a special supplement hereto. Notwithstanding the foregoing provisions of this Plan, the amount of any payment provided under this Plan shall be reduced by any similar payment made by the Company required by any federal or state law including but not limited to the Worker Adjustment and Retraining Notification Act with respect to such termination of employment. In addition, notwithstanding the foregoing provisions of the Plan, no Severance Allowance will be paid to an Eligible Employee or his or her spouse or beneficiary if such Employee satisfies each and every requirement of Sections B- 3 and B-7 of Supplement B to the BNSF Retirement Plan. -3- UNPAID LEAVE OF ABSENCE - ----------------------- Eligible Employees who would be eligible to retire under the early retirement provisions of the BNSF Retirement Plan, as of their specified Date of Termination of employment may elect to be placed upon an Unpaid Leave of Absence in lieu of termination of employment until the earlier of the date when the Eligible Employee elects to begin receiving benefits under the BNSF Retirement Plan, the date when the Eligible employee reaches age 65 or the date when the Eligible employee attains 30 years of service at or after age 62; or Eligible Employees whose age and Credited Service when added together total 70, or who are 50 years of age with five (5) years of Credited Service and who are not eligible under the immediately preceding paragraph, may, in lieu of termination of employment, elect to be placed upon an Unpaid Leave of Absence until eligible to commence an early retirement benefit under the BNSF Retirement Plan. An Eligible Employee may, prior to eligibility for benefits hereunder, irrevocably elect to spread his or her Severance Allowance over the period of the Unpaid Leave of Absence for a period of up to two years from the specified Date of Termination provided such election is made prior to the specified date of termination and in accordance with such restrictions as the Committee may impose. In the event the Eligible Employee terminates his employment, any remaining amounts due shall be paid in a lump sum. To the extent consistent with applicable requirements of the Internal Revenue Code and Treasury Regulations and subject to the limitations set forth below under the IRS LIMITATIONS section of this Plan, an Eligible Employee who --------------- elects to be placed upon Unpaid Leave of Absence will continue to accrue benefit and vesting service under the BNSF Retirement Plan to the extent consistent with applicable IRS requirements. If the Employee elects the Unpaid Leave of Absence, there are other special rules applicable as described below. Notwithstanding the foregoing provisions of the Plan, no Eligible Employee who satisfies each and every requirement of Sections B-3 and B-7 of Supplement B to the BNSF Retirement Plan will be eligible for an Unpaid Leave of Absence as described above. TIME AND METHOD OF PAYMENT - -------------------------- The time and method of payment of a Severance Allowance will be determined by the Company. Severance Allowance payments will be subject to withholdings for Federal Income Tax, State Income Tax where applicable, and Railroad Retirement Tax and other appropriate deductions, but shall not constitute compensation under any Company retirement plan. Generally, a Severance Allowance will be paid or commence to be paid within 30 days after the Date of Termination. -4- BENEFITS - -------- All welfare benefits and participation in compensation plans shall cease upon your date of termination or the date your unpaid leave commences, whichever is earlier, except as described below. GROUP INSURANCE BENEFITS - ------------------------ The Company will pay the premiums for medical and dental "Continuation Coverage" under the Consolidated Omnibus Budget Reconciliation Act ("COBRA") for the Employee for 24 months following the Date of Termination. If the Employee has elected medical and dental coverage for the Employee's eligible dependents immediately prior to the Date of Termination, then the Company will pay the premiums for medical and dental Continuation Coverage under COBRA for the Employee's eligible dependents for 24 months following the Date of Termination. Coverage will terminate when an individual is covered for substantially similar benefits under another group medical or dental plan. The coverage provided above shall constitute employer-paid COBRA coverage. An Eligible Employee who receives group medical and dental benefits as described above for a period in excess of 18 months shall have no right to additional Continuation Coverage under COBRA except to the extent that a divorced, surviving spouse or dependent child reaching the limiting age may be eligible for additional "continuation coverage" as provided by law. If an Eligible Employee elects to be placed on an Unpaid Leave of Absence, the Eligible Employee will at the end of the 24 month period referred to above, be eligible to elect to commence retiree medical (but not dental) coverage under the retiree medical plan for which the Eligible Employee would have become eligible. If the Employee does not elect retiree medical coverage at the end of the 24 month period, the Employee will be eligible for retiree medical coverage on the Employee's retirement date at the conclusion of the Unpaid Leave of Absence, (or, if a special benefit is paid under the IRS LIMITATIONS section of --------------- this Plan, what would have been the conclusion of the Unpaid Leave of Absence). If an Eligible Employee does not qualify for group life insurance as a retiree under the BNSF Group Life Insurance Plan, a conversion privilege for employee life insurance will be provided within 31 days of the date coverage ceases. As of the effective date of receipt of retirement benefits under Supplement B to the BNSF Retirement Plan, the Company will pay the premiums for medical and dental coverage for the Employee for 24 months following the Date of Termination. If the Employee has elected medical and dental coverage for the Employee's eligible dependents immediately prior to the Date of Termination, then the Company will pay the premiums for medical and dental coverage for the Employee's eligible dependents for 24 months following the Date of Termination; thereafter, medical (but not dental) benefits may be continued by the Employee as an eligible retiree of BNSF under the terms described in the Express Options Benefits Handbook. -5- As of the effective date of receipt of retirement benefits under Supplement B to the BNSF Retirement Plan, life insurance benefits may be continued by the Employee as an eligible retiree of BNSF under the terms described in the Express Options Benefits Handbook. All other benefits will terminate as of June 30, 1999. INVESTMENT AND RETIREMENT PLAN - ------------------------------ In accordance with the terms of the Burlington Northern Santa Fe Investment and Retirement Plan, Eligible Employees may elect to keep their accounts in the Plan or receive their accounts upon termination; however, Eligible Employees on an Unpaid Leave of Absence will not be eligible for a distribution until the termination of the Unpaid Leave of Absence, and loan payments will be required to be made while on leave. If the Eligible Employee leaves his/her account in the plan until January 31 of the year following termination, an additional Company match may be available consistent with the terms of the Investment and Retirement Plan in effect at such time. STOCK PLANS - ----------- If the Eligible Employee is terminated under this Plan, stock options will become exercisable in an amount and for the limited period of time set forth in the applicable stock plan. Under the BNSF 1996 and 1999 Stock Incentive Plans, stock options will be prorated based upon the Date of Termination and exercisable for three months as described in the plan, provided, however, that if an Eligible Employee commences benefits under the BNSF Retirement Plan immediately subsequent to the Employee's Date of Termination, then the Employee's termination shall be treated as having occurred by reason of retirement for purposes of the BNSF 1996 and 1999 Stock Incentive Plans. If the Eligible Employee elects an Unpaid Leave of Absence, stock options will be treated as if the Eligible Employee had terminated, i.e., options will not continue to vest, will be prorated, and will be exercisable for a limited period of time as if the Eligible Employee had terminated on the date leave commenced. INCENTIVE PAYMENTS - ------------------ An Eligible Employee shall be entitled to a pro rata ICP payment based upon the date of termination or the day the Unpaid Leave of Absence commences and based upon Company performance. The ICP payment will be made at the same time active employees receive their payments. VACATION - -------- Accrued and earned vacation will be paid in a lump sum following the date of termination or the date the Unpaid Leave of Absence commences. -6- OUTPLACEMENT COUNSELING - ----------------------- The Company may provide at times and places specified outplacement counseling as designated by the Company to Eligible Employees terminated due to reorganization. The Company will have sole discretion in selection of the outside vendor and services to be provided. IRS LIMITATIONS - --------------- Notwithstanding the foregoing provisions of the Plan, no Unpaid Leave of Absence shall extend beyond the time such that the additional Benefit Service under the BNSF Retirement Plan resulting therefrom would cause the BNSF Retirement plan to fail to meet the requirements of Sections 401(a)(4) and 410(b) of the Internal Revenue Code in the calendar year of the Eligible Employee's Date of Termination based on all benefit service for the period of the Unpaid Leave of Absence being accrued immediately in that calendar year. For purposes of determining compliance with such requirements, each highly compensated employee (as defined in Section 414(q) of the Code) shall constitute a rate group. For purposes of determining whether an employee is a highly compensated employee under Section 414(q)(1)(B)(ii) of the Code, the employer shall make the election which results in the least reductions in Unpaid Leaves of Absence under this paragraph. The Plan will provide to those Eligible Employees who elect to be placed on an Unpaid Leave of Absence pursuant to the preceding provisions of this Plan but whose Unpaid Leave of Absence is limited because of the immediately preceding paragraph a special benefit to be paid in the form of a lump sum equal to the present value (computed in accordance with the procedures set forth in Section 9.02 (g) of the BNSF Retirement Plan) of the difference, if any, between the Eligible Employee's actual retirement benefit under the BNSF Retirement Plan and the amount of such Employee's retirement benefit under the BNSF Retirement Plan computed without regard to the reduction in such Employee's Unpaid Leave of Absence necessitated by the immediately preceding paragraph, but only to the extent that such amount is not paid pursuant to the Burlington Northern Santa Fe Supplemental Retirement Plan or any other non-qualified deferred compensation plan maintained by the Company. The amount of the special benefit described in this paragraph shall be paid upon the expiration of the Employee's actual Unpaid Leave of Absence. The Plan will provide to those Eligible Employees who, as of such date as is specified by the Company, satisfy each and every requirement of Sections B-3 and B-7 of Supplement B to the BNSF Retirement Plan a special benefit to be paid in the form of a lump sum equal to the present value (computed in accordance with the procedures set forth in Section 9.02 (g) of the BNSF Retirement Plan) of the difference, if any, between the Eligible Employee's actual early retirement window benefit and the amount of such Employee's early retirement window benefit without the application of Paragraph B-6(11) of Supplement B, but only to the extent that such amount is not paid pursuant to the Burlington Northern Santa Fe Supplemental Retirement Plan or any other non-qualified deferred compensation plan maintained by the Company. -7- CLAIM REVIEW PROCEDURE - ---------------------- 1. All inquiries concerning claims under the Plan shall be submitted to the Company and shall be addressed as follows: Mr. Ricci L. Gardner, Vice President-Human Resources, BNSF, 2650 Lou Menk Drive, Fort Worth, Texas, 76131. In the event that any claim for benefits is denied in whole or in part, the Company shall notify the claimant in writing of such denial and shall advise the claimant of his or her right to a review thereof. Such written notice shall set forth, in a manner calculated to be understood by the claimant, specific reasons for such denial, specific references to the Plan provisions on which such denial is based, a description of any information or material necessary for the claimant to perfect the claim, an explanation of why such material is necessary and an explanation of the Plan's review procedure. Such written notice shall be given to the claimant within a reasonable period of time after the claim is filed with the Company. 2. Any person or his or her duly authorized representative, whose claim for benefits is denied in whole or in part may appeal from such denial by submitting to the Company a request for a review of the claim within 60 days after receiving written notice of such denial from the Company. The Company shall give the claimant an opportunity to review pertinent documents in preparing his or her request for review. 3. The request for review must be in writing and shall be addressed as follows: Mr. Ricci Gardner, Vice President-Human Resources, BNSF, 2650 Lou Menk Drive, Fort Worth, Texas 76131. The request for review shall set forth all of the grounds upon which it is based, all facts and support thereof and any other matters which the claimant deems pertinent. The Company may require the claimant to submit such additional facts, documents or other material as the Company may deem necessary or appropriate in making its review. 4. The Company shall act upon each request for review within 60 days after receipt thereof unless special circumstances require further time for processing, but in no event shall the decision on review be rendered more than 120 days after the Company receives the request for review. 5. The Company shall give written notice of its decision to the claimant. In the event that the Company confirms the denial of application for benefits in whole or in part, such notice shall set forth, in a manner calculated to be understood by the claimant, the specific reasons for such denial and specific references to the Plan provisions on which the decision is based. -8- ERISA REQUIREMENTS - ------------------ The following paragraphs contain specific information required by the Employee Retirement Income Security Act of 1974 (ERISA): The name of the Plan is The Burlington Northern and Santa Fe Railway Company Severance Plan. The Sponsor of the Plan is: The Burlington Northern and Santa Fe Railway Company 2650 Lou Menk Drive Fort Worth, Texas 76131 The administrator of the plan is the Committee. The Committee can be contacted by writing: The BNSF Severance Plan Committee c/o Mr. Ricci L. Gardner 2650 Lou Menk Drive Fort Worth, Texas 76131 The Plan Administrator may be contacted by calling (817) 352-6009. Mr. Jeffrey Moreland, Senior Vice President-Law and Chief of Staff, The Burlington Northern and Santa Fe Railway Company, 1700 East Golf Road, Schaumburg, Illinois 60173, is designated as agent for legal process. Service of legal process may also be made upon written request to the Plan Administrator. The Employer Identification Number (EIN) assigned by the Internal Revenue Service is 41-6034000. Severance benefits under the Plan are paid from the general assets of the Company. You are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all plan participants shall be entitled to: examine, without charge at the office of the Plan Administrator, all plan documents and copies of all documents filed by the plan with the U.S. Department of Labor, such as detailed annual reports and plan descriptions. obtain copies of all plan documents and other plan information upon written request to the Plan Administrator. The administrator may make a reasonable charge for the copies. receive a summary of the plan's annual financial report. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report. -9- In addition to creating rights for plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your plan, called "fiduciaries" of the plan, have the duty to do so prudently and in the interest of you and other plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for a welfare benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have a right to have the plan reviewed and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that plan fiduciaries misuse the plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U. S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees; for example, if it finds your claim is frivolous. If you have any questions about your plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. DISCLAIMER - ---------- This plan is set forth in this summary plan description is not a condition of employment nor is it intended to be and does not constitute a contract of employment and all participants are employees at the will of the Company. -10- EX-10.2 3 BNSF ESTATE ENHANCEMENT PROGRAM EXHIBIT 10.2 BURLINGTON NORTHERN SANTA FE CORPORATION AMENDMENT OF THE BURLINGTON NORTHERN SANTA FE ESTATE ENHANCEMENT PROGRAM ----------------------------------- WHEREAS, the Board of Directors of Burlington Northern Santa Fe Corporation ("Company") adopted the Burlington Northern Santa Fe Estate Enhancement Program ("Program") on April 18, 1996; WHEREAS, pursuant to Section 6.1 of the Plan, the Plan may be amended by the Company; and WHEREAS, the Compensation Committee of the Board of Directors has recommended the amendment of the Program; NOW THEREFORE, IT IS RESOLVED, that the Program be amended as set forth below: 1. Section 3.6 shall be deleted in its entirety and replaced by the following: 3.6 Election to Forego Salary. As a condition of participating ------------------------- in this Plan, each Participant will be required to make a one-time irrevocable election to forego a specified portion of his salary for each 12-month period beginning on and after the Policy Date of the Policy (as defined in the Policy), with such election to remain in effect until the first to occur of (a) the date which is the third (3rd), fourth (4th), or fifth (5th) annual anniversary of the Policy Date, based upon Participant's deferral election hereunder, (b) the date on which the Participant terminates employment with the Company or Subsidiary, or (c) the date on which the related Split-Dollar Agreement terminates in accordance with subsection 4.8. The Participant shall make such election by execution of an "Agreement to Forego Salary" prior to the Policy Date, which agreement shall specify a level dollar amount of salary which the Participant elects to forego during each such 12-month period, which dollar amount will be at least $50,000 and no more than $150,000 for each 12-month period. The amounts which a Participant agrees to forego pursuant to this subsection 3.6 shall be included in determining the amounts of the Participant's "compensation" under any nonqualified supplemental pension plan or group life insurance plan maintained by the Company but shall be disregarded for purposes of all other plans or arrangements maintained by the Company and the Subsidiaries. If the Participant's election to forego salary is no longer in effect because of his termination of employment with the Company or Subsidiary as described in (b) of this subsection 3.6, and such termination is for a reason other than the Participant's disability (as determined by the Plan Administrator) or death, then, in accordance with subsection 4.4(c), the Owner will be required to pay to the Company, as part of the Owner's Policy Year Contribution to Premium for the remainder of the Policy Year in which such termination occurs and for each succeeding Policy Year until the date that is three (3), four (4), or five (5) years after the Policy Date, based upon Participant's deferral election hereunder, an amount equal to the level amount of salary which the Participant had elected to forego for a 12-month period under this subsection 3.6. (such amount to be pro-rated for payments made for the remainder of the Policy year in which the termination of employment occurs), reduced by thirty-five percent (35%), each such reduced amount hereinafter referred to as the "Owner's Special Contribution". 2. Section 4.4 shall be amended by deleting the phrase "five (5) years" where it twice appears in the last sentence thereof and inserting "three (3), four (4), or five (5) years based upon Participant's deferral election under Section 3.6" in its stead. 3. Sections 4.8(a)(ii), 4.8(a)(iii), 4.8(a)(iv), 4.8(b)(i), 4.8(b)(ii), 4.8(b)(iii), 4.8(b)(iv) shall be amended by deleting the phrase "five (5) years" wherever it appears therein and inserting "three (3), four (4), or five (5) years based upon Participant's deferral election under Section 3.6" in its stead. FURTHER RESOLVED, that each of the Secretary and other officers of the Company are authorized and empowered by and on behalf and in the name of the Company to do and perform, or cause to be done and performed, all such acts, deeds and things and to make, execute, and deliver, or cause to be made, executed, and delivered, all such agreements, undertakings, documents, instruments, or certificates, as each such officer may deem necessary or appropriate to effectuate or carry out fully the purpose and intent of the foregoing resolutions. Fort Worth, Texas December 3, 1998 EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 BURLINGTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES COMPUTATION of RATIO of EARNINGS to FIXED CHARGES (In Millions, Except Ratio Amounts) (Unaudited)
Six Months Ended June 30, -------------------------------- 1999 1998 ------------- ------------- Earnings: Pre-tax income $ 758 $ 876 Add: Interest and fixed charges, excluding capitalized interest 192 173 Portion of rent under long-term operating leases representative of an interest factor 93 94 Amortization of capitalized interest 2 2 Less: Undistributed equity in earnings of investments accounted for under the equity method 9 8 ------------- ------------- Total earnings available for fixed charges $ 1,036 $ 1,137 ============= ============= Fixed charges: Interest and fixed charges $ 198 $ 180 Portion of rent under long-term operating leases representative of an interest factor 93 94 ------------- ------------- Total fixed charges $ 291 $ 274 ============= ============= Ratio of earnings to fixed charges 3.56x (1) 4.15x (2)
(1) Earnings for the six months ended June 30, 1999 include pre-tax special items of $48 million and $37 million for reorganization costs and environmental expenses, respectively, partially offset by a $54 million credit for the reversal of liabilities associated with the consolidation of certain clerical work-forces. Excluding the special items, the ratio for the six months ended June 30, 1999 would have been 3.67x. (2) Earnings for the six months ended June 30, 1998 include a pre-tax gain on the pipeline partnerships sale of $67 million. Excluding this gain, the ratio for the three months ended June 30, 1998 would have been 3.91x. EX-27 5 FINANCIAL DATA SCHEDULE FOR QE 6/30/99
5 This schedule contains summary financial information extracted from Burlington Northern Santa Fe Corporation's Consolidated Financial Statements and is qualified in its entirety by reference to such financial statements. 0000934612 BURLINGTON NORTHERN SANTA FE CORPORATION 1,000,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 28 0 566 80 244 1,116 26,492 5,309 23,480 2,029 5,917 0 0 5 7,928 23,480 0 4,384 0 3,413 0 0 192 758 284 474 0 0 0 474 1.01 1.00
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