-----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, VCo/BbcXg1Onyt3wp1DG7TD6X1++R1pz25XoBf0XjXXcBHzw8lsdO0x8++gAfntu zHl82UcYdlobqw+Wsplilg== 0000950131-99-001997.txt : 19990402 0000950131-99-001997.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950131-99-001997 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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-K SEC ACT: SEC FILE NUMBER: 001-11535 FILM NUMBER: 99583161 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-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto __________ __________ Commission File Number: 1-11535 ---------------- Burlington Northern Santa Fe Corporation (Exact name of registrant as specified in its charter) Delaware 41-1804964 (State of Incorporation) (I.R.S. Employer Identification No.) 2650 Lou Menk Drive Second Floor Fort Worth, Texas 76131-2830 (Address of principal executive offices, including zip code) 817/333-2000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- --------------------- New York Stock Exchange Common Stock, $0.01 par value Chicago Stock Exchange Pacific Exchange
---------------- Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $15.7 billion on February 26, 1999. For purposes of this calculation only, the registrant has excluded stock beneficially owned by directors and officers. By doing so, the registrant does not admit that such persons are affiliates within the meaning of Rule 405 under the Securities Act of 1933 or for any other purpose. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 470,373,788 shares outstanding as of February 26, 1999. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the documents from which parts thereof have been incorporated by reference and the part of the Form 10-K into which such information is incorporated: Annual Report to Shareholders for the fiscal year ended December 31, 1998... PARTS I, II, AND IV Proxy Statement dated March 8, 1999.... PART III
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Page ---- PART I Items 1 and 2. Business and Properties.................................... 1 Item 3. Legal Proceedings................................................. 9 Item 4. Submission of Matters to a Vote of Security Holders............... 13 EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................................................. 14 Item 6. Selected Financial Data........................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 14 Item 8. Financial Statements and Supplementary Data....................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................... 17 PART III Item 10. Directors and Executive Officers of the Registrant............... 18 Item 11. Executive Compensation........................................... 18 Item 12. Security Ownership of Certain Beneficial Owners and Management... 18 Item 13. Certain Relationships and Related Transactions................... 18 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 18 SIGNATURES................................................................ S-1 REPORT OF INDEPENDENT ACCOUNTANTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE................................................................. F-1 EXHIBITS.................................................................. E-1
i PART I ITEMS 1 and 2. Business and Properties Burlington Northern Santa Fe Corporation ("BNSF") was incorporated in the State of Delaware on December 16, 1994. On September 22, 1995, the stockholders of Burlington Northern Inc. ("BNI") and Santa Fe Pacific Corporation ("SFP") became the stockholders of BNSF pursuant to a business combination of the two companies. To effect the combination, BNSF was formed to act as the parent holding company of BNI and SFP. BNI and SFP each owned a large, Class I railroad: Burlington Northern Railroad Company ("BNRR") and The Atchison, Topeka and Santa Fe Railway Company ("ATSF"), respectively. On December 30, 1996, BNI merged with and into SFP. On December 31, 1996, ATSF merged with and into BNRR, and BNRR changed its name to The Burlington Northern and Santa Fe Railway Company ("BNSF Railway"). On January 2, 1998, SFP merged with and into BNSF Railway. Through March 6, 1998, BNSF also had an equity interest in Santa Fe Pacific Pipeline Partners, L.P. and its operating subsidiary, which operated a 3,300- mile refined petroleum products pipeline system in six western and southwestern states, substantially all of which interest has now been sold. See the discussion in Note 2 to the Consolidated Financial Statements on pages 30-31 of BNSF's 1998 Annual Report to Shareholders, which information is hereby incorporated by reference. Through its subsidiaries, BNSF is engaged primarily in the rail transportation business. At December 31, 1998, BNSF and its subsidiaries had approximately 42,900 employees. The rail operations of BNSF Railway, BNSF's principal operating subsidiary, comprise one of the largest railroad systems in the United States. BNSF Railway's business and operations are described below. Track Configuration BNSF Railway operates over a railroad system consisting of, at December 31, 1998, approximately 34,000 route miles of track (excluding, among other things, second main track), approximately 25,000 miles of which are owned route miles, including easements, through 28 states and two Canadian provinces. Approximately 7,700 route miles of BNSF Railway's system consist of trackage rights which permit BNSF Railway to operate its trains with its crews over another railroad's tracks. BNSF Railway operates over other trackage through lease or contractual arrangements. As of December 31, 1998, the total BNSF Railway system--including first, second, third and fourth main tracks, yard tracks, and sidings--consisted of approximately 51,000 operated miles of track, all of which were owned by or held under easement by BNSF Railway except for approximately 8,500 miles operated under trackage rights agreements with other parties. At December 31, 1998, approximately 27,000 miles of BNSF Railway's track consisted of 112- pound per yard or heavier rail, including approximately 18,800 track miles of 131-pound per yard or heavier rail. Equipment Configuration BNSF Railway owned or had under non-cancelable leases exceeding one year the following units of railroad rolling stock as of the dates shown below:
At December 31, 1998 -------------------- 1998 1997 1996 ------ ------ ------ Diesel Locomotives................................... 4,992 4,697 4,434 ====== ====== ====== Freight Cars: Box--general purpose............................... 948 1,042 1,082 Box--specially equipped............................ 10,295 10,533 10,719 Open Hopper........................................ 10,772 10,617 10,430 Covered Hopper..................................... 44,643 43,145 44,112 Gondola............................................ 12,427 11,845 11,714 Refrigerator....................................... 6,476 6,606 6,817 Autorack........................................... 3,304 3,588 3,597 Flat............................................... 6,289 5,454 5,508 Tank............................................... 489 491 493 Caboose............................................ 351 389 451 Other.............................................. 729 732 732 ------ ------ ------ Total Freight Cars................................. 96,723 94,442 95,655 ====== ====== ====== Domestic Containers.................................. 9,849 15,513 15,595 Trailers............................................. 2,410 721 821 Domestic Chassis..................................... 9,409 5,152 5,273 Company Service Cars................................. 4,685 5,196 6,140 Commuter Passenger Cars.............................. 141 141 141
In addition to the containers, trailers, and chassis shown above, BNSF Railway had under short-term leases 12,269 containers, 3,101 trailers, and 15,623 chassis at December 31, 1998. In addition to the owned and leased locomotives identified above, BNSF Railway operated 99 freight locomotives under power-purchase agreements as of December 31, 1998. The average age from date of manufacture of the locomotive fleet at December 31, 1998 was 10.63 years; the average age from date of manufacture or remanufacture of the freight car fleet at December 31, 1998 was 20.78 years. These averages are not weighted to reflect the greater capacities of the newer equipment. Capital Expenditures and Maintenance BNSF Railway capital expenditures for the periods indicated were as follows:
Year Ended December 31, -------------------- 1998 1997 1996 ------ ------ ------ (in millions) Maintenance of Way Rail.............................................. $ 238 $ 286 $ 188 Ties.............................................. 220 230 191 Surfacing......................................... 136 124 130 Other............................................. 323 334 345 ------ ------ ------ Total Maintenance of Way........................ 917 974 854 Equipment........................................... 583 572 544 Terminal and Line Expansion......................... 488 428 439 Other............................................... 159 208 445 ------ ------ ------ Total Capital Expenditures.......................... 2,147 2,182 2,282 Less Non-Cash Capital Expenditures(1)............... -- -- 48 ------ ------ ------ Net Cash Capital Expenditures....................... $2,147 $2,182 $2,234 ====== ====== ======
- -------- (1) Consists primarily of directly financed equipment acquisitions. 2 The above table does not include expenditures for equipment financed through operating leases (principally, locomotives and rolling stock). BNSF's planned 1999 cash capital expenditures approximate $2.1 billion, although up to $150 million primarily related to expansion projects may be deferred. Approximately $1.3 billion of total expenditures will be for maintenance of business activities, primarily consisting of expenditures to maintain BNSF's track, signals, bridges and tunnels, and to overhaul locomotives and freight cars. The remainder will be spent on terminal and line expansions and other projects, and on approximately $335 million of new locomotive acquisitions. In addition to the capital expenditures on new locomotives, BNSF Railway expects to acquire approximately $400 million of new locomotives through long-term operating leases in 1999. As of December 31, 1998, General Electric Company, the Electro-Motive Division of General Motors Corporation, and Boise Locomotive Corporation performed locomotive maintenance and overhauls for BNSF Railway under various maintenance agreements that covered approximately 2,300 locomotives. These agreements require the work to be done at BNSF Railway's facilities using BNSF Railway employees. The majority of maintenance of way expenditures for track have been for rail and tie refurbishment and track resurfacing. The extent of the BNSF Railway track maintenance program is depicted in the following table:
Year Ended December 31, -------------------- 1998 1997 1996 ------ ------ ------ Track miles of rail laid (1)......................... 1,029 1,035 1,139 Cross ties inserted (thousands)(1)................... 2,440 2,941 3,768 Track resurfaced (miles)............................. 12,383 12,430 12,033
- -------- (1) Includes expenditures for both maintenance of existing route system and expansion projects. These expenditures are primarily capitalized. BNSF Railway's planned 1999 track maintenance of way program, together with expansion projects, calls for the installation of approximately 800 track miles of rail, the replacement of about 2.4 million ties and the resurfacing of approximately 12,500 miles of track. Property and Facilities BNSF Railway operates facilities and equipment to maintain its track, locomotives and freight cars. It also owns or leases other equipment to support rail operations, such as highway trailers, containers and vehicles. Support facilities for rail operations include yards and terminals throughout its rail network, system locomotive shops to perform locomotive servicing and maintenance, a centralized network operations center for train dispatching and network operations monitoring and management in Fort Worth, Texas, computers, telecommunications equipment, signal systems, and other support systems. Transfer facilities are maintained for rail-to-rail as well as intermodal transfer of containers, trailers and other freight traffic. These facilities include 38 major intermodal hubs located across the system and 11 intermodal hub centers off-line used in connection with haulage agreements with other railroads. BNSF Railway's largest intermodal facilities in terms of 1998 volume are:
Intermodal Facilities Units --------------------- ------- Hobart Yard (Los Angeles)......................................... 937,000 Corwith Yard (Chicago)............................................ 728,000 Willow Springs.................................................... 637,000 Chicago Hub Center................................................ 426,000 Alliance.......................................................... 377,000 San Bernardino.................................................... 302,000 Seattle International Gateway (SIG)............................... 292,000
3 BNSF Railway owns 27 automotive distribution facilities where automobiles are loaded or unloaded from multi-level rail cars and serves eight port facilities in the United States and Canada. BNSF Railway's largest freight car classification yards based on the average daily number of cars processed (excluding cars that do not change trains at the terminal and intermodal and coal cars) are shown below:
Daily Average Classification Yard Cars Processed ------------------- -------------- Argentine (Kansas)......................................... 1,690 Galesburg (Illinois)....................................... 1,450 Northtown (Minnesota)...................................... 1,400 Memphis (Tennessee)........................................ 1,200 Barstow (California)....................................... 1,170 Pasco (Washington)......................................... 1,080
Certain BNSF Railway properties and other assets are subject to liens securing, as of December 31, 1998, $498 million of mortgage debt. Certain locomotives and rolling stock of BNSF Railway are subject to equipment obligations, as referred to in Note 8 to the Consolidated Financial Statements on pages 32-33 of BNSF's 1998 Annual Report to Shareholders, which information is hereby incorporated by reference. Employees and Labor Relations Productivity as measured by revenue ton miles per employee has risen steadily in the last three years, while compensation and benefits expense per revenue ton mile decreased from 1997 to 1998, and increased from 1996 to 1997, as shown in the table below.
Year Ended December 31, ------------------ 1998 1997 1996 ------ ----- ----- Thousand revenue ton-miles divided by average number of employees.................................................. 10,576 9,769 9,398 Compensation and benefits expense per thousand revenue ton- miles...................................................... $6.00 $6.30 $6.23
Approximately 88 percent of BNSF Railway employees are union-represented. They work under collective bargaining agreements with 13 different labor organizations. The collective bargaining agreements reached in 1996 and 1997 as a result of industry-wide and certain local labor contract negotiations will remain in effect through at least December 31, 1999 and until new agreements are reached or the Railway Labor Act's procedures (which include mediation, cooling-off periods, and the possibility of Presidential intervention) are exhausted. Railroad industry personnel are covered by the Railroad Retirement System instead of Social Security. BNSF Railway's contributions under the Railroad Retirement System are approximately triple those in industries covered by Social Security. Railroad industry personnel are also covered by the Federal Employers' Liability Act ("FELA") rather than by state workers' compensation systems. FELA is a fault-based system, with compensation for injuries settled by negotiation and litigation, not subject to specific statutory limitations on the amount of recovery. By contrast, most other industries are covered under state-administered no-fault plans with standard compensation schedules. BNSF Railway believes it has adequate recorded liabilities for its FELA claims. However, the ultimate costs of these FELA claims are uncertain and the actual costs could be significantly higher than anticipated. Business Mix In serving the Midwest, Pacific Northwest and the Western, Southwestern, and Southeastern regions and ports of the country, BNSF Railway transports, through one operating transportation services segment, a range of commodities derived from manufacturing, agricultural, and natural resource industries. Accordingly, its financial performance is influenced by, among other things, general and industry economic conditions at the international, national, and regional levels. 4 Major markets served directly by BNSF Railway include Albuquerque, Amarillo, Billings, Birmingham, Cheyenne, Chicago, Corpus Christi, Dallas, Denver, Des Moines, Duluth/Superior, El Paso, Fargo/Moorhead, Fort Worth, Galveston, Houston, Kansas City, Lincoln, Little Rock, Los Angeles, Memphis, Mobile, New Orleans, Oklahoma City, Omaha, Phoenix, Portland, Reno, Salt Lake City, San Antonio, the San Francisco Bay area, St. Louis, St. Paul/Minneapolis, Seattle, Spokane, Springfield (Missouri), Tacoma, Tulsa, Wichita, Vancouver (British Columbia), and Winnipeg (Manitoba). Other major cities are served through Intermodal Market Extension terminals located at various off-line points. Major ports served include Galveston, Houston, Long Beach, Los Angeles, New Orleans, Mobile, Portland, Richmond (Oakland), San Diego, Seattle, Duluth/Superior, Tacoma and Vancouver (British Columbia). Canadian traffic is accessed through border crossings in Minnesota, North Dakota, Montana, and Washington. BNSF Railway also accesses the Mexican market through the United States/Mexico crossings at Brownsville, Eagle Pass and El Paso, Texas and San Diego, California and, through an agreement with the Texas Mexican Railway Company, reaches Laredo, Texas, a major border crossing point. In 1998, approximately 28 percent of revenues were derived from Intermodal traffic and approximately 25 percent were derived from the transportation of Coal. About 12 percent of 1998 revenues reflected the transportation of Agricultural Commodities, with the balance largely accounted for by the Chemicals, Metals and Minerals, Forest Products, Consumer Goods, and Automotive business groups. Intermodal. The Intermodal freight business consists of the hauling of freight containers or truck trailers by combinations of water, rail, or motor carriers. The intermodal business is highly service-driven, and in many cases motor carriers and railroads work jointly to provide intermodal service. Intermodal 1998 results include revenue from four types of business: . Direct Marketing. Direct marketing efforts resulted in approximately 33 percent of total intermodal revenue. These center around traffic contracted from United Parcel Service and the United States Postal Service, and service for nationwide LTL (Less-Than-Truckload) carriers including Yellow Freight, Roadway Express, and Consolidated Freightways. . International. International business consists primarily of traffic from steamship companies and accounted for approximately 29 percent of intermodal revenues. . Intermodal Marketing Companies. Approximately 22 percent of total intermodal revenue was generated through intermodal marketing companies, primarily shipper agents and consolidators. . Truckload. Truckload traffic represented approximately 16 percent of total intermodal revenue. The joint service arrangement with J.B. Hunt, referred to as Quantum, represented the largest truckload component, while Schneider National was the next largest. Coal. Based on carloadings and tons hauled, BNSF Railway is the largest transporter of western low-sulfur coal in the United States. Approximately 90 percent of BNSF Railway's coal traffic originated in the Powder River Basin of Wyoming and Montana during the three years ended December 31, 1998. These coal shipments were destined for coal-fired electric generating stations located primarily in the North Central, South Central and Mountain regions of the United States. BNSF Railway also transports increasing amounts of low-sulfur coal from the Powder River Basin for delivery to markets in the eastern and southeastern portions of the United States. The low-sulfur coal from the Powder River Basin is abundant, inexpensive to mine, clean-burning, and has a low delivered-cost to power plants. Because the Clean Air Act of 1990 requires power plants to reduce emissions either by burning coal with a lower sulfur content or by installing expensive scrubbing units by the year 2000, there are opportunities for increased shipments of this low-sulfur coal. Also, deregulation in the electric utility industry is expected to cause utilities to seek lower cost fuel sources and boost demand for Powder River Basin coal. Other coal shipments originate principally in Colorado, Illinois, New Mexico, and North Dakota and are moved to electrical generating stations and industrial plants in the Mountain and North Central regions. 5 Agricultural Commodities. Agricultural Commodities include barley, corn, wheat, soybeans, oils, feeds, flour and mill products, specialty grains, malts, and milo. The BNSF Railway system is strategically located to serve the grain-producing regions of the Midwest and Great Plains where BNSF Railway serves most major terminal, storage, feeding and food-processing locations. Additionally, BNSF Railway has access to major export markets in the Pacific Northwest, western Great Lakes, and Texas Gulf regions, and in Mexico. Chemicals. The Chemicals business is comprised of fertilizer, petroleum and chemical commodities. Chemicals and plastics resins are transported for industrial and agricultural use. Industrial chemicals and plastics resins are used by the automotive, housing, and packaging industries, as well as for feedstocks to produce other chemical and plastic products. Access to significant additional chemicals producers along the Louisiana and Texas Gulf Coasts, and in the Central Corridor area in Utah and Nevada, was gained as a result of the agreement and conditions resulting from the merger of the Union Pacific and Southern Pacific railroads. Agricultural minerals include sulphur that generally moves to the Gulf Coast and from there via vessels to Florida and overseas markets for use in making phosphatic fertilizers. Potash is transported to domestic markets and to export points for markets in Canada, Mexico, and overseas. Metals and Minerals. The Metals and Minerals business serves virtually all of the commodities included in or resulting from the production of steel. Taconite, an iron ore derivative produced in northern Minnesota, scrap steel, and coal coke are BNSF Railway's primary input products, while finished steel products range from structural beams and steel coils to wire and nails. BNSF Railway also hauls both ferrous and non-ferrous products including recyclable metals. BNSF Railway links the integrated steel mills in the East with fabricators in the West and Southwest. Service is also provided to various mini-mills in the Southwest that produce rebar, beams, and coiled rod to the construction industry. Various non-ferrous products such as copper, lead, and aluminum are transported for the beverage, automotive, and telecommunications industries. Commodities in the Metals and Minerals group also include clays, sands, cements, aggregates, sodium compounds and other industrial minerals. Both the oil and the construction industries are served. Industrial minerals include various mined and processed commodities such as cement and aggregates (construction sand, gravel and crushed stone) that generally move to domestic markets for use in general construction and public work projects, including highways. Borates and clays move to domestic points as well as to export markets primarily through West Coast ports. Sodium compounds, primarily soda ash, is moved to domestic markets for use in the manufacturing of glass and other industrial products. Sand is utilized in the manufacturing of glass and for use in foundry and oil drilling applications. Forest Products. The primary commodities in Forest Products are lumber, plywood, oriented strand board, paper products, pulpmill feedstock, and wood pulp. Based on carloadings and tonnage hauled, BNSF Railway is the largest rail transporter of forest products in the United States. Commodity origins are primarily from the Pacific Northwest, upper Midwest, and the Southeast for shipment mainly into domestic markets. Industries served include construction, furniture, photography, publishing, newspaper, and industrial packaging. Consumer Goods. Beverages, canned goods, and perishables are the principal food commodities moved by BNSF Railway. Other consumer goods handled include sugars and sweeteners, cotton, salt, rubber and tires, machinery, aircraft parts, military and miscellaneous boxcar shipments. Shipments of waste, ranging from municipal waste to contaminated soil, are transported to landfills and reclamation centers across the country. Automotive. The Automotive group is responsible for both assembled motor vehicles and shipments of vehicle parts to numerous destinations throughout the Midwest, Southwest, West and Pacific Northwest. Freight Statistics. The following tables set forth certain freight statistics relating to rail operations for the periods indicated. Certain amounts have been reclassified to reflect changes in the business groups for years prior to 1998 and to conform to current year presentation.
Year Ended December 31, ----------------------- 1998 1997 1996 ------- ------- ------- Revenue ton-miles (millions)...................... 469,045 424,588 411,059 Freight revenue per thousand revenue ton-miles.... $19.02 $19.71 $19.63 Average haul per ton (miles)...................... 970 935 875
6 Revenues
Year Ended December 31, -------------------- 1998 1997 1996 ------ ------ ------ (in millions) Intermodal........................................... $2,469 $2,282 $2,039 Coal................................................. 2,239 1,972 1,973 Agricultural Commodities............................. 1,077 1,087 1,171 Chemicals............................................ 841 812 782 Metals and Minerals.................................. 757 731 693 Forest Products...................................... 598 564 548 Consumer Goods....................................... 553 497 468 Automotive........................................... 388 422 396 ------ ------ ------ Total Freight Revenue................................ 8,922 8,367 8,070 Other Revenue........................................ 19 3 39 ------ ------ ------ Total Revenues................................... $8,941 $8,370 $8,109 ====== ====== ======
Cars/Units
Year Ended December 31, ----------------- 1998 1997 1996 ----- ----- ----- (in thousands) Intermodal.............................................. 3,126 2,854 2,570 Coal.................................................... 2,078 1,862 1,854 Agricultural Commodities................................ 581 577 587 Chemicals............................................... 504 482 460 Metals and Minerals..................................... 660 622 628 Forest Products......................................... 344 335 334 Consumer Goods.......................................... 365 349 308 Automotive.............................................. 226 264 251 ----- ----- ----- Total Cars/Units.................................... 7,884 7,345 6,992 ===== ===== =====
Average Revenue Per Car/Unit
Year Ended December 31, ----------------------- 1998 1997 1996 ------- ------- ------- Intermodal....................................... $ 790 $ 800 $ 793 Coal............................................. 1,077 1,059 1,064 Agricultural Commodities......................... 1,854 1,884 1,995 Chemicals........................................ 1,669 1,685 1,700 Metals and Minerals.............................. 1,147 1,175 1,104 Forest Products.................................. 1,738 1,684 1,641 Consumer Goods................................... 1,515 1,424 1,519 Automotive....................................... 1,717 1,598 1,578 Average Revenue Per Car/Unit................. 1,132 1,139 1,154
Government Regulation and Legislation Rail operations are subject to the regulatory jurisdiction of the Surface Transportation Board ("STB") of the United States Department of Transportation ("DOT"), the Federal Railroad Administration of DOT, the Occupational Safety and Health Administration ("OSHA"), and state regulatory agencies. The STB, which is 7 the successor to the Interstate Commerce Commission ("ICC"), has jurisdiction over certain rates, routes, and services, the extension, sale, or abandonment of rail lines, and consolidation or merger with, or acquisition of control of, rail common carriers. DOT and OSHA have jurisdiction under several federal statutes over a number of safety and health aspects of rail operations. State agencies regulate some aspects of rail operations with respect to health and safety in areas not otherwise preempted by federal law. BNSF Railway's rail operations, as well as those of its competitors, are subject to extensive federal, state and local environmental regulation. These laws cover discharges to waters, air emissions, toxic substances, and the generation, handling, storage, transportation, and disposal of waste and hazardous materials. This regulation has the effect of increasing the cost and liabilities associated with rail operations. Environmental risks are also inherent in rail operations which frequently involve transporting chemicals and other hazardous materials. The railroad industry, including BNSF Railway, is subject to future requirements regulating air emissions from diesel locomotives. Final regulations applicable to new and rebuilt locomotives 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. Many of BNSF Railway'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 Railway is now subject and will from time to time continue to be subject to environmental cleanup and enforcement actions. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, generally imposes joint and several liability for cleanup and enforcement costs, without regard to fault or the legality of the original conduct, on current and former owners and operators of a site. Accordingly, BNSF Railway may be responsible under CERCLA and other federal and state statutes for all or part of the costs to clean up sites at which certain substances may have been released by BNSF Railway, its current lessees, former owners or lessees of properties, or other third parties. For further discussion, reference is made to Note 12 to the Consolidated Financial Statements on pages 35-36 of BNSF's 1998 Annual Report to Shareholders, which information is hereby incorporated by reference. Competition The business environment in which BNSF Railway operates remains highly competitive. Depending on the specific market, deregulated motor carriers, other railroads and river barges exert pressure on various price and service levels. The presence of advanced, high service truck lines with expedited delivery, subsidized infrastructure and minimal empty mileage continues to affect the market for non-bulk, time sensitive freight. The potential expansion of longer combination vehicles could further encroach upon markets traditionally served by railroads. In order to remain competitive, BNSF Railway and other railroads continue to develop and implement operating efficiencies to improve productivity. As railroads streamline, rationalize and otherwise enhance their franchises, competition among rail carriers intensifies. BNSF Railway's primary rail competitor in the western region of the United States is Union Pacific Railroad Company ("UP"). Other Class I railroads and numerous regional railroads and motor carriers also operate in parts of the same territories served by BNSF Railway. Coal, one of BNSF Railway's primary commodities, continues to be subject to various types of competitive pressures. In 1998, BNSF Railway and UP entered into an agreement to exchange half interests in the two pieces of the former Southern Pacific Transportation Company ("SP") rail line between Houston and New Orleans which are separately owned by the two railroads. Both railroads now have access to all customers, including chemical, 8 steel, gas and other companies, along the entire line, including on former SP branch lines. The two railroads set up a joint regional dispatching center at Spring, Texas in March 1998 for much of their Gulf Coast train operations to better coordinate train flows in and through Houston. In February 1999, BNSF Railway and UP agreed to coordinate dispatching operations covering Southern California, the Kansas City area, and the Powder River Basin of Wyoming. The STB has approved the acquisition of Consolidated Rail Corporation ("Conrail") by CSX Corporation and Norfolk Southern Corporation which is expected to be implemented in 1999. Conrail, CSX and Norfolk Southern operate the three largest rail systems in the eastern United States. In March 1999, the STB also approved the acquisition of Illinois Central Corporation ("IC") by Canadian National Railway Company ("CN"). CN is Canada's largest railroad and reaches the U.S. cities of Detroit and Chicago, while IC has operations extending from Chicago to the Gulf of Mexico, and west through Iowa. The acquisitions of Conrail and IC are not expected to have a material adverse competitive impact on BNSF Railway. ITEM 3. Legal Proceedings Set forth below is a description of certain legal proceedings involving BNSF and its subsidiaries. Wheat and Barley Transportation Rates In September 1980, a class action lawsuit was filed against BNSF Railway in United States District Court for the District of Montana ("Montana District Court") challenging the reasonableness of BNSF Railway's export wheat and barley rates. The class consisted of Montana grain producers and elevators. The plaintiffs sought a finding that BNSF Railway single car export wheat and barley rates for shipments moving from Montana to the Pacific Northwest were unreasonably high and requested damages in the amount of $64 million. In March 1981, the Montana District Court referred the rate reasonableness issue to the ICC. Subsequently, the State of Montana filed a complaint at the ICC challenging BNSF Railway's multiple car rates for Montana wheat and barley movements occurring after October 1, 1980. The ICC issued a series of decisions in this case from 1988 to 1991. Under these decisions, the ICC applied a revenue to variable cost test to the rates and determined that BNSF Railway owed $9,685,918 in reparations plus interest. In its last decision, dated November 26, 1991, the ICC found BNSF Railway's total reparations exposure to be $16,559,012 through July 1, 1991. The ICC also found that BNSF Railway's current rates were below a reasonable maximum and vacated its earlier rate prescription order. BNSF Railway appealed to the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") those portions of the ICC's decisions concerning the post-October 1, 1980 rate levels. BNSF Railway's primary contention on appeal was that the ICC erred in using the revenue to variable cost rate standard to judge the rates instead of Constrained Market Pricing/Stand Alone Cost principles. The limited portions of decisions that cover pre-October 1, 1980 rates were appealed to the Montana District Court. On March 24, 1992, the Montana District Court dismissed plaintiffs' case as to all aspects other than those relating to pre-October 1, 1980 rates. On February 9, 1993, the D.C. Circuit served its decision regarding the appeal of the several ICC decisions in this case. The court held that the ICC did not adequately justify its use of the revenue to variable cost standard as BNSF Railway had argued and remanded the case to the ICC for further administrative proceedings. On July 22, 1993, the ICC served an order in response to the D.C. Circuit's February 9, 1993 decision. In its order, the ICC stated it would use the Constrained Market Pricing/Stand-Alone Cost principles in assessing the reasonableness of BNSF Railway wheat and barley rates moving from Montana to Pacific Coast ports from 1978 forward. The ICC assigned the case to the Office of Hearings to develop a procedural schedule. On October 28, 1994, plaintiffs filed their opening evidence arguing that the revenue received by BNSF Railway exceeded 9 the stand alone costs of transporting that traffic and that BNSF Railway rates were unreasonably high. BNSF Railway filed its evidence March 29, 1995, showing that the stand alone costs of transporting the traffic exceeded the revenue derived by BNSF Railway on that traffic and that consequently, its rates were not unreasonably high. The parties filed briefs simultaneously on August 16, 1995. In a decision served August 14, 1997, in McCarty Farms, Inc. et al. v. Burlington Northern Inc., No. 37808, the STB, successor to the ICC, ruled that the plaintiffs had failed to demonstrate that BNSF Railway rates charged to transport export wheat and barley from Montana to West Coast ports were unreasonable. The STB dismissed the proceeding in its entirety. The plaintiffs filed petitions to review the STB's decision before the D.C. Circuit and the Montana District Court. In an October 20, 1998 decision, McCarty Farms, Inc. et al. v. Surface Transportation Board (No. 97-1632), the D.C. Circuit affirmed the STB's decision in all respects for those claims as to which it had jurisdiction (i.e., all claims except those relating to single-car wheat shipments moving before September 12, 1980). The plaintiffs' appeal of the STB decision as to single-car wheat shipments moving before September 12, 1980 was dismissed by the Montana District Court on November 23, 1998. This matter is now considered terminated. Environmental Proceedings BNSF Railway had been advised that it was a target of a Grand Jury investigation in the United States District Court for the Eastern District of Missouri with respect to former railcar cleaning activities conducted by independent contractors hired by BNSF Railway's predecessors at a rail siding near Cherryville, Missouri. The proceeding related to alleged violations of federal environmental protection statutes with respect to lead contamination at several sites in the Cherryville area. In addition, BNSF Railway had received personal injury claims from certain individuals formerly residing at or near some of these sites. The Missouri Department of Natural Resources ("DNR") also was investigating the matter with respect to possible violations of state environmental protection laws and BNSF Railway has been implementing remediation plans developed in conjunction with DNR. On December 4, 1998, BNSF Railway entered a plea in federal district court to one felony count under CERCLA for failure to immediately report to the federal government a release of a reportable quantity of lead sulfide and one misdemeanor count under the Clean Water Act for a negligent discharge of a pollutant into a waterway. BNSF Railway agreed in the settlement to pay a fine of $7 million and to make restitution payments to the State of Missouri of $3 million, and committed to spend $9 million, which includes amounts previously paid, in remediation costs in connection with its ongoing remediation efforts. In the plea agreement, the parties agreed that BNSF Railway had taken remedial safety and procedural actions in an effort to reduce the likelihood of recurrence of such matters. In addition, BNSF Railway has negotiated a settlement with the State of Missouri that requires a payment of $900,000 in penalties and $500,000 in natural resource damage. With the public comment period having ended January 26, 1999, BNSF Railway is executing the settlement agreement for entry by the court as a consent decree. Implementation costs of the investigation and remediation activities pursuant to the consent decree are not considered material. The Company considers the federal Grand Jury matter to be terminated, and all pending related matters, including personal injury claims received from certain individuals residing at or near the area, are not considered material. On December 18, 1995, the State of Illinois filed a Complaint captioned People of the State of Illinois v. Burlington Northern Railroad Company, Beazer East, Inc. and Koppers Industries, Inc. (PCB No. 96-132) before the Illinois Pollution Control Board against BNSF Railway, Beazer East, Inc. and Koppers Industries, Inc. alleging violations of the Illinois Environmental Protection Act with respect to a facility in Galesburg, Illinois. This facility is not operated by BNSF Railway. The proceeding may result in monetary sanctions in excess of $100,000. BNSF Railway and Beazer East, Inc. have made an offer to the State of Illinois to settle this matter. Merger-Related Litigation Numerous complaints were filed arising out of the Agreement and Plan of Merger dated June 29, 1994, as amended, between BNI and SFP. On June 30, 1994, shortly after announcement of the proposed BNI-SFP merger 10 ("Merger"), two purported stockholder class action suits were filed in the Court of Chancery of the State of Delaware (Miller v. Santa Fe Pacific Corporation, C.A. No. 13587; Cosentino v. Santa Fe Pacific Corporation, C.A. No. 13588). On July 1, 1994, two additional purported stockholder class action suits were filed in the Court of Chancery of the State of Delaware (Fielding v. Santa Fe Pacific Corporation, C.A. No. 13591; Wadsworth v. Santa Fe Pacific Corporation, C.A. No. 13597). The actions named as defendants SFP, the individual members of the SFP Board of Directors, and BNI. In general, the actions variously alleged that SFP's directors breached their fiduciary duties to the stockholders by agreeing to the proposed merger for allegedly "grossly inadequate" consideration in light of recent operating results of SFP, recent trading prices of SFP's common stock and other alleged factors, by allegedly failing to take all necessary steps to ensure that stockholders will receive the maximum value realizable for their shares (including allegedly failing to actively pursue the acquisition of SFP by other companies or conducting an adequate "market check"), and by allegedly failing to disclose to stockholders the full extent of the future earnings potential of SFP, as well as the current value of its assets. The Miller and Fielding cases further alleged that the proposed Merger was unfairly timed and structured and, if consummated, would allegedly unfairly deprive the stockholders of standing to pursue certain pending stockholder derivative litigation. Plaintiffs also alleged that BNI was responsible for aiding and abetting the alleged breach of fiduciary duty committed by the SFP Board. The actions sought certification of a class action on behalf of SFP's stockholders. In addition, the actions sought injunctive relief against consummation of the Merger and, in the event that the Merger was consummated, the rescission of the Merger, an award of compensatory or rescissory damages and other damages, including court costs and attorneys' fees, an accounting by defendants of all profits realized by them as a result of the Merger, and various other forms of relief. On October 6, 1994, shortly after Union Pacific Corporation ("UPC") issued a press release in which it announced a proposal for UPC to acquire SFP (the "UPC Proposal"), plaintiffs in the four lawsuits described above filed in the Court of Chancery of the State of Delaware a Consolidated Amended Complaint (Miller v. Santa Fe Pacific Corporation, C.A. No. 13587). In their Consolidated Amended Complaint, plaintiffs repeated the allegations contained in their earlier lawsuits and further alleged that, in light of the UPC Proposal, SFP's directors had breached their fiduciary duties by failing to fully inform themselves about and to adequately explore available alternatives to the merger with BNI, including the alternative of a merger transaction with UPC, and by failing to fully inform themselves about the value of SFP. The Consolidated Amended Complaint sought the same relief sought in plaintiffs' earlier lawsuits and, in addition, requested that SFP's directors be ordered to explore alternative transactions and to negotiate in good faith with all interested persons, including UPC. Also, on October 6, 1994, five additional purported stockholder class action suits relating to SFP's proposed participation in the Merger with BNI were filed in the Court of Chancery of the State of Delaware (Weiss v. Santa Fe Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No. 13780; Stein v. Santa Fe Pacific Corporation, Lewis v. Santa Fe Pacific Corporation, C.A. No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7, 1994, three more purported stockholder class action suits relating to SFP's proposed participation in the Merger with BNI were filed in the Court of Chancery of the State of Delaware (Graulich v. Santa Fe Pacific Corporation, C.A. No. 13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green v. Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits named as defendants SFP and the individual members of the SFP Board of Directors; the Lifshitz case further named BNI as a defendant. In general, these actions variously alleged that, in light of SFP's recent operating results and the UPC Proposal, SFP's directors breached their fiduciary duties to stockholders by purportedly not taking the necessary steps to ensure that SFP's stockholders would receive "maximum value" for their shares of SFP stock, including purportedly refusing to negotiate with UPC or to "seriously consider" the UPC Proposal and failing to announce any active auction or open bidding procedures. The actions generally sought relief that is materially identical to the relief sought in the Miller case, and in addition sought entry of an order requiring SFP's directors to immediately undertake an evaluation of SFP's worth as a merger/acquisition candidate and to establish a process designed to obtain the highest possible price for SFP, including taking steps to "effectively expose" SFP to the marketplace in an effort to create an "active auction" in SFP. The Weiss case further sought entry of an order enjoining SFP's directors from implementing any poison pill or other device designed to thwart the UPC Proposal or any other person's proposal to acquire SFP. 11 The Anderson lawsuit was subsequently withdrawn. On October 14, 1994, the Chancery Court entered an order consolidating the remaining 11 purported stockholder class action suits under the heading In Re Santa Fe Pacific Corporation Shareholder Litigation, C.A. No. 13587 (the "Shareholder Litigation"). On October 26, 1994, BNI filed a Motion to Dismiss the Consolidated and Amended Complaint. On March 6, 1995, plaintiffs in the Shareholder Litigation filed a Revised Second Consolidated and Amended Complaint, which superseded their previously filed complaints. The Revised Second Consolidated and Amended Complaint generally repeated many of the same allegations, and requested relief similar to that requested in plaintiffs' earlier complaints. In addition, the Revised Second Consolidated and Amended Complaint alleged that SFP's directors breached their fiduciary duties: by proceeding with and completing the joint SFP-BNI Tender Offer; by approving and implementing the Shareholder Rights Plan, which purportedly resulted in a "premature ending" of the "bidding process" by allegedly deterring and defeating UPC's acquisition overtures, exempting BNI from its provisions, and "coercing" SFP stockholders to vote in favor of the Merger; by approving the termination fee and expense reimbursement provisions of the Merger Agreement by authorizing the stock repurchase provisions of the Merger Agreement, which allegedly were designed to "lock-up" the Merger by providing stockholders with an "illusory promise" that the Merger Agreement exchange ratio would increase, while reserving SFP's right not to repurchase such stock; and by purportedly failing to disclose all material facts necessary for SFP's stockholders to evaluate in an informed manner and vote on the Merger, including purportedly failing to fully disclose the risks that the ICC would not approve the Merger and purportedly failing to fully disclose SFP's intentions with respect to the repurchase of SFP stock, as permitted by the Merger Agreement, as well as whether there will be a fair opportunity for all SFP stockholders to "participate" in any SFP stock repurchases, and on what basis. As additional relief to that requested in the earlier complaints, plaintiffs requested injunctive and other relief: enjoining consummation of the Merger; ordering SFP, SFP's directors, and BNI to make unspecified supplemental disclosures to stockholders; requiring SFP to conduct a new vote on the Merger subsequent to such disclosures; enjoining SFP from improperly or discriminatorily implementing the Shareholder Rights Plan or any other "defensive" tactic; ordering SFP's directors to take all appropriate steps to enhance SFP's value and attractiveness as a merger or acquisition candidate, including "effectively exposing" SFP to the marketplace by means of an active auction on a "level playing field"; and declaring the termination fee and expense reimbursement provisions of the Merger Agreement invalid and unenforceable. On March 13, 1995, SFP and SFP's directors filed a motion to dismiss the Shareholder Litigation on the grounds that the Plaintiffs failed to state a cause of action upon which relief may be granted. BNI also filed a motion to dismiss the Revised Second Consolidated and Amended Complaint. On May 31, 1995, the Delaware Chancery Court rendered its decision granting the motion to dismiss that was filed by SFP and SFP's directors on March 13, 1995 and the motion to dismiss filed by BNI. The plaintiffs appealed the dismissal to the Delaware Supreme Court. On November 22, 1995, the Delaware Supreme Court issued an opinion that affirmed in part and reversed in part the May 31, 1995 decision of the Delaware Chancery Court. The Delaware Supreme Court reversed the Chancery Court's dismissal of plaintiffs' claims that, in taking the alleged "defensive" actions identified in the Revised Second Consolidated and Amended Complaint, including approval and implementation of the Shareholder Rights Plan, SFP's directors violated their fiduciary duties to stockholders. The Delaware Supreme Court affirmed the Chancery Court's dismissal of all other claims asserted by plaintiffs in the litigation, including all claims against BNI. On December 11, 1995, the SFP defendants filed with the Delaware Chancery Court a motion for summary judgment against plaintiffs' remaining claims in the Shareholder Litigation, which motion is pending. On December 29, 1995, the SFP defendants filed their Answer to plaintiffs' Revised Second Consolidated and Amended Complaint. BNSF believes this lawsuit is meritless and continues to oppose it vigorously. 12 Other Claims BNSF and its subsidiaries also are parties to a number of other 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 and other legal actions referred to under Item 3 of this Report on Form 10-K cannot be predicted with certainty, considering among other things the meritorious legal defenses available, it is the opinion of BNSF 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 could have a material adverse effect on the results of operations in a particular quarter or fiscal year. Reference is made to Note 4 to the consolidated financial statements on page 31 of BNSF's 1998 Annual Report to Shareholders for information concerning certain pending administrative appeals with the Internal Revenue Service, which information is hereby incorporated by reference. ITEM 4. Submission Of Matters To a Vote Of Security Holders No matters were submitted by BNSF to a vote of its securities holders during the fourth quarter of 1998. EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the names, ages, and positions of all executive officers of BNSF (excluding Robert D. Krebs, an executive officer who is also a director of BNSF, information as to whom is included in BNSF's Proxy Statement dated March 8, 1999) and their business experience during the past five years. Executive officers hold office until their successors are elected or appointed, or until their earlier death, resignation, or removal. Douglas J. Babb, 46 Senior Vice President-Merchandise Business Unit since August 1997. Prior to that, Senior Vice President and Chief of Staff from September 1995 to August 1997, and Vice President and General Counsel of BNRR from December 1986 to September 1995. Thomas N. Hund, 45 Vice President and Controller since September 1995. Prior to that, Vice President and Controller of SFP from July 1990 to January 1998. Jeffrey R. Moreland, 54 Senior Vice President-Law and Chief of Staff since February 1998. Prior to that, Senior Vice President-Law and General Counsel from September 1995, and Vice President-Law and General Counsel of SFP from October 1994 to January 1998, and Vice President-Law and General Counsel of ATSF from June 1989 to December 1996. Matthew K. Rose, 39 Senior Vice President and Chief Operations Officer since August 1997. Prior to that, Senior Vice President-Merchandise Business Unit from May 1996, Vice President-Chemicals and Plastics of ATSF and BNRR from January 1996, Vice President, South Region Field Marketing of BNRR from January 1995, Vice President, Automotive of BNRR from June 1994, and General Manager, Automotive Facilities and Technology of BNRR from January 1993. Prior to that, Vice President-Transportation of Triple Crown Services, a subsidiary of Norfolk Southern Corporation. Charles L. Schultz, 51 Senior Vice President-Intermodal and Automotive Business Unit since February 1996. Prior to that, Vice President-Intermodal of ATSF and BNRR from September 1995, Vice President-Intermodal of ATSF from January 1994, Vice President- Management Services of ATSF from June 1991, and Vice President-Information Services of ATSF from July 1989. 13 Denis E. Springer, 53 Senior Vice President and Chief Financial Officer since September 1995. Prior to that, Senior Vice President and Chief Financial Officer of SFP from October 1993 to January 1998, and Senior Vice President, Treasurer and Chief Financial Officer of SFP from January 1991. Gregory T. Swienton, 49 Senior Vice President-Coal and Agricultural Commodities Business Unit since May 1996. Prior to that, Senior Vice President-Consumer and Industrial Business Unit from February 1996, Senior Vice President-Industrial Business Unit from September 1995, Executive Vice President, Intermodal Business of BNRR from June 1994, and Executive Director-Europe and Africa (Brussels) of DHL Worldwide Express (international freight company) from January 1991. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters BNSF's common stock is listed on the New York Stock Exchange under the symbol "BNI." The common stock is also listed on the Chicago Stock Exchange and Pacific Exchange. Information as to the high and low sales prices of such stock for the two years ending December 31, 1998 and the frequency and amount of dividends declared on such stock during such period, is set forth in Note 16 to the Consolidated Financial Statements on page 40 of BNSF's 1998 Annual Report to Shareholders and such information is hereby incorporated by reference. The approximate number of record holders of the common stock at January 31, 1999 was 56,000. ITEM 6. Selected Financial Data Selected financial data of BNSF for each of the last five fiscal years, and data with respect to the following topics disclosed on page 1 of BNSF's 1998 Annual Report to Shareholders are hereby incorporated by reference: Revenues; Operating income; Income before extraordinary item and cumulative effect of change in accounting method; Accounting change/Extraordinary item; Net income; Basic earnings per share; Diluted earnings per share; Dividends declared per common share; Total assets; and Long-term debt and commercial paper, including current portion. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 15 through 24 of BNSF's 1998 Annual Report to Shareholders is hereby incorporated by reference. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk In the ordinary course of business, BNSF utilizes various financial instruments which inherently have some degree of market risk. The quantitative information presented below and the additional qualitative information presented in the Management's Discussion and Analysis of Financial Condition and Results of Operations section and Notes 8, 10, 11, and 15 of the Consolidated Financial Statements contained in the 1998 Annual Report to Shareholders describe significant aspects of BNSF's financial instrument programs which have a material market risk. Interest Rate Sensitivity The tables below provide information about BNSF's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations as of December 31, 1998 and 1997. For debt obligations, the tables present principal cash flows and related weighted average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. 14 Long-term Debt
December 31, 1998 ------------------------------------------------------- Maturity Date ---------------------------- Fair 1999 2000 2001 2002 2003 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ------ ------ Fixed Rate Debt (in millions).............. $268 $146 $222 $248 $130 $3,946 $4,960 $5,216 Average Interest Rate... 7.41% 6.45% 7.75% 7.10% 7.22% 7.13% 7.10% -- Variable Rate Debt (in millions).............. -- -- -- $496 -- -- $ 496 $ 496 Average Interest Rate... -- -- -- 5.43% -- -- 5.43% --
December 31, 1997 ------------------------------------------------------- Maturity Date ---------------------------- Fair 1998 1999 2000 2001 2002 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ------ ------ Fixed Rate Debt (in millions).............. $108 $256 $138 $204 $258 $3,587 $4,551 $4,734 Average Interest Rate... 7.78% 7.46% 6.47% 7.96% 7.16% 7.31% 7.33% -- Variable Rate Debt (in millions).............. -- -- -- -- $738 -- $ 738 $ 738 Average Interest Rate... -- -- -- -- 5.84% -- 5.84% --
BNSF has included $471 million and $668 million of commercial paper borrowings in 2002 maturities in the 1998 and 1997 tables, respectively. The commercial paper program is supported by BNSF's $1.5 billion, five-year revolving credit agreement which is scheduled to expire on November 12, 2002. BNSF classified commercial paper borrowings as long-term debt in the consolidated balance sheet at December 31, 1998 and 1997. In addition, maturities in 2000 included in the 1998 and 1997 tables exclude $100 million of 6.1 percent notes due 2027, which may be redeemed in 2000 at the option of the holder. In addition, the maturities in the 1998 table exclude $200 million of 6.29 percent debentures due 2029 and $100 million of 6.05 percent notes due 2031, which will either be remarketed by the holder of a call option on the debt and mature in 2029 and 2031, respectively; or will otherwise be repurchased by BNSF in 1999 and 2001, respectively. Maturities in 2003 exclude $175 million of 6.53 percent notes due 2037, which may be redeemed in 2003 at the option of the holder. On March 5, 1999, BNSF issued $200 million of 6.125 percent notes due 2009 and $200 million of 6.75 percent debentures due 2029. At the time of the 10- year debt issuance, BNSF closed out a $100 million treasury lock transaction scheduled to expire in 1999 at a gain of approximately $8 million which will be deferred and amortized to interest expense over the life of the debt. Interest Rate Swaps From time to time, BNSF enters into various interest rate hedging transactions for purposes of managing exposure to fluctuations in interest rates. At December 31, 1998 and 1997, BNSF had entered into swap transactions reflected in the tables below, which fixed the interest rate on a portion of its commercial paper debt.
December 31, 1998 ---------------------------- Maturity Date ------------- 1999 Fair Value (1) ------------- -------------- Variable to Fixed Swaps (in millions)........ $ 125 $ (2) Average Pay Rate............................. 6.14% -- Average Receive Rate......................... 4.95% --
December 31, 1997 ---------------------------------- Maturity Date ------------ 1998 1999 Total Fair Value (1) ----- ----- ----- ------------- Variable to Fixed Swaps (in millions)....... $ 250 $ 125 $ 375 $ (2) Average Pay Rate............................ 6.04% 6.14% 6.07% -- Average Receive Rate........................ 5.67% 5.73% 5.69% --
- -------- (1) Represents unrecognized losses in millions. 15 Treasury Locks In anticipation of future debt issuances, BNSF had entered into treasury lock transactions, based on the 10-year and 30-year U.S. treasury rates as of December 31, 1998 and based on the 30-year U.S. treasury rate as of December 31, 1997, which are summarized in the tables below. Additionally, as discussed above, at the time of a March 1999 debt issuance, BNSF closed out the $100 million treasury lock transaction scheduled to expire in 1999 at a gain of approximately $8 million.
December 31, 1998 ------------------------------------------ Maturity Date ------------------- 1999 2000 2001 Total Fair Value (1) ----- ----- ----- ----- -------------- Fixed Rate Treasury Locks (in millions).......................... $ 100 $ 200 $ 200 $ 500 $ 19 Average Pay Rate.................... 4.37% 4.80% 4.84% 4.73% --
December 31, 1997 ---------------------------- Maturity Date ------------- 1998 Fair Value (1) ------------- -------------- Fixed Rate Treasury Locks (in millions)............ $ 200 $ 0 Average Pay Rate................................... 5.88% --
- -------- (1) Represents unrecognized gains in millions. Commodity Price Sensitivity During 1998 and 1997, fuel expenses approximated 11 percent of total operating expenses. Due to the significance of diesel fuel expenses to the operations of the railroad and the historical volatility of fuel prices, BNSF has established a program to hedge against fluctuations in the price of its diesel fuel purchases. The intent of the program is to protect BNSF's operating margins and overall profitability from adverse fuel price changes. However, to the extent BNSF hedges portions of its fuel purchases, it will not realize the impact of decreases in fuel prices. The fuel-hedging program in 1998 and 1997 includes the use of commodity swap transactions that are accounted for as hedges. Additionally, the 1997 fuel-hedging program also includes forward purchases for delivery at fueling facilities. Any gains or losses associated with changes in the market value of these hedging instruments are deferred and recognized as a component of fuel expense in the period in which the fuel is purchased and used. Swap transactions are typically based on the price of pipeline delivery of Gulf Coast #2 heating oil and require BNSF to purchase a defined quantity at a defined price. Swap transactions are generally settled in cash with the counterparty. Based on historical information, BNSF believes there is a significant correlation between the market prices of diesel fuel and Gulf Coast #2 heating oil. The tables below provide information about BNSF's diesel fuel hedging instruments that are sensitive to changes in commodity prices. The tables present notional amounts in gallons and the weighted average contract price by contractual maturity date. The prices included in the tables do not include taxes, transportation costs, certain other fuel handling costs and, except for forward contracts, any differences which may occur from time to time between the prices of commodities hedged and the purchase price of BNSF's diesel fuel.
December 31, 1998 ---------------------------------------- Maturity Date ----------------------- Fair 1999 2000 2001 2002 Total Value (1) ----- ----- ----- ----- ------ --------- Diesel Fuel Swaps: Gallons (in millions)................ 907 491 277 101 1,776 $(174) Weighted average price per gallon.... $0.48 $0.50 $0.49 $0.50 $ 0.49 --
16
December 31, 1997 ---------------------------------- Maturity Date ------------------ Fair 1998 1999 2000 Total Value (1) ----- ----- ------ ------ -------- Diesel Fuel Swaps: Gallons (in millions).................... 479 302 189 970 $(24) Weighted average price per gallon........ $0.54 $0.52 $ 0.52 $ 0.53 -- Diesel Fuel Forward Purchase Contracts: Gallons (in millions).................... 144 -- -- 144 $ 2 Weighted average price per gallon........ $0.48 -- -- $ 0.48 --
- -------- (1) Represents unrecognized gains (losses) (in millions) based on the price of Gulf Coast #2 heating oil. Additionally, at December 31, 1998 and 1997, BNSF maintained fuel inventories for use in normal operations which were not material to BNSF's overall financial position and therefore represent no significant market exposure. Equity Price Sensitivity During the second and third quarter of 1998, BNSF sold equity put options for 3 million shares of BNSF's common stock to an independent third party and received cash proceeds of $2 million. The option contracts had exercise prices ranging from $29.00 to $30.00 per share with expiration dates ranging from November 1998 to February 1999. In November 1997, BNSF sold equity put options for 1.5 million shares of BNSF's common stock to an independent third party and received cash proceeds of approximately $1 million. The option contracts had an exercise price of $29.33 and an expiration date of May 5, 1998. All of the option contracts discussed above permitted a net-share or net-cash settlement method at BNSF's election and expired unexercised. The tables below present the notional amounts in shares of BNSF common stock and the contract price by contractual maturity date of equity put options outstanding at December 31, 1998 and 1997.
December 31, 1998 ------------------- Maturity Date ------------- Fair 1999 Value ------------- ----- Contract Number of Shares............................. 1,200,000 $ 0 Option Strike Price................................... $29.67 to $30 -- December 31, 1997 ------------------- Maturity Date ------------- Fair 1998 Value ------------- ----- Contract Number of Shares............................. 1,500,000 $ 0 Option Strike Price................................... $29.33 --
ITEM 8. Financial Statements and Supplementary Data The consolidated financial statements of BNSF and subsidiary companies, together with the reports thereon, appearing in Part IV of this Report on Form 10-K and on pages 25 through 40 of BNSF's 1998 Annual Report to Shareholders, are hereby incorporated by reference. ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. 17 PART III ITEM 10. Directors and Executive Officers of the Registrant Information concerning the directors of BNSF is provided on pages 11-12 under the heading "NOMINEES FOR DIRECTORS" of BNSF's proxy statement dated March 8, 1999, and the information under that heading is hereby incorporated by reference. Information concerning the executive officers of BNSF (excluding one executive officer who is also a director of BNSF) is included in Part I of this Report. Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is provided on page 4 under the heading "Section 16(a) Beneficial Ownership Reporting Reporting Compliance" in BNSF's Proxy Statement dated March 8, 1999, and the information under that heading is hereby incorporated by reference. ITEM 11. Executive Compensation Information concerning the compensation of directors and executive officers of BNSF is provided on page 6 under the heading "Directors' Compensation" and pages 24 through 30 under the headings "Summary Compensation Table," "Stock Option Grants in 1998," "Option Exercises and Holdings," "Pension Plans," "Employment Contracts and Change in Control Arrangements" and "Trust Agreements," in BNSF's proxy statement dated March 8, 1999, and the information under those headings is hereby incorporated by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Information concerning the ownership of BNSF equity securities by certain beneficial owners and by management is provided on pages 8 through 10 under the heading "STOCK OWNERSHIP IN THE COMPANY" in BNSF's proxy statement dated March 8, 1999, and is the information under that heading hereby incorporated by reference. ITEM 13. Certain Relationships and Related Transactions Information concerning certain relationships and related transactions is provided on page 8 under the heading "Certain Relationships" of BNSF's proxy statement dated March 8, 1999, and the information under that heading is hereby incorporated by reference. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as a part of this report:
Page -------- 1. Consolidated Financial Statements: Report of PricewaterhouseCoopers LLP................................. [25*] Consolidated Statement of Income for the three years ended December 31, 1998............................................................ [26*] Consolidated Balance Sheet at December 31, 1998 and 1997............. [27*] Consolidated Statement of Cash Flows for the three years ended December 31, 1998................................................... [28*] Consolidated Statement of Changes In Stockholders' Equity for the three years ended December 31, 1998................................. [29*] Notes to Consolidated Financial Statements........................... [30-40*]
- -------- (*Incorporated by reference from the indicated pages of BNSF's 1998 Annual Report to Shareholders.) 18 2. Consolidated Financial Statement Schedules for the three years ended December 31, 1998: Report of PricewaterhouseCoopers LLP...................................... F-1 Schedule II--Valuation and Qualifying Accounts............................ F-2
Schedules other than that listed above are omitted because they are not required or applicable, or the required information is included in the consolidated financial statements or related notes. 3. Exhibits: See Index to Exhibits on pages E-1--E-4 for a description of the exhibits filed as a part of this Report. (b) Reports on Form 8-K BNSF filed the following Current Reports on Form 8-K during the quarter ended December 31, 1998, or subsequently: Current Report on Form 8-K (Date of earliest event reported: February 8, 1999), as amended, which referenced under Item 5, Other Events, and filed as an exhibit under Item 7, Financial Statements, Pro Forma Financial Information and Exhibits, the following material from the registrant's 1998 Annual Report to Shareholders: Consolidated Financial Highlights; Management's Discussion and Analysis of Financial Condition and Results of Operations; and Consolidated Financial Statements and Footnotes and Report of Management and Report of Independent Accountants thereon, dated February 8, 1999, and two other exhibits. Current Report on Form 8-K (Date of earliest event reported: December 4, 1998) which referenced under Item 5, Other Events, and filed as an exhibit under Item 7, Financial Statements, Pro Forma Financial Information and Exhibits the registrant's fourth quarter 1998 and annual earnings press release, and also disclosed under Item 5 the resolution of claims by federal and State of Missouri authorities as to environmental contamination near Cherryville, Missouri stemming from former railcar cleaning activities conducted by independent contractors of BNSF Railway's predecessors. Current Report on Form 8-K (Date of earliest event reported: October 20, 1998) which referenced under Item 5, Other Events, and filed as an exhibit under Item 7, Financial Statements, Pro Forma Financial Information and Exhibits the following: the registrant's third quarter 1998 earnings press release; a table with selected financial data for the five years ended December 31, 1997, with earnings per share restated to reflect to registrant's three-for-one stock split, effected in the form of a stock dividend payable September 1, 1998, for each share of common stock outstanding or held in the registrant's treasury as of the close of business on August 17, 1998; and a statement regarding computation of ratio of earnings to fixed charges (as of September 30, 1998). 19 SIGNATURES Burlington Northern Santa Fe Corporation, pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Burlington Northern Santa Fe Corporation /s/ Robert D. Krebs By: _________________________________ Robert D. Krebs Chairman, President and Chief Executive Officer Dated: March 29, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Burlington Northern Santa Fe Corporation and in the capacities and on the date indicated.
Signature Title --------- ----- /s/ Robert D. Krebs Chairman, President and Chief Executive ___________________________________________ Officer (Principal Executive Officer), Robert D. Krebs and Director /s/ Denis E. Springer Senior Vice President and Chief Financial ___________________________________________ Officer (Principal Financial Officer) Denis E. Springer /s/ Thomas N. Hund Vice President and Controller (Principal __________________________________________ Accounting Officer) Thomas N. Hund /s/ Joseph F. Alibrandi* Director ___________________________________________ Joseph F. Alibrandi /s/ Jack S. Blanton* Director ___________________________________________ Jack S. Blanton /s/ John J. Burns, Jr.* Director ___________________________________________ John J. Burns, Jr. /s/ George Deukmejian* Director ___________________________________________ George Deukmejian /s/ Bill M. Lindig* Director __________________________________________ Bill M. Lindig /s/ Vilma S. Martinez* Director ___________________________________________ Vilma S. Martinez
S-1
Signature Title --------- ----- /s/ Roy S. Roberts* Director ___________________________________________ Roy S. Roberts /s/ Marc J. Shapiro* Director ___________________________________________ Marc J. Shapiro /s/ Arnold R. Weber* Director ___________________________________________ Arnold R. Weber /s/ Robert H. West* Director ___________________________________________ Robert H. West /s/ J. Steven Whisler* Director ___________________________________________ J. Steven Whisler /s/ Edward E. Whitacre, Jr.* Director ___________________________________________ Edward E. Whitacre, Jr. /s/ Ronald B. Woodard* Director ___________________________________________ Ronald B. Woodard /s/ Michael B. Yanney* Director ___________________________________________
Michael B. Yanney /s/ Jeffrey R. Moreland *By:_________________________________ Jeffrey R. Moreland Senior Vice President-Law and Chief of Staff Attorney in Fact Dated: March 29, 1999 S-2 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Burlington Northern Santa Fe Corporation and Subsidiaries Our audits of the consolidated financial statements referred to in our report dated February 8, 1999 appearing on page 25 of the 1998 Annual Report to Shareholders of Burlington Northern Santa Fe Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)2. of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Fort Worth, Texas February 8, 1999 F-1 SCHEDULE II BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1998, 1997 and 1996 (In Millions)
Column A Column B Column C Column D Column E -------- --------- --------- ---------- -------- Balance Balance Additions at End at Charged of Beginning to Deductions Period Description of Period Income (1) (2) ----------- --------- --------- ---------- -------- December 31, 1998 Personal injury and environmental liabilities......................... $711 $177 $253 $635 ==== ==== ==== ==== December 31, 1997 Personal injury and environmental liabilities......................... $810 $165 $264 $711 ==== ==== ==== ==== December 31, 1996 Personal injury and environmental liabilities......................... $916 $188 $294 $810 ==== ==== ==== ====
- -------- (1) Principally represents cash payments (2) Classified in the consolidated balance sheet as follows:
1998 1997 1996 ---- ---- ---- Accounts payable and other current liabilities............ $246 $263 $267 Casualty and environmental liabilities.................... 389 448 543 ---- ---- ---- $635 $711 $810 ==== ==== ====
F-2 BURLINGTON NORTHERN SANTA FE CORPORATION INDEX OF EXHIBITS
Exhibit Number Description ------- ---------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of BNSF (amended as of April 21, 1998). Incorporated by reference to Exhibit 3.1 to BNSF's Report on Form 10-Q for the quarter ended June 30, 1998. 3.2 By-Laws of BNSF (amended as of September 18, 1997). Incorporated by reference to Exhibit 3.1 to BNSF's Report on Form 10-Q for the quarter ended September 30, 1997. 4.1 Indenture, dated as of December 1, 1995, between BNSF and The First National Bank of Chicago, as Trustee. Incorporated by reference to Exhibit 4 to BNSF's Registration Statement on Form S-3 (No. 333- 72013). 4.2 Form of BNSF's 6 1/8% Note Due March 15, 2009. 4.3 Form of BNSF's 6 3/4% Debenture Due March 15, 2029. 4.4 Form of BNSF's 6.70% Debenture Due August 1, 2028. 4.5 Certain instruments evidencing long-term indebtedness of BNSF are not being filed as exhibits to this Report because the total amount of securities authorized under any single such instrument does not exceed 10% of BNSF's total assets. BNSF will furnish copies of any material instruments upon request of the Securities and Exchange Commission. 10.1* Burlington Northern Santa Fe Non-Employee Directors' Stock Plan. Incorporated by reference to Appendix A to BNSF's Proxy Statement dated March 5, 1996. Amendment to Burlington Northern Santa Fe Non- Employee Directors' Stock Plan dated January 16, 1997 is incorporated by reference to Exhibit 10.1 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996. 10.2* Burlington Northern Santa Fe Corporation 1987 Stock Option Incentive Plan. Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No. 33-62833). 10.3* Burlington Northern Santa Fe Corporation Incentive Compensation Plan. Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No. 33-62833). 10.4* Burlington Northern Inc. Senior Executive Survivor Benefit Plan as of April 1, 1986. Incorporated by reference to Amendment No. 1 to BNI's Report on Form 10-K for the fiscal year ended December 31, 1987. 10.5* Burlington Northern Santa Fe Corporation Deferred Compensation Plan, as amended and restated effective September 17, 1998. Incorporated by reference to Exhibit 10.1 to BNSF's Report on Form 10-Q for the quarter ended September 30, 1998 (formerly, Burlington Northern Inc. Deferred Compensation Plan). 10.6* Burlington Northern Santa Fe Corporation Senior Management Stock Deferral Plan. Incorporated by reference to Exhibit 10.37 to BNFS's Report on Form 10-K for the fiscal year ended December 31, 1997. 10.7* Burlington Northern Inc. 1987 Performance Share Unit Plan as of January 1, 1988. Incorporated by reference to Amendment No. 1 to BNI's Report on Form 10-K for the fiscal year ended December 31, 1987. 10.8* Burlington Northern Inc. Supplemental Benefits Plan (as amended and restated effective September 21, 1995). Incorporated by reference to Exhibit 10.8 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. 10.9* 1989 Burlington Northern Inc. Restricted Stock Incentive Plan. Incorporated by reference to BNI's Report on Form 10-K for the fiscal year ended December 31, 1990.
- -------- * Management contract or compensatory plan or arrangement. E-1
Exhibit Number Description ------- ---------------------------------------------------------------------- 10.10* Burlington Northern Santa Fe Corporation 1990 Directors Stock Option Plan. Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No. 33-62825). 10.11* Burlington Northern Santa Fe Incentive Bonus Stock Program. Incorporated by reference to Exhibit 10.11 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. Amendment of Burlington Northern Santa Fe Incentive Bonus Stock Program dated January 14, 1998 is incorporated by reference to Exhibit 10.11 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1997. 10.12* Burlington Northern Santa Fe Corporation 1992 Stock Option Incentive Plan. Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No. 33-62839). 10.13* Burlington Northern Santa Fe 1996 Stock Incentive Plan. Incorporated by reference to Appendix B to BNSF's Proxy Statement dated March 5, 1996. Amendment of Burlington Northern Santa Fe 1996 Stock Incentive Plan dated January 15, 1998 is incorporated by reference to Exhibit 10.13 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1997. 10.14* Burlington Northern Santa Fe Supplemental Retirement Plan. Incorporated by reference to Exhibit 10.1 to BNSF's Report on Form 10- Q for the quarter ended September 30, 1996. 10.15* Burlington Northern Santa Fe Estate Enhancement Program, as amended and restated effective October 1, 1996. Incorporated by reference to Exhibit 10.15 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996. 10.16* Agreement between BNSF and Robert D. Krabs dated as of January 30, 1997. Incorporated by reference to Exhibit 10.16 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996. 10.17* Form of BNSF Change-in-Control Agreement (applicable to Messrs. Babb, Moreland, Schultz, Springer, and Hund). Incorporated by reference to Exhibit 10.17 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996. 10.18* Employment Agreement by and between Burlington Northern Inc. and Gregory T. Swienton. Incorporated by reference to Exhibit 10.23 to BNI's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.19* Burlington Northern Santa Fe Deferred Compensation Plan for Directors as amended January 16, 1997. Incorporated by reference to Exhibit 10.19 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996. 10.20* Burlington Northern Inc. Nonqualified 401(k) Restoration Plan. Incorporated by reference to Exhibit 10.20 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. 10.21* Burlington Northern Inc. Form of Severance Agreement and amendments through September 18, 1995, (applicable to Messrs. Rose and Swienton as of March 13, 1998). Incorporated by reference to Exhibit 10.21 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. Amendment to Form of Severance Agreement dated December 3, 1997 is incorporated by reference to Exhibit 10.21 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1997. 10.22* Burlington Northern Inc. Director's Charitable Award Program. Incorporated by reference to Exhibit 10.22 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995.
- -------- * Management contract or compensatory plan or arrangement. E-2
Exhibit Number Description ------- ---------------------------------------------------------------------- 10.23* Burlington Northern Santa Fe Salary Exchange Option Program. Incorporated by reference to Exhibit 10.23 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. Amendment to Burlington Northern Santa Fe Salary Exchange Option Program dated January 15, 1997 is incorporated by reference to Exhibit 10.23 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996. 10.24* Santa Fe Pacific Corporation Supplemental Retirement Plan ("Supplemental Plan"). Incorporated by reference to Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1984. Supplemental Plan as amended October 1, 1989, and Amendment to Supplemental Plan dated February 27, 1990, are incorporated by reference to Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1969. Amendment to Supplemental Plan dated March 22, 1994, and effective January 1, 1994, is incorporated by reference to Exhibit 10.24 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. 10.25* Burlington Northern Santa Fe Incentive Stock Compensation Plan. Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No. 33-63253). 10.26* SFP Form of Severance Agreement dated November 2, 1987 (applicable to Mr. Springer as of March 13, 1998), as adopted in May 1987 and amended in October 1987. Incorporated by reference to Exhibit 10(j) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1987. Amendment to Form of Severance Agreement dated July 24, 1990 is incorporated by reference to SFP's Report on Form 10-Q for the quarter ended June 30, 1990. Amendment to Form of Severance Agreement adopted January 25, 1994 is incorporated by reference to Exhibit 10.1 to SFP's Report on Form 10-Q for the quarter ended June 30, 1994. Amendment to Form of Severance Agreement dated March 28, 1995 is incorporated by reference to Exhibit 10.5 to SFP's Report on Form 10-K for the fiscal year ended December 31, 1994. Amendment to Form of Severance Agreement dated December 3, 1997. Amendment to Form of Severance Agreement dated December 3, 1997. Amendment to Form of Severance Agreement dated February 6, 1998 (Mr. Hund) is incorporated by reference to Exhibit 10.26 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1997. 10.27* Burlington Northern Santa Fe Directors' Retirement Plan. Incorporated by reference to Exhibit 10.29 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. 10.28* Benefits Protection Trust Agreement dated as of January 22, 1996 by and between BNSF and Bankers Trust Company. Incorporated by reference to Exhibit 10.28 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996. 10.29* Retirement Benefit Agreement dated February 26, 1992 between SFP and R. D. Krebs. Incorporated by reference to Exhibit 10(1) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1991. 10.30* Amended and Restated Trust Agreement dated as of April 1, 1994 by and between SFP and The Bank of New York. Incorporated by reference to Exhibit 10.31 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. 10.31* Trust Agreement dated as of July 26, 1994 by and between SFP and The Bank of New York. Incorporated by reference to Exhibit 10.33 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1995. 10.32* The Atchison, Topeka and Santa Fe Railway Company Incentive Compensation plan. Incorporated by reference to Exhibit 10(n) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1991. 10.33* Burlington Northern Santa Fe Long Term Incentive Stock Plan. Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No. 33-63247). 10.34* Santa Fe Pacific Corporation Supplemental Retirement and Savings Plan. Incorporated by reference to Exhibit 10(s) to SFP's Report on Form 10- K for the fiscal year ended December 31, 1993.
- -------- * Management contract or compensatory plan or arrangement. E- 3
Exhibit Number Description ------- --------------------------------------------------------------------- 10.35* The Burlington Northern and Santa Fe Railway Company Severance Plan. Incorporated by reference to Exhibit 10.36 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1997. 10.36* Burlington Northern Santa Fe 1999 Stock Incentive Plan. Incorporated by reference to Appendix to BNSF's Proxy Statement dated March 8, 1999. 10.37* Form of indemnification agreement dated as of September 17, 1998 between BNSF and directors. 10.38* Form of indemnification agreement dated as of September 17, 1998 between BNSF and certain officers. 12 Computation of Ratio of Earnings to Fixed Charges. Incorporated by reference to Exhibit 12 to BNSF's Current Report on Form 8-K/A (Date of earliest event reported: February 8, 1999). 13 1998 Annual Report to Shareholders of BNSF (Consolidated Financial Highlights on page 1, and pages 15-40, only.) 21 Subsidiaries of BNSF. 23 Consent of PricewaterhouseCoopers LLP. 24 Power of Attorney 27.1 Financial Data Schedule (for the year ended December 31, 1998). 27.2 Financial Data Schedule (restated for the quarter ended March 31, 1998). 27.3 Financial Data Schedule (restated for the quarter ended June 30, 1998). 27.4 Financial Data Schedule (restated for the quarter ended September 30, 1998). 27.5 Financial Data Schedule (restated for the year ended December 31, 1997). 27.6 Financial Data Schedule (restated for the quarter ended March 31, 1997). 27.7 Financial Data Schedule (restated for the quarter ended June 30, 1997). 27.8 Financial Data Schedule (restated for the quarter ended September 30, 1997). 27.9 Financial Data Schedule (restated for the year ended December 31, 1996).
- -------- * Management contract or compensatory plan or arrangement. E-4 EX-4.2 2 FORM OF BNSF'S 6-1/8% NOTE DUE MARCH 15, 2009 EXHIBIT 4.2 BURLINGTON NORTHERN SANTA FE CORPORATION 6 1/8% NOTE DUE MARCH 15, 2009 CUSIP NO. 12189TAM6 $200,000,000.00 THIS SECURITY IS A GLOBAL, SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF, THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. BURLINGTON NORTHERN SANTA FE CORPORATION, a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars on March 15, 2009, and to pay interest thereon from March 10, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 1999, at the rate of 6.125% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: March 10, 1999 BURLINGTON NORTHERN SANTA FE CORPORATION By.................................... Patrick J. Ottensmeyer Vice President - Finance and Treasurer Attest: ............................ Jeffrey T. Williams Assistant Secretary This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE FIRST NATIONAL BANK OF CHICAGO, As Trustee By..................................... Authorized Officer This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of December 1, 1995 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The First National Bank of Chicago, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. The Securities of this series are subject to redemption upon not less than 30 and not more than 60 days' notice by mail, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of (i) 100% of their principal amount or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Officers' Certificate establishing the Securities of this series), plus 15 basis points, plus in either case accrued interest to the date of redemption. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder, upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding. For 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-4.3 3 FORM OF BNSF'S 6-3/4% DEBENTURE DUE MARCH 15, 2009 EXHIBIT 4.3 BURLINGTON NORTHERN SANTA FE CORPORATION 6 3/4% DEBENTURE DUE MARCH 15, 2029 CUSIP NO. 12189TAN4 $200,000,000.00 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. BURLINGTON NORTHERN SANTA FE CORPORATION, a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars on March 15, 2029, and to pay interest thereon from March 10, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 1999, at the rate of 6.750% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: March 10, 1999 BURLINGTON NORTHERN SANTA FE CORPORATION By....................................... Patrick J. Ottensmeyer Vice President - Finance and Treasurer Attest: ........................... Jeffrey T. Williams Assistant Secretary This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE FIRST NATIONAL BANK OF CHICAGO. As Trustee By....................................... Authorized Officer This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of December 1, 1995 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The First National Bank of Chicago, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. The Securities of this series are subject to redemption upon not less than 30 and not more than 60 days' notice by mail, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of (i) 100% of their principal amount or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Officers' Certificate establishing the Securities of this series), plus 15 basis points, plus in either case accrued interest to the date of redemption. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder, upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth. Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-4.4 4 FORM OF 6.70% DEBENTURE DUE AUGUST 15, 2008 Exhibit 4.4 ----------- Burlington Northern Santa Fe Corporation 6.70% Debenture due August 1, 2028 CUSIP No.12189TAJ3 $200,000,000.00 This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be registered, in the name of any Person other than such Depositary or a nominee thereof, except in the limited circumstances described in the Indenture. BURLINGTON NORTHERN SANTA FE CORPORATION, a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars on August 1, 2028, and to pay interest thereon from July 30, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 1 and August 1 in each year, commencing February 1, 1999, at the rate of 6.70% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. In Witness Whereof, the Company has caused this instrument to be duly executed under its corporate seal. Dated: July 30, 1998 BURLINGTON NORTHERN SANTA FE CORPORATION By....................................... Paul J. Weyandt Assistant Vice President - Finance and Assistant Treasurer Attest: ............................... Jeffrey T. Williams Assistant Secretary This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE FIRST NATIONAL BANK OF CHICAGO, As Trustee By....................................... Authorized Officer This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of December 1, 1995 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The First National Bank of Chicago, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. The Securities of this series are subject to redemption upon not less than 30 and not more than 60 days' notice by mail, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of (i) 100% of their principal amount or (ii) as determined by an Independent Investment Banker (as defined in the Officers' Certificate establishing the Securities of this series), the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the Officers' Certificate establishing the Securities of this series), plus, in each case, accrued interest thereon to the date of redemption. Unless the Company defaults in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Securities or portions thereof called for redemption. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder, upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-10.37 5 FORM OF INDEMNIFICATION AGRMNT. (BNSF AND DIRECTOR) Exhibit 10.37 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT is made as of the 17th day of September, 1998 by and between Burlington Northern Santa Fe Corporation, a Delaware corporation (the "Company"), and the undersigned (the "Indemnitee" and, together with other persons who may execute similar agreements, the "Indemnitees"). The Indemnitee currently is and in the future may be serving in one or more capacities as a director or officer of the Company or, at the request of the Company, as a director, officer, employee, agent, fiduciary, or trustee of, or in a similar capacity for, another corporation, partnership, joint venture, trust, employee benefit plan, or other entity, and in so doing is and will be performing a valuable service to or on behalf of the Company. The Board of Directors of the Company has determined that, in order to attract and retain qualified individuals, the Company will supplement the Company's liability insurance for officers and directors and the protection provided by the Company's By-Laws by providing the contractual assurances herein contained. The Indemnitee is willing to continue to serve and to undertake such additional duties and responsibilities for and on behalf of the Company as may be agreed to on the condition that he be indemnified contractually by the Company. As an inducement to the Indemnitee to continue to serve the Company, and in consideration for such continued service, the Company has therefore agreed to indemnify the Indemnitee and to advance certain expenses upon the terms set forth herein. In consideration of the promises and mutal covenants contained herein, and intending to be legally bound hereby, the Company and the Indemnitee agree as follows: 1. Indemnification --------------- (a) Except as provided in Sections 3 and 5 hereof, the Company shall indemnify the Indemnitee to the full extent permitted by law against any Liability incurred by or assessed against the Indemnitee in connection with any Proceeding in which the Indemnitee may be involved, as a party, a witness or otherwise, by reason of the fact that the Indemnitee is or was serving in any Official Capacity held now or in the future, including, without limitation, any Liability resulting from actual or alleged breach or neglect of duty, error, misstatement, misleading statement, omission, negligence, act giving rise to strict or product liability, act giving rise to liability for environmental contamination, or other act or omission, whether occurring prior to or after the date of this Agreement. As used in this Agreement: (1) "Liability" means any damage, judgement, amount paid in settlement, fine, penalty, punitive damage, or expense of any nature (including attorney's fees and expenses); (2) "Proceeding" means any threatened, pending, or completed action, suit, appeal, arbitration, or other proceeding of any nature, whether civil, criminal, administrative, or investigative, whether formal or informal, and whether brought by or in the right of the Company, a class of its security holders, or any other party; and (3) "Official Capacity" means service to the Company as director or officer or, at the request of the Company, as a director, officer, employee, agent, fiduciary, or trustee of, or in a similar capacity for, another corporation, partnership, joint venture, trust, employee benefit plan (including a plan qualified under the Employee Retirement Income Security Act of 1974), or other entity. (b) Notwithstanding Section 1(a) hereof, except for a Proceeding brought pursuant to Section 5(e) of this Agreement, the Company shall not indemnify the Indemnitee under this Agreement for any Liability incurred in a Proceeding initiated by the Indemnitee unless the Proceeding is authorized, either before or after commencement of the Proceeding, by the majority vote of a quorum of the Board of Directors of the Company. An affirmative defense or counterclaim of an Indemnitee shall not be deemed to constitute a Proceeding initiated by the Indemnitee. 2. Agreement to Serve and to Cooperate with the Company in any Proceeding. ---------------------------------------------------------------------- The Indemnitee agrees to serve or continue to serve for or on behalf of the Company in each Official Capacity held now or in the future for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing or such service is otherwise terminated pursuant to the Company's Certificate of Incorporation, By-Laws or the Delaware General Corporation law. The Indemnitee also agrees to cooperate with the Company in connection with the investigation, prosecution or defense of any proceeding for which indemnification or the advancement of expenses may be claimed hereunder. The foregoing notwithstanding, this Agreement shall continue in force after the Indemnitee has ceased to serve in any Official Capacity for or on behalf of the Company or any of its subsidiaries with respect to claims based on matters occurring before the Indemnitee ceased to serve in any Official Capacity. 3. Exclusions. ---------- (a) The Company shall not be liable under this Agreement to make any payment in connection with any Liability incurred by the Indemnitee: (1) to the extent payment for such Liability is made to or on behalf of the Indemnitee under an insurance policy obtained by the Company; (2) to the extent payment is made to or on behalf of the Indemnitee for such Liability by the Company under its Certificate of Incorporation, By-Laws, the Delaware General Corporation Law, or otherwise than pursuant to this Agreement; 2 (3) to the extent such Liability is determined in a final judgment pursuant to Section 5(e) hereof to be based upon or attributable to the Indemnitee gaining any personal profit or advantage to which such Indemnitee was not legally entitled; (4) for any claim by or on behalf of the Company for recovery of profits resulting from the purchase and sale or sale and purchase by such Indemnitee of equity securities of the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended; (5) for which the conduct of the Indemnitee has been determined in a final judgment pursuant to Section 5(e) hereof to constitute bad faith or active and deliberate dishonesty, in either such case material to the cause of action or claim at issue in the Proceeding; or (6) to the extent such indemnification has been determined in a final judgment pursuant to Section 5(e) hereof to be unlawful. (b) No act, omission, liability, knowledge, or other fact of or relating to any other person, including any other person who is also an Indemnitee, shall be imputed to the Indemnitee for the purposes of determining the applicability of any exclusion set forth herein. (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of ---- ---------- itself, create a presumption that the Indemnitee is not entitled to indemnification under this Agreement. 4. Advancement of Expenses. The Company shall pay any Liability in the nature of an expense (including attorneys' fees and expenses) incurred in good faith by the Indemnitee in advance of the final disposition of a Proceeding within twenty days of receipt of a demand for payment by the Indemnitee, and the Indemnitee undertakes to repay any such amount if it shall ultimately be determined pursuant to Section 5(e) hereof that the Indemnitee is not entitled to be indemnified by the Company pursuant to this Agreement. The financial ability of the Indemnitee to repay an advance shall not be a prerequisite to the making of such advance. 3 5. Indemnification Procedure. ------------------------- (a) The Indemnitee shall notify promptly the Secretary of the Company of the commencement of any Proceeding or the occurrence of any event which might give rise to a Liability under this Agreement, but the failure to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise. (b) The Company shall be entitled, upon notice to the Indemnitee, to assume the defense of any Proceeding with counsel reasonably satisfactory to the Indemnitee involved in such Proceeding or, if there be more than one Indemnitee involved in such Proceeding, to a majority of the Indemnitees involved in such Proceeding. The foregoing notwithstanding, the Indemnitee may elect to retain separate counsel to participate in the defense of such Proceeding and the fees and expenses of such separate counsel shall be borne by Indemnitee unless: (i) the engagement of sepatate counsel shall have been authorized by the Company, or (ii) the Company shall not in fact have employed counsel reasonably satisfactory to such Indemnitee or to the majority of Indemnitees if more than one is involved, to assume the defense of such Proceeding. (c) The Company shall not be required to obtain the consent of the Indemnitee to the settlement of any Proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential Liability. The Company shall not be liable for any amount paid by an Indemnitee in settlement of any Proceeding unless the Company has consented to such settlement, which consent shall not be unreasonably withheld. (d) In the event that a claim for indemnificatiion against liabilities arising under the Securities Act of 1933 (the "Act") (other than the payment by the Company of expenses incurred or paid by a director, officer, or controlling person of the Company in the successful defense of any action, suit, or proceeding) is asserted by a director, officer, or controlling person in connection with securities being registered under the Act, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of competent jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (e) If a claim under Section 1 of this Agreement is not paid in full by the Company within sixty days after a written claim has been received by the Company, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such suit. Any suit by the Indemnitee under this Agreement must be brought in the Delaware Court of Chancery. The Indemnitee shall be presumed to be entitled to indemnification under this Agreement upon submission of a written 4 claim, and thereafter the Company shall have the burden of proof to overcome the presumption that the Indemnitee is not so entitled. Neither the failure of the Company (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances nor any actual determination by the Company (including its Board of Directors, independent legal counsel or its stockholders) that the Indemnitee is not entitled to indemnification shall be a defense to the suit or create a presumption that the Indemnitee is not so entitled except to the extent required by law. (f) Upon a payment under this Agreement to the Indemnitee with respect to any Liability, the Company shall be subrogated to the extent of such payment to all of the rights of the Indemnitee to recover against any person with respect to such Liability, and the Indemnitee shall execute all documents and instruments required and shall take such other actions as may be necessary to secure such rights, including the execution of such documents as may be necessary for the Company to bring suit to enforce such rights. 6. Non-Exclusivity. The rights granted to the Indemnitee pursuant to this --------------- Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under statute, the provisions of any certificate of incorporation, by-laws, or agreement, a vote of stockholders or directors, or otherwise, both as to action in an Official Capacity and in any other capacity. 7. Reliance on Provisions. The Indemnitee shall be deemed to be acting in ---------------------- any Official Capacity in reliance upon the rights of indemnification provided by this Agreement. Without limiting the generality of the foregoing, the Company and the Indemnitee acknowledge the existence of Article X of the Company's By-Laws, and confirm that the Indemnitee is also acting in reliance thereon. 8. Severability and Reformation. Any provision of this Agreement which is ---------------------------- determined to be invalid or unenforceable in any jurisdiction or under any circumstances shall be ineffective only to the extent of such invalidity or unenforceability and shall be deemed reformed to the extent necessary to conform to the applicable law of such jurisdiction and still give maximum effect to the intent of the parties hereto. Any such determination shall not invalidate or render unenforceable the remaining provisions hereof and shall not invalidate or render unenforceable such provision in any other jurisdiction or under any other circumstances. 9. Notices. Any notice, claim, request, or demand required or permitted ------- hereunder shall be in writing and shall be deemed given if delivered personally or sent by facsimile or by registered or certified mail, first class, postage prepaid: (i) if to the Company, to Burlington Northern Santa Fe Corporation, 2650 Lou Menk Drive, Second Floor Fort Worth, Texas 76131-2830, Attention: Secretary, or (ii) if to any Indemnitee, to the address of such Indemnitee listed on the signature page hereto, or to such other address as any party hereto shall have specified in a notice duly given in accordance with this Section 10. 5 10. Amendments; Binding Effect. No amendment, modification, termination, or -------------------------- cancellation of this Agreement shall be effective unless signed in writing by the Company and the Indemnitee. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Indemnitee's heirs, executors, administrators, and personal representatives. 11. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first set forth above. BURLINGTON NORTHERN SANTA FE CORPORATION By: __________________________ Name: Robert D. Krebs Chairman, President and Chief Executive Officer Attest: ______________________ Secretary Indemnitee ______________________________ Name: Address: 6 EX-10.38 6 FORM OF INDEMNIFICATION AGRMNT. (BNSF AND OFFICERS) Exhibit 10.38 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT is made as of the 17th day of September, 1998 by and between Burlington Northern Santa Fe Corporation, a Delaware corporation (the "Company"), and the undersigned (the "Indemnitee" and, together with other persons who may execute similar agreements, the "Indemnitees"). The Indemnitee currently is and in the future may be serving in one or more capacities as a director or officer of the Company or, at the request of the Company, as a director, officer, employee, agent, fiduciary, or trustee of, or in a similar capacity for, another corporation, partnership, joint venture, trust, employee benefit plan, or other entity, and in so doing is and will be performing a valuable service to or on behalf of the Company. The Board of Directors of the Company has determined that, in order to attract and retain qualified individuals, the Company will supplement the Company's liability insurance for officers and directors and the protection provided by the Company's By-Laws by providing the contractual assurances herein contained. The Indemnitee is willing to continue to serve and to undertake such additional duties and responsibilities for and on behalf of the Company as may be agreed to on the condition that [he] [she] be indemnified contractually by the Company. As an inducement to the Indemnitee to continue to serve the Company, and in consideration for such continued service, the Company has therefore agreed to indemnify the Indemnitee and to advance certain expenses upon the terms set forth herein. In consideration of the promises and mutual covenants contained herein, and intending to be legally bound hereby, the Company and the Indemnitee agree as follows: 1. Indemnification --------------- (a) Except as provided in Sections 3 and 5 hereof, the Company shall indemnify the Indemnitee to the full extent permitted by law against any Liability incurred by or assessed against the Indemnitee in connection with any Proceeding in which the Indemnitee may be involved, as a party, a witness or otherwise, by reason of the fact that the Indemnitee is or was serving in any Official Capacity held now or in the future, including, without limitation, any Liability resulting from actual or alleged breach or neglect of duty, error, misstatement, misleading statement, omission, negligence, act giving rise to strict or product liability, act giving rise to liability for environmental contamination, or other act or omission, whether occurring prior to or after the date of this Agreement. As used in this Agreement: (1) "Liability" means any damage, judgment, amount paid in settlement, fine, penalty, punitive damage, or expense of any nature (including attorney's fees and expenses); (2) "Proceeding" means any threatened, pending, or completed action, suit, appeal, arbitration, or other proceeding of any nature, whether civil, criminal, administrative, or investigative, whether formal or informal, and whether brought by or in the right of the Company, a class of its security holders, or any other party; and (3) "Official Capacity" means service to the Company as director or officer or, at the request of the Company, as a director, officer, employee, agent, fiduciary, or trustee of, or in a similar capacity for, another corporation, partnership, joint venture, trust, employee benefit plan (including a plan qualified under the Employee Retirement Income Security Act of 1974), or other entity. (b) Notwithstanding Section 1(a) hereof, except for a Proceeding brought pursuant to Section 5(e) of this Agreement, the Company shall not indemnify the Indemnitee under this Agreement for any Liability incurred in a Proceeding initiated by the Indemnitee unless the Proceeding is authorized, either before or after commencement of the Proceeding, by the majority vote of a quorum of the Board of Directors of the Company. An affirmative defense or counterclaim of an Indemnitee shall not be deemed to constitute a Proceeding initiated by the Indemnitee. 2. Agreement to Serve and to Cooperate with the Company in any Proceeding. ---------------------------------------------------------------------- The Indemnitee agrees to serve or continue to serve for or on behalf of the Company in each Official Capacity held now or in the future for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing [for outside Directors - or such service is otherwise terminated pursuant to the Company's Certificate of Incorporation, By-Laws or the Delaware General Corporation Law]. [For officers - This Agreement shall not be deemed an employment contract between the Company or any of its subsidiaries and any Indemnitee who is an employee of the Company or any of its subsidiaries. The Indemnitee specifically acknowledges that the Indemnitee's employment with the Company or any of its subsidiaries, if any, is at will, and that the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between the Indemnitee and the Company or any of its subsidiaries, or other applicable formal severance policies duly adopted by the board of directors of the Indemnitee's employer.] The Indemnitee also agrees to cooperate with the Company in connection with the investigation, prosecution or defense of any proceeding for which indemnification or the advancement of expenses may be claimed hereunder. The foregoing notwithstanding, this Agreement shall continue in force after the Indemnitee has ceased to serve in any Official Capacity for or on behalf of the Company or any of its subsidiaries with respect to claims based on matters occurring before the Indemnitee ceased to serve in any Official Capacity. 3. Exclusions. ---------- (a) The Company shall not be liable under this Agreement to make any payment in connection with any Liability incurred by the Indemnitee: 2 (1) to the extent payment for such Liability is made to or on behalf of the Indemnitee under an insurance policy obtained by the Company; (2) to the extent payment is made to or on behalf of the Indemnitee for such Liability by the Company under its Certificate of Incorporation, By-Laws, the Delaware General Corporation Law, or otherwise than pursuant to this Agreement; (3) to the extent such Liability is determined in a final judgment pursuant to Section 5(e) hereof to be based upon or attributable to the Indemnitee gaining any personal profit or advantage to which such Indemnitee was not legally entitled; (4) for any claim by or on behalf of the Company for recovery of profits resulting from the purchase and sale or sale and purchase by such Indemnitee of equity securities of the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended; (5) for which the conduct of the Indemnitee has been determined in a final judgment pursuant to Section 5(e) hereof to constitute bad faith or active and deliberate dishonesty, in either such case material to the cause of action or claim at issue in the Proceeding; or (6) to the extent such indemnification has been determined in a final judgment pursuant to Section 5(e) hereof to be unlawful. (b) No act, omission, liability, knowledge, or other fact of or relating to any other person, including any other person who is also an Indemnitee, shall be imputed to the Indemnitee for the purposes of determining the applicability of any exclusion set forth herein. (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of ---- ---------- itself, create a presumption that the Indemnitee is not entitled to indemnification under this Agreement. 4. Advancement of Expenses. The Company shall pay any Liability in the ----------------------- nature of an expense (including attorneys' fees and expenses) incurred in good faith by the Indemnitee in advance of the final disposition of a Proceeding within twenty days of receipt of a demand for payment by the Indemnitee, and the Indemnitee undertakes to repay any such amount if it shall ultimately be determined pursuant to Section 5(e) hereof that the Indemnitee is not entitled to be indemnified by the Company pursuant to this Agreement. The financial ability of the Indemnitee to repay an advance shall not be a prerequisite to the making of such advance. 3 5. Indemnification Procedure. ------------------------- (a) The Indemnitee shall notify promptly the Secretary of the Company of the commencement of any Proceeding or the occurrence of any event which might give rise to a Liability under this Agreement, but the failure to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise. (b) The Company shall be entitled, upon notice to the Indemnitee, to assume the defense of any Proceeding with counsel reasonably satisfactory to the Indemnitee involved in such Proceeding or, if there be more than one Indemnitee involved in such Proceeding, to a majority of the Indemnitees involved in such Proceeding. The foregoing notwithstanding, the Indemnitee may elect to retain separate counsel to participate in the defense of such Proceeding and the fees and expenses of such separate counsel shall be borne by Indemnitee unless; (i) the engagement of separate counsel shall have been authorized by the Company, or (ii) the Company shall not in fact have employed counsel reasonably satisfactory to such Indemnitee or to the majority of Indemnitees if more than one is involved, to assume the defense of such Proceeding. (c) The Company shall not be required to obtain the consent of the Indemnitee to the settlement of any Proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential Liability. The Company shall not be liable for any amount paid by an Indemnitee in settlement of any Proceeding unless the Company has consented to such settlement, which consent shall not be unreasonably withheld. (d) In the event that a claim for indemnification against liabilities arising under the Securities Act of 1933 (the "Act") (other than the payment by the Company of expenses incurred or paid by a director, officer, or controlling person of the Company in the successful defense of any action, suit, or proceeding) is asserted by a director, officer, or controlling person in connection with securities being registered under the Act, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of competent jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (e) If a claim under Section 1 of this Agreement is not paid in full by the Company within sixty days after a written claim has been received by the Company, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such suit. Any suit by the Indemnitee under this Agreement must be brought in the Delaware Court of Chancery. The Indemnitee shall be presumed to be entitled to indemnification under this Agreement upon submission of a written 4 claim, and thereafter the Company shall have the burden of proof to overcome the presumption that the Indemnitee is not so entitled. Neither the failure of the Company (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances nor any actual determination by the Company (including its Board of Directors, independent legal counsel or its stockholders) that the Indemnitee is not entitled to indemnification shall be a defense to the suit or create a presumption that the Indemnitee is not so entitled except to the extent required by law. (f) Upon a payment under this Agreement to the Indemnitee with respect to any Liability, the Company shall be subrogated to the extent of such payment to all of the rights of the Indemnitee to recover against any person with respect to such Liability, and the Indemnitee shall execute all document and instruments required and shall take such other actions as may be necessary to secure such rights, including the execution of such documents as may be necessary for the Company to bring suit to enforce such rights. 6. Non-Exclusivity. The rights granted to the Indemnitee pursuant to this --------------- Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under statute, the provisions of any certificate of incorporation, by-laws, or agreement, a vote of stockholders or directors, or otherwise, both as to action in an Official Capacity and in any other capacity. 7. Reliance on Provisions. The Indemnitee shall be deemed to be acting in ---------------------- any Official Capacity in reliance upon the rights of indemnification provided by this Agreement Without limiting the generality of the foregoing, the Company and the Indemnitee acknowledge the existence of Article X of the Company's By-Laws, and confirm that the Indemnitee is also acting in reliance thereon. 8. Severability and Reformation. Any provision of this Agreement which is ---------------------------- determined to be invalid or unenforceable in any jurisdiction or under any circumstances shall be ineffective only to the extent of such invalidity or unenforceability and shall be deemed reformed to the extent necessary to conform to the applicable law of such jurisdiction and still give maximum effect to the intent of the parties hereto. Any such determination shall not invalidate or render unenforceable the remaining provisions hereof and shall not invalidate or render unenforceable such provision in any other jurisdiction or under any other circumstances. 9. Notices. Any notice, claim, request, or demand required or permitted ------- hereunder shall be in writing and shall be deemed given if delivered personally or sent by facsimile or by registered or certified mail, first class, postage prepaid: (i) if to the Company, to Burlington Northern Santa Fe Corporation, _________________, Attention: Secretary, or (ii) if to any Indemnitee, to the address of such Indemnitee listed on the signature page hereto, or to such other address as any party hereto shall have specified in a notice duly given in accordance with this Section 10. 5 10. Amendments; Binding Effect. No amendment, modification, termination, or -------------------------- cancellation of this Agreement shall be effective unless signed in writing by the Company and the Indemnitee. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Indemnitee's heirs, executors, administrators, and personal representatives. 11. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first set forth above. BURLINGTON NORTHERN SANTA FE CORPORATION By: _______________________ Name: Robert D. Krebs Chairman, President & CEO Attest: _____________________ [Assistant] Secretary Indemnitee ____________________________ Name: Address: 6 EX-13 7 1998 ANNUAL REPORT EXHIBIT 13.1 CONSOLIDATED FINANCIAL HIGHLIGHTS Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions, except per share data) The selected financial data shown below include BNSF results for each of the years ended December 31, 1998, 1997 and 1996, Burlington Northern Inc. results for each of the two years ended December 31, 1995, and Santa Fe Pacific Corporation results from September 22, 1995 through December 31, 1995.
- --------------------------------------------------------------------------------------------------------- December 31, 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED: Revenues $ 8,941 $ 8,370 $ 8,109 $ 6,099 $4,894 Operating income/(1)/ 2,158 1,767 1,748 526 853 Income before extraordinary item and cumulative effect of change in accounting method/(2)/ 1,155 885 889 198 426 Accounting change/Extraordinary item/(3)(4)/ -- -- -- (106) (10) Net income $ 1,155 $ 885 $ 889 $ 92 $ 416 Earnings available for common stockholders $ 1,155 $ 885 $ 889 $ 71 $ 394 Basic earnings per share:/(5)/ Before extraordinary item and change in accounting method $ 2.45 $ 1.91 $ 1.95 $ .57 $ 1.51 Accounting change/Extraordinary item -- -- -- (.34) (.04) Basic earnings per share $ 2.45 $ 1.91 $ 1.95 $ .23 $ 1.47 Average shares (in millions) 470.5 464.4 456.3 313.2 267.3 Diluted earnings per share:/(5)/ Before extraordinary item and change in accounting method $ 2.43 $ 1.88 $ 1.91 $ .55 $ 1.46 Accounting change/Extraordinary item -- -- -- (.33) (.03) Diluted earnings per share $ 2.43 $ 1.88 $ 1.91 $ .22 $ 1.43 Average shares (in millions) 476.2 471.1 464.4 317.7 291.3 Dividends declared per common share/(5)/ $ .44 $ .40 $ .40 $ .40 $ .40 - -------------------------------------------------- ------- ------- ------- ------- ------ AT YEAR END: Total assets $22,690 $21,336 $19,763 $18,269 $7,592 Long-term debt and commercial paper, including current portion 5,456 5,289 4,711 4,233 1,819 Stockholders' equity 7,770 6,812 5,981 5,037 2,237 Total debt to capital 41% 44% 44% 46% 45% - -------------------------------------------------- ------- ------- ------- ------- ------ FOR THE YEAR ENDED: Capital expenditures $ 2,147 $ 2,182 $ 2,234 $ 890 $ 698 Depreciation and amortization 832 773 760 520 362 Operating ratio/(6)/ 75.9% 77.8% 78.4% 79.3% 82.6% - -------------------------------------------------- ------- ------- ------- ------- ------
(1) 1997 and 1995 include $90 million ($57 million after-tax) and $735 million ($453 million after-tax), respectively, for special charges principally related to employee merger and separation costs. (2) Includes items in note (1) above. Additionally, 1998 includes a $32 million after tax gain on the sale of substantially all of the Company's interest in Santa Fe Pacific Pipeline Partners, L.P. as discussed in Note 2 of the financial statements. (3) 1995 includes the cumulative effect of the change in accounting method for locomotive overhauls which decreased net income by $100 million. Additionally, 1995 includes an extraordinary loss on retirement of debt of $6 million (after tax). (4) 1994 includes the cumulative effect of the implementation of the accounting standard for post-employment benefits. (5) Information for prior periods has been restated to reflect the 1998 three- for-one common stock split. (6) 1997 and 1995 operating ratios exclude the pre-tax charges discussed in note (1) above. BURLINGTON NORTHERN SANTA FE CORPORATION 1 FINANCIAL CONTENTS 15 Management's Discussion and Analysis 25 Report of Management 25 Report of Independent Accountants 26 Consolidated Statement of Income 27 Consolidated Balance Sheet 28 Consolidated Statement of Cash Flows 29 Consolidated Statement of Changes in Stockholders' Equity 30 Notes to Consolidated Financial Statements - -------------------------------------------------------------- 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 or Company). The principal 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. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 BNSF recorded net income for 1998 of $1,155 million ($2.43 per share), compared with net income of $885 million ($1.88 per share) for 1997 principally reflecting increased revenues in intermodal, coal and other sectors. More moderate winter weather in the first quarter of 1998 relative to 1997, gains on real estate portfolio sales and a first quarter 1998 $67 million pre-tax gain ($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. also contributed to the improvement. In addition, 1997 included a $90 million pre-tax special charge ($57 million after-tax or $0.12 per share) principally related to the consolidation of clerical functions (see Other Matters: Employee Merger and Separation Costs). Excluding the 1998 gain on the pipelines sale and the 1997 special charge, BNSF's adjusted net income for 1998 was $1,123 million ($2.36 per share) compared with 1997 adjusted net income of $942 million ($2.00 per share). - -------------------------------------------------------------------------------- REVENUE TABLE The following table presents BNSF's revenue information by commodity for the years ended December 31, 1998, 1997 and 1996 and includes certain reclassifications of prior year information to conform to current year presentation.
Revenues Car/Units Average Revenue Per Car/Units ------------------------------ ---------------------------- ----------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 (IN MILLIONS) (IN THOUSANDS) ------ ------ ------ ------ ------ ------ ------ ------ ------ Intermodal $2,469 $2,282 $2,039 3,126 2,854 2,570 $ 790 $ 800 $ 793 Coal 2,239 1,972 1,973 2,078 1,862 1,854 1,077 1,059 1,064 Agriculture Commodities 1,077 1,087 1,171 581 577 587 1,854 1,884 1,995 Chemicals 841 812 782 504 482 460 1,669 1,685 1,700 Metals and Minerals 757 731 693 660 622 628 1,147 1,175 1,104 Forest Products 598 564 548 344 335 334 1,738 1,684 1,641 Consumer Goods 553 497 468 365 349 308 1,515 1,424 1,519 Automotive 388 422 396 226 264 251 1,717 1,598 1,578 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Freight Revenues 8,922 8,367 8,070 7,884 7,345 6,992 $1,132 $1,139 $1,154 ====== ====== ====== ====== ====== ====== Other Revenues 19 3 39 - ------------------------- ------ ------ ------ Total Revenues $8,941 $8,370 $8,109 ========================= ====== ====== ======
REVENUES Total revenues for 1998 were $8,941 million, 7 percent or $571 million higher than revenues of $8,370 million for 1997. The increase primarily reflects increases in the intermodal, coal, chemicals, metals and minerals, forest products, and consumer goods sectors partially offset by lower agricultural commodities and automotive revenues. Average revenue per car/unit decreased slightly in 1998 to $1,132 from $1,139 in 1997. During 1998, BNSF's share of the Western United States (U.S.) rail traffic market, based on reporting to the Association of American Railroads (AAR), increased 2.9 points to 44.3 percent. This gain was primarily the result of the trackage rights gained from Union Pacific Corporation (UP) and operating problems experienced by the UP associated with consolidating operations. Intermodal revenues of $2,469 million improved $187 million or 8 percent compared with 1997 reflecting increases in the direct marketing, international and truckload 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 higher volume associated with market share gains BURLINGTON NORTHERN SANTA FE CORPORATION 15 and new business established with Sealand, NYK, Maersk and K-Line. Truckload revenues increased primarily due to volume growth from J.B. Hunt and Schneider. Coal revenues of $2,239 million for 1998 increased $267 million or 14 percent primarily due to strong demand, volume gains associated with market share improvements and favorable operating conditions as a result of a more moderate winter in 1998. Agricultural commodities revenues of $1,077 million for 1998 were $10 million or 1 percent lower than 1997 due to poor Pacific Northwest (PNW) corn and soybeans exports as well as weak barley exports. This was partially offset by increased movements of minor oilseeds exports. Chemicals revenues of $841 million for 1998 were $29 million or 4 percent higher than 1997. Increases in industrial chemicals, petroleum products and plastics were partially offset by weak fertilizer markets. Metals and minerals revenues of $757 million for 1998 were $26 million or 4 percent higher than 1997 and were led primarily by strength in aluminum and non- ferrous materials as well as volume increases in steel products, cement and rock and specialty minerals. Forest products revenues of $598 million for 1998 were $34 million or 6 percent higher than 1997 primarily due to printing paper volume gains as 1997 was impacted by severe winter weather, increased Canadian newsprint imports and pulpboard volume gains as a result of market share gains. Lumber volumes increased due to higher levels of construction activity. Consumer goods revenues of $553 million for 1998 were $56 million or 11 percent higher than 1997 primarily due to volume increases in corn syrup traffic to Mexico, Texas and California and increased sugar traffic as 1997 was impacted by severe winter weather. Government and machinery revenues increased as a result of increased Boeing traffic. Automotive revenues of $388 million for 1998 were $34 million or 8 percent lower than 1997 reflecting decreases in volumes due to the loss of Ford's Southwestern U.S. business and the impact of the 1998 General Motors strike, partially offset by strong Honda loadings. EXPENSES Total operating expenses for 1998 were $6,783 million, an increase of $180 million or 3 percent higher than 1997. As discussed above, 1997 included a $90 million ($57 million after-tax) special charge principally related to the consolidation of clerical functions. Excluding the special charge, 1998 operating expenses were $270 million or 4 percent higher than 1997. The operating ratio improved to 75.9 percent for 1998 compared with a 77.8 percent adjusted operating ratio for 1997. Compensation and benefits expenses of $2,812 million were $137 million or 5 percent higher than 1997. Wages were higher due to volume related increases primarily in train crew costs, wage increases for salaried and union employees, and increased incentive compensation expense. These increases were partially offset by lower labor costs associated with repairs to track and equipment as 1997 was unusually high because of severe winter weather. Purchased services expenses of $894 million for 1998 were $71 million or 9 percent higher than 1997 due principally to higher joint facility costs from increased operations over trackage rights obtained from UP, increased equipment maintenance costs, and higher ramping costs related to increased intermodal volumes. Equipment rents expenses of $804 million were $16 million or 2 percent lower than 1997. Improved equipment utilization and lower performance penalties for grain cars were partially offset by volume driven increases for leased coal cars and locomotives. Fuel expenses of $724 million for 1998 were $23 million or 3 percent lower than 1997, as a result of a 6 cent or 8 percent decrease in the average all-in cost per gallon of diesel fuel, partially offset by a 6 percent volume driven increase in consumption from 1,092 million gallons to 1,155 million gallons. The decrease in the average all-in cost per gallon of diesel fuel includes a 13 cent decrease in the average purchase price, partially offset by current year losses related to BNSF's fuel hedging program. Gross ton-miles per gallon of fuel increased 4 percent reflecting a continuing favorable operating trend resulting from new, fuel efficient locomotives and more fuel efficient operating practices. Materials and other expenses of $717 million for 1998 were $42 million or 6 percent higher than 1997 principally due to lower credits from joint facility billings due to lower UP traffic levels on BNSF facilities. Other expenses in 1997 also included more income from the sale of easements and higher tax incentives from the State of Nebraska related to investment and employment levels in the state. Interest expense for 1998 increased by $10 million to $354 million reflecting higher debt levels which increased to $5,456 million at December 31, 1998 from $5,289 million at December 31, 1997, partially offset by lower interest rates. Other income (expense), net was favorable by $64 million compared to 1997 primarily due to the $67 million pre-tax gain on the pipeline partnership sale in the first quarter of 1998 as discussed in Note 2: Sale of Investment in Pipeline Partnership. In addition, lower equity in earnings of pipelines due to the first quarter sale of this investment was offset by gains on real estate portfolio sales. 16 BURLINGTON NORTHERN SANTA FE CORPORATION YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 BNSF recorded net income for 1997 of $885 million ($1.88 per share), compared with net income of $889 million ($1.91 per share) for 1996. The decrease in net income is primarily due to a fourth quarter special charge of $90 million ($57 million after-tax or $.12 per share) principally related to the consolidation of clerical functions (see Other Matters: Employee Merger and Separation Costs). This was largely offset by improved operating results in 1997 despite severe weather conditions in the first quarter of 1997 throughout the Northern Plains and the PNW. The financial impact of recurring and protracted outages on many parts of the system, the cost of repairing track, signals and equipment, and the operating inefficiencies caused by the weather is virtually impossible to measure with precision. However, the Company estimates that the severe weather in the first quarter of 1997 resulted in lost revenue opportunities of approximately $100 million and increased operating expenses by at least $50 million. Excluding the fourth quarter special charge, net income for 1997 was $942 million ($2.00 per share) compared with 1996 net income of $889 million ($1.91 per share). REVENUES Total revenues for 1997 were $8,370 million or 3 percent higher compared with revenues of $8,109 million for 1996. The $261 million increase primarily reflects increases in the intermodal, consumer goods, metals and minerals, chemicals, automotive, and forest products sectors partially offset by lower agricultural commodities revenues. Average revenue per car/unit decreased slightly in 1997 to $1,139 from $1,154 in 1996. During 1997, BNSF'S share of the Western U.S. rail traffic market, based on reporting to the AAR, increased 1.8 points to 41.4 percent. This gain was primarily the result of the trackage rights gained from UP and operating problems experienced by the UP associated with consolidating operations. Intermodal revenues improved $243 million or 12 percent compared with 1996, due to increased volume growth in the direct, international, truckload, and international marketing companies sectors. The direct sector experienced a 14 percent growth in revenues primarily due to an 18 percent gain in loadings. Direct sector growth was due to volume increases from LTL shipments led by Yellow Freight, Consolidated Freightways and Roadway. LTL volume from Yellow Freight, Consolidated Freightways, and Roadway has grown substantially all year with growth accelerating in the 2nd, 3rd, and 4th quarters in particular due to Yellow Freight's change of operations completed in April 1997. International revenues increased 10 percent from 1996 due to an 8 percent increase in units moved. International growth has been the result of a strong import economy and increased market share by steamship lines such as Hyundai, OOCL, and Cosco. Truckload revenues increased 21 percent due to a 20 percent increase in loadings, primarily attributable to strength in the Company's Chicago to California and Southeast to California corridors. Agricultural commodities revenues decreased $84 million, or 7 percent, due primarily to a decrease in shipments of wheat for export in the first and second quarters due to the U.S. uncompetitiveness in the world market and severe weather conditions in the Northern Plains and PNW in the first quarter. Some of the volume losses were partially offset by an increased number of shorter haul, lower revenue movements from the southern U.S. plains wheat region. Agricultural commodities revenues were also unfavorably impacted by lower revenue per car for corn movements and volume declines in barley traffic. Chemicals revenues increased $30 million, or 4 percent, primarily due to higher demand for petroleum products and plastics. Chemicals carloadings increased 4 percent due to additional traffic from Texas Gulf Coast shippers. Rate increases in petroleum products offset average revenue per car decreases in agricultural minerals and industrial products. Metals and minerals revenues increased $38 million, or 5 percent, primarily due to strength in steel products as well as volume increases in clay and aggregates, sand, rock and specialty minerals and sodium compounds. This was partially offset by a decrease in shipments of cement, gypsum and lime. Consumer goods revenues increased $29 million, or 6 percent, primarily due to growth in the government and machinery and bulk foods sectors. Overall consumer goods carloadings increased 13 percent. Volume gains in bulk foods were the result of strong corn syrup and sugar loadings, while gains in government and machinery was the result of special moves for Boeing and additional military movements. Automotive revenues increased $26 million, or 7 percent, due to a 5 percent volume gain in motor vehicle and vehicle parts traffic. BNSF experienced gains in units moved for Honda and General Motors which were partially offset by reduced Ford shipments. Revenue per revenue ton mile decreased 9 percent due to changes in the traffic mix. EXPENSES Total operating expenses for 1997 were $6,603 million or $242 million higher compared with expenses of $6,361 million for 1996. As discussed above, the Company recorded a $90 million ($57 million after-tax) special charge in the fourth quarter of 1997 primarily related to the consolidation of clerical functions. Excluding the special charge, operating expenses for 1997 were $6,513 million, $152 million or 2 percent higher than 1996. The adjusted operating ratio for 1997 was 77.8 percent, compared with an operating ratio of 78.4 percent for 1996. Compensation and benefits expenses of $2,675 million were $114 million or 4 percent higher than 1996. A majority BURLINGTON NORTHERN SANTA FE CORPORATION 17 of the increase was due to higher labor costs associated with weather-related repairs to track and equipment and slower operations. Wages were also higher due to volume related increases in train crew costs and wage increases for salaried and union employees. Purchased services expenses of $823 million increased $23 million, or 3 percent, compared with 1996 due to higher ramping and drayage costs related to increased intermodal volumes. Joint facility costs were also higher due to operations over trackage rights gained as a condition of the merger of UP and Southern Pacific Corporation. This increase was partially offset by lower professional service expenses. Equipment rents expenses of $820 million were $84 million, or 11 percent, higher than 1996. Lower equipment utilization and higher volumes resulted in increased locomotive rents and higher time and mileage expenses for rail car and intermodal trailers and flat cars. In addition, equipment related performance penalties for grain cars increased $19 million from 1996. Fuel expenses of $747 million were $20 million higher than in 1996 due to a 1 percent increase in the average price paid per gallon of diesel fuel as well as a 2 percent increase in consumption due to volume. Gross ton miles per gallon of fuel increased by 2 percent due to additional new, fuel-efficient locomotives and the adoption of more fuel-efficient operating practices. Materials and other expenses of $675 million were $102 million lower than 1996 partially due to lower derailment and personal injury expenses reflecting the continuing benefits of employee safety programs. Other expenses were also reduced by income from the sale of signboard easements and tax incentives from the State of Nebraska related to investment and employment levels in the state. Interest expense of $344 million was $43 million higher than in 1996, primarily due to higher debt levels, which increased from $4,711 million at December 31, 1996 to $5,289 million at December 31, 1997. Other income (expense), net was $12 million below 1996. The increase in expense is due to higher fees from the sale of accounts receivable reflecting an increase in receivables sold and lower profits from land sales. Income tax expense of $519 million was $32 million lower in 1997 due to lower pre-tax income and a lower effective tax rate due to adjustments to prior years' tax estimates. 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 ageements. The bank revolving credit agreements allow borrowings of up to $425 million on a short-term basis and $1.5 billion on a long-term basis. Annual facility fees are currently 0.075 percent and 0.09 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 were extended on November 12, 1998 and are currently scheduled to expire on June 15, 1999. The commitments of the lenders under the long-term agreement are scheduled to expire on November 12, 2002. At December 31, 1998, there were no borrowings against the revolving credit agreements and the maturity value of commercial paper outstanding was $474 million, leaving a total remaining capacity of $1,026 million available under the long-term revolving credit agreement and $425 million available under the short-term credit agreement. OPERATING ACTIVITIES Net cash provided by operating activities was $2,218 million during 1998 compared with $1,814 million during 1997. The increase in cash from operations was primarily due to higher net income before depreciation and amortization and deferred taxes, a decrease in cash used for working capital reflecting the timing of payments, and a decrease in payments for employee merger and separation costs. INVESTING ACTIVITIES Net cash used for investing activities during 1998 was $2,418 million, principally comprised of $2,147 million in capital expenditures. A breakdown of cash capital expenditures is set forth in the following table (in millions):
Year ended December 31, 1998 1997 1996 - ----------------------- ------ ------ ------ Maintenance of Way $ 917 $ 974 $ 854 Equipment 583 572 514 Expansion Projects 488 428 439 Other 159 208 427 - ----------------------- ------ ------ ------ Total $2,147 $2,182 $2,234 - ----------------------- ------ ------ ------
18 BURLINGTON NORTHERN SANTA FE CORPORATION Maintenance of way expenditures for 1998 decreased primarily due to use of a higher proportion of second hand rail and reduced tie renewal projects. Equipment expenditures were higher in 1998 reflecting increases for remanufactured freight cars, mechanical shops and shop machinery, partially offset by lower locomotive purchases as more locomotives were acquired through operating leases. Expansion projects in both 1998 and 1997 principally reflect double and triple tracking of main line track and expansion of intermodal terminals. Other projects for 1998 decreased primarily as a result of spending for merger related improvements in 1997 which did not occur in 1998, partially offset by higher capitalized software and computer hardware costs. BNSF has entered into commitments to acquire 476 locomotives in 1999. The locomotives 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 and other factors at the time of financing. Beginning in 2000, the Company expects new locomotive acquisitions to significantly decline compared to 1999. BNSF has currently committed to acquire 196 and 50 locomotives in 2000 and 2001, respectively. FINANCING ACTIVITIES Net cash provided by financing activities during 1998 was $194 million, primarily related to net proceeds from total debt of $440 million and proceeds from stock options exercised of $111 million, partially offset by dividend payments of $197 million and common share repurchases of $153 million. In March 1998, BNSF issued $100 million of 6.05 percent medium-term notes due March 15, 2031, under the August 1997 shelf registration of debt securities. The notes included a provision that gave the Company a call option to purchase all of the notes from the holders in 2001. In connection with the debt issuance, the Company sold the call option to a third party and received cash of $4 million, which has been deferred and is being amortized to interest expense over the life of the debt. If the third party exercises the call option, the third party will repurchase the notes from the holders and remarket them. If the call option is not exercised, the Company must repurchase the notes from the holders. The net proceeds from the sale of the notes were used for general corporate purposes including the repayment of commercial paper. Subsequent to this transaction, the August 1997 shelf registration had $250 million of potential borrowings remaining. In March 1998, the Company filed a shelf registration of debt securities, including medium-term notes that may be issued in one or more series at an aggregate offering price not to exceed $500 million. In April 1998, prior to the effective date of the March 1988 shelf registration, the Company amended the August 1997 shelf registration to combine it with the March 1998 shelf registration. In July 1998, BNSF issued $200 million of 6.70 percent debentures due August 1, 2028, and in November 1998 BNSF issued $200 million of puttable reset debentures (PURS) due May 13, 2029, under the March 1998 shelf registration of debt securities. The net proceeds from the sale of the debentures were used for general corporate purposes, including the repayment of commercial paper. As of December 31, 1998, the March 1998 shelf registration had $350 million of potential borrowings remaining. The PURS included a provision that gave the Company a call option to purchase all of the debentures from the holders on May 13, 1999. In connection with the debt issuance, the Company sold the call option to a third party and received cash of $12 million, which was deferred and is being amortized to interest expense over the life of the debt. In addition, the Company closed out $200 million of treasury lock transactions at a loss of approximately $11 million which was deferred and is being amortized to interest expense over the life of the debt. Until May 13, 1999, the PURS will have a floating interest rate based upon the one month LIBOR rate plus 0.75 percent. On May 13, 1999, either the third party will exercise the call option or the PURS will be put back to the Company by the holders. If the third party exercises the call option, the third party will repurchase the PURS from the holders and remarket them. The interest rate paid by the Company will be reset to a fixed interest rate until maturity in 2029 of approximately 5.67 percent plus a credit spread to be determined at that time. If the call option is not exercised, the Company must repurchase the PURS from the holders. During 1998, BNSF Railway entered into $258 million of equipment secured debt of which $173 million was recorded as capital lease obligations. In February 1999, the Company filed a new shelf registration of debt securities that may be issued in one or more series at an aggregate offering price not to exceed $750 million. As of February 8, 1999, the shelf registration had not yet been declared effective. When it becomes effective, the Company will have $1.1 billion of borrowing capacity available through the combined shelf registrations. Aggregate long-term debt scheduled to mature in 1999 is $268 million, excluding the $200 million PURS due 2029 which may be redeemed in 1999 as discussed above. BNSF's ratio of total debt to total capital was 41 percent at the end of 1998 and 44 percent at the end of both 1997 and 1996. During 1998, the Company began share repurchase activity under a 30 million share common stock repurchase program approved by the Board of Directors in July 1997. BURLINGTON NORTHERN SANTA FE CORPORATION 19 During 1997 there were no share repurchases made under this program. During 1998, the Company repurchased approximately 5 million shares of its common stock at an average price of $30.75 per share. In connection with its share repurchase program, during 1998 BNSF sold equity put options for 3 million shares of BNSF common stock to an independent third party and received cash proceeds of $2 million. All of the equity put options expired unexercised. Repurchased shares are available to satisfy future requirements of various stock-based employee compensation programs. Management considers many factors which include, among other things, economic and market business conditions and outlook, alternative uses of cash and debt, balance sheet ratios, and stockholder returns when evaluating the timing of share repurchases. COMMON STOCK SPLIT On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All equity-based benefit plans reflect the issuance of additional shares or options due to the declaration of the stock split. All share and per share data have been restated to reflect the stock split. DIVIDENDS Common stock dividends declared were $0.44, $0.40 and $0.40 per common share annually for 1998, 1997 and 1996, respectively. Dividends paid on common stock were $197 million, $185 million and $184 million during 1998, 1997 and 1996, respectively. On July 16, 1998, the Board of Directors increased by 20 percent the amount of its regular quarterly dividend from 10 cents per share to 12 cents per share. The dividend increase was effective beginning with the 1998 third quarter dividend which was paid on October 1, 1998. On January 21, 1999, the Board of Directors declared a quarterly dividend of 12 cents per share upon its outstanding shares of common stock, $.01 par value, payable April 1, 1999, to stockholders of record on March 10, 1999. OTHER MATTERS CASUALTY AND ENVIRONMENTAL Personal injury claims, including work-related injuries to employees, are a significant expense for the railroad industry. Employees of BNSF are compensated for work-related injuries according to the provisions of the Federal Employers' Liability Act (FELA). FELA's system of requiring finding of fault, coupled with unscheduled awards and reliance on the jury system, contributed to significant increases in expense in past years. BNSF has implemented a number of safety programs to reduce the number of personal injuries as well as the associated claims and personal injury expense. BNSF made personal injury payments of approximately $193 million, $210 million, and $249 million in 1998, 1997 and 1996, respectively. As discussed in more detail in Note 12: 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 environmental risks inherent in railroad operations, which frequently involve transporting chemicals and other hazardous materials. 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, 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 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 $64 million, $55 million and $47 million during 1998, 1997 and 1996, respectively, for mandatory and unasserted clean-up efforts, including amounts expended under federal and state voluntary clean-up programs. BNSF has accruals of approximately $185 million for remediation and restoration of all known sites. BNSF anticipates that the majority of the accrued costs at December 31, 1998 will be paid over the next five years. No individual site is considered to be material. During 1998, BNSF settled an environmental matter in the State of Missouri related to release of a reportable quantity of lead sulfide into a waterway. BNSF agreed in the settlement to pay a fine of $7 million, make restitution payments to the State of Missouri of $3 million and committed to spend $9 million, which includes amounts previously paid, in connection with its ongoing remediation efforts. BNSF has made payments of approximately $16 million related to this settlement, including approximately $12 million that was paid during 1998 which is included in total 1998 payments discussed above. 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 20 BURLINGTON NORTHERN SANTA FE CORPORATION 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 could have a material adverse effect on the results of operations in a particular quarter or fiscal year. EMPLOYEE MERGER AND SEPARATION COSTS LIABILITY BALANCE AND ACTIVITY Current and long-term employee merger and separation liabilities totaling $474 million and $551 million are included in the consolidated balance sheet at December 31, 1998 and 1997, respectively, 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 non-union employee severance costs. Liabilities related to the consolidation of clerical functions (the Consolidation Plan) were $211 million and $259 million at December 31, 1998 and 1997, respectively. These liabilities provide for severance costs associated with the Consolidation Plan adopted in 1995 upon consummation of the merger of BNSF's predecessor companies Burlington Northern Inc. and Santa Fe Pacific Corporation (the Merger). The Consolidation Plan will result in the elimination of approximately 1,600 permanent positions, of which approximately 1,500 positions have been eliminated through 1998, including approximately 250 positions that were eliminated in 1998. Upon adoption in 1995, the Consolidation Plan was expected to be completed by early 1999. However, the Consolidation Plan was partially delayed as a result of the timing related to completion of merger integration and other issues and is now expected to be completed by 2001. Remaining clerical positions to be eliminated by the Company will result in involuntary separations. Benefits paid to affected employees are in the form of lump-sum payments or payments made over five to ten years or in some cases through retirement. Liabilities related to deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers were $207 million and $224 million at December 31, 1998 and 1997, respectively. These costs were incurred in connection with labor agreements reached prior to the Merger which, among other things, reduced train crew sizes and allowed for more flexible work rules. Liabilities principally related to certain remaining non-union employee severances resulting from the Merger were $56 million and $68 million at December 31, 1998 and 1997, respectively. These costs will be paid over the next several years based on deferral elections made by affected employees. Approximately 1,500 non-union employees received or are receiving severance payments and special termination benefits under the Company's retirement and health and welfare plans resulting from the Merger. During 1998, 1997 and 1996, BNSF made employee merger and separation payments of $77 million, $116 million and $183 million, respectively. At December 31, 1998, $65 million of the remaining liabilities are included within current liabilities for anticipated costs to be paid in 1999. 1997 SPECIAL CHARGE In the fourth quarter of 1997, the Company recorded a $90 million pre-tax special charge. Approximately $65 million of the charge related to the Consolidation Plan and the remainder of the charge related to severance and other costs for non-union employees. BNSF recorded an initial charge in 1995 for the Consolidation Plan, however, the 1995 charge excluded costs associated with voluntary severance for employees who were given the opportunity to relocate and follow their work, but elected severance. BURLINGTON NORTHERN SANTA FE CORPORATION 21 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 three-fourths complete. Remediation includes converting source code and replacing or upgrading purchased software and hardware. Remediation is substantially complete for ISS technologies and is expected to be completed by July 1999 for Enterprise technologies. The Certification Testing phase includes 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; testing for all applications is scheduled for completion by the end of September 1999. Certification testing of all critical Enterprise technologies began in May 1998 and is scheduled for completion in February 1999; testing for non-critical Enterprise technologies is scheduled for completion by July 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 $8 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 $20 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 April 1999, with open carrier testing conducted promptly thereafter. BNSF plans to develop contingency plans for the business processes supported by AAR systems. Certain BNSF routes and resulting revenues are dependent on the use of trackage rights over other railroads, including UP, 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 generally has not determined which of its customers may have Year 2000 problems that could result in reduced traffic for the Company. 22 BURLINGTON NORTHERN SANTA FE CORPORATION 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 is developing 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. Contingency plans are expected to be in place by the end of the first quarter 1999. HEDGING ACTIVITIES FUEL During 1998, 1997 and 1996 fuel expenses approximated 11 percent of total operating expenses. Due to the significance of diesel fuel expenses to the operations of the railroad 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 will 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 in expense in the period in which the fuel is purchased and used. Based on 1998 fuel consumption 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 February 8, 1999, BNSF had entered into fuel swaps for approximately 1,776 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 75 percent, 40 percent, 22 percent and 7 percent of estimated annual and quarterly fuel purchases for 1999, 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 $174 million as of December 31, 1998, of which $120 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 From time to time, the Company enters into various interest rate hedging transactions for the purpose of managing exposure to fluctuations in interest rates and establishing rates in anticipation of future debt issuances. As of February 8, 1999, BNSF had interest rate swap transactions which fix the interest rate on the total principal amount of $125 million of its commercial paper debt. The interest rate swap transactions require payment of a weighted average fixed interest rate of approximately 6.1 percent and the receipt of a variable interest rate based on a commercial paper composite rate. The swap transactions expire in December 1999. Any gains and losses associated with changes in market value of these swaps are not recognized. BNSF recognizes, on an accrual basis, a fixed rate of interest on the principal amount of commercial paper hedged over the term of the swap agreements. Unrecognized losses from BNSF's interest rate swap transactions were approximately $2 million as of December 31, 1998. During July 1998, at the time of a $200 million debt issuance, the Company closed out $200 million of treasury lock transactions at a loss of approximately $7 million which has been deferred and is being amortized to interest expense over the life of the debt. As discussed under Capital Resources and Liquidity: Financing Activities, in November 1998, at the time of the $200 million PURS issuance, the Company closed out $200 million of treasury lock transactions at a loss of approximately $11 million which has been deferred and is being amortized to interest expense over the life of the debt. 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, totaling $300 million and $200 million, respectively. The 10-year and 30-year treasury lock transactions have average interest rates of approximately 4.5 percent and 5.0 percent, respectively, and expire between 1999 and 2001. These rates do not include a credit spread which will be determined at the time of the actual debt issuance and included in the all-in interest rate. The treasury locks can be closed by BNSF anytime up to expiration. Unrecognized gains on the treasury lock transactions were approximately $19 million as of December 31, 1998. BURLINGTON NORTHERN SANTA FE CORPORATION 23 LABOR Labor unions represent approximately 88 percent of BNSF Railway employees under collective bargaining agreements with 13 different labor organizations. The collective bargaining agreements reached in 1995 and 1996 as a result of industry-wide labor contract negotiations will remain in effect through at least December 31, 1999 and until new agreements are reached or the Railway Labor Act's procedures are exhausted. INFLATION Due to the capital intensive nature of BNSF's business, the full effect of inflation is not reflected in operating expenses because depreciation is based on historical cost. An assumption that all operating assets were depreciated at current price levels would result in substantially greater expense than historically reported amounts. 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 2000; 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 December 31, 1998 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 $125 million if adopted December 31, 1998. 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 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. 24 BURLINGTON NORTHERN SANTA FE CORPORATION REPORT OF MANAGEMENT TO THE STOCKHOLDERS OF BURLINGTON NORTHERN SANTA FE CORPORATION The accompanying consolidated financial statements of Burlington Northern Santa Fe Corporation and subsidiary companies were prepared by management, who are responsible for their integrity and objectivity. They were prepared in accordance with generally accepted accounting principles and properly include amounts that are based on management's best judgments and estimates. Other financial information included in this annual report is consistent with that in the consolidated financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the Company. Limitations exist in any system of internal accounting controls based upon the recognition that the cost of the system should not exceed the benefits derived. The Company believes its system of internal accounting controls, augmented by its internal auditing function, appropriately balances the cost/benefit relationship. Independent accountants provide an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting. They regularly evaluate the system of internal accounting controls and perform such tests and other procedures as they deem necessary to express an opinion on the fairness of the consolidated financial statements. The Board of Directors pursues its responsibility for the Company's financial statements through its Audit Committee which is composed solely of directors who are not officers or employees of the Company. The Audit Committee meets regularly with the independent accountants, management and internal auditors. The independent accountants and the Company's internal auditors have direct access to the Audit Committee, with and without the presence of management representatives, to discuss the scope and results of their work and their comments on the adequacy of internal accounting controls and the quality of financial reporting. /s/ Robert D. Krebs Robert D. Krebs Chairman, President and Chief Executive Officer /s/ Denis E. Springer Denis E. Springer Senior Vice President and Chief Financial Officer /s/ Thomas N. Hund Thomas N. Hund Vice President and Controller REPORT OF INDEPENDENT ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of cash flows and of changes in stockholders' equity present fairly, in all material respects, the financial position of Burlington Northern Santa Fe Corporation and subsidiary companies at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Fort Worth, Texas February 8, 1999 BURLINGTON NORTHERN SANTA FE CORPORATION 25 CONSOLIDATED STATEMENT OF INCOME Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data) - ----------------------------------------------------------------------- Year ended December 31, 1998 1997 1996 - ----------------------------------------------------------------------- Revenues $8,941 $8,370 $8,109 ------ ------ ------ Operating expenses: Compensation and benefits 2,812 2,675 2,561 Purchased services 894 823 800 Depreciation and amortization 832 773 760 Equipment rents 804 820 736 Fuel 724 747 727 Materials and other 717 675 777 Special charge -- 90 -- ------ ------ ------ Total operating expenses 6,783 6,603 6,361 - --------------------------------------------- ------ ------ ------ Operating income 2,158 1,767 1,748 Interest expense 354 344 301 Other income (expense), net 45 (19) (7) ------ ------ ------ Income before income taxes 1,849 1,404 1,440 Income tax expense 694 519 551 ------ ------ ------ Net income $1,155 $ 885 $ 889 - --------------------------------------------- ------ ------ ------ Earnings per share: Basic $ 2.45 $ 1.91 $ 1.95 Diluted $ 2.43 $ 1.88 $ 1.91 - --------------------------------------------- ----- ------ ------ Average shares (in millions): Basic 470.5 464.4 456.3 Dilutive effect of stock options 5.7 6.7 8.1 ----- ------ ------ Diluted 476.2 471.1 464.4 - --------------------------------------------- ------ ------ ------
See accompanying notes to consolidated financial statements. 26 BURLINGTON NORTHERN SANTA FE CORPORATION CONSOLIDATED BALANCE SHEET
Burlington Northern Santa Fe Corporation and Subsidiaries (Shares in thousands. Dollars in millions) - -------------------------------------------------------------------------------------------------------------------------- December 31, 1998 1997 - ---------------------------------------------------------------------------------------------------- ------- ------- ASSETS Current assets: Cash and cash equivalents $ 25 $ 31 Accounts receivable, net 594 635 Materials and supplies 244 205 Current portion of deferred income taxes 335 333 Other current assets 8 30 ------- ------- Total current assets 1,206 1,234 Property and equipment, net 20,662 19,211 Other assets 822 891 ------- ------- Total assets $22,690 $21,336 - ---------------------------------------------------------------------------------------------------- ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other current liabilities $ 1,929 $ 1,952 Long-term debt due within one year 268 108 ------- ------- Total current liabilities 2,197 2,060 Long-term debt and commercial paper 5,188 5,181 Deferred income taxes 5,662 5,175 Casualty and environmental liabilities 389 448 Employee merger and separation costs 409 469 Other liabilities 1,075 1,191 ------- ------- Total liabilities 14,920 14,524 - ---------------------------------------------------------------------------------------------------- ------- ------ Commitments and contingencies (see Notes 8, 11 and 12) Stockholders' equity: Common stock, $.01 par value, 600,000 shares authorized; 477,436 shares and 470,240 shares issued, respectively 5 5 Additional paid-in capital 5,177 4,992 Retained earnings 2,811 1,863 Treasury stock, at cost, 6,961 shares and 1,329 shares, respectively (213) (39) Accumulated other comprehensive deficit (8) (7) Other (2) (2) ------- ------- Total stockholders' equity 7,770 6,812 ------- ------- Total liabilities and stockholders' equity $22,690 $21,336 - ---------------------------------------------------------------------------------------------------- ------- -------
See accompanying notes to consolidated financial statements. BURLINGTON NORTHERN SANTA FE CORPORATION 27 CONSOLIDATED STATEMENT OF CASH FLOWS Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions)
- --------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------ ------- ------- ------- OPERATING ACTIVITIES Net income $ 1,155 $ 885 $ 889 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 832 773 760 Deferred income taxes 489 433 453 Special charge -- 90 -- Employee merger and separation costs paid (77) (116) (183) Other, net (243) (221) (62) Changes in current assets and liabilities: Accounts receivable: Sale of accounts receivable 19 301 40 Other changes 20 (333) (140) Materials and supplies (39) 17 (2) Other current assets 22 4 (6) Accounts payable and other current liabilities 40 (19) 122 ------- ------- ------- Net cash provided by operating activities 2,218 1,814 1,871 - ------------------------------------------------------------------------------------ ------- ------- ------- INVESTING ACTIVITIES Capital expenditures (2,147) (2,182) (2,234) Other, net (271) (147) (10) ------- ------- ------- Net cash used for investing activities (2,418) (2,329) (2,244) - ------------------------------------------------------------------------------------ ------- ------- ------- FINANCING ACTIVITIES Net decrease in commercial paper and bank borrowings (242) (235) (98) Proceeds from issuance of long-term debt 794 1,002 626 Payments on long-term debt (112) (177) (83) Dividends paid (197) (185) (184) Proceeds from stock options exercised 111 102 118 Purchase of BNSF common stock (153) -- -- Other, net (7) (8) (9) ------- ------- ------- Net cash provided by financing activities 194 499 370 ------- ------- ------- Decrease in cash and cash equivalents (6) (16) (3) Cash and cash equivalents: Beginning of year 31 47 50 ------- ------- ------- End of year $ 25 $ 31 $ 47 - ------------------------------------------------------------------------------------ ------- ------- ------- SUPPLEMENTAL CASH FLOW INFORMATION Interest paid, net of amounts capitalized $ 370 $ 346 $ 306 Income taxes paid, net of refunds 220 32 69 Directly financed asset acquisitions -- -- 43 - ------------------------------------------------------------------------------------ ------- ------- -------
See accompanying notes to consolidated financial statements. 28 BURLINGTON NORTHERN SANTA FE CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Burlington Northern Santa Fe Corporation and Subsidiaries (Shares in thousands. Dollars in millions, except per share data.) - ----------------------------------------------------------------------------------------------------------------------------------
Common Shares of Stock and Accumulated Common Shares of Additional Other Stock Treasury Paid-in Retained Treasury Comprehensive Issued Stock Capital Earnings Stock Deficit Other Total - ------------------------------------------- --------- ---------- -------- -------- ------------- ----- ------ Balance at December 31, 1995 448,950 (135) $4,607 $ 459 $ (3) $(19) $(7) $5,037 Comprehensive income: Net income 889 889 Minimum pension liability adjustment (net of tax of $9) 15 15 ------ Total comprehensive income 904 ------ Common stock dividends, $0.40 per share (183) (183) Adjustments associated with unearned compensation, restricted stock 1,683 (66) 8 (2) 3 9 Exercise of stock options and related tax benefit 10,749 (387) 191 (11) 180 Acquisition of a subsidiary 1,089 31 31 Other 123 3 3 - ------------------------------------------- --------- ---------- -------- -------- ------------- ----- ------ Balance at December 31, 1996 462,594 (588) 4,840 1,165 (16) (4) (4) 5,981 Comprehensive income: Net income 885 885 Minimum pension liability adjustment (net of tax benefit of $2) (3) (3) ------ Total comprehensive income 882 ------ Common stock dividends, $0.40 per share (187) (187) Adjustments associated with unearned compensation, restricted stock 366 (117) 13 (4) 2 11 Exercise of stock options and related tax benefit 7,197 (624) 140 (19) 121 Other 83 4 4 - ------------------------------------------- --------- ---------- -------- -------- ------------- ----- ------ Balance at December 31, 1997 470,240 (1,329) 4,997 1,863 (39) (7) (2) 6,812 Comprehensive income: Net income 1,155 1,155 Minimum pension liability adjustment (net of tax benefit of $0.5) (1) (1) ------ Total comprehensive income 1,154 ------ Common stock dividends, $0.44 per share (207) (207) Adjustments associated with unearned compensation, restricted stock 527 (132) 15 (4) 2 13 Exercise of stock options and related tax benefit 6,669 (537) 167 (17) 150 Purchase of BNSF common stock (4,963) (153) (153) Other 3 (2) 1 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 477,436 (6,961) $5,182 $2,811 $(213) $ (8) $(2) $7,770 ==================================================================================================================================
See accompanying notes to consolidated financial statements. BURLINGTON NORTHERN SANTA FE CORPORATION 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES 1 ACCOUNTING POLICIES THE COMPANY AND PRINCIPLES OF CONSOLIDATION 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). All significant inter-company accounts and transactions have been eliminated. Through its principal subsidiary, The Burlington Northern and Santa Fe Railway Company (BNSF Railway), BNSF operates one of the largest railroad networks in the United States, with 34,000 route miles covering 28 states and two Canadian provinces. Through one operating transportation services segment, BNSF Railway transports a wide range of products and commodities including the transportation of containers and trailers (intermodal), coal and agricultural commodities which constituted 28 percent, 25 percent and 12 percent, respectively, of total revenues for the year ended December 31, 1998. Revenues derived from sources other than transportation services are not significant. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. RECLASSIFICATIONS Certain comparative prior year amounts in the consolidated financial statements and notes have been reclassified to conform with the current year presentation. CASH AND CASH EQUIVALENTS All short-term investments with original maturities of less than 90 days are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value. MATERIALS AND SUPPLIES Materials and supplies, which consist mainly of rail, ties and other items for construction and maintenance of property and equipment, as well as diesel fuel, are valued at the lower of average cost or market. PROPERTY AND EQUIPMENT Property and equipment are depreciated and amortized on a straight-line basis over their estimated useful lives. Upon normal sale or retirement of depreciable railroad property, cost less net salvage is charged to accumulated depreciation and no gain or loss is recognized. Significant premature retirements are recorded as gains or losses at the time of their occurrence. Expenditures which significantly increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed. Property and equipment are stated at cost. The Company incurs certain direct labor, contract service and other costs associated with the development and installation of computer software. Costs for newly developed software or significant enhancements to existing software are typically capitalized. Research, operations and maintenance costs are charged to operating expense when the work is performed. REVENUE RECOGNITION Transportation revenues are recognized based upon the proportion of service provided. COMMON STOCK SPLIT On April 16, 1998, the Company's stockholders approved an amendment to the Company's certificate of incorporation to increase authorized common shares from 300 million to 600 million. On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to the stockholders of record on August 17, 1998. All equity-based benefit plans reflect the issuance of additional shares or options due to the declaration of the stock split. All share and per share data have been restated to reflect the stock split. 2 SALE OF INVESTMENT IN PIPELINE PARTNERSHIP Santa Fe Pacific Pipelines, Inc. (SFP Pipelines), an indirect, wholly-owned subsidiary of BNSF, served as the general partner of Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership) and of its operating partnership subsidiary, SFPP, L.P. SFP Pipelines owned a two percent interest as the Pipeline Partnership's and SFPP, L.P.'s general partner and an approximate 42 percent interest as limited partner of the Pipeline Partnership. As general partner, SFP Pipelines received two percent of all amounts available for distribution by the Partnership and an additional incentive depending upon the level of cash distributions paid to holders of limited partner interests in the Pipeline Partnership (Partnership Units). SFP Pipeline Holdings, Inc., an indirect, wholly-owned subsidiary of BNSF (SFP Holdings), had outstanding $219 million principal amount of Variable Rate Exchangeable Debentures due 2010 (VREDs) at December 31, 1997. In October 1997, SFP Pipelines and SFP Holdings entered into an agreement with Kinder Morgan Energy Partners, L.P. (Kinder Morgan) pursuant to which Kinder Morgan acquired substantially all of SFP Pipelines' interests in the Pipeline Partnership and SFPP, L.P. for approximately 30 BURLINGTON NORTHERN SANTA FE CORPORATION $84 million in cash on March 6, 1998. The Pipeline Partnership was liquidated as part of the transaction and each Partnership Unit was converted into the right to receive 1.39 Kinder Morgan common units. SFP Pipelines' 8,148,148 Partnership Units were converted into the right to receive 11,325,925 Kinder Morgan common units. In addition, the agreement called for the interest of SFP Pipelines in SFPP, L.P. to be partially redeemed for a cash distribution of $5.8 million, with SFP Pipelines retaining only a 0.5 percent special limited partnership interest in SFPP, L.P. The Company recognized a $67 million one-time pre-tax gain ($32 million or $0.07 per share on a diluted basis after-tax) at the time of the sale. Consummation of the transaction caused an "Exchange Event" under the VRED agreement and in June 1998 all VRED holders received either partnership units of Kinder Morgan or cash equal to the par value of the VREDs. As a result of this transaction, substantially all of the Company's investment in the Pipeline Partnership and SFPP, L.P. and the VREDs were removed from the consolidated balance sheet. 3 OTHER INCOME (EXPENSE), NET Other income (expense), net includes the following (in millions):
Year ended December 31, 1998 1997 1996 - ----------------------------------------------- ---- ---- ---- Gain on sale of Pipeline Partnership $ 67 $ -- $ -- Gain on property dispositions 48 14 23 Equity in earnings of Pipeline Partnership 4 30 24 Accounts receivable sale fees (34) (27) (14) Miscellaneous, net (40) (36) (40) - ----------------------------------------------- ---- ---- ---- Total $ 45 $(19) $ (7) =============================================== ==== ==== ====
4 INCOME TAXES Income tax expense was as follows (in millions):
Year ended December 31, 1998 1997 1996 - ----------------------------------------------- ---- ---- ---- Current: Federal $191 $ 72 $ 81 State 14 14 17 - ----------------------------------------------- ---- ---- ---- 205 86 98 - ----------------------------------------------- ---- ---- ---- Deferred: Federal 410 372 396 State 79 61 57 - ----------------------------------------------- ---- ---- ---- 489 433 453 - ----------------------------------------------- ---- ---- ---- Total $694 $519 $551 =============================================== ==== ==== ====
Reconciliation of the federal statutory income tax rate to the effective tax rate was as follows:
Year ended December 31, 1998 1997 1996 - --------------------------------------------- ----- ----- ----- Federal statutory income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 3.3 3.5 3.4 Other, net (0.7) (1.5) (0.1) - --------------------------------------------- ----- ----- ----- Effective tax rate 37.6% 37.0% 38.3% ============================================= ===== ===== =====
The components of deferred tax assets and liabilities were as follows (in millions):
December 31, 1998 1997 - --------------------------------------------- -------- ------- Deferred tax liabilities: Depreciation and amortization $(5,868) $(5,677) Other (417) (331) - --------------------------------------------- -------- ------- Total deferred tax liabilities (6,285) (6,008) - --------------------------------------------- -------- ------- Deferred tax assets: Casualty and environmental 253 270 Employee merger and separation costs 182 213 Post-retirement benefits 89 86 Non-expiring AMT credit carryforwards -- 36 Other 434 561 - --------------------------------------------- ------- ------- Total deferred tax assets 958 1,166 - --------------------------------------------- ------- ------- Net deferred tax liability $(5,327) $(4,842) - --------------------------------------------- ------- ------- Noncurrent deferred income tax liability $(5,662) $(5,175) Current deferred income tax asset 335 333 - --------------------------------------------- ------- ------- Net deferred tax liability $(5,327) $(4,842) - --------------------------------------------- ------- -------
BNSF filed its first federal income tax return for 1995. The federal income tax returns of BNSF's predecessor companies, Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) have been examined through 1994 and 1992, respectively. All years prior to 1989 for BNI and 1991 for SFP are closed. Issues relating to the years 1991-1992 for SFP and for the years 1989-1994 for BNI are being contested through various stages of administrative appeal. In addition, BNSF and its subsidiaries have various state income tax returns in the process of examination, administrative appeal or litigation. Management believes that adequate provision has been made for any adjustment that might be assessed for open years through 1998. 5 ACCOUNTS RECEIVABLE, NET Effective June 1997, an accounts receivable sale agreement which allowed the sale of up to $300 million in receivables effective through 1999, was replaced by an amended and restated agreement which allows BNSF Railway, through a special purpose subsidiary, to sell up to $600 million of variable rate certificates which mature in 2002 evidencing undivided interests in an accounts receivable master trust. The master trust's assets include an ownership interest in a revolving portfolio of BNSF Railway's accounts receivable which are used to support the certificates. At December 31, 1998, $600 million of certificates were outstanding and were supported by receivables of approximately $1.1 billion in the master trust. Certificates outstanding were $581 million at December 31, 1997. BNSF Railway has retained the collection responsibility with respect to the accounts receivable held in trust. BNSF Railway is exposed to credit loss related to collection of accounts receivable to the extent that the amount of receivables in the master trust exceeds the amount of certificates sold. Costs related to such agreements vary on BURLINGTON NORTHERN SANTA FE CORPORATION 31 a monthly basis and are generally related to certain interest rates. These costs are included in Other income (expense), net. BNSF maintains an allowance for corrections to and collectibility of freight and other billings. At December 31, 1998 and 1997, $84 million and $70 million of such allowances had been recorded, respectively. BNSF believes the allowance is adequate to cover disputed and uncollectible receivables at December 31, 1998. 6 PROPERTY AND EQUIPMENT, NET Property and equipment, net (in millions), and the weighted average annual depreciation rate (%) were as follows:
1998 Depreciation December 31, 1998 1997 Rate - -------------------------------- ------- ------- ------------ Land $ 1,431 $ 1,416 --% Track structure 11,340 10,527 4.0 Other roadway 8,389 7,856 2.5 Locomotives 2,276 1,874 4.9 Freight cars and other equipment 1,860 1,870 4.0 Computer hardware and software 405 412 15.5 - -------------------------------- ------- ------- Total cost 25,701 23,955 Less accumulated depreciation and amortization (5,039) (4,744) - -------------------------------- ------- ------- Property and equipment, net $20,662 $19,211 ================================ ======= =======
The consolidated balance sheet at December 31, 1998 and 1997 included $1,082 million and $875 million, respectively, for property and equipment under capital leases. 7 ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES Accounts payable and other current liabilities consisted of the following (in millions):
December 31, 1998 1997 - ---------------------------------------- ------ ------ Compensation and benefits payable $ 386 $ 399 Casualty and environmental liabilities 272 291 Accounts payable 174 222 Rents and leases 155 144 Tax liabilities 117 132 Employee merger and separation costs 65 82 Other 760 682 - ---------------------------------------- ------ ------ Total $1,929 $1,952 ======================================== ====== ======
8 DEBT Debt outstanding was as follows (in millions):
December 31, 1998 1997 - -------------------------------------------- ------ ------ Notes and debentures, weighted average rate of 7.04%, due 1999 to 2097 $3,073 $2,842 Capitalized lease obligations, weighted average rate of 6.65%, due 1999 to 2012 818 695 Equipment obligations, weighted average rate of 7.62%, due 1999 to 2016 595 565 Mortgage bonds, weighted average rate of 7.56%, due 1999 to 2047 498 467 Commercial paper, 5.71% (variable) 471 668 Bank borrowings, 5.35% (variable) 25 70 Unamortized discount and other, net (24) (18) - -------------------------------------------- ------ ------ Total 5,456 5,289 Less current portion of long-term debt (268) (108) - -------------------------------------------- ------ ------ Long-term debt $5,188 $5,181 ============================================ ====== ======
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 allow borrowings of up to $425 million on a short-term basis and $1.5 billion on a long-term basis. Annual facility fees are currently 0.075 percent and 0.09 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 were extended on November 12, 1998 and are currently scheduled to expire on June 15, 1999. The commitments of the lenders under the long-term agreement are scheduled to expire on November 12, 2002. At December 31, 1998, there were no borrowings against the revolving credit agreements and the maturity value of commercial paper outstanding was $474 million, leaving a total remaining capacity of $1,026 million available under the long-term revolving credit agreement and $425 million available under the short-term credit agreement. A portion of commercial paper has been hedged to fix interest rates through interest rate swap transactions (see Note 11: Hedging Activities, Leases and Other Commitments). The financial covenants of the bank revolving credit agreements require that BNSF's consolidated tangible net worth, as defined in the agreements, be at least $4.4 billion, and that its debt cannot exceed 55 percent of its consolidated total capital as defined in the agreements. BNSF was in compliance with these financial covenants at December 31, 1998. In March 1998 the Company filed a shelf registration of debt securities, including medium-term notes that may be issued in one or more series at an aggregate offering price not to exceed 32 BURLINGTON NORTHERN SANTA FE CORPORATION $500 million. In April 1998, prior to the effective date of the March 1998 shelf registration, the Company amended its August 1997 shelf registration to combine it with the March 1998 shelf registration. As of December 31, 1998, the March 1998 shelf registration had $350 million of potential borrowings remaining. In February 1999, the Company filed a new shelf registration of debt securities that may be issued in one or more series at an aggregate offering price not to exceed $750 million. As of February 8, 1999, the shelf registration had not yet been declared effective. When it becomes effective, the Company will have $1.1 billion of borrowing capacity available through the combined shelf registrations. Aggregate long-term debt scheduled maturities are $268 million, $146 million, $222 million, $744 million and $130 million for 1999 through 2003, respectively. Commercial paper of $471 million is included in maturities for 2002. Maturities in 1999 exclude $200 million of variable rate debentures due 2029 and maturities in 2001 exclude $100 million of 6.05 percent notes due 2031, which will either be remarketed by the holder of a call option on the debt and mature in 2029 and 2031, respectively; or will otherwise be repurchased by the Company in 1999 and 2001, respectively. In addition, maturities in 2000 exclude $100 million of 6.1 percent notes due 2027 and maturities in 2003 exclude $175 million of 6.53 percent notes due 2037, which may be redeemed in 2000 and 2003, respectively, at the option of the holder. Most BNSF Railway properties and certain other assets are pledged as collateral to, or are otherwise restricted under, the various BNSF Railway long- term debt agreements. Equipment obligations and capital leases are secured by the underlying equipment. An indirect wholly-owned subsidiary of BNSF, in connection with its remaining 0.5 percent special limited partner interest in a pipeline partnership, is contingently liable for $190 million of certain debt of the pipeline partnership assumed by Kinder Morgan pursuant to the sale discussed in Note 2: Sale of Investment in Pipeline Partnership. In addition, BNSF and another major railroad jointly and severally guarantee $75 million of debt of KCT Intermodal Transportation Corporation, the proceeds of which are being used to finance the construction of a double track grade separation bridge in Kansas City, Missouri, to be operated and used by Kansas City Terminal Railway Company. 9 EMPLOYEE MERGER AND SEPARATION COSTS LIABILITY BALANCE AND ACTIVITY Current and long-term employee merger and separation liabilities totaling $474 million and $551 million are included in the consolidated balance sheet at December 31, 1998 and 1997, respectively, 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 non-union employee severance costs. Liabilities related to the consolidation of clerical functions (the Consolidation Plan) were $211 million and $259 million at December 31, 1998 and 1997, respectively. These liabilities provide for severance costs associated with the Consolidation Plan adopted in 1995 upon consummation of the merger of BNSF's predecessor companies Burlington Northern Inc. and Santa Fe Pacific Corporation (the Merger). The Consolidation Plan will result in the elimination of approximately 1,600 permanent positions, of which approximately 1,500 positions have been eliminated through 1998, including approximately 250 positions that were eliminated in 1998. Upon adoption in 1995, the Consolidation Plan was expected to be completed by early 1999. However, the Consolidation Plan was partially delayed as a result of the timing related to completion of merger integration and other issues and is now expected to be completed by 2001. Remaining clerical positions to be eliminated by the Company will result in involuntary separations. Benefits paid to affected employees are in the form of lump-sum payments or payments made over five to ten years or in some cases through retirement. Liabilities related to deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers were $207 million and $224 million at December 31, 1998 and 1997, respectively. These costs were incurred in connection with labor agreements reached prior to the Merger which, among other things, reduced train crew sizes and allowed for more flexible work rules. Liabilities principally related to certain remaining non-union employee severances resulting from the Merger were $56 million and $68 million at December 31, 1998 and 1997, respectively. These costs will be paid over the next several years based on deferral elections made by affected employees. Approximately 1,500 non-union employees received or are receiving severance payments and special termination benefits under the Company's retirement and health and welfare plans resulting from the Merger. During 1998, 1997 and 1996, BNSF made employee merger and separation payments of $77 million, $116 million and $183 million, respectively. At December 31, 1998, $65 million of the remaining liabilities are included within current liabilities for anticipated costs to be paid in 1999. 1997 SPECIAL CHARGE In the fourth quarter of 1997, the Company recorded a $90 million pre-tax special charge. Approximately $65 million of the charge related to the Consolidation Plan and the remainder of the charge related to severance and other costs for non-union employees. BNSF recorded an initial charge in 1995 for the Consolidation Plan, however, the 1995 charge excluded costs associated with voluntary severance for employees who were given the opportunity to relocate and follow their work, but elected severance. BURLINGTON NORTHERN SANTA FE CORPORATION 33 10 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of BNSF's financial instruments at December 31, 1998 and 1997 and the methods and assumptions used to estimate the fair value of each class of financial instruments held by BNSF, were as follows (see also Note 11: Hedging Activities, Leases and Other Commitments regarding the fair values of BNSF's outstanding hedging instruments): CASH AND CASH EQUIVALENTS The carrying amount approximated fair value because of the short maturity of these instruments. LONG-TERM DEBT AND COMMERCIAL PAPER The fair value of long-term debt was primarily based on quoted market prices for the same or similar issues, or on the current rates that would be offered for debt of the same remaining maturities. The carrying amount of commercial paper approximated fair value because of the short maturity of these instruments. The carrying amounts of long-term debt and commercial paper at December 31, 1998 and 1997 were $5,456 million and $5,289 million, respectively, while the estimated fair values at December 31, 1998 and 1997 were $5,712 million and $5,472 million, respectively. 11 HEDGING ACTIVITIES, LEASES AND OTHER COMMITMENTS HEDGING ACTIVITIES FUEL During 1998, 1997 and 1996 fuel expenses approximated 11 percent of total operating expenses. Due to the significance of diesel fuel expenses to the operations of the railroad 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 will 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 1998 fuel consumption 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 February 8, 1999, BNSF had entered into fuel swaps for approximately 1,776 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 75 percent, 40 percent, 22 percent and 7 percent of estimated annual and quarterly fuel purchases for 1999, 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 $174 million as of December 31, 1998, of which $120 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 From time to time, the Company enters into various interest rate hedging transactions for the purpose of managing exposure to fluctuations in interest rates and establishing rates in anticipation of future debt issuances. As of February 8, 1999, BNSF had interest rate swap transactions which fix the interest rate on the total principal amount of $125 million of its commercial paper debt. The interest rate swap transactions require payment of a weighted average fixed interest rate of approximately 6.1 percent, and the receipt of a variable interest rate based on a commercial paper composite rate. The swap transactions expire in December 1999. Any gains and losses associated with changes in market value of these swaps are not recognized. BNSF recognizes, on an accrual basis, a fixed rate of interest on the principal amount of commercial paper hedged over the term of the swap agreements. Unrecognized losses from BNSF's interest rate swap transactions were approximately $2 million as of December 31, 1998. 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, totaling $300 million and $200 million, respectively. The 10-year and 30-year treasury lock transactions have average interest rates of approximately 4.5 percent and 5.0 percent, respectively, and expire between 1999 and 2001. These rates do not include a credit spread which will be determined at the time of the actual debt issuance and included in the all-in interest rate. The treasury locks can be closed by BNSF anytime up to expiration. Unrecognized gains on the treasury lock transactions were approximately $19 million as of December 31, 1998. During 1998, at the time of issuing $400 million of debt, the Company closed out $400 million of treasury lock transactions at a loss of approximately $18 million which has been deferred and is being amortized to interest expense over the life of the debt. 34 BURLINGTON NORTHERN SANTA FE CORPORATION LEASES BNSF has substantial lease commitments for locomotives, freight cars, trailers, office buildings and other property. Most of these leases provide the option to purchase the equipment at fair market value at the end of the lease. However, some provide fixed price purchase options. Future minimum lease payments (which reflect leases having non-cancelable lease terms in excess of one year) as of December 31, 1998 are summarized as follows (in millions):
Capital Operating Year ended December 31 Leases Leases - ------------------------------------------- ------- --------- 1999 $ 116 $ 350 2000 105 256 2001 116 206 2002 110 175 2003 109 164 Thereafter 594 1,814 - ------------------------------------------- ------- --------- Total 1,150 $2,965 --------- Less amount representing interest 332 - ------------------------------------------- ------- Present value of minimum lease payments $ 818 =========================================== =======
Lease rental expense for all operating leases was $503 million, $456 million and $446 million for the years ended December 31, 1998, 1997 and 1996, respectively. Contingent rentals and sublease rentals were not significant. OTHER COMMITMENTS BNSF has entered into commitments to acquire 476 locomotives in 1999. The locomotives 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 and other factors at the time of financing. Additionally, BNSF has committed to acquire 196 and 50 locomotives in 2000 and 2001, respectively. In connection with the closing of the sale of rail lines in Southern California in 1992 and 1993, BNSF has a $50 million liability recorded for an obligation retained by BNSF which under certain conditions requires the Company to repurchase a portion of the properties sold. 12 ENVIRONMENTAL AND OTHER CONTINGENCIES ENVIRONMENTAL BNSF'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 environmental risks inherent in railroad operations, which frequently involve 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 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. 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 $64 million, $55 million and $47 million during 1998, 1997 and 1996 respectively, for mandatory and unasserted clean-up efforts, including amounts expended under federal and state voluntary clean-up programs. BNSF has accruals of approximately $185 million for remediation and restoration of all known sites. BNSF anticipates that the majority of the accrued costs at December 31, 1998, will be paid over the next five years. No individual site is considered to be material. BURLINGTON NORTHERN SANTA FE CORPORATION 35 During 1998, BNSF settled an environmental matter in the State of Missouri related to the release of a reportable quantity of lead sulfide into a waterway. BNSF agreed in the settlement to pay a fine of $7 million, make restitution payments to the State of Missouri of $3 million and committed to spend $9 million, which includes amounts previously paid, in connection with its ongoing remediation efforts. BNSF has made payments of approximately $16 million related to this settlement, including approximately $12 million that was paid during 1998, which is included in total 1998 payments discussed above. 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 could have a material adverse effect on the results of operations in a particular quarter or fiscal year. 13 RETIREMENT PLANS AND OTHER POSTEMPLOYMENT BENEFIT PLANS BNSF sponsors two significant defined benefit pension plans: the noncontributory qualified BNSF Retirement Plan, which covers substantially all non-union employees, and the nonqualified BNSF Supplemental Retirement Plan, which covers certain officers and other employees. The benefits under BNSF's plans are based on years of credited service and the highest five-year average compensation levels. BNSF's funding policy is to contribute annually not less than the regulatory minimum and not more than the maximum amount deductible for income tax purposes. Certain salaried employees of BNSF that have met certain age and years of service requirements are eligible for medical benefits and life insurance coverage during retirement. The retiree medical plan is contributory and provides benefits to retirees, their covered dependents and beneficiaries. Retiree contributions are adjusted annually. The plan also contains fixed deductibles, coinsurance and out-of-pocket limitations. The life insurance plan is noncontributory and covers retirees only. BNSF's policy is to fund benefits payable under the medical and life insurance plans as they come due. Employees beginning salaried employment with BNSF subsequent to September 22, 1995 are not eligible for benefits under these plans. Components of the net benefit costs for these plans were as follows (in millions):
Pension Benefits ---------------------------- Year ended December 31, 1998 1997 1996 - ----------------------------------------- ------ ----- ----- Service cost $ 15 $ 14 $ 17 Interest cost 101 100 97 Expected return on plan assets (117) (112) (113) Net amortization and deferred amounts 4 4 8 - ----------------------------------------- ------ ----- ----- Net benefit cost $ 3 $ 6 $ 9 ========================================= ====== ===== ===== Medical and Life Benefits ---------------------------- Year ended December 31, 1998 1997 1996 - ----------------------------------------- ------ ----- ----- Service cost $ 4 $ 4 $ 5 Interest cost 16 14 16 Net amortization and deferred amounts -- (1) -- - ----------------------------------------- ------ ----- ----- Net benefit cost $ 20 $ 17 $ 21 ========================================= ====== ===== =====
36 BURLINGTON NORTHERN SANTA FE CORPORATION The following tables show the change in benefit obligation and plan assets of these plans (in millions):
Pension Medical and Benefits Life Benefits ---------------- --------------- Change in benefit obligation 1998 1997 1998 1997 - ------------------------------------- ------ ------ ----- ----- Benefit obligation at beginning of year $1,404 $1,286 $ 190 $ 210 Service cost 15 14 4 4 Interest cost 101 100 16 14 Plan participants' contributions -- -- 3 5 Amendments -- -- 13 -- Actuarial (gain) loss 85 117 39 (22) Benefits paid (118) (113) (16) (21) - ------------------------------------- ------ ------ ----- ----- Benefit obligation at year end $1,487 $1,404 $ 249 $ 190 ===================================== ====== ====== ===== =====
Pension Medical and Benefits Life Benefits ---------------- --------------- Change in plan assets 1998 1997 1998 1997 - ------------------------------------- ------ ------ ----- ----- Fair value of plan assets at beginning of year $1,540 $1,320 $ -- $ -- Actual return on plan assets 43 329 -- -- Employer contribution 4 4 13 16 Plan participants' contributions -- -- 3 5 Benefits paid (118) (113) (16) (21) - ------------------------------------- ------ ------ ----- ----- Fair value of plan assets at year end $1,469 $1,540 $ -- $ -- ===================================== ====== ====== ===== =====
The following tables show the reconciliation of the funded status of these plans with amounts recorded in the consolidated balance sheet (in millions):
Pension Medical and Benefits Life Benefits ---------------- --------------- December 31, 1998 1997 1998 1997 - ------------------------------------- ------ ------ ----- ----- Funded status $ (18) $ 136 $(249) $(190) Unrecognized net (gain) loss 7 (151) 4 (16) Unrecognized prior service cost (8) (8) 13 -- Unamortized net transition obligation 11 14 -- -- - ------------------------------------- ------ ------ ----- ----- Net amount recognized $ (8) $ (9) $(232) $(206) ===================================== ====== ====== ===== =====
Pension Medical and Benefits Life Benefits ---------------- --------------- December 31, 1998 1997 1998 1997 - ------------------------------------- ------ ------ ----- ----- Amounts recognized in the consolidated balance sheet: Prepaid benefit cost $ 20 $ 17 $ -- $ -- Accrued benefit liability (43) (39) (232) (206) Intangible asset 2 2 -- -- Accumulated other comprehensive income 13 11 -- -- - ------------------------------------- ------ ------ ----- ----- Net amount recognized $ (8) $ (9) $(232) $(206) ===================================== ====== ====== ===== =====
BNSF uses a September 30 measurement date. The assumptions used in accounting for the BNSF plans were as follows:
Pension Medical and Benefits Life Benefits ---------------- --------------- Assumptions 1998 1997 1998 1997 - ------------------------------------- ------ ------ ----- ----- Discount rate 7.0% 7.5% 7.0% 7.5% Rate of increase in compensation levels 4.0% 4.0% N/A N/A Expected return on plan assets 9.5% 9.5% N/A N/A - ------------------------------------- ------ ------ ----- -----
For purposes of the medical and life benefits calculations for 1998, the assumed health care cost trend rate for both managed care and non-managed care medical costs is 9 percent and is assumed to decrease gradually to 5 percent by 2005 and remain constant thereafter. Increasing the assumed health care cost trend rates by one percentage point would increase the accumulated postretirement benefit obligation by $18 million and the combined service and interest components of net postretirement benefit cost recognized in 1998 by $1 million. Decreasing the assumed health care cost trend rates by one percentage point would decrease the accumulated postretirement benefit obligation by $17 million and the combined service and interest components of net postretirement benefit cost recognized in 1998 by $1 million. OTHER PLANS Under collective bargaining agreements, BNSF participates in multiemployer benefit plans which provide certain postretirement health care and life insurance benefits for eligible union employees. Insurance premiums paid attributable to retirees, which are generally expensed as incurred, were $18 million, $15 million and $14 million, in 1998, 1997 and 1996, respectively. DEFINED CONTRIBUTION PLANS BNSF sponsors 401(k) thrift and profit sharing plans which cover substantially all non-union employees and certain union employees. BNSF matches 50 percent of the first 6 percent of non-union employees' contributions, which are subject to certain percentage limits of the employees' earnings, at each pay period. Depending on BNSF's performance, an additional matching contribution of up to 30 percent of the first 6 percent can be made at the end of the year. Employer contributions for all non-union employees are subject to a five year length of service vesting schedule. BNSF's 401(k) matching expense was $16 million, $14 million and $13 million in 1998, 1997 and 1996, respectively. BURLINGTON NORTHERN SANTA FE CORPORATION 37 14 STOCK OPTIONS AND OTHER INCENTIVE PLANS Under BNSF's stock option plans, options may be granted to officers and salaried employees at the fair market value of the Company's common stock on the date of grant. Approximately 3.9 million common shares were available for future grant at December 31, 1998. All options generally vest within one year and expire within 10 years from the date of grant. Shares issued upon exercise of options may be issued from treasury shares or from authorized but unissued shares. The Company applies Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for its fixed stock option plans as the exercise price equals the stock price on the date of grant. Had compensation expense been determined for stock options granted in 1998, 1997 and 1996 based on the fair value at grant dates consistent with Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation," the Company's pro forma net income and earnings per share would have been as follows:
1998 1997 1996 - ----------------------------------- ------ ----- ----- Net income (in millions) $1,124 $ 857 $ 871 Basic earnings per share $ 2.39 $1.85 $1.91 Diluted earnings per share $ 2.36 $1.82 $1.88 - ----------------------------------- ------ ----- -----
The pro forma amounts were estimated using the Black-Scholes option pricing model with the following assumptions:
1998 1997 1996 - ----------------------------------- ------ ----- ----- Weighted average expected life (years) 3.0 3.0 3.0 Expected volatility 20% 20% 20% Annual dividend per share $ 0.48 $0.40 $0.40 Risk free interest rate 5.11% 5.81% 6.11% Weighted average fair value of options granted $ 5.13 $5.15 $4.45 - ----------------------------------- ------ ----- -----
A summary of the status of the stock option plans as of December 31, 1998, 1997 and 1996, and changes during the years then ended, is presented below:
1998 1997 1996 ----------------------------- ------------------------------- ----------------------------- Weighted Average Weighted Average Weighted Average Options Exercise Prices Options Exercise Prices Options Exercise Prices - ----------------------- ---------- ---------------- ---------- ---------------- ---------- ---------------- Balance at beginning of year 25,761,369 $20.98 24,765,855 $16.49 28,795,959 $12.48 Granted 9,587,926 29.33 8,778,036 29.40 7,318,140 25.26 Exercised (6,666,864) 18.66 (7,092,690) 15.46 (10,748,892) 11.46 Cancelled (546,562) 26.25 (689,832) 23.58 (599,352) 21.34 ---------- ---------------- ---------- ---------------- ---------- ---------------- Balance at end of year 28,135,869 $24.27 25,761,369 $20.98 24,765,855 $16.49 ---------- ---------------- ---------- ---------------- ---------- ---------------- Options exercisable at year end 17,763,770 $21.45 16,419,858 $16.31 17,082,372 $13.06 - ---------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information regarding stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable --------------------------------------------------- ------------------------------ Range of Number Weighted Average Weighted Average Number Weighted Average Exercise prices Outstanding Remaining Life Exercise Prices Exercisable Exercise Prices - ---------------- ----------- ---------------- ---------------- ----------- --------------- $ 3.01 to $16.55 4,091,142 3.6 Years $7.93 4,091,142 $7.93 $16.86 to $29.08 8,407,778 6.6 Years $22.70 7,259,231 $21.90 $29.10 to $29.10 8,595,519 9.0 Years $29.10 -- -- $29.38 to $35.19 7,041,430 8.0 Years $29.76 6,413,397 $29.56 - ---------------- ----------- ---------------- ---------------- ----------- --------------- $ 3.01 to $35.19 28,135,869 7.2 Years $24.27 17,763,770 $21.45 - ---------------- ----------- ---------------- ---------------- ----------- ---------------
38 BURLINGTON NORTHERN SANTA FE CORPORATION OTHER INCENTIVE PLANS BNSF has other long-term incentive programs in addition to stock options which are administered separately on behalf of employees. Under the BNSF 1996 Stock Incentive Plan and the Non-Employee Directors' Stock Plan (NEDS), up to 30 million and 900,000 shares of BNSF common stock, respectively, have been authorized to be issued in the form of stock options, restricted stock, performance shares and performance units. During 1996, BNSF awarded a total of approximately 1.2 million shares of restricted stock to eligible employees and directors. No cash payment is required by the individual. Shares awarded under the plans may not be sold, transferred or used as collateral by the holder until the shares awarded become free of restrictions. The restrictions will be lifted in thirds over three years beginning on the third anniversary of the grant date if certain stock price based performance goals are met. If, however, the performance goals are not met, the restricted shares will be forfeited. All shares still subject to restrictions are generally forfeited and returned to the plan if the employee's or director's relationship is terminated. A total of approximately 934,000 restricted shares related to this award were outstanding as of December 31, 1998. Additionally, in December 1997, BNSF issued 90,000 restricted shares of stock. The shares are time-vesting and vest ratably over the five year period ending December 31, 2002. At December 31, 1998, 72,000 restricted shares related to this award were outstanding. Under the BNSF 1996 Stock Incentive Plan certain eligible employees may defer the cash payment of their bonus paid under the Incentive Compensation Plan (ICP) and will receive restricted stock which restrictions lapse in three years or in two years if certain performance goals are met. The number of restricted shares awarded are based on the amount of bonus deferred, plus incremental shares, using the market price of BNSF common stock on the date of grant. Restricted awards granted under this program totaled approximately 380,000 shares in 1998. A total of approximately 936,000 awards were outstanding under this and prior programs on December 31, 1998. In addition, all regularly-assigned salaried employees not eligible to participate in deferrals of ICP are eligible to participate in the BNSF Discounted Stock Purchase Program. This program allows employees to use their bonus earned under the ICP to purchase BNSF common stock at a discount from the market price and requires that the stock be restricted for a three year period. During the years ended December 31, 1998, 1997 and 1996, approximately 54,000, 84,000 and 87,000 shares, respectively, were purchased under this plan. Compensation expense is recorded under the BNSF Stock Incentive Plan in accordance with APB Opinion 25 and was not material in 1998, 1997 or 1996. 15 COMMON STOCK AND PREFERRED CAPITAL STOCK COMMON STOCK BNSF is authorized to issue 600 million shares of common stock, $.01 Par Value. At December 31, 1998, there were 470.5 million shares of common stock outstanding. Each holder of common stock is entitled to one vote per share in the election of directors and on all matters submitted to a vote of stockholders. Subject to the rights and preferences of any future issuances of preferred stock, each share of common stock is entitled to receive dividends as may be declared by the Board of Directors out of funds legally available and to share ratably in all assets available for distribution to stockholders upon dissolution or liquidation. No holder of common stock has any preemptive right to subscribe for any securities of BNSF. PREFERRED CAPITAL STOCK At December 31, 1998, BNSF had 50 million shares of Class A Preferred Stock, $.01 Par Value and 25 million shares of Preferred Stock, $.01 Par Value available for issuance. The Board of Directors has the authority to issue such stock in one or more series, to fix the number of shares and to fix the designations and the powers, rights, and qualifications and restrictions of each series. SHARE REPURCHASE PROGRAM In July 1997, the Board of Directors of BNSF authorized the repurchase of up to 30 million shares of the Company's common stock from time to time in the open market. Repurchased shares will be available to satisfy future requirements of various stock-based employee compensation programs. During 1998, the Company repurchased approximately 5 million shares of its common stock at an average price of $30.75 per share. Total Repurchases through February 8, 1999, were 6.1 million shares at a total average cost of $31.29 per share. In November 1997, BNSF sold equity put options for 1.5 million shares of the Company's common stock to an independent third party and received cash proceeds of $1 million. The option contracts had an exercise price of $29.33 and an expiration date of May 5, 1998. The option contracts permitted a net-share or net-cash settlement method at BNSF's election. These options expired unexercised. During the second and third quarters of 1998, BNSF sold equity put options for 3 million shares of the Company's common stock to an independent third party and received cash proceeds of $2 million. The option contracts had exercise prices ranging from $29.00 to $30.00 per share with expiration dates ranging from November 1998 to February 1999. The option contracts permitted a net-share or net-cash settlement method at BNSF's election. These options expired unexercised. The Company accounted for the effects of these equity put option transactions within stockholders' equity. BURLINGTON NORTHERN SANTA FE CORPORATION 39 16 QUARTERLY FINANCIAL DATA -- UNAUDITED
(Dollars in millions, except per share data) Fourth Third Second First - -------------------------------------------- ------ ------ ------ ------ 1998 Revenues/(1)/ $2,294 $2,294 $2,205 $2,148 - -------------------------------------------- ------ ------ ------ ------ Operating income 568 614 529 447 - -------------------------------------------- ------ ------ ------ ------ Net income/(2)/ $ 296 $ 317 $ 277 $ 265 - -------------------------------------------- ------ ------ ------ ------ Basic earnings per share/(3)/ $ .63 $ .67 $ .59 $ .56 Diluted earnings per share/(3)/ $ .63 $ .66 $ .58 $ .56 Dividends declared per share/(3)/ $ .12 $ .12 $ .10 $ .10 Common stock price: High/(3)/ $34.81 $35.58 $35.71 $35.65 Low/(3)/ 28.63 26.87 31.25 28.08 1997 Revenues/(1)/ $2,174 $2,125 $2,055 $2,016 - -------------------------------------------- ------ ------ ------ ------ Operating income/(4)/ 438 541 459 329 - -------------------------------------------- ------ ------ ------ ------ Net income/(4)/ $ 217 $ 283 $ 235 $ 150 - -------------------------------------------- ------ ------ ------ ------ Basic earnings per share/(3)/ $ .47 $ .61 $ .51 $ .32 Diluted earnings per share/(3)/ $ .46 $ .60 $ .50 $ .32 Dividends declared per share/(3)/ $ .10 $ .10 $ .10 $ .10 Common stock price: High/(3)/ $33.46 $32.67 $30.50 $29.83 Low/(3)/ 30.44 30.19 23.63 24.67 - -------------------------------------------- ------ ------ ------ ------
(1) Amounts do not agree to previously reported amounts due to certain reclassifications between revenues and expenses which are not significant. (2) First quarter 1998 results include a $67 million pre-tax gain ($32 million after-tax) on the sale of substantially all of the Company's interest in Santa Fe Pacific Pipeline Partners, L.P. as discussed in Note 2 -- Sale of Investment in Pipeline Partnership. (3) Information for prior periods presented has been restated to reflect the 1998 three-for-one common stock split as discussed in Note 1 -- Accounting Policies. (4) Fourth quarter 1997 results include a $90 million pre-tax charge ($57 million after-tax) as discussed in Note 9--Employee Merger and Separation Costs. 40 BURLINGTON NORTHERN SANTA FE CORPORATION EX-21 8 SUBSIDIARIES OF BNSF Exhibit 21. Subsidiaries of the Registrant BURLINGTON NORTHERN SANTA FE CORPORATION BNSF Acquisition, Inc. (DE) 100% Burlington Northern Santa Fe British Columbia, Ltd. (DE) 100% The Burlington Northern and Santa Fe Railway Company (DE) 100% Alameda Belt Line (CA) 50% The Belt Railway Company of Chicago (IL) 16.6% BN Leasing Corporation (DE) 100% The Burlington Northern and Santa Fe Railway Company de Mexico, S.A. de C.V. (Mexico) 50% Burlington Northern Dock Corporation (DE) 100% Burlington Northern International Services, Inc. (DE) 100% The Burlington Northern and Santa Fe Railway Company de Mexico, S.A. de C.V. (Mexico) 50% Burlington Northern - Mexico Inc. (DE) 100% Burlington Northern (Manitoba) Limited (Manitoba) 100% Burlington Northern Railroad Holdings, Inc. (DE) 100% Burlington Northern Santa Fe Manitoba, Inc. (DE) 100% Burlington Northern Santa Fe Properties, LLC (DE) 100% BNSF Dothan, Inc. (TX) 100% BNSF98 Dothan LLC (TX) 100% WEC 98D-27 LLC (TX) 100% WEC 98D-29 LLC (TX) 100% WEC 98D-33 LLC (TX) 100% WEC 98F-5 LLC (DE) 100% Wolverine 98D-27, Inc. (TX) 100% Wolverine 98D-29, Inc. (TX) 100% Wolverine 98D-33, Inc. (TX) 100% Burlington Northern Worldwide, Inc. (DE) 100% Central California Traction Company (CA) 33.3% Constellation 130, Inc. (CA) 100% The Dodge City and Cimarron Valley Railway Company (KS) 100% Electro Northern, Inc. (DE) 100% Houston Belt & Terminal Railway Company (TX) 50% INB Corp. (NV) 100% Iowa Transfer Railway Company (IA) 25% Kansas City Terminal Railway Company (MO) 25% Limited Partnership Management, Inc. (DE) 100% Longview Switching Company (WA) 25% Los Angeles Junction Railway Company (CA) 100% Metrovias S.A. (Argentina) 16.6% Midwest/Northwest Properties Inc. (DE) 100% M-R Holdings Acquisition Company (DE) 100% M T Properties, Inc. (MN) 37.8% Northern Radio Limited (British Columbia) 100% The Oakland Terminal Railway (CA) 50% Oklahoma City Junction Railway Company (OK) 100% Paducah & Illinois Railroad Company (KY) 33.3% Pine Canyon Land Company (DE) 100% Portland Terminal Railroad Company (OR) 40% EX-23 9 CONSENT OF PRICEWATERHOUSECOOPERS, LLP EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in (i) the Prospectus constituting part of the Registration Statements on Form S-3 (Nos. 333-25627; 333-48227; 333-72013) and (ii) the Registration Statements on Form S-8 (Nos. 33-62823; 33-62825; 33-62827; 33-62829; 33-62831; 33-62833; 33-62835; 33-62837; 33-62839; 33-62841; 33-62943; 33-63247; 33-63249; 33-63253; 33-63255; 333-03275; 333-03277; 333-19241) of Burlington Northern Santa Fe Corporation of our report dated February 8, 1999 appearing on page 25 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page F-1 of this Form 10-K. PRICEWATERHOUSECOOPERS LLP Fort Worth, Texas March 30, 1999 EX-24 10 POWER OF ATTORNEY EXHIBIT 24 ---------- POWER OF ATTORNEY Whereas, Burlington Northern Santa Fe Corporation, a Delaware corporation (the "Company"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1998; and Whereas, the undersigned serve the Company in the capacity indicated; Now, Therefore, the undersigned hereby constitutes and appoints Denis E. Springer and Jeffrey R. Moreland, his or her attorney with full power to act for him or her in his or her name, place and stead, to sign his or her name in the capacity set forth below, to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1998, and to any and all amendments to such Annual Report on Form 10-K, and hereby ratifies and confirms all that said attorney may or shall lawfully do or cause to be done by virtue hereof. In Witness Whereof, this Power of Attorney has been executed by the undersigned this 18th day of March, 1999. /s/ Joseph F. Alibrandi /s/ Jack S. Blanton _____________________________________ _____________________________________ Joseph F. Alibrandi, Director Jack S. Blanton, Director /s/ John J. Burns /s/ George Deukmejian _____________________________________ _____________________________________ John J. Burns, Jr., Director George Deukmejian, Director /s/ Robert D. Krebs /s/ Bill M. Lindig _____________________________________ _____________________________________ Robert D. Krebs, Chairman, President Bill M. Lindig, Director and Chief Executive Officer, and Director /s/ Roy S. Roberts _____________________________________ /s/ Vilma S. Martinez Roy S. Roberts, Director _____________________________________ Vilma S. Martinez, Director /s/ Arnold R. Weber _____________________________________ /s/ Marc J. Shapiro Arnold R. Weber, Director _____________________________________ Marc J. Shapiro, Director /s/ J. Steven Whisler _____________________________________ /s/ Robert H. West J. Steven Whisler, Director _____________________________________ Robert H. West, Director /s/ Ronald B. Woodard _____________________________________ /s/ Edward E. Whitacre, Jr. Ronald B. Woodard, Director _____________________________________ Edward E. Whitacre, Jr., Director /s/ Michael B. Yanney _____________________________________ Michael B. Yanney, Director EX-27.1 11 FDS FOR THE YEAR ENDED 12/31/98
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 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 25 0 678 84 244 1,206 25,701 5,039 22,690 2,197 5,188 0 0 5 7,765 22,690 0 8,941 0 6,783 0 0 354 1,849 694 1,155 0 0 0 1,155 2.45 2.43
EX-27.2 12 FDS RESTATED FOR THE QUARTER ENDED 03/31/98
5 This restated financial data 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 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 33 0 634 65 213 1,185 24,135 4,714 21,668 2,013 5,158 0 0 5 7,102 21,668 0 2,148 0 1,701 0 0 88 436 171 265 0 0 0 265 0.56 0.56 On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All share and per share data have been restated to reflect the stock split. Restatement reflected herein is the result of reclassifications to prior periods' financial statements to conform to the current period presentation.
EX-27.3 13 FDS RESTATED FOR THE QUARTER ENDED 6/30/98
5 This restated financial data 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-31-1998 JAN-01-1998 JUN-30-1998 31 0 644 76 211 1,179 24,624 4,785 21,813 2,169 4,969 0 0 5 7,362 21,813 0 4,353 0 3,377 0 0 173 876 334 542 0 0 0 542 1.15 1.14 On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All share and per share data have been restated to reflect the stock split. Restatement reflected herein is the result of reclassifications to prior periods' financial statements to conform to the current period presentation.
EX-27.4 14 FDS RESTATED FOR THE QUARTER ENDED 9/30/98
5 This restated financial data 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 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 17 0 699 84 212 1,216 25,165 4,898 22,260 2,116 5,154 0 0 5 7,536 22,260 0 6,647 0 5,057 0 0 264 1,380 521 859 0 0 0 859 1.82 1.80 Restatement reflected herein is the result of reclassifications to prior periods' financial statements to conform to the current period presentation.
EX-27.5 15 FDS RESTATED FOR THE YEAR ENDED 12/31/97
5 This restated financial data 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 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 31 0 705 70 205 1,234 23,955 4,744 21,336 2,060 5,181 0 0 5 6,807 21,336 0 8,370 0 6,603 0 0 344 1,404 519 885 0 0 0 885 1.91 1.88 On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All share and per share data have been restated to reflect the stock split. Restatment reflected herein is the result of reclassifications to prior periods' financial statements to conform to the current period presentation.
EX-27.6 16 FDS FOR THE QUARTER ENDED 3/31/97
5 This restated financial data 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 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 47 0 844 51 230 1,420 22,346 4,580 20,068 2,055 4,898 0 0 5 6,107 20,068 0 2,016 0 1,687 0 0 84 242 92 150 0 0 0 150 0.32 0.32 On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All share and per share data have been restated to reflect the stock split. Restated reflected herein is the result of reclassifications to prior periods' financial statements to conform to the current period presentation.
EX-27.7 17 FDS RESTATED FOR THE QUARTER ENDED 6/30/97
5 This restated financial data 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-31-1997 JAN-01-1997 JUN-30-1997 42 0 704 49 205 1,286 22,825 4,645 20,355 1,959 4,935 0 0 5 6,337 20,355 0 4,071 0 3,283 0 0 169 616 231 385 0 0 0 385 0.83 0.82 On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All share and per share data have been restated to reflect the stock split. Restatement reflected herein is the result of reclassification to prior periods' financial statements to conform to the current period presentation.
EX-27.8 18 FDS RESTATED FOR THE QUARTER ENDED 09/30/97
5 This restated financial data 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 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 45 0 845 70 219 1,427 23,334 4,681 20,981 2,039 5,146 0 0 5 6,620 20,981 0 6,196 0 4,867 0 0 255 1,061 393 668 0 0 0 668 1.44 1.42 On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All share and per share data have been restated to reflect the stock split. Restatement reflected herein is the result of reclassifications to prior periods' financial statements to conform to the current period presentation.
EX-27.9 19 FDS RESTATED FOR THE YEAR ENDED 12/31/96
5 This restated financial data 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 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 47 0 685 57 222 1,248 22,123 4,490 19,763 2,228 4,546 0 0 5 5,976 19,763 0 8,109 0 6,361 0 0 301 1,440 551 889 0 0 0 889 1.95 1.91 On July 16, 1998, the Board of Directors approved a three-for-one common stock split which was effected in the form of a stock dividend of two additional shares of BNSF common stock payable for each share outstanding or held in treasury on September 1, 1998, to stockholders of record on August 17, 1998. All share and per share data have been restated to reflect the stock split. Restatement reflected herein is the result of reclassifications to prior periods' financial statements to conform to the current period presentation.
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