<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
XX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from to
__________ _________
Commission file number 1-6324
---------------------
BURLINGTON NORTHERN RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
Delaware 41-6034000
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3800 Continental Plaza, 777 Main St.
Fort Worth, Texas 76102-5384
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(817) 333-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
----------------------------------------------------------
The securities listed below are registered on the New York Stock Exchange.
Title of each class
-------------------
Burlington Northern Inc. Northern Pacific Railway Company
(Now Burlington Northern Railroad Company) Prior Lien Railway and Land
Consolidated Mortgage Bonds Grant 4% Bonds, due 1997
9 1/4 %, Series H, due 2006 General Lien Railway and Land
6.55%, Series K, due 2020 Grant 3% Bonds, due 2047
3.80%, Series L, due 2020
3.20%, Series M, due 2045 Great Northern Railway Company
8.15%, Series N, due 2020 General Mortgage Bonds
6.55%, Series O, due 2020 3 1/8%, Series O, due 2000
8.15%, Series P, due 2020 2 5/8%, Series Q, due 2010
St. Louis-San Francisco Railway
Company
First Mortgage Bonds, 4%,
Series A, due 1997
Income Debentures, 5%,
Series A, due 2006
<PAGE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months [or for such shorter period that the
registrant was required to file such reports], and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Class Outstanding
----- -----------
Common Stock, without par value
as of January 31, 1995* 1,000 shares
*Burlington Northern Railroad Company is a wholly owned subsidiary of
Burlington Northern Inc. (BNI) and there is no market data with respect to
such shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION J.
Page 1 of 113 total pages.
Exhibit index is located on page 51.
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C> <C> <C>
Part I 1. Business.......................................... 1
2. Properties........................................ 1
3. Legal Proceedings................................. 8
4. Submission of Matters to a Vote of Security
Holders......................................... 11
Part II 5. Market for Registrant's Common Equity and
Related Stockholder Matters..................... 11
6. Selected Financial Data........................... 11
7. Management's Narrative Analysis of Results of
Operations...................................... 12
8. Financial Statements and Supplementary Data....... 21
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure............. 43
Part III 10. Directors and Executive Officers of the Registrant 43
11. Executive Compensation............................ 43
12. Security Ownership of Certain Beneficial Owners
and Management.................................. 43
13. Certain Relationships and Related Transactions.... 43
Part IV 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 43
</TABLE>
NOTE: Part I, Item Four; Part II, Item Six; Part III, Items Ten, Eleven,
Twelve and Thirteen; and Part IV Exhibit 22 have been omitted
pursuant to General Instruction J(1)(a) and (b) of Form 10-K relating
to wholly owned subsidiaries.
<PAGE>
PART I
Item 1. Business
and
Item 2. Properties
Burlington Northern Railroad Company's (Railroad) principal business
activity is railroad transportation. Railroad is the principal subsidiary of
Burlington Northern Inc. (BNI).
Railroad transportation
Railroad operates the largest railroad system in the United States based on
miles of road and second main track, with approximately 24,300 total miles at
December 31, 1994. The principal cities served include Billings, Birmingham,
Cheyenne, Chicago, Denver, Des Moines, Duluth/Superior, Fargo/Moorhead, Fort
Worth/Dallas, Galveston, Houston, Kansas City, Lincoln, Memphis, Mobile,
Omaha, Pensacola, Portland, St. Louis, St. Paul/Minneapolis, Seattle, Spokane,
Springfield (Missouri), Tacoma, Tulsa, Wichita, Vancouver (British Columbia)
and Winnipeg (Manitoba).
The following table presents Railroad's revenue information by business unit
and includes certain reclassifications of prior year information to conform to
current year presentation. Percent of revenues was calculated before
consideration of shortline payments and other miscellaneous revenues. The
principal contributors to rail transportation revenues were as follows
(revenues and revenue ton miles in millions, carloadings in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Coal:
Revenues................................ $ 1,669 $ 1,532 $ 1,520
Percent of revenues..................... 33% 32% 32%
Revenue ton miles....................... 140,934 122,821 117,138
Revenues per revenue ton mile........... 1.18c 1.25c 1.30c
Carloadings............................. 1,624 1,467 1,448
Agricultural Commodities:
Revenues................................ $ 830 $ 784 $ 777
Percent of revenues..................... 16% 16% 16%
Revenue ton miles....................... 35,130 35,454 36,831
Revenues per revenue ton mile........... 2.36c 2.21c 2.11c
Carloadings............................. 436 423 454
Intermodal:
Revenues................................ $ 772 $ 730 $ 711
Percent of revenues..................... 15% 15% 15%
Revenue ton miles....................... 25,542 23,726 22,749
Revenues per revenue ton mile........... 3.02c 3.08c 3.13c
Carloadings............................. 1,026 1,003 1,017
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Forest Products:
Revenues................................ $ 498 $ 483 $ 489
Percent of revenues..................... 10% 10% 10%
Revenue ton miles....................... 20,784 19,724 20,030
Revenues per revenue ton mile........... 2.40c 2.45c 2.44c
Carloadings............................. 284 280 283
Chemicals:
Revenues................................ $ 412 $ 406 $ 389
Percent of revenues..................... 8% 8% 8%
Revenue ton miles....................... 14,853 14,655 14,167
Revenues per revenue ton mile........... 2.77c 2.77c 2.75c
Carloadings............................. 291 263 244
Consumer Products:
Revenues................................ $ 267 $ 257 $ 258
Percent of revenues..................... 5% 5% 5%
Revenue ton miles....................... 9,477 9,049 9,098
Revenues per revenue ton mile........... 2.82c 2.84c 2.84c
Carloadings............................. 150 145 146
Minerals Processors:
Revenues................................ $ 208 $ 195 $ 180
Percent of revenues..................... 4% 4% 4%
Revenue ton miles....................... 8,399 7,984 7,409
Revenues per revenue ton mile........... 2.48c 2.44c 2.43c
Carloadings............................. 189 179 170
Vehicles & Machinery:
Revenues................................ $ 190 $ 185 $ 165
Percent of revenues..................... 4% 4% 4%
Revenue ton miles....................... 2,614 2,386 2,140
Revenues per revenue ton mile........... 7.27c 7.75c 7.71c
Carloadings............................. 134 122 101
Iron & Steel:
Revenues................................ $ 175 $ 173 $ 178
Percent of revenues..................... 3% 4% 4%
Revenue ton miles....................... 8,270 8,189 8,088
Revenues per revenue ton mile........... 2.12c 2.11c 2.20c
Carloadings............................. 230 225 244
Aluminum, Nonferrous Metals & Ores:
Revenues................................ $ 102 $ 103 $ 108
Percent of revenues..................... 2% 2% 2%
Revenue ton miles....................... 3,851 3,917 4,180
Revenues per revenue ton mile........... 2.65c 2.63c 2.58c
Carloadings............................. 65 68 71
</TABLE>
Coal
The transportation of coal is Railroad's largest source of revenues,
accounting for approximately one-third of the total. Based on carloadings and
tons hauled, Railroad is the largest transporter of Western low-sulfur coal in
the United States. Over 90 percent of Railroad's coal traffic originated in
the Powder River Basin of Montana and Wyoming during the three years ended
December 31, 1994. 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 with smaller quantities exported.
Railroad also handles increasing amounts of low-sulfur coal from the Powder
River Basin for delivery to markets in the eastern and southeastern portion of
the United States. The low-sulfur coal from the Powder River Basin is
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abundant, inexpensive to mine and clean-burning. Since the Clean Air Act of
1990 requires power plants to reduce harmful emissions either by burning coal
with a lower sulfur content or by installing expensive scrubbing units,
opportunities for increased shipments of this low-sulfur coal still exist.
Agricultural Commodities
Based on carloadings and tons hauled, Railroad is the largest rail
transporter of grain in North America. Railroad's system is strategically
located to serve the Midwest and Great Plains grain producing regions where
Railroad serves most major terminal, storage, feeding and food-processing
locations. Additionally, Railroad has access to major export markets in the
Pacific Northwest, western Great Lakes and Texas Gulf regions.
Intermodal
Intermodal transportation consists of hauling freight containers or truck
trailers by a combination of water, rail and motor carriers. The intermodal
business has become highly service-driven, and in some cases motor carriers
and railroads have begun to jointly market intermodal service. Railroad's
intermodal transportation system integrates the movement of approximately 36
daily trains operating between 32 rail hubs and 27 satellite rail hubs
(Railroad-operated marshalling points for trailer/container movements). These
operations are strategically located across Railroad's rail network and also
serve major distribution centers outside Railroad's system. Strategic
alliances have been formed to enhance Railroad's market access both with other
railroads and with major truck transportation providers.
Forest Products
The Forest Products business unit is primarily comprised of lumber, plywood,
pulpmill feedstock, wood pulp and paper products. These products primarily
come from the Pacific Northwest, upper Midwest and Southeast areas of the
United States.
Chemicals
The Chemicals business unit is comprised of fertilizer, petroleum and
chemical commodities as well as Railroad's environmental logistics business.
Primary origin markets for Railroad include the Gulf Coast, the Pacific
Northwest, and various Canadian ports of entry. Environmental logistics is an
area of significant opportunity as municipalities exhaust their traditional
disposal sources and must increasingly transport their waste over longer
distances.
Consumer Products
Products included in Railroad's Consumer Products business unit represent a
wide variety of commodities. Some of the major products in this group are
food products, beverages, frozen foods, canned foods, appliances and
electronics. Because this business unit handles a wide variety of consumer
goods, the business unit performance typically mirrors the country's economy.
Minerals Processors
Commodities in this group include clays, cements, sands and other minerals
and aggregates. This group services both the oil and construction industries.
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<PAGE>
Vehicles & Machinery
The Vehicles & Machinery business unit is responsible for both domestic and
international vehicle manufacturers as well as an assortment of primary and
secondary markets for heavy machinery and aerospace products. Through the
development and implementation of using containers to move motor vehicles,
Railroad is redefining transit time and ride quality. Heavy machinery
includes primary markets for aircraft, construction, farm and railroad
equipment and secondary markets for used equipment. The business unit is also
responsible for military and other miscellaneous traffic for the United States
government.
Iron & Steel
The Iron & Steel business unit handles virtually all of the commodities
included in or resulting from the production of steel. Taconite, an iron ore
derivative produced in northern Minnesota, scrap steel and coal coke are the
business unit's primary input products, while finished steel products range
from structural beams and steel coils to wire and nails.
Aluminum, Nonferrous Metals & Ores
The Aluminum, Nonferrous Metals & Ores business unit handles alumina and
aluminum products, petroleum coke and a variety of other metals and ores such
as zinc, copper and lead.
Operating factors
Certain significant operating statistics were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Carloadings (in thousands)..................... 4,429 4,175 4,178 4,149 4,335
Freight revenues per carload................... $1,101 $1,099 $1,080 $1,071 $1,052
Revenue ton miles (in millions)................ 260,574 237,339 232,799 232,441 234,291
Revenues per revenue ton mile.................. 1.92c 1.98c 1.99c 1.96c 1.99c
Revenue tons per carload....................... 86 83 82 82 79
Revenue tons per train......................... 3,397 3,315 3,193 3,188 3,141
Freight train miles (in millions).............. 77 72 73 73 75
Average length of haul (miles)................. 793 778 764 770 766
Gross ton miles, excluding locomotives
(in millions)................................ 443,440 409,808 400,917 402,527 409,991
Operating ratio (excluding the 1991 special
charge)...................................... 83% 86% 87% 90% 87%
Operating expense per gross ton mile (excluding
the 1991 special charge)..................... .93c .99c 1.01c 1.02c .99c
Gallons of fuel used (in millions)............. 631 588 560 562 593
Average fuel price per gallon.................. 58.4c 61.5c 62.2c 65.5c 69.5c
Gross ton miles per gallon of fuel used........ 703 697 716 716 691
Revenue ton miles per employee (in thousands).. 8,485 7,781 7,461 7,317 7,120
Revenues per employee (in thousands)........... $163 $154 $148 $144 $142
</TABLE>
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<PAGE>
Properties
In 1994, approximately 96 percent of the total ton miles, both revenue and
non-revenue generating, carried by Railroad were handled on its main lines.
At December 31, 1994, approximately 19,140 miles of Railroad's track consisted
of 112-lb. per yard or heavier rail, including approximately 10,738 track
miles of 132-lb. per yard or heavier rail. Additions and replacements to
properties were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Track miles of rail additions and replacements:
New.......................................... 378 387 461 380 301
Used......................................... 253 356 299 281 299
Track miles surfaced or reballasted............ 8,183 7,854 7,610 7,710 7,119
Ties inserted (in thousands):
Wood......................................... 1,435 1,914 1,684 1,515 1,331
Concrete..................................... 260 195 500 527 691
</TABLE>
Equipment
Railroad owned or leased, under both capital and operating leases, with an
initial lease term in excess of one year, the following units of railroad
rolling stock at December 31, 1994:
<TABLE>
<CAPTION>
Number of Units
--------------------------
Owned Leased Total
------ ------ -----
<S> <C> <C> <C>
Locomotives:
Freight...................................... 583 1,419 2,002
Passenger.................................... - - -
Multi-purpose................................ 148 58 206
Switching.................................... 176 18 194
------ ----- -----
Total locomotives.......................... 907 1,495 2,402
====== ===== =====
Freight Cars:
Box-general purpose.......................... 238 2,753 2,991
Box-specially equipped....................... 5,021 901 5,922
Gondola...................................... 4,729 2,613 7,342
Hopper-open top.............................. 7,349 791 8,140
Hopper-covered............................... 16,326 15,702 32,028
Refrigerator................................. 3,293 9 3,302
Flat......................................... 3,123 1,135 4,258
Caboose...................................... 458 - 458
Other........................................ 549 37 586
------ ------ ------
Total freight cars......................... 41,086 23,941 65,027
====== ====== ======
Commuter passenger cars........................ - 141 141
====== ====== ======
</TABLE>
In addition to the owned and leased locomotives identified above, Railroad
operates 197 freight locomotives under power purchase agreements.
The average age of locomotives and freight cars was 15.0 years and 18.6
years, respectively, at December 31, 1994, compared with 14.5 years and 18.6
years, respectively, at December 31, 1993.
The average percentage of Railroad's locomotives and freight cars awaiting
repairs during 1994 was 7.7 and 3.1, respectively, compared with 7.7 and 3.3,
respectively, in 1993. The average time between locomotive failures was 71.1
days in 1994 compared with 67.9 days in 1993.
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<PAGE>
In 1993, Railroad entered into an agreement to acquire 350 alternating current
traction motor locomotives. In December 1994, the number of locomotives to be
acquired under this agreement was increased to 404. Railroad anticipates reduced
locomotive operating costs as well as an increase in both horsepower and
traction, meaning fewer locomotives will be needed for many freight operations.
As of January 31, 1995, Railroad had accepted delivery of 147 locomotives and
anticipates deliveries under this agreement of between approximately 60 and 140
each year from 1995 (including January 1995 deliveries) through 1997.
Employees
Railroad employed an average of 30,711 employees in 1994 compared with 30,502
in 1993 and 31,204 in 1992. Railroad's payroll and employee benefits costs,
including capitalized labor costs, were approximately $2.0 billion for the year
ended December 31, 1994 and $1.9 billion for each of the years ended December
31, 1993 and 1992. Almost 90 percent of Railroad's employees are covered by
collective bargaining agreements with 14 different labor organizations.
In December 1994, Railroad reached an agreement with the Railroad Yardmasters
Division (Yardmasters) of the United Transportation Union which is effective
through 1999 with respect to wages, work rules and all other matters except
health and welfare benefits. Any changes negotiated with the other unions
regarding health and welfare benefits on a national basis will also apply to the
Railroad Yardmasters. Approximately 250 Yardmasters were affected by this
agreement. Also during 1994, agreements were signed with all of the unions
establishing non-contributory 401(k) plans for union employees.
Labor agreements currently in effect for unions other than Yardmasters include
provisions which prohibited the parties from serving notices to change wages,
benefits, rules and working conditions prior to November 1, 1994. The next wage
adjustment stipulated by the existing agreements is scheduled for July 1995
unless new agreements are reached by the parties prior to that time. The
adjustment called for by the contract is a base wage increase dependent upon
changes in the Consumer Price Index not to exceed three percent. These cost of
living increases may be offset by increases in the cost of Railroad's payment
rate for health and welfare benefits costs. Railroad joined with the other
railroads to negotiate with the unions on a multi-employer basis on November 1,
1994. At that time, all unions were served proposals for productivity
improvements as well as other changes. The unions also served notices on the
railroads which proposed not only increasing wages and benefits but also
restoring many of the restrictive work rules and practices that were modified or
eliminated under the current agreements. A number of the unions are also
challenging the railroads' right to negotiate nationally on a multi-employer
basis and the issue is currently pending in Federal District Court in
Washington, D.C. At this time, negotiations on the proposals by both the
railroads and the unions are in preliminary stages and the ultimate outcome of
these negotiations cannot be predicted.
In July 1993, the American Train Dispatchers Association ratified an April
1993 agreement which will facilitate the consolidation of all dispatching
functions into a centralized train dispatching office in Fort Worth, Texas by
the end of 1995.
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<PAGE>
Competition
The general environment in which Railroad operates remains highly competitive.
Depending on the specific market; deregulated motor carriers, other railroads
and river barges exert pressure on various price and service combinations. The
presence of advanced, high service truck lines with expedited delivery,
subsidized infrastructure and minimal empty mileage continues to impact the
market for non-bulk, time sensitive freight. The potential expansion of long
combination vehicles could further encroach upon markets traditionally served by
railroads. In order to remain competitive, Railroad and other railroads continue
to develop and implement technologically supported operating efficiencies to
improve productivity.
As railroads streamline, rationalize and otherwise enhance their franchises,
competition among rail carriers intensifies. Railroad's primary rail competitors
in the western region of the United States consist of The Atchison, Topeka &
Santa Fe Railway Company; Chicago & Northwestern Transportation Company (C&NW);
CP Rail System; Southern Pacific Transportation Company; and Union Pacific
Railroad Company (UP Rail).
Coal, one of Railroad's primary commodities, has experienced significant
pressure on rates due to competition from the joint effort of C&NW/UP Rail and
Railroad's efforts to penetrate into new markets. In addition to the railroads
discussed above, numerous regional railroads and motor carriers operate in parts
of the same territory served by Railroad.
Environmental
Railroad's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. In order to comply
with such regulation and to be consistent with Railroad's corporate
environmental policy, Railroad's operating procedures include practices to
protect the environment. Amounts expended relating to such practices are
inextricably contained in the normal day-to-day costs of Railroad's business
operations.
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<PAGE>
Item 3. Legal Proceedings
Wheat and barley transportation rates
In September 1980 a class action lawsuit was filed against Railroad in United
States District Court for the District of Montana (District Court) challenging
the reasonableness of Railroad's export wheat and barley rates. The class
consists of Montana grain producers and elevators. The plaintiffs sought a
finding that Railroad's single car export wheat and barley rates for shipments
moving from Montana to the Pacific Northwest were unreasonably high and
requested damages in the amount of $64 million. In March 1981 the District Court
referred the rate reasonableness issue to the Interstate Commerce Commission
(ICC). Subsequently, the State of Montana filed a complaint at the ICC
challenging Railroad's multiple car rates for Montana wheat and barley movements
occurring after October 1, 1980.
The ICC issued a series of decisions in this case from 1988 to 1991. Under
these decisions, the ICC applied a revenue to variable cost test to the rates
and determined that Railroad owed $9,685,918 in reparations plus interest. In
its last decision, dated November 26, 1991, the ICC found Railroad's total
reparations exposure to be $16,559,012 through July 1, 1991. The ICC also found
that Railroad's current rates were below a reasonable maximum and vacated its
earlier rate prescription order.
Railroad appealed to the United States Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) those portions of the ICC's decisions concerning
the post-October 1, 1980 rate levels. Railroad's primary contention on appeal
was that the ICC erred in using the revenue to variable cost rate standard to
judge the rates instead of Constrained Market Pricing/Stand Alone Cost
principles. The limited portions of decisions that cover pre-October 1, 1980
rates were appealed to the Montana District Court.
On March 24, 1992, the Montana District Court dismissed plaintiffs' case as to
all aspects other than those relating to pre-October 1, 1980 rates. On February
9, 1993, the D.C. Circuit served its decision regarding the appeal of the
several ICC decisions in this case. The Court held that the ICC did not
adequately justify its use of the revenue to variable cost standard as Railroad
had argued and remanded the case to the ICC for further administrative
proceedings.
On July 22, 1993, the ICC served an order in response to the D.C. Circuit's
February 9, 1993 decision. In its order, the ICC stated it would use the
Constrained Market Pricing/Stand Alone Cost Standards in assessing the
reasonableness of Railroad's 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 Railroad
exceeded the stand alone costs of transporting that traffic and that Railroad's
rates were unreasonably high. The ICC has issued a procedural schedule calling
for the receipt of Railroad's evidence on February 27, 1995. Railroad sought
reconsideration of that schedule and the ICC granted Railroad's request to
extend the filing date until March 29, 1995 in a decision served
February 13, 1995. On January 19, 1995, Railroad moved to dismiss the case
on the basis that complainants had failed to state a prima facie case. The ICC
denied the motion on February 13, 1995.
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<PAGE>
Coal Transportation Contract Litigation
On April 26, 1991, an action was filed against Railroad in the 102nd Judicial
District Court for Bowie County, Texas seeking a reduction of the transportation
rates required to be paid under two contracts (Southwestern Electric Power
---------------------------
Company v. Burlington Northern Railroad Company, No. D-102-CV-91-0720). The
- -----------------------------------------------
plaintiff, Southwestern Electric Power Company (SWEPCO), was challenging the
contract rates for transportation of coal to its electric generating facilities
at Cason, Texas and Flint Creek, Arkansas. SWEPCO contended that productivity
gains achieved by Railroad constituted unusual economic conditions giving rise
to a "gross inequity" because Railroad's costs of providing service have been
reduced over the contracts' terms. On August 2, 1994, plaintiff filed an
amendment to its complaint to further allege that Railroad had been unjustly
enriched by retaining differences between the rates actually charged and those
that should have been charged. SWEPCO sought both prospective rate relief and
recovery of alleged past overcharges.
Railroad's primary contention was that both parties anticipated productivity
gains in the rail industry when negotiating the contracts and agreed that
Railroad would retain most of its productivity gains. Railroad further contended
that there was no agreement that transportation rates paid by SWEPCO would be
based on Railroad's costs of providing service.
On November 18, 1994, the jury rendered a verdict denying plaintiff's request
for prospective rate relief and that plaintiff take nothing on its principal
claims of "gross inequity." However, Railroad was assessed damages approximating
$56 million relating to plaintiff's alternative claim of unjust enrichment. On
January 20, 1995, the trial court rendered a judgment on the verdict in an
amount approximating $74 million, which included attorneys' fees and interest.
The judgment further awarded post judgment interest at 10 percent per annum
and issued declaratory orders pertaining to the two contracts. Railroad intends
to appeal the judgment. In the opinion of outside counsel, Railroad has a
substantial likelihood of prevailing on appeal, although no assurances can be
given due to the uncertainties inherent in litigation. Railroad plans to file
its Notice of Appeal in the case on February 17, 1995 and will post a bond to
stay enforcement of the judgment pending prosecution of all appeals. In the
event SWEPCO fails to file a motion for new trial on or before February 21,
1995, Railroad's appeal will be effective. If such a motion for new trial were
timely filed, the trial court's jurisdiction would extend 75 days from the date
of judgment to rule on SWEPCO's motion, and Railroad would refile its appeal at
the appropriate time.
Environmental Proceeding
On May 25, 1994, the United States Department of Justice (Department) filed
suit on behalf of the United States Environmental Protection Agency (EPA)
against Railroad in United States District Court for the Eastern District of
Wisconsin for the release of oil and hazardous substances into navigable waters
of the United States in the course of three derailments. Specifically referenced
are (1) the alleged release of hazardous substances into the Nemadji River and
its shoreline near Superior, Wisconsin, on June 30, 1992, (2) the alleged
release of oil into the North Platte River and its shoreline near Guernsey,
Wyoming, on January 9, 1993, and (3) the alleged release of oil into a tributary
of the Bighorn River near Worland, Wyoming, on May 6, 1993. The suit claims that
pursuant to 33 U.S.C. Section 1321(b)(7), Railroad is liable to the United
States for civil penalties of up to $25,000 per day of violation or $1,000 per
barrel of oil or per reportable quantity of each hazardous substance discharged.
The EPA initially calculated the statutory maximum penalty associated with these
three spills to be $10,137,000. Railroad has answered the complaint and opposed
the penalties sought by the EPA.
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<PAGE>
On February 13, 1995, Railroad attended a settlement conference with the
Department. The settlement conference was called and conducted by the United
States Judge Magistrate for the Western District of Wisconsin. At the
conference, a settlement in principle was achieved. Pursuant to the
compromise, Railroad will pay $1,500,000 to satisfy all claims by the United
States for fines, penalties, response costs and natural resource damages.
Railroad will also make a $100,000 contribution to a study (jointly approved by
Railroad and the Department) regarding methods or procedures to improve rail
safety and prevent derailments. In return for these payments, the United States
will release Railroad from all claims arising out of the three derailments and
provide Railroad contribution protection against claims by other responsible
parties who may later be pursued by the government for their liability arising
from the derailments.
The settlement is subject to documentation, formal sign-off by various
government officials and court approval. Railroad anticipates that the
settlement will be executed, approved and implemented by March 30, 1995. There
is no reason to believe that formal government and court approval will not be
forthcoming.
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable - see Table of Contents note.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
All of Railroad's outstanding common stock is owned of record by BNI and
therefore not traded on any market.
Item 6. Selected Financial Data
Not applicable - see Table of Contents note.
-11-
<PAGE>
Item 7. Management's Narrative Analysis of Results of Operations
Results of operations
Year ended December 31, 1994 compared with year ended December 31, 1993
Railroad had net income of $459 million for the year ended December 31, 1994
compared with net income of $332 million for 1993. Results for 1994 included the
cumulative effect of the implementation of Statement of Financial Accounting
Standards (SFAS) No. 112 "Employers' Accounting for Postemployment Benefits"
which decreased 1994 net income by $10 million. Results for 1993 included the
effects of severe flooding in the Midwest, most notably in the third quarter.
The floods slowed and often halted operations, forced extensive detours,
increased car, locomotive and crew costs and resulted in extensive rebuilding of
damaged track and bridges. Railroad estimated that the third quarter flooding
reduced revenues during 1993 by $44 million and increased operating expenses by
$35 million, for a combined reduction of $79 million. Net income for 1993 also
included the retroactive effects of the Omnibus Budget Reconciliation Act of
1993 (the Act), which was passed into law during August 1993. The Act increased
the corporate federal income tax rate by one percent, effective January 1, 1993,
which reduced Railroad's net income by $28 million through the date of
enactment. This included the recognition of a one-time, non-cash charge of $27
million to income tax expense to adjust deferred taxes as of the enactment date
and a charge of $1 million to current income tax expense.
Revenues
The following table presents Railroad's revenue information by business unit and
includes certain reclassifications of 1993 information to conform to the 1994
presentation:
<TABLE>
<CAPTION>
Revenues Per
Revenues Revenue Ton Miles Revenue Ton Mile
--------------- ----------------- -------------------
Year ended December 31, 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------
(In millions) (In millions) (In cents)
<S> <C> <C> <C> <C> <C> <C>
Coal.............................. $1,669 $1,532 140,934 122,821 1.18 1.25
Agricultural Commodities.......... 830 784 35,130 35,454 2.36 2.21
Intermodal........................ 772 730 25,542 23,726 3.02 3.08
Forest Products................... 498 483 20,784 19,724 2.40 2.45
Chemicals......................... 412 406 14,853 14,655 2.77 2.77
Consumer Products................. 267 257 9,477 9,049 2.82 2.84
Minerals Processors............... 208 195 8,399 7,984 2.48 2.44
Vehicles & Machinery.............. 190 185 2,614 2,386 7.27 7.75
Iron & Steel...................... 175 173 8,270 8,189 2.12 2.11
Aluminum, Nonferrous Metals & Ores 102 103 3,851 3,917 2.65 2.63
Shortlines and other.............. (128) (149) (9,280) (10,566) - -
------ ------ ------- -------
Total........................... $4,995 $4,699 260,574 237,339 1.92 1.98
====== ====== ======= =======
</TABLE>
Total revenues for 1994 were $4,995 million compared with revenues of $4,699
million for 1993. The $296 million improvement was primarily attributable to
improvements in Coal ($137 million), Agricultural Commodities ($46 million) and
Intermodal ($42 million) revenues.
Coal revenues improved $137 million during 1994 as a result of increased
traffic. This increase was primarily caused by a rise in the demand for
electricity as well as the need for utilities to replenish coal stockpiles
during the first half of 1994, which were partially depleted during the 1993
summer flooding. Railroad estimated lost coal revenues of approximately $35
-12-
<PAGE>
million during 1993 as a result of this flooding. Partially offsetting the
increase in 1994 traffic was a decline in revenues per revenue ton mile.
These lower yields were largely due to the transportation in 1994 of greater
volumes above contractual minimum tonnage requirements on which customers
received lower rates. Continuing competitive pricing pressures in contract
renegotiations also contributed to lower yields.
Revenues from the transportation of Agricultural Commodities during 1994 were
$46 million higher than 1993. This increase was principally caused by a $31
million improvement in barley revenues, higher wheat revenues and improved feeds
and minor oilseeds revenues. Barley revenues benefited from strong domestic and
export demand caused by favorable market conditions during 1994. Higher wheat
revenues resulted from an increase in yield, which is a product of commodity
mix, price and length of haul. Feeds and minor oilseeds revenues were favorably
impacted by increased domestic feed demand. Partially offsetting these increases
was an early 1994 decrease in corn revenues largely attributable to reduced crop
production and lower export demand.
Intermodal revenues increased $42 million during 1994 when compared with 1993.
Intermodal-international revenues accounted for the majority of the increase
with a $37 million improvement over 1993 caused by both new business and growth
in existing business. Additionally, BN AMERICA revenues increased due to
Railroad's focus on traffic in its key intermodal lanes which resulted in
improved yields. The traffic increases in Railroad's key intermodal lanes more
than offset Railroad's withdrawal from the Texas market in April 1994.
Forest Products, Consumer Products and Minerals Processors revenues for 1994
increased $15 million, $10 million and $13 million, respectively compared with
1993. The improvement in Forest Products revenues was largely due to increased
housing starts during the year, while Consumer Products revenues were higher as
a result of increased export demand. Minerals Processors revenues rose as a
result of stronger clays and aggregates traffic caused by increases in both
domestic and export demands.
Revenues for Chemicals and Vehicles & Machinery increased $6 million and $5
million, respectively. Increased volumes for environmental logistics, chemicals
and fertilizers contributed to higher Chemicals revenues, offset partially by a
decline in petroleum products revenues. The increase in Vehicles & Machinery
revenues resulted from increased volume in automotive-international traffic.
Current year revenues for Iron & Steel and Aluminum, Nonferrous Metals & Ores
were relatively flat compared with 1993.
Shortlines and other, which are a net reduction of revenue, dropped $21
million compared with 1993 primarily due to additional haulage agreement
revenues and increased miscellaneous revenues.
Expenses
Total operating expenses for 1994 were $4,164 million compared with $4,049
million for 1993. However, the operating ratio improved three percentage points
to 83 percent from 86 percent, as increased revenues more than offset increased
operating expenses.
-13-
<PAGE>
Compensation and benefits expenses for 1994 were $68 million greater than for
the prior year. Higher traffic volumes during 1994 as well as basic wage
increases for union represented employees, three percent effective July 1993 and
four percent effective July 1994, caused an increase in excess of $50 million to
wages and related payroll taxes. Increased salaries and a higher pension
expense, due to a reduction in the discount rate used in determining the net
pension cost, also contributed to additional compensation and benefits expenses.
Fuel expenses were $7 million higher during 1994 as compared with 1993. The
average price paid for diesel fuel decreased 3.1 cents per gallon in 1994 to
58.4 cents despite the 4.3 cents per gallon increase in the federal fuel tax,
effective October 1, 1993, enacted as part of the Omnibus Budget Reconciliation
Act of 1993. These price savings were more than offset by a $30 million increase
in consumption due to higher traffic volumes.
Materials expenses were $5 million higher during 1994 as compared with 1993.
Track and locomotive repair materials costs increased due to higher maintenance
levels and a larger fleet size in 1994. Partially offsetting these increases
were greater scrap sales due to the higher maintenance levels and a reduction in
expenditures for safety and protective equipment deployed in 1993.
Equipment rents expenses were $53 million higher than 1993. This increase was
primarily attributable to higher lease expenses due to a larger fleet of leased
rail cars as well as leasing locomotives to meet power requirements. Increased
equipment rentals from an affiliate and payments for failure to achieve service
commitments in the first half of 1994 under various transportation agreements
also contributed to this increase. These increases were partially offset by
decreased car hire expenses in 1994 compared with 1993, due to the adverse
effects of the Midwest flooding in 1993.
Purchased services expenses increased $14 million compared with 1993. Higher
intermodal-related costs, due to increased volumes, and higher third party
locomotive maintenance and repair costs were the most significant contributing
factors to this increase. These increases were partially offset by haulage
agreement-related reimbursements from The Atchison, Topeka and Santa Fe Railway
Company and Southern Pacific Transportation Company for operating services
provided by Railroad.
Depreciation expense for 1994 was $1 million higher than 1993, primarily due
to an increase in the asset base and higher traffic levels.
Other operating expenses were $33 million less when compared with 1993. A $43
million decrease in costs associated with personal injury claims, excluding wage
continuation payments, and the absence in 1994 of costs associated with the 1993
third quarter floods were partially offset by increases in derailment-related
expenses and property taxes.
Interest expense for the year decreased $7 million compared with 1993,
primarily due to a lower average outstanding debt balance in 1994.
Other income, net was $5 million higher in 1994 compared with 1993, due
primarily to a reduction in other miscellaneous expenses.
-14-
<PAGE>
The effective tax rate was 39.0 percent for 1994 compared with 42.4 percent
for 1993. The higher effective tax rate for 1993 resulted from the retroactive
increase, effective January 1, 1993, in tax rates pursuant to the provisions of
the Omnibus Budget Reconciliation Act of 1993 and the related impact on the
deferred tax liability at January 1, 1993.
Other matters
Casualty and environmental
Personal injury claims, including work-related injuries to employees, are a
significant expense for the railroad industry. Employees of Railroad are
compensated for work-related injuries according to the provisions of the Federal
Employers' Liability Act (FELA). FELA's system of requiring finding of fault,
coupled with unscheduled awards and reliance on the jury system, resulted in
significant increases in expense. For several years prior to 1992, the trend of
significant increases in Railroad's personal injury expense reflected the
combined effects of increasing frequency of claims, rising medical expenses,
legal judgments and settlements. To improve worker safety and counter increasing
costs, Railroad implemented a number of programs to reduce the number of
personal injury claims and the dollar amount of claim settlements, and reverse
the trend of rising expense. If these efforts continue to be successful, future
expenses could be further reduced. The total amount of personal injury costs
(including wage continuation payments) were $170 million, $216 million and $253
million in 1994, 1993 and 1992, respectively. Railroad is also working with
others, through the Association of American Railroads, to seek changes in
legislation to provide a more equitable program for injury compensation in the
railroad industry.
Railroad's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. In order to comply
with such regulation and to be consistent with Railroad's corporate
environmental policy, Railroad's operating procedures include practices to
protect the environment. Amounts expended relating to such practices are
inextricably contained in the normal day-to-day costs of Railroad's business
operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws,
Railroad is potentially liable for the cost of clean-up of various contaminated
sites identified by the United States Environmental Protection Agency and other
agencies. Railroad has been notified that it is a potentially responsible party
(PRP) for study and clean-up costs at approximately 75 sites (the PRP sites)
and, in many instances, is one of several PRPs. Railroad generally participates
in the clean-up of these sites through cost-sharing agreements with terms that
vary from site to site. Costs are typically allocated based on relative
volumetric contribution of material, the amount of time the site was owned or
operated, and/or the portion of the total site owned or operated by each PRP.
However, under Superfund and certain other laws, as a PRP, Railroad can be held
jointly and severally liable for all environmental costs associated with a site.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental clean-up
costs are initially recorded when Railroad's liability for environmental clean-
up is both probable and a reasonable estimate of associated costs can be made.
Adjustments to initial estimates are recorded
-15-
<PAGE>
as necessary based upon additional information developed in subsequent periods.
Railroad conducts an ongoing environmental contingency analysis, which considers
a combination of factors, including independent consulting reports, site visits,
legal reviews, analysis of the likelihood of participation in and ability to pay
for clean-up by other PRPs and historical trend analyses.
Railroad is involved in a number of administrative and judicial proceedings
and other mandatory clean-up efforts at approximately 160 sites, including the
PRP sites, for which it is being asked to participate in the clean-up of sites
contaminated by material discharged into the environment. Railroad paid
approximately $21 million, $27 million and $20 million during 1994, 1993 and
1992, respectively, relating to mandatory clean-up efforts, including amounts
expended under federal and state voluntary clean-up programs. At this time,
Railroad expects to spend approximately $110 million in future years to
remediate and restore all known sites, including $105 million pertaining to
mandated sites, of which approximately $70 million relates to the PRP sites. Of
the $110 million, Railroad expects to spend $33 million during 1995. Also,
Railroad anticipates that the majority of the $110 million will be paid out over
a period of less than seven years; however, some costs will be paid out over a
longer period, in some cases up to 40 years. At December 31, 1994, 23 sites
accounted for approximately $75 million of the accrual and no individual site
was considered to be material.
Liabilities for environmental costs represent Railroad's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. At December 31, 1994, Railroad had accrued approximately $110 million
for estimated future environmental costs and believes it is reasonably possible,
although not probable, that actual environmental costs could be lower than the
recorded reserve or as much as 50 percent higher. Railroad's best estimate of
unasserted claims was approximately $5 million as of December 31, 1994. Although
recorded liabilities include Railroad's best estimates of all costs, without
reduction for anticipated recovery from insurance, Railroad's total clean-up
costs at these sites cannot be predicted with certainty due to various factors
such as the extent of corrective actions that may be required, evolving
environmental laws and regulations, advances in environmental technology, the
extent of other PRPs' participation in clean-up efforts, developments in ongoing
environmental analyses related to sites determined to be contaminated, and
developments in environmental surveys and studies of potentially contaminated
sites. As a result, charges to income for environmental liabilities could
possibly have a significant effect on results of operations in a particular
quarter or fiscal year as individual site studies and remediation and
restoration efforts proceed or as new sites arise. However, expenditures
associated with such liabilities are typically paid out over a long period, in
some cases up to 40 years, and are therefore not expected to have a material
adverse effect on Railroad's consolidated financial position, cash flow or
liquidity.
Hedging activities
Railroad has a program to hedge against fluctuations in the price of its
diesel fuel purchases. This program includes forward purchases for delivery at
fueling facilities and exchange-traded petroleum futures contracts. The futures
contracts are accounted for as hedges which are marked to market with any gains
or losses associated with changes in market value being deferred and recognized
as a component of fuel expense in the period in which the designated fuel is
purchased and used. At December 31, 1994, Railroad had entered into agreements
with fuel suppliers setting the price of fuel to be
-16-
<PAGE>
obtained by taking physical delivery directly from such suppliers at a future
date. The average price of the approximately 79 million gallons which Railroad
had committed to purchase was approximately 52 cents per gallon, exclusive of
taxes, certain transportation costs and other charges. In addition, Railroad
held petroleum futures contracts representing approximately 53 million gallons
at an average price of approximately 49 cents per gallon. These contracts have
expiration dates ranging from January to October 1995.
Railroad's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The current
and future fuel delivery prices are monitored continuously and hedge positions
are adjusted accordingly. In order to reduce risk associated with market
movements, fuel hedging transactions do not extend beyond a 12-month period.
Railroad purchases petroleum futures contracts only through regulated exchanges
(e.g. New York Mercantile Exchange). In order to effectively monitor the fuel
hedging activities, results of the program are summarized and reported to senior
management on a regular basis.
In the second quarter of 1994, Railroad entered into a three year interest
rate swap on a notional amount of $50 million to hedge against interest rate
exposure on one of its debt issuances. Railroad's position in this swap was
subsequently closed during the fourth quarter of the year. Under the terms of
this swap, Railroad received semiannual fixed-rate payments of 6.33 percent from
a AA-rated counterparty and made semiannual floating rate payments tied to the
six-month LIBOR. The swap was accounted for as a hedge with realized gains or
losses being recognized as a component of interest expense. During 1994, the
resulting decrease in interest expense was not significant.
Proposed merger
As of June 29, 1994, BNI and Santa Fe entered into an Agreement and Plan of
Merger (the Original Agreement) pursuant to which, on the terms and conditions
set forth in the Original Agreement, Santa Fe would merge (the Merger) with and
into BNI, and BNI would be the surviving corporation and each share of Santa Fe
common stock would be converted into 0.27 of a share of BNI common stock. The
Original Agreement was subsequently amended as of October 26, 1994, December 18,
1994 and January 24, 1995. The Original Agreement, as so amended, is referred to
as the Merger Agreement. Pursuant to the Merger Agreement, Santa Fe is to merge
with and into BNI with each share of Santa Fe common stock to be exchanged for
not less than 0.40 and not more than 0.4347 shares of BNI common stock. The
exchange ratio will vary based on the number of shares of Santa Fe common stock
repurchased by Santa Fe in the repurchase program referred to below (the
Repurchase Program). Stockholders of BNI and Santa Fe approved the Merger
Agreement at special stockholders' meetings held on February 7, 1995.
Also pursuant to the Merger Agreement, on December 23, 1994, BNI and Santa Fe
commenced tender offers (together, the Tender Offer) to acquire up to 63 million
shares of Santa Fe common stock in the aggregate at $20 per share in cash (with
Santa Fe severally obligated to purchase up to 38 million shares of Santa Fe
common stock in the Tender Offer and BNI severally obligated to purchase up to
25 million shares of Santa Fe common stock in the Tender Offer). The Tender
Offer expired at midnight, Eastern Standard Time, on February 8, 1995, with
approximately 112.6 million shares of Santa Fe common stock tendered (based on a
preliminary count). As 63 million shares of Santa Fe common stock have been
accepted for payment by BNI and Santa Fe, tenders by
-17-
<PAGE>
Santa Fe stockholders are subject to proration. Payment for tendered shares will
be made promptly after the final proration factor is determined, which
determination is expected to be made on or about February 17, 1995. Santa Fe
will purchase 38 million shares of Santa Fe common stock in the Tender Offer,
and BNI will purchase the remaining 25 million shares accepted for payment.
On February 6,1995, BNI entered into a five-year $500 million unsecured bank
credit facility (the Tender Offer Facility), whereby a group of banks will
finance BNI's obligations to purchase shares of Santa Fe common stock in the
Tender Offer. At BNI's option, borrowings can be obtained either through a
competitive bid or a standby procedure. Rates for borrowing under the standby
procedure are, at BNI's option, based upon the selected term of LIBOR or
certificate of deposit rate, plus in either case, a spread based upon BNI's
senior unsecured debt ratings and the amount borrowed under the Tender Offer
Facility, or an alternative base rate. Santa Fe anticipates borrowing up to
$1,110 million (of which approximately $200 million will be used to replace
existing Santa Fe debt) in connection with the Santa Fe tender offer and related
matters from a syndicate of financial institutions under a new Santa Fe credit
agreement. Santa Fe may also borrow an additional $200 million under its new
credit agreement to retire $200 million of existing Santa Fe debt.
Under the Repurchase Program as set forth in the Merger Agreement, Santa Fe is
permitted, at its discretion and subject to certain financial and performance
criteria of Santa Fe set forth in its credit agreements and the Merger Agreement
(including minimum cash flows, cash capital expenditures and maximum total
debt), to repurchase up to 10 million shares of Santa Fe common stock prior to
consummation of the Merger. The number of shares of BNI common stock to be
issued in the Merger will not be affected by the number of shares of Santa Fe
common stock repurchased by Santa Fe under the Repurchase Program. Accordingly,
the exchange ratio of BNI common shares to be offered for each share of
outstanding Santa Fe common stock upon consummation of the Merger would be set
at not less than 0.40 and not more than 0.4347 shares.
Pursuant to the Merger Agreement, two possible structures are available to
complete the Merger. Using the current structure, each issued and outstanding
share of Santa Fe common stock (other than shares of Santa Fe common stock held
by Santa Fe as treasury stock or shares held by BNI, all of which will be
cancelled) will be exchanged for not less than 0.40 and not more than 0.4347
shares of BNI common stock depending upon the number of additional shares of
Santa Fe common stock repurchased by Santa Fe under the Repurchase Program. BNI
will be the surviving corporation. The Merger Agreement provides that either BNI
or Santa Fe may elect to effect the Merger through the use of a holding company
(the Alternative Transaction Structure) as described below. BNI and Santa Fe
have established BNSF Corporation (BNSF), a Delaware corporation, for such
purpose. Under the Alternative Transaction Structure, BNSF would create two
subsidiaries and one subsidiary would merge into BNI and one into Santa Fe. Each
holder of BNI common stock would receive one share of BNSF common stock and each
holder of Santa Fe common stock, excluding the Santa Fe common stock acquired by
BNI in the Tender Offer and the Santa Fe common stock held by Santa Fe as
treasury stock, would receive not less than 0.40 and not more than 0.4347 shares
of BNSF common stock depending upon the number of shares of Santa Fe common
stock repurchased by Santa Fe under the Repurchase Program. The Santa Fe common
stock acquired by BNI in the Tender Offer would remain outstanding and the Santa
Fe common stock held by Santa Fe as treasury stock would be cancelled. The
rights of each stockholder of BNSF would be substantially identical to the
rights of a stockholder of BNI, and the Alternative Transaction Structure would
have the same economic effect with respect to the stockholders of BNI and Santa
Fe as the Merger in its current structure. The Merger will be accounted for
under the purchase method of accounting upon consummation, and BNI's $500
million investment will be included in the purchase price.
-18-
<PAGE>
As is typical in the context of a merger, certain benefits of officers and
employees vested upon approval of the Merger by the stockholders of BNI and
Santa Fe. In particular, on February 7, 1995, restrictions previously placed
upon certain BNI stock grants lapsed and the previously unearned compensation
relating to such restricted stock, included in BNI stockholders' equity, was
charged to compensation and benefits expense. As of December 31, 1994, such
unearned compensation relating to restricted stock was approximately $23
million. BNI expects to incur other costs related to the Merger some of which
will be included in the determination of the total purchase price.
Consummation of the Merger is subject to approval by the Interstate Commerce
Commission (ICC), approval under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, and other customary conditions. In connection with the ICC
proceedings, on January 27, 1995, BNI and Santa Fe requested the ICC to adopt an
expedited procedural schedule for reviewing the merger, based on a timetable the
ICC has recently proposed to adopt for all major railroad mergers, and on
February 3, 1995, the ICC issued a notice requesting comments on the proposed
schedule by February 21, 1995. That schedule calls for the ICC to issue its
decision on the merger within 165 days from the date on which the ICC publishes
a notice formally advising parties that the BNI and Santa Fe stockholders have
voted to approve the transaction. The ICC has not yet issued a notice regarding
stockholder approval nor taken any further action on the proposed schedule.
On October 5, 1994, Union Pacific Corporation (UP) submitted a proposal to
Santa Fe pursuant to which UP would acquire Santa Fe. UP modified its proposal
on several occasions and, on January 31, 1995, withdrew its acquisition proposal
for Santa Fe.
Other
Since 1935, Railroad has participated in the national railroad retirement
system which is separate from the national social security system. Under this
system, an independent Railroad Retirement Board administers the determination
and payment of benefits to all railroad workers. Both Railroad and its employees
are subject to a tax on employee earnings which is above the normal social
security rate assessed to those who are employed outside the railroad industry.
In December 1994, Railroad reached an agreement with the Railroad Yardmasters
Division (Yardmasters) of the United Transportation Union which is effective
through 1999 with respect to wages, work rules and all other matters except
health and welfare benefits. Any changes negotiated with the other unions
regarding health and welfare benefits on a national basis will also apply to the
Railroad Yardmasters. Approximately 250 Yardmasters were affected by this
agreement. Also during 1994, agreements were signed with all of the unions
establishing non-contributory 401(k) plans for union employees.
Labor agreements currently in effect for unions other than Yardmasters include
provisions which prohibited the parties from serving notices to change wages,
benefits, rules and working conditions prior to November 1, 1994. The next wage
adjustment stipulated by the existing agreements is scheduled for July 1995
unless new agreements are reached by the parties prior to that time. The
adjustment called for by the contract is a base wage increase dependent upon
changes in the Consumer Price Index not to exceed three percent. These cost of
living increases may be offset by increases in the cost of Railroad's payment
rate for health and welfare benefits costs.
-19-
<PAGE>
Railroad joined with the other railroads to negotiate with the unions on a
multi-employer basis on November 1, 1994. At that time, all unions were served
proposals for productivity improvements as well as other changes. The unions
also served notices on the railroads which proposed not only increasing wages
and benefits but also restoring many of the restrictive work rules and practices
that were modified or eliminated under the current agreements. A number of the
unions are also challenging the railroads' right to negotiate nationally on a
multi-employer basis and the issue is currently pending in Federal District
Court in Washington, D.C. At this time, negotiations on the proposals by both
the railroads and the unions are in preliminary stages and the ultimate outcome
of these negotiations cannot be predicted.
In July 1993, the American Train Dispatchers Association ratified an April
1993 agreement which will facilitate the consolidation of all dispatching
functions into a centralized train dispatching office in Fort Worth, Texas by
the end of 1995.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
Consolidated Statements of Income
Burlington Northern Railroad Company and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues........................................... $4,995 $4,699 $4,630
Costs and expenses:
Compensation and benefits........................ 1,769 1,701 1,704
Fuel............................................. 369 362 348
Materials........................................ 305 300 295
Equipment rents.................................. 478 425 410
Purchased services............................... 478 464 457
Depreciation..................................... 335 334 324
Other............................................ 430 463 505
------ ------ ------
Total costs and expenses....................... 4,164 4,049 4,043
------ ------ ------
Operating income................................... 831 650 587
Interest expense................................... 79 86 103
Other income, net.................................. 17 12 57
------ ------ ------
Income before income taxes and cumulative effect
of changes in accounting methods................. 769 576 541
Income tax expense................................. 300 244 186
------ ------ ------
Income before cumulative effect of changes in
accounting methods............................... 469 332 355
Cumulative effect of changes in accounting methods,
net of tax....................................... (10) - (21)
------ ------ ------
Net income................................... $ 459 $ 332 $ 334
</TABLE> ====== ====== ======
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
Consolidated Balance Sheets
Burlington Northern Railroad Company and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
December 31, 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 27 $ 17
Accounts receivable, net........................ 702 591
Materials and supplies.......................... 100 91
Current portion of deferred income taxes........ 157 167
Other current assets............................ 27 23
------ ------
Total current assets.......................... 1,013 889
Property and equipment, net....................... 5,848 5,488
Investments in and advances to affiliates......... 94 104
Other assets...................................... 133 130
------ ------
Total assets.............................. $7,088 $6,611
------ ------
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable................................ $ 539 $ 498
Compensation and benefits payable............... 263 269
Casualty and environmental reserves............. 248 286
Taxes payable................................... 130 131
Accrued interest................................ 19 22
Other current liabilities....................... 64 69
Commercial paper................................ 90 26
Current portion of long-term debt............... 25 177
------ ------
Total current liabilities..................... 1,378 1,478
Long-term debt.................................... 719 702
Deferred income taxes............................. 1,421 1,329
Casualty and environmental reserves............... 415 426
Other liabilities................................. 202 182
------ ------
Total liabilities............................. 4,135 4,117
------ ------
Common stockholder's equity:
Common stock, without par value (1,000 shares
authorized, issued and outstanding)........... 1,191 1,191
Retained earnings............................... 1,762 1,303
------ ------
Total common stockholder's equity............. 2,953 2,494
------ ------
Total liabilities and stockholder's equity $7,088 $6,611
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
Consolidated Statements of Cash Flows
Burlington Northern Railroad Company and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 459 $ 332 $ 334
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of changes in accounting
methods.................................... 10 - 21
Depreciation................................. 335 334 324
Deferred income taxes........................ 109 128 25
Changes in current assets and liabilities:
Accounts receivable, net................... (111) (117) (30)
Materials and supplies..................... (13) 6 2
Other current assets....................... (4) (1) 1
Accounts payable........................... 41 19 19
Compensation and benefits payable.......... (8) (50) 16
Casualty and environmental reserves........ (38) 37 2
Taxes payable.............................. (1) 7 4
Accrued interest........................... (3) (2) (9)
Other current liabilities.................. (5) (2) 3
Changes in long-term casualty and
environmental reserves..................... (11) (56) 16
Other, net................................... (13) (60) (22)
------ ------ ------
Net cash provided by operating activities.. 747 575 706
------ ------ ------
Cash flows from investing activities:
Additions to property and equipment............ (626) (530) (469)
Collections from affiliates, net............... 10 29 266
Proceeds from property and equipment
dispositions................................. 35 35 33
Other, net..................................... (31) (16) (19)
------ ------ ------
Net cash used in investing activities...... (612) (482) (189)
------ ------ ------
Cash flows from financing activities:
Net increase (decrease) in commercial paper.... 64 26 (353)
Proceeds from issuance of long-term debt 150 - -
Payments on long-term debt..................... (336) (83) (71)
Dividends paid................................. - (75) (50)
Other, net..................................... (3) (1) (2)
------ ------ ------
Net cash used in financing activities...... (125) (133) (476)
------ ------ ------
Increase (decrease) in cash and cash
equivalents.............................. 10 (40) 41
Cash and cash equivalents:
Beginning of year.............................. 17 57 16
------ ------ ------
End of year.................................... $ 27 $ 17 $ 57
====== ====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized...... $ 78 $ 92 $ 110
Income taxes paid, net of refunds.............. 192 109 163
Supplemental noncash investing and financing
activities information:
Assets financed through a capital lease
obligation................................... $ 50 - -
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
Consolidated Statements of Changes in Common Stockholder's Equity
Burlington Northern Railroad Company and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
Amount
Number of ---------------------------------------
Common Common Retained
Three years ended December 31, 1994 Shares Stock Earnings Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991....... 1,000 $1,190 $ 762 $1,952
Net income......................... 334 334
Dividends.......................... (50) (50)
------ ------ ------ ------
Balance at December 31, 1992....... 1,000 1,190 1,046 2,236
Net income......................... 332 332
Dividends.......................... (75) (75)
Capital contribution from parent... 1 1
------ ------ ------ ------
Balance at December 31, 1993....... 1,000 1,191 1,303 2,494
Net income......................... 459 459
------ ------ ------ ------
Balance at December 31, 1994....... 1,000 $1,191 $1,762 $2,953
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
<PAGE>
Notes to Consolidated Financial Statements
Burlington Northern Railroad Company and Subsidiaries
1. Accounting policies
Principles of consolidation
Burlington Northern Railroad Company (Railroad) is a wholly owned subsidiary
of Burlington Northern Inc. (BNI). The consolidated financial statements include
the accounts of Railroad and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
All short-term investments with original maturities of less than 90 days are
considered cash equivalents for purposes of disclosure in the consolidated
balance sheets and consolidated statements of cash flows. Cash equivalents are
stated at cost, which approximates market value.
Property and equipment
Main line track is depreciated on a group basis using a units-of-production
method. All other property and equipment are depreciated on a straight-line
basis over their estimated useful lives. Interstate Commerce Commission (ICC)
regulations require periodic formal studies of ultimate service lives for all
railroad assets. Resulting service life estimates are subject to review and
approval by the ICC. An annual review of rates and accumulated depreciation is
performed and appropriate adjustments are recorded. Significant premature
retirements, which would include major casualty losses, abandonments, sales and
obsolescence of assets; 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. All properties are stated at cost.
Materials and supplies
Materials and supplies consist mainly of diesel fuel, repair parts for
equipment and other railroad property and are valued at average cost.
Revenue recognition
Transportation revenues are recognized proportionately as a shipment moves
from origin to destination.
Income taxes
Railroad's operations are included in the consolidated federal income tax
return of BNI. Income tax expense is provided based on earnings reported as if
Railroad filed a separate income tax return. In addition, the provision for
income taxes includes deferred tax expense determined by the change in the net
deferred tax liability, which is computed based on the differences between the
financial statement and tax basis of assets and liabilities as measured by
applying enacted tax laws and rates. Investment tax credits were accounted for
under the "flow-through" method.
-25-
<PAGE>
2. Accounts receivable, net
Railroad's agreement to sell, on a revolving basis, an undivided percentage
ownership interest in a designated pool of accounts receivable with limited
recourse expired in December 1994. At December 31, 1993, accounts receivable
were net of $100 million, representing receivables sold. Average monthly
proceeds from the sale of accounts receivable were $162 million, $182 million
and $190 million in 1994, 1993 and 1992, respectively. Included in other income,
net were expenses of $9 million in 1994 and 1993 and $11 million in 1992,
relating to the sale. Railroad maintains an allowance for doubtful accounts
based upon the expected collectibility of all accounts receivable, which at
December 31, 1993 included receivables sold with recourse. Allowances for
doubtful accounts of $20 million and $17 million have been recorded at December
31, 1994 and 1993, respectively.
3. Property and equipment, net
Property and equipment, net was as follows (in millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C>
Road, roadway structures and real estate.......... $7,690 $7,342
Equipment......................................... 1,913 1,784
------ ------
Total cost..................................... 9,603 9,126
Less accumulated depreciation..................... 3,755 3,638
------ ------
Property and equipment, net.................. $5,848 $5,488
====== ======
</TABLE>
The consolidated balance sheets at December 31, 1994 and 1993 included $86
million and $36 million, respectively, of property and equipment under capital
leases. The related depreciation was included in depreciation expense.
Accumulated depreciation for property and equipment under capital leases was $34
million and $31 million at December 31, 1994 and 1993, respectively.
Main line track is depreciated on a group basis using a units-of-production
method. The accumulated depreciation and annual depreciation accrual rates for
railroad assets other than main line track are calculated using a straight-line
method and statistical group measurement techniques. The group techniques
project depreciation expense and estimated accumulated depreciation utilizing
historical experience and expected future conditions relating to the timing of
asset retirements, cost of removal, salvage proceeds, maintenance practices and
technological changes. The net book value of reported assets reflects estimated
remaining asset utility on a historical cost basis.
Due to the imprecision of annual reviews using statistical group measurement
techniques for long-term asset retirement, replacement and deterioration
patterns, Railroad adjusts accumulated depreciation for significant differences
between recorded accumulated depreciation and computed requirements. Differences
between recorded accumulated depreciation and computed requirements are
recognized prospectively on a straight-line basis. Under ICC regulations,
Railroad conducts service life studies on a periodic basis. Results of service
life studies are recorded over the remaining life
-26-
<PAGE>
of the asset group studied. No service life studies were scheduled for 1994. In
future periods, service life studies will be conducted as required. However, the
impact of such studies is not determinable at this time.
Capitalization of certain software development costs has increased as a
result of new strategic initiatives. Capitalization of software development
costs begins upon establishment of technological feasibility. The establishment
of technological feasibility is based upon completion of planning, design and
other technical performance requirements.
Capitalized software development costs are amortized over a seven-year
estimated useful life using the straight-line method. Amortization expense was
$2 million for the year ended December 31, 1994 and no amortization was recorded
for the year ended December 31, 1993. Unamortized capitalized software costs
were $20 million and $6 million as of December 31, 1994 and 1993, respectively.
4. Debt
Debt outstanding was as follows (in millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Consolidated mortgage bonds, 3 1/5% to 9 1/4%,
due serially to 2045................................. 321 622
Variable rate term loan facility, weighted average rate
of 6.32%, due 1997................................... 150 -
Equipment and other obligations, weighted
average rate of 8.94% and 9.30%, respectively, due
serially to 2009..................................... 91 113
General mortgage bonds, 3 1/8% and 2 5/8%, due 2000
and 2010, respectively............................... 62 62
Prior lien railway and land grant bonds, 4%, due 1997 57 57
General lien railway and land grant bonds, 3%,
due 2047............................................. 35 35
First mortgage bonds, series A, 4%, due 1997........... 22 24
Capitalized lease obligations, weighted average
rate of 7.27% and 8.01%, respectively, expiring 1996
and 2008............................................. 46 10
Income debentures, series A, 5%, due 2006.............. 8 8
Commercial paper....................................... 90 26
Unamortized discount..................................... (48) (52)
---- ----
Total................................................ 834 905
Less:
Commercial paper....................................... 90 26
Current portion of long-term debt...................... 25 177
---- ----
Long-term debt..................................... $719 $702
==== ====
</TABLE>
Railroad maintains an effective program for the issuance, from time to time,
of commercial paper. These borrowings are supported by Railroad's bank revolving
credit agreements. Outstanding commercial paper balances are considered as
reducing available borrowings under these agreements. The bank revolving credit
agreements allow borrowings of up to $300 million on a short-term basis and $500
million on a long-term basis. Annual facility fees are currently 0.125 and
0.1875 percent, respectively, and are subject to change based upon changes in
Railroad's senior secured debt ratings. At
-27-
<PAGE>
Railroad's option, borrowings can be obtained through either a competitive bid
or a standby procedure. Rates for borrowings under the standby procedure are, at
Railroad's option, based upon the London Interbank Offered Rate (LIBOR) or
certificate of deposit rate, plus in either case, a spread based upon Railroad's
senior secured debt ratings, or an alternate base rate. The agreements are
currently scheduled to expire on May 5, 1995 and May 6, 1999, respectively. The
maturity value of commercial paper outstanding at December 31, 1994 was $91
million, leaving a total of $209 million of the short-term revolving credit
agreement available and $500 million of the long-term revolving credit agreement
available. The maturity value of commercial paper outstanding at December 31,
1993 was $27 million.
In November 1994, Railroad entered into a $150 million three year term loan
facility agreement with a group of commercial banks and used the proceeds to
redeem $150 million aggregate principal amount of Railroad Consolidated Mortgage
Bonds, 10 percent, Series J, due November 1, 1997. Under the terms of the
indenture, the 10 percent mortgage bonds were redeemable at par, commencing
November 1, 1994. The difference between Railroad's redemption price and the net
carrying value resulted in an insignificant loss. The three year term loans bear
interest at rates equal to the selected LIBOR, which may vary during the term of
the loans, plus each lender's interest rate margin.
The financial covenants of the two bank revolving credit agreements and the
three year term loan facility agreement require that Railroad's consolidated
tangible net worth, as defined in the agreements, be at least $1.7 billion, and
that its debt, as defined in the agreements, cannot exceed the lesser of 140
percent of its consolidated tangible net worth and $3 billion. Each of the
agreements contain an event of default arising out of the occurrence and
continuance of a "Change in Control." A "Change in Control" is generally defined
as the acquisition of more than 50 percent of the voting securities of BNI which
has not been approved by the BNI Board of Directors, a change in the control
relationship between BNI and Railroad, and finally, a "Change in Control" is
deemed to occur when a majority of the seats on the BNI Board of Directors is
occupied by persons who are neither nominated by the BNI Board of Directors nor
appointed by directors so nominated. The proposed merger between BNI and Santa
Fe Pacific Corporation (Santa Fe) will not constitute a "Change in Control"
under such agreements.
In April 1994, Railroad completed a $50 million cross-border leveraged lease
of equipment which is recorded as a capital lease obligation. The transaction
included the issuance of $40 million of equipment secured debt at a weighted
average yield of 7.27 percent and the receipt of an up front cash benefit. The
up front benefit reduces the effective interest rate on the debt to 6.64
percent.
The commercial paper program is further summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Balance at year end................................. $ 90 $ 26
Weighted average interest rate...................... 6.43% 3.55%
Maximum outstanding during the year................. $ 243 $ 179
Average daily amount outstanding during the year.... $ 97 $ 41
Weighted daily average interest rate during the year 4.29% 3.27%
</TABLE>
Maturities of commercial paper averaged 7 days and 4 days in 1994 and 1993,
respectively.
-28-
<PAGE>
Aggregate long-term debt scheduled maturities for 1995 through 1999 and
thereafter are $25 million, $21 million, $240 million, $14 million, $10 million
and $482 million, respectively.
Substantially all Railroad properties and certain other assets are pledged as
collateral to or are otherwise restricted under the various Railroad long-term
debt agreements.
5. Disclosures about fair value of financial instruments
The estimated fair values of Railroad's financial instruments at December 31,
1994 and 1993 and the methods and assumptions used to estimate the fair value of
each class of financial instruments held by Railroad, were as follows:
Cash and cash equivalents
The carrying amount approximated fair value because of the short maturity of
these instruments.
Notes receivable
The fair value of notes receivable was estimated by discounting the
anticipated cash flows. Discount rates of 10.8 percent and 8.7 percent at
December 31, 1994 and 1993, respectively, were determined to be appropriate when
considering current United States Treasury rates and the credit risk associated
with these notes.
Accrued interest payable
The carrying amount approximated fair value as the majority of interest
payments are made semiannually.
Long-term debt and commercial paper
The fair value of Railroad's long-term debt, excluding unamortized discount,
was primarily based on secondary market indicators. For those issues not
actively quoted, estimates were based on each obligation's characteristics.
Among the factors considered were the maturity, interest rate, credit rating,
collateral, amortization schedule, liquidity and option features such as
optional redemption or optional sinking funds. These features were compared to
other similar outstanding obligations to determine an appropriate increment or
spread, above United States Treasury rates, at which the cash flows were
discounted to determine the fair value. The carrying amount of commercial paper
approximated fair value because of the short maturity of these instruments.
Recourse liability from sale of receivables
Railroad's agreement to sell, on a revolving basis, an undivided percentage
interest in a designated pool of accounts receivable with limited recourse
expired in December 1994. At December 31, 1993, the carrying value of the
allowance for doubtful accounts on receivables sold approximated the fair value
of the recourse liability related to those receivables.
-29-
<PAGE>
The carrying amount and estimated fair values of Railroad's financial
instruments were as follows (in millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.......... $ 27 $ 27 $ 17 $ 17
Notes receivable................... 5 5 9 11
Liabilities:
Accrued interest payable........... 19 19 22 22
Long-term debt and commercial paper 882 811 957 978
Recourse liability from sale of
receivables...................... - - 4 4
</TABLE>
Railroad also holds investments in, and has advances to, several
unconsolidated transportation affiliates. It was not practicable to estimate the
fair value of these financial instruments, which were carried at their original
cost of $17 million in the December 31, 1994 and 1993 consolidated balance
sheets. There were no quoted market prices available for the shares held in the
affiliated entities, and the cost of obtaining an independent valuation would
have been excessive considering the materiality of these investments to
Railroad.
In addition, Railroad has a note receivable, from a shortline railroad, that
has principal payments which are based on traffic volume over a segment of line.
The carrying value of the note was $5 million at December 31, 1994 and 1993. As
it is not practicable to forecast the traffic volume over the remaining life of
the note, it was not included in the notes receivable amount shown above.
6. Hedging activities
Railroad has a program to hedge against fluctuations in the price of its
diesel fuel purchases. This program includes forward purchases for delivery at
fueling facilities and exchange-traded petroleum futures contracts. The futures
contracts are accounted for as hedges which are marked to market with any gains
or losses associated with changes in market value being deferred and recognized
as a component of fuel expense in the period in which the designated fuel is
purchased and used. At December 31, 1994, Railroad had entered into agreements
with fuel suppliers setting the price of fuel to be obtained by taking physical
delivery directly from such suppliers at a future date. The average price of the
approximately 79 million gallons which Railroad had committed to purchase was
approximately 52 cents per gallon, exclusive of taxes, certain transportation
costs and other charges. In addition, Railroad held petroleum futures contracts
representing approximately 53 million gallons at an average price of
approximately 49 cents per gallon. These contracts have expiration dates ranging
from January to October 1995.
Railroad's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The current
and future fuel delivery prices are monitored continuously and hedge positions
are adjusted accordingly. In order to reduce risk associated with market
movements, fuel hedging transactions do not extend beyond a 12-month period.
Railroad purchases petroleum futures contracts only through regulated
-30-
<PAGE>
exchanges (e.g. New York Mercantile Exchange). In order to effectively monitor
the fuel hedging activities, results of the program are summarized and reported
to senior management on a regular basis.
In the second quarter of 1994, Railroad entered into a three year interest
rate swap on a notional amount of $50 million to hedge against interest rate
exposure on one of its debt issuances. Railroad's position in this swap was
subsequently closed during the fourth quarter of the year. Under the terms of
this swap, Railroad received semiannual fixed-rate payments of 6.33 percent from
a AA-rated counterparty and made semiannual floating rate payments tied to the
six-month LIBOR. The swap was accounted for as a hedge with realized gains or
losses being recognized as a component of interest expense. During 1994, the
resulting decrease in interest expense was not significant.
7. Income Taxes
Effective January 1, 1993, Railroad adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 modifies
SFAS No. 96, which established the liability method of accounting for income
taxes, and had been adopted by Railroad effective January 1, 1986. Railroad
adopted SFAS No. 109 consistent with the transitional guidelines of SFAS No.
109. The effect of the adoption was to increase the current portion of the
deferred income tax asset with a corresponding increase in the noncurrent
deferred income tax liability of $26 million at January 1, 1993. There was no
effect on net income, stockholder's equity or cash flows.
Income tax expense, excluding the cumulative effect of changes in accounting
methods, was as follows (in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ................................... $ 167 $102 $138
State ..................................... 24 14 23
----- ---- ----
191 116 161
----- ---- ----
Deferred:
Federal ................................... 93 111 24
State ..................................... 16 17 1
----- ---- ----
109 128 25
----- ---- ----
Total.................................... $ 300 $244 $186
===== ==== ====
</TABLE>
Reconciliation of the federal statutory income tax rate to the effective tax
rate, excluding the cumulative effect of changes in accounting methods, was as
follows:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate................. 35.0% 35.0% 34.0%
State income taxes, net of federal tax benefit.... 3.4 3.5 3.3
Effect of one percent federal tax rate increase on
deferred tax balances at January 1, 1993....... - 4.5 -
Internal Revenue Service settlement............... - - (3.1)
Other, net........................................ .6 (.6) .2
---- ---- ----
Effective tax rate................................ 39.0% 42.4% 34.4%
==== ==== ====
</TABLE>
-31-
<PAGE>
The components of deferred tax assets and liabilities were as follows (in
millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation and amortization...... $(1,716) $(1,616)
Other.......................................... (98) (89)
------- -------
Total deferred tax liabilities............... (1,814) (1,705)
------- -------
Deferred tax assets:
Casualty and environmental reserves............ 257 267
Pensions....................................... 39 29
Other.......................................... 254 247
------- -------
Total deferred tax assets.................... 550 543
------- -------
Valuation allowance............................ - -
------- -------
Net deferred tax liability................. $(1,264) $(1,162)
======= =======
Noncurrent deferred income tax liability........ $(1,421) $(1,329)
Current deferred income tax asset............... 157 167
------- -------
Net deferred tax liability................. $(1,264) $(1,162)
======= =======
</TABLE>
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (the Act) was
signed into law. The Act increased the corporate federal income tax rate by one
percent, effective January 1, 1993, which reduced net income by $28 million
through the date of enactment. A one-time, non-cash charge of $27 million to
income tax expense was recorded as an adjustment to deferred taxes as of the
enactment date and a charge of $1 million to income tax expense was recorded as
an adjustment to current income taxes.
In December 1992, Railroad received notification that an Appeals Division
settlement of the Internal Revenue Service audits for the years 1981 through
1985 had been approved by the Joint Committee on Taxation. This action
settled all unagreed issues for those years. The tax effect of the settlement
was included in the 1992 tax provision as shown below (in millions):
<TABLE>
<CAPTION>
<S> <C>
Current tax expense........................... $ 2
Deferred tax benefit.......................... (19)
----
Total tax benefit........................... $(17)
====
</TABLE>
8. Retirement plans
Railroad participates in BNI's pension plans, which are non-contributory
defined benefit plans covering substantially all non-union employees. The
benefits are based on years of credited service and the highest five-year
average compensation levels. Contributions to the plans are determined by BNI
and are limited to amounts that are currently deductible for tax purposes.
Railroad's pension expense was $36 million, $26 million and $31 million in
1994, 1993 and 1992, respectively. The following data relates to BNI's plans
in which Railroad is the principal participant.
-32-
<PAGE>
The funded status of BNI's plans and the net accrued pension cost reflected
in BNI's consolidated balance sheets were as follows (in millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................................. $ 481 $ 539
===== =====
Accumulated benefit obligation............................................. $ 553 $ 604
===== =====
Projected benefit obligation............................................... $ 628 $ 740
Plan assets, primarily marketable equity and debt securities, at fair value (467) (490)
----- -----
Projected benefit obligation in excess of plan assets...................... 161 250
Unrecognized net loss...................................................... (41) (153)
Unrecognized prior service cost............................................ (5) (6)
Unamortized net transition obligation...................................... (29) (33)
Adjustment required to recognize minimum liability......................... 12 56
----- -----
Net accrued pension cost................................................. $ 98 $ 114
===== =====
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the benefit obligations were 9
percent and 5.5 percent at December 31, 1994 and 7 percent and 5.5 percent at
December 31, 1993. The expected long-term rate of return on assets was 9.5
percent for 1994 and 1993 and 10 percent for 1992.
Components of the net pension cost were as follows (in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost, benefits earned during the period.............................. $ 12 $ 9 $ 10
Interest cost on projected benefit obligation................................ 50 50 52
Actual return on plan assets................................................. (25) (57) (36)
Net amortization and deferred amounts........................................ (1) 24 5
---- ---- ----
Net pension cost........................................................... $ 36 $ 26 $ 31
---- ---- ----
</TABLE>
Net pension cost, which is based upon a discount rate as of January 1, was
higher for 1994 than 1993 primarily due to a decrease in the discount rate from
8.5 percent at January 1, 1993 to 7 percent at January 1, 1994. The decrease in
net pension cost for 1993 as compared with 1992 was primarily due to a decrease
in the rate of future compensation growth from 6 percent at January 1, 1993 to
5.5 percent at January 1, 1994.
Railroad participates in a 401(k) thrift and profit sharing plan, sponsored
by BNI, which covers substantially all non-union employees. BNI matches 35
percent of the first 6 percent of the employees' contributions, which is subject
to certain percentage limits of the employees' earnings, at the end of each
quarter. Depending on BNI's consolidated performance, an additional matching
contribution of 20 or 40 percent can be made at the end of the year. Railroad's
expense was $8 million, $6 million and $4 million in 1994, 1993 and 1992,
respectively. Effective January 1, 1994, Railroad also sponsors a non-
contributory 401(k) retirement savings plan covering substantially all union
employees.
-33-
<PAGE>
9. Other benefit plans
Postretirement benefits
Effective January 1, 1992, Railroad adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." BNI provides
certain postretirement health care benefits, payable until age 65, for a small
number of retirees who were at least 55 years of age and who retired on or
before March 1986. BNI also provides life insurance benefits for eligible non-
union employees. Railroad participates in these plans and adopted accrual
accounting for the expense of these plans in 1992 by taking a $16 million
cumulative effect charge to income in order to establish a liability for those
benefits. Railroad pays benefits as claims are processed. The following data
relates to BNI's plans in which Railroad is the principal participant.
The status of BNI's plans and the accrued postretirement benefit cost
reflected in the consolidated balance sheets of BNI are as follows (in
millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- ------------------------------------------------------------------------------
Health Life Health Life
------ ---- ------ ----
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees....................... $- $11 $1 $13
Fully eligible active
participants................. - 1 - 2
Other active participants...... - 2 - 1
-- --- -- ---
- 14 1 16
Unrecognized net gain.............. - 4 - -
-- --- -- ---
Accrued postretirement benefit cost $- $18 $1 $16
== === == ===
</TABLE>
Components of the postretirement benefit cost were as follows (in
millions):
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------
Health Life Health Life Health Life
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Service cost....................... $- $- $- $- $- $-
Interest cost...................... - 1 - 1 - 1
-- -- -- -- -- --
Net postretirement benefit cost $- $1 $- $1 $- $1
== == == == == ==
</TABLE>
The discount rate used in determining the benefit obligation was 9 percent
at December 31, 1994 and 7 percent at December 31, 1993. The health care cost
trend rate is assumed to decrease gradually from 14 percent in 1995 to 6 percent
in 2003 and thereafter. Increasing the assumed health care cost trend rate by
one percentage point in each year would have an insignificant effect on the
accumulated postretirement benefit obligation at December 31, 1994 and 1993 as
well as the aggregate of the service and interest cost components for the three
years ended December 31, 1994.
Under collective bargaining agreements, Railroad participates in multi-
employer benefit plans which provide certain postretirement health care and life
insurance benefits for eligible union employees. Insurance premiums attributable
to retirees, which are expensed as incurred, were $10 million in both 1994 and
1993 and $11 million in 1992.
-34-
<PAGE>
10. Commitments and contingencies
Casualty and environmental reserves
Casualty reserves consist primarily of personal injury claims, including
work-related injuries to employees. Employees of Railroad are compensated for
work-related injuries according to the provisions of the Federal Employers'
Liability Act. Liabilities for personal injury claims are estimated through an
actuarial model that considers historical data and trends and is designed to
record those costs in the period of occurrence. Railroad conducts an ongoing
review and analysis of claims and other information to ensure the continued
adequacy of casualty reserves. To the extent costs may exceed recorded accruals,
they are not anticipated to materially affect Railroad's financial condition,
results of operations or liquidity.
Railroad's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. In order to comply
with such regulation and to be consistent with Railroad's corporate
environmental policy, Railroad's operating procedures include practices to
protect the environment. Amounts expended relating to such practices are
inextricably contained in the normal day-to-day costs of Railroad's business
operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws,
Railroad is potentially liable for the cost of clean-up of various contaminated
sites identified by the United States Environmental Protection Agency and other
agencies. Railroad has been notified that it is a potentially responsible party
(PRP) for study and clean-up costs at approximately 75 sites (the PRP sites)
and, in many instances, is one of several PRPs. Railroad generally participates
in the clean-up of these sites through cost-sharing agreements with terms that
vary from site to site. Costs are typically allocated based on relative
volumetric contribution of material, the amount of time the site was owned or
operated, and/or the portion of the total site owned or operated by each PRP.
However, under Superfund and certain other laws, as a PRP, Railroad can be held
jointly and severally liable for all environmental costs associated with a site.
Environmental costs include initial site surveys and environmental studies
of potentially contaminated sites as well as costs for remediation and
restoration of sites determined to be contaminated. Liabilities for
environmental clean-up costs are initially recorded when Railroad's liability
for environmental clean-up is both probable and a reasonable estimate of
associated costs can be made. Adjustments to initial estimates are recorded as
necessary based upon additional information developed in subsequent periods.
Railroad conducts an ongoing environmental contingency analysis, which considers
a combination of factors, including independent consulting reports, site visits,
legal reviews, analysis of the likelihood of participation in and ability to pay
for clean-up by other PRPs, and historical trend analyses.
Railroad is involved in a number of administrative and judicial proceedings
and other mandatory clean-up efforts at approximately 160 sites, including the
PRP sites, for which it is being asked to participate in the clean-up of sites
contaminated by material discharged into the environment. Railroad paid
approximately $21 million, $27 million and $20 million during 1994, 1993 and
1992, respectively, relating to mandatory clean-up efforts,
-35-
<PAGE>
including amounts expended under federal and state voluntary clean-up programs.
At this time, Railroad expects to spend approximately $110 million in future
years to remediate and restore all known sites, including $105 million
pertaining to mandated sites, of which approximately $70 million relates to the
PRP sites. Of the $110 million, Railroad expects to spend $33 million during
1995. Also, Railroad anticipates that the majority of the $110 million will be
paid out over a period of less than seven years; however, some costs will be
paid out over a longer period, in some cases up to 40 years. At December 31,
1994, 23 sites accounted for approximately $75 million of the accrual and no
individual site was considered to be material.
Liabilities for environmental costs represent Railroad's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. At December 31, 1994, Railroad had accrued approximately $110 million
for estimated future environmental costs and believes it is reasonably possible,
although not probable, that actual environmental costs could be lower than the
recorded reserve or as much as 50 percent higher. Railroad's best estimate of
unasserted claims was approximately $5 million as of December 31, 1994. Although
recorded liabilities include Railroad's best estimates of all costs, without
reduction for anticipated recovery from insurance, Railroad's total clean-up
costs at these sites cannot be predicted with certainty due to various factors
such as the extent of corrective actions that may be required, evolving
environmental laws and regulations, advances in environmental technology, the
extent of other PRPs' participation in clean-up efforts, developments in ongoing
environmental analyses related to sites determined to be contaminated, and
developments in environmental surveys and studies of potentially contaminated
sites. As a result, charges to income for environmental liabilities could
possibly have a significant effect on results of operations in a particular
quarter or fiscal year as individual site studies and remediation and
restoration efforts proceed or as new sites arise. However, expenditures
associated with such liabilities are typically paid out over a long period, in
some cases up to 40 years, and are therefore not expected to have a material
adverse effect on Railroad's consolidated financial position, cash flow or
liquidity.
Lease commitments
Railroad has substantial lease commitments for railroad, highway equipment,
office buildings and a taconite dock facility. Most of these leases provide the
option to purchase the equipment at fair market value at the end of the lease.
However, some provide fixed price purchase options.
Lease rental expense for operating leases was $286 million, $233 million and
$222 million for the years ended December 31, 1994, 1993 and 1992, respectively.
-36-
<PAGE>
Minimum annual rental commitments were as follows (in millions):
<TABLE>
<CAPTION>
Capital Operating
Year ended December 31, Leases Leases
- -------------------------------------------------------------------------
<S> <C> <C>
1995....................................... $ 9 $ 223
1996....................................... 7 210
1997....................................... 5 184
1998....................................... 5 169
1999....................................... 5 154
Thereafter................................. 37 1,230
--- ------
Total.................................. 68 $2,170
--- ======
Less amount representing interest.......... 22
Present value of minimum lease payments $46
===
</TABLE>
In addition to the above, Railroad also receives and pays rents for railroad
equipment on a per diem basis, which is included in equipment rents.
Other commitments and contingencies
In 1993, Railroad entered into an agreement to acquire 350 alternating
current traction motor locomotives. In December 1994, the number of locomotives
to be acquired under this agreement was increased to 404. As of January 31,
1995, Railroad had accepted delivery of 147 locomotives and anticipates
deliveries under this agreement of between approximately 60 and 140 each year
from 1995, (including January 1995 deliveries) through 1997.
Railroad has two locomotive electrical power purchase agreements, expiring
in 1998 and 2001, that currently involve 197 locomotives. Payments required by
the agreements are based upon the number of megawatt hours of energy consumed,
subject to specified take-or-pay minimums. The rates specified in the two
agreements are renegotiable every two years. Railroad's 1995 minimum commitment
obligation is $53 million. Based on projected locomotive power requirements,
Railroad's payments in 1995 are expected to be in excess of the minimum.
Payments under the agreements totaled $47 million, $53 million and $56 million
in 1994, 1993 and 1992, respectively. In 1990, Railroad entered into a letter of
credit for the benefit of a vendor. This letter of credit is a performance
guarantee for up to $15 million in major overhauls to be performed on the power
purchase equipment.
In connection with its program to transfer certain rail lines to independent
operators, Railroad has agreed to make certain payments for services performed
by the operators in connection with traffic that involves the shortlines and
Railroad as carriers. These payments will vary with such factors as traffic
volumes and shortline costs and are not expected to exceed normal business
requirements for services received. These payments are reflected as reductions
to revenue to conform with reporting to the ICC. Revenues for these joint moves,
including amounts applicable to the independent operator portion of the line
haul, are reflected by Railroad as revenue from operations.
Railroad is party to various claims and lawsuits, some of which are for
substantial amounts. While these claims and actions are being contested, the
outcome of individual matters is not certain. Although actual liability on an
aggregate basis is similarly not determinable with certainty, as of December 31,
1994, Railroad believes that any liability resulting from these matters, after
taking into consideration Railroad's insurance coverages and amounts already
provided for, should not have a material adverse effect on Railroad's financial
position.
-37-
<PAGE>
There are no other commitments or contingent liabilities which Railroad
believes would have a material adverse effect on the consolidated financial
position, results of operations or liquidity.
11. Other income, net
Other income, net includes the following (in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on property dispositions..................... $17 $19 $ 9
Interest income................................... 10 9 11
Loss on sale of receivables....................... (9) (9) (11)
Litigation settlement agreement................... - - 47
Miscellaneous, net................................ (1) (7) 1
--- --- ----
Total......................................... $17 $12 $ 57
=== === ====
</TABLE>
In the first quarter of 1992, both Railroad and BNI were parties to a
settlement agreement relating to the reimbursement of attorneys' fees and costs
incurred by Railroad in connection with litigation filed by Energy
Transportation Systems, Inc., and others, and reimbursement of a portion of the
amount paid in prior years by Railroad in settlement of that action. Under the
terms of the settlement, Railroad received approximately $50 million before
legal fees.
12. Accounting changes
Effective January 1, 1994, Railroad adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect, net of $7
million income tax benefit, of this change in accounting attributable to years
prior to 1994, at the time of adoption, was to decrease 1994 net income by $10
million.
Effective January 1, 1993, Railroad adopted SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 modifies SFAS No. 96, which established the
liability method of accounting for income taxes, and had been adopted by
Railroad effective January 1, 1986. Railroad adopted SFAS No. 109 consistent
with the transitional guidelines of SFAS No. 109. The effect of the adoption was
to increase the current portion of the deferred income tax asset with a
corresponding increase in the noncurrent deferred income tax liability of $26
million at January 1, 1993. There was no effect on net income, stockholder's
equity or cash flows.
In January 1992, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus that origination of service revenue
recognition was not an acceptable accounting method beginning in 1992 for the
freight services industry. Accordingly, effective January 1, 1992, Railroad
changed its method of revenue recognition from one which recognized
transportation revenue at the origination point, to a method whereby
transportation revenue is recognized proportionately as a shipment moves from
origin to destination. The cumulative effect, net of a $7 million income tax
benefit, of the change on the prior year's revenue, at the time of adoption,
decreased 1992 net income by $11 million.
-38-
<PAGE>
In the fourth quarter of 1992, effective January 1, 1992, Railroad adopted
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and elected immediate recognition of the $16 million transition
obligation. The cumulative effect, net of a $6 million income tax benefit, of
the change on prior years', at the time of adoption, decreased 1992 net income
by $10 million.
13. Related party transactions
In addition to various corporate-related transactions with its parent, BNI,
Railroad also rents, under operating leases, rolling stock and other property
from BN Leasing Corporation (BNLC), a wholly owned subsidiary of BNI. The
following is a summary of balances representing the result of transactions with
related parties (in millions):
<TABLE>
<CAPTION>
December 31, 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C>
Short-term:
Payable to BNLC for rent associated
with property and equipment....................... $10 $ 8
Payable to BNI, representing net settlement account
for dividends, taxes and other.................... 3 -
--- ----
Total short-term payables to related parties...... $13 $ 8
=== ====
Receivable from BNLC for accrued interest associated
with the notes receivable for hub centers and rail
facilities........................................ $ 2 $ 2
=== ====
Long-term:
Receivable from BNI, representing net settlement
account for dividends, taxes and other............ $ - $ 9
Notes receivable from BNLC for hub centers.......... 28 28
Note receivable from BNLC for rail facilities....... 41 41
Investments in non-consolidated subsidiaries........ 6 7
Receivables from non-consolidated subsidiaries
and other affiliates.............................. 19 19
--- ----
Total long-term investments in and advances to
related parties................................. $94 $104
=== ====
</TABLE>
Railroad recorded the following amounts for transactions with related
parties (in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Rental expense.......................... $ 57 $ 39 $ 32
Interest income......................... 7 7 8
</TABLE>
In prior years, Railroad transferred the Denver and Houston hub centers to
Burlington Northern Railroad Holdings, Inc. (BNRRHI), a wholly owned subsidiary
of Railroad. BNRRHI subsequently sold the hub centers to BNLC. The hub centers,
with a combined book value of $22 million, were sold for the fair market value
of $28 million. BNRRHI received two promissory notes due October 31, 2000, with
interest at 10.05 percent from BNLC for the total sale price. The notes will be
paid off using proceeds generated from rental payments from Railroad to BNLC for
use of the facilities at the rate of $3 million per year. No gain was recorded
on the sale of the property.
-39-
<PAGE>
In prior years, Railroad purchased certain rail facilities at and between
Ortonville, Minnesota and Terry, Montana from the South Dakota Rail Authority.
These properties were subsequently sold to BNLC for the recorded net book value
of the property. Railroad received a promissory note from BNLC for the purchase
price of $41 million. Interest at a rate of 10.0 percent is due annually.
Principal is due at maturity on August 31, 2001. Railroad will make rental
payments of $5 million per year until 2001 for use of these facilities. No gain
or loss was recorded on the sale of the property.
-40-
<PAGE>
Report of Independent Accountants
To the Stockholder and Directors of
Burlington Northern Railroad Company and Subsidiaries
We have audited the consolidated financial statements and financial statement
schedule of Burlington Northern Railroad Company and Subsidiaries listed in Item
14 of this Form 10-K. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Burlington Northern Railroad Company and Subsidiaries as of December 31, 1994
and 1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 12 to the consolidated financial statements, the Company
changed its method of accounting for postemployment benefits in 1994, for income
taxes in 1993 and for revenue recognition and postretirement benefits other than
pensions in 1992.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
January 16, 1995
-41-
<PAGE>
Quarterly Financial Data-unaudited
<TABLE>
<CAPTION>
(Dollars in millions) QUARTER
- ---------------------------------------------------------------------------------------------------
Fourth Third Second First
------ ----- ------ -----
<S> <C> <C> <C> <C>
1994
Revenues................................. $1,344 $1,249 $1,192 $1,210
Operating income......................... 259 220 174 178
Income before cumulative effect of change
in accounting method................... 152 125 95 97
Cumulative effect of change in accounting
method, net of tax (1)................. - - - (10)
------ ------ ------ ------
Net income............................... $ 152 $ 125 $ 95 $ 87
====== ====== ====== ======
1993
Revenues................................. $1,246 $1,141 $1,142 $1,170
Operating income......................... 220 118 146 166
Net income (2)........................... 125 34 81 92
</TABLE>
(1) Effective January 1, 1994, Railroad adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." The cumulative effect, net of $7 million income tax benefit, of
this change in accounting attributable to years prior to 1994, at the time
of adoption, was to decrease 1994 net income by $10 million.
(2) Results for the third quarter of 1993 included the effects of the Omnibus
Budget Reconciliation Act of 1993 (the Act) which was signed into law in
August 1993. The Act increased the corporate federal income tax rate by one
percent, effective January 1, 1993, which reduced net income by $28 million
through the date of enactment. Results for the third quarter of 1993 also
included the effects of the severe flooding in the Midwest. Railroad
estimated that the flooding reduced revenues and operating income during
the quarter by $44 million and $79 million, respectively, and reduced net
income by $49 million.
-42-
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Items Ten, Eleven, Twelve and Thirteen
Directors and Executive Officers of the Registrant; Executive Compensation;
Security Ownership of Certain Beneficial Owners and Management; and Certain
Relationships and Related Transactions
Not applicable - see Table of Contents note.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Consolidated Statements of Income for the three years
ended December 31, 1994................................ 21
Consolidated Balance Sheets at December 31, 1994 and 1993 22
Consolidated Statements of Cash Flows for the three years
ended December 31, 1994................................ 23
Consolidated Statements of Changes in Common
Stockholder's Equity for the three years ended
December 31, 1994.................................... 24
Notes to Consolidated Financial Statements............... 25
Report of Independent Accountants.......................... 41
Quarterly Financial Data-unaudited......................... 42
Consolidated Financial Statement Schedule for the three
years ended December 31, 1994:
Schedule II-Valuation and Qualifying Accounts............ 47
</TABLE>
Schedules other than those listed above are omitted because they are not
required or not applicable, or the required information is included in the
consolidated financial statements or related notes.
-43-
<PAGE>
Exhibit Index
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ----------- ------
<C> <S> <C>
3.1 Certificate of Incorporation of Burlington Northern *
Railroad Company as amended through July 20, 1987.
3.2 By-Laws of Burlington Northern Railroad Company *
as amended through July 17, 1991.
4.1 The Company has either previously filed with the *
Securities and Exchange Commission or upon request will
furnish a copy of any instrument with respect to the
long-term debt of the Company (1989 Form 10-K, filed
March 1990).
10.1 364-Day Competitive Advance and Revolving Credit *
Facility Agreement, dated as of May 6, 1994, between
Burlington Northern Railroad Company and a consortium
of lenders (Form 10-Q for the quarter ended June 30,
1994, filed August 1994).
10.2 5-Year Competitive Advance and Revolving Credit *
Facility Agreement, dated as of May 6, 1994, between
Burlington Northern Railroad Company and a consortium
of lenders (Form 10-Q for the quarter ended June 30,
1994, filed August 1994).
10.3 3-Year Term Loan Facility Agreement, dated as of **
November 14, 1994, between Burlington Northern
Railroad Company and a consortium of lenders.
10.4 Employment Agreement, dated September 4, 1990, *
by and between Burlington Northern Railroad Company
and Mr. John T. Chain (1990 Form 10-K, filed
March 1991).
10.5 Employment Agreement, dated September 18, 1991, *
by and between Burlington Northern Railroad Company
and Mr. Richard A. Russack (1991 Form 10-K, filed
February 1992).
10.6 Employment Agreement, dated April 18, 1994, between *
Burlington Northern Railroad Company and
Mr. Greg Swienton (Form 10-Q for the quarter ended
June 30, 1994, filed August 1994).
10.7 Employment Agreement, dated April 22, 1994, between *
Burlington Northern Railroad Company and
Mr. Ronald A. Rittenmeyer (Form 10-Q for the quarter
ended June 30, 1994, filed August 1994).
27 Financial Data Schedule. **
</TABLE>
* Exhibit is incorporated by reference as indicated.
** Exhibit is filed with Form 10-K for the year ended December 31, 1994.
-44-
<PAGE>
REPORTS ON FORM 8-K
During the period, a report on Form 8-K, dated October 26, 1994, was filed
attaching an Amendment dated as of October 26, 1994 to the Agreement and Plan of
Merger dated as of June 29, 1994 between Burlington Northern Inc. (BNI) and
Santa Fe Pacific Corporation (Santa Fe) and further attaching the press release
of BNI dated October 27, 1994 announcing the execution of said Amendment.
During the period, a report on Form 8-K, dated November 18, 1994, was filed
concerning a litigation development related to a coal transportation contract.
During the period, a report on Form 8-K, dated December 18, 1994, was filed
attaching Amendment No. 2 dated as of December 18, 1994 to the Agreement and
Plan of Merger dated as of June 29, 1994 between BNI and Santa Fe and further
attaching the press release of BNI dated December 18, 1994 announcing the
execution of said Amendment No. 2.
-45-
<PAGE>
SIGNATURES
Pursuant to the requirements of 13 or 15(d) of the Securities Exchange Act
of 1934, Burlington Northern Railroad Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
this 17th day of February, 1995.
BURLINGTON NORTHERN RAILROAD COMPANY
By /s/ GERALD GRINSTEIN
------------------------------------------
Gerald Grinstein,
Chairman, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Burlington
Northern Railroad Company and in the capacities and on the dates indicated.
/s/ GERALD GRINSTEIN Chairman,
- ----------------------- Chief Executive Officer and
Gerald Grinstein Director February 17, 1995
/s/ DAVID C. ANDERSON Executive Vice President,
- ----------------------- Chief Financial Officer and
David C. Anderson Director February 17, 1995
/s/ DON S. SNYDER Vice President, Controller and
- ----------------------- Chief Accounting Officer
Don S. Snyder February 17, 1995
/s/ EDMUND W. BURKE Director
- -----------------------
Edmund W. Burke February 17, 1995
-46-
<PAGE>
Schedule II
Burlington Northern Railroad Company and Subsidiaries
Valuation and Qualifying Accounts
For the years ended December 31, 1994, 1993 and 1992
(In millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Additions Charged Balance at
Description Beginning of Period to Income Deductions(1) End of Period(2)
----------- ------------------- ----------------- ---------- -------------
<S> <C> <C> <C> <C>
December 31, 1994:
Casualty and environmental reserves.. $712 $223 $272 $663
==== ==== ==== ====
December 31, 1993:
Casualty and environmental reserves.. $731 $261 $280 $712
==== ==== ==== ====
December 31, 1992:
Casualty and environmental reserves.. $713 $312 $294 $731
==== ==== ==== ====
</TABLE>
Notes:
(1) Principally represents cash payments.
(2) Classified in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Casualty and environmental reserves
(current liabilities)............ $248 $286 $249
Casualty and environmental reserves
(noncurrent liabilities)......... 415 426 482
--- --- ---
$663 $712 $731
==== ==== ====
</TABLE>
-47-
<PAGE>
Exhibit Index
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
10.3 3-Year Term Loan Facility Agreement, dated
as of November 14, 1994, between Burlington
Northern Railroad Company and a consortium
of lenders.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.3
================================================================================
3-YEAR TERM LOAN
FACILITY AGREEMENT
Dated as of November 14, 1994
among
BURLINGTON NORTHERN RAILROAD COMPANY,
THE LENDERS NAMED HEREIN
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Administrative Agent
================================================================================
[CS&M Ref. No. 6700-227]
<PAGE>
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
I. DEFINITIONS
1.01 Defined Terms ......................................... 1
1.02 Terms Generally ....................................... 12
II. THE CREDITS
2.01 Commitments ........................................... 12
2.02 Term Loans ............................................ 12
2.03 Fees .................................................. 13
2.04 Repayment of Term Loans ............................... 13
2.05 Interest on Term Loans ................................ 14
2.06 Default Interest ...................................... 15
2.07 Alternate Rate of Interest ............................ 15
2.08 Conversion and Continuation of Borrowings ............. 16
2.09 Prepayment ............................................ 17
2.10 Reserve Requirements; Change in Circumstances ......... 17
2.11 Change in Legality .................................... 19
2.12 Indemnity ............................................. 20
2.13 Pro Rata Treatment .................................... 21
2.14 Sharing of Setoffs .................................... 21
2.15 Payments .............................................. 22
2.16 Taxes ................................................. 23
2.17 Assignment or Prepayment of Term Loans Under
Certain Circumstances .............................. 26
III. REPRESENTATIONS AND WARRANTIES .............................. 27
IV. CONDITIONS OF LENDING ....................................... 31
V. AFFIRMATIVE COVENANTS
5.01 Existence; Businesses and Properties .................. 32
5.02 Insurance ............................................. 33
5.03 Reporting Requirements ................................ 33
5.04 Consolidated Tangible Net Worth ....................... 36
5.05 Taxes ................................................. 36
<PAGE>
Contents, p. 2
Article Section Page
- ------- ------- ----
VI. NEGATIVE COVENANTS
6.01 Debt .................................................. 36
6.02 Sale, etc., of Assets ................................. 37
6.03 Mergers, etc. ......................................... 38
6.04 Liens ................................................. 38
6.05 Sales of Accounts Receivable .......................... 39
VII. EVENTS OF DEFAULT ........................................... 40
VIII. THE AGENT ................................................... 43
IX. MISCELLANEOUS
9.01 Notices ............................................... 46
9.02 Survival of Agreement ................................. 47
9.03 Binding Effect ........................................ 47
9.04 Successors and Assigns ................................ 48
9.05 Expenses; Indemnity ................................... 51
9.06 Right of Setoff ....................................... 52
9.07 Applicable Law ........................................ 53
9.08 Waivers; Amendment .................................... 53
9.09 Interest Rate Limitation .............................. 54
9.10 Entire Agreement ...................................... 54
9.11 Severability .......................................... 54
9.12 Counterparts .......................................... 55
9.13 Headings .............................................. 55
9.14 Jurisdiction; Consent to Service of Process ........... 55
Exhibit A Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Opinion of Francis T. Kelly, Esq., Counsel for
the Borrower
Exhibit D Form of Opinion of Douglas J. Babb, Vice President and
General Counsel of the Borrower
Schedule 2.01 Commitments
Schedule 6.04(a) Existing Liens
<PAGE>
3-YEAR TERM LOAN FACILITY AGREEMENT dated as of November
14, 1994, among BURLINGTON NORTHERN RAILROAD COMPANY, a
Delaware corporation (the "Borrower"); the lenders
listed in Schedule 2.01 hereto (the "Lenders"); and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national
banking association, as administrative agent (in such
capacity, the "Administrative Agent").
The Borrower has requested the Lenders to extend credit to the Borrower
in order to enable it to borrow on a term basis, on the Funding Date (as defined
below), an aggregate principal amount of $150,000,000. The proceeds of such
borrowing will be used by the Borrower to redeem the Series J Mortgage Bonds (as
defined below) or will be used to reimburse the Borrower for payments made in
connection with the redemption of such Bonds on the Funding Date. The Lenders
are willing to extend such credit to the Borrower on the terms and subject to
the conditions herein set forth.
Accordingly, the Borrower, the Lenders, and the Administrative Agent
agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
-------------
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Term Loans.
-------------
"ABR Period" shall mean any period during which the Term Loans
----------
bear interest at the Alternate Base Rate.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
-------------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Administrative Questionnaire" shall mean an Administrative
----------------------------
Questionnaire in the form of Exhibit A hereto.
"Affiliate" shall mean, when used with respect to a specified
---------
person, another person that directly, or
<PAGE>
2
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with the person specified.
"Agent Fees" shall have the meaning given such term in Section 2.03.
----------
"Agent" shall mean the Administrative Agent.
-----
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
-------------------
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof, "Prime Rate" shall mean as of a particular date, the
----------
prime rate most recently announced by the Administrative Agent and thereafter
entered in the minutes of the Administrative Agent's Loan and Discount
Committee, automatically fluctuating upward and downward with and at the time
specified in each such announcement without notice to the Borrower or any other
person, which prime rate may not necessarily represent the lowest or best rate
actually charged to a customer. "Base CD Rate" shall mean the sum of (a) the
------------
product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and
(b) the Assessment Rate. "Three-Month Secondary CD Rate" shall mean, for any
-----------------------------
day, the secondary market rate for three-month certificates of deposit reported
as being in effect on such day (or, if such day shall not be a Business Day, the
next preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will, under
the current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate shall
not be so reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 9:00 a.m.,
Houston time, on such day (or, if such day shall not be a Business Day, on the
next preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by it. "Federal Funds Effective Rate" shall mean, for any day, the weighted
----------------------------
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal
<PAGE>
3
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base CD
Rate or the Federal Funds Effective Rate or both for any reason, including the
inability of the Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"Assessment Rate" shall mean for any date the annual rate (rounded
---------------
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit B hereto.
"Board" shall mean the Board of Governors of the Federal Reserve System
-----
of the United States.
"Borrowing" shall mean a group of Term Loans of a single Type as to
---------
which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a Saturday,
------------
Sunday or legal holiday in the State of Texas or New York) on which banks are
open for business in Houston and New York City; provided, however, that, when
-------- -------
used in connection with a Eurodollar Term Loan,
<PAGE>
4
the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
A "Change in Control" shall be deemed to have occurred if (a) any person
-----------------
or group (within the meaning of Rule 13d-5 of the Securities and Exchange
commission as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Parent (other than as the result of a transaction approved by the Parent's
Board of Directors), (b) a majority of the seats (other than vacant seats) on
the Board of Directors of the Parent shall at any time have been occupied by
persons who were neither (i) nominated by the Board of Directors of the Parent,
nor (ii) appointed by Directors so nominated, (c) any person or group shall
otherwise directly or indirectly obtain control of the Parent (other than in a
transaction approved by the Parent's Board of Directors) or (d) the Parent shall
cease to control the Borrower.
"Closing Date" shall mean the date hereof.
------------
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
----
amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment of
----------
such Lender hereunder as set forth in Schedule 2.01 hereto to make one or more
Term Loans pursuant to Section 2.01. The Commitments shall automatically and
permanently terminate at 5:00 p.m., New York City time, on the Funding Date.
"Consolidated Tangible Net Worth" shall mean preferred stockholder's and
-------------------------------
common stockholder's equity of the Borrower (other than mandatorily redeemable
preferred stock) minus intangible assets of the Borrower and its consolidated
Subsidiaries.
"Debt" shall mean, without duplication, (i) indebtedness for borrowed
----
money or for the deferred purchase price of property or services whether
evidenced by bonds, debentures, notes or similar instruments or otherwise (but
excluding, in any case, liabilities by endorsement of negotiable instruments for
deposit or collection and liabilities with respect to accounts payable incurred
in the ordinary course of business), (ii) obligations as lessee
<PAGE>
5
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases and (iii) obligations
under direct or indirect guarantees in respect of, and obligations to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness on obligations of persons (other than the Borrower and its
consolidated Subsidiaries) of the kinds referred to in clauses (i) and (ii)
above.
"Default" shall mean any event or condition which upon notice, lapse of
-------
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
------- -
America.
"Engagement Letter" shall mean the engagement letter dated November 3,
-----------------
1994, among the Borrower, the Administrative Agent and Chemical Securities Inc.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as the same may be amended from time to time.
"ERISA Affiliate" shall mean any person who for purposes of Title IV of
---------------
ERISA is a member of the Borrower's controlled group, or is under common control
with the Borrower, within the meaning of Section 414 of the Code and the
regulations promulgated and rulings issued thereunder.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Term Loans.
"Eurodollar Period" shall mean any period during which the Term Loans
-----------------
bear interest at rates determined by reference to the LIBO Rate.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a
--------------------
rate determined by reference to the LIBO Rate in accordance with the provisions
of Article II.
"Event of Default" shall have the meaning given such term in Article
----------------
VII.
"Existing Facility" shall mean the 5-year Competitive Advance and
-----------------
Revolving Credit Facility Agreement dated as of May 6, 1994, and the 364-day
Competitive Advance
<PAGE>
6
and Revolving Credit Facility Agreement dated as of May 6, 1994, both among the
Borrower, the lenders named therein, Texas Commerce Bank National Association,
as administrative agent, and Chemical Bank Agency Services Corporation, as
competitive advance facility agent.
"Existing Liens" shall mean Liens existing on the date hereof and
--------------
described on Schedule 6.04(a) hereto and any Lien arising out of the
refinancing, extension, renewal or refunding of any Debt secured by such Lien,
but only to the extent the amount of such Debt shall not be increased.
"Existing Mortgages" shall mean each security or other agreement of
------------------
whatever nature described within the Burlington Northern Railroad Company
Long-Term Debt Book dated December 31, 1993, a copy of which has been delivered
by the Borrower to the Administrative Agent, as such agreements may have been
amended or modified to the date hereof or as they may be amended, supplemented,
replaced or modified from time to time hereafter.
"Federal Funds Effective Rate" shall have the meaning assigned thereto
----------------------------
in the definition of Alternate Base Rate.
"Fees" shall mean the Agent Fees.
----
"Funding Date" shall mean November 15, 1994.
------------
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a basis consistent with the financial statements referred
to in paragraph (e) of Article III hereof.
"Governmental Authority" shall mean any Federal, state, local or foreign
----------------------
court or governmental agency, authority, instrumentality or regulatory body.
"ICC" shall mean the Interstate Commerce Commission or any successor
---
thereto.
"Insufficiency" shall mean, with respect to any Plan, the amount, if
-------------
any, by which the present value of the benefit liabilities under such Plan
exceeds the fair market value of the assets of such Plan.
"Interest Payment Date" shall mean, with respect to any Term Loan, the
---------------------
last day of the Interest Period
<PAGE>
7
applicable to the Borrowing of which such Term Loan is part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day that would have been an Interest Payment Date for such
Borrowing had successive Interest Periods of three months' duration been
applicable to such Borrowing and, in addition, the date of any conversion of
such Borrowing with or to a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the case
may be, and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is 1,
3 or 6 months thereafter, as the Borrower may elect, and (b) as to any ABR
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period applicable to such Borrowing,
as the case may be, and ending on the date 90 days thereafter or, if earlier, on
the Maturity Date or the date of repayment, prepayment or conversion of such
Borrowing; provided, however, that if any Interest Period would end on a day
-------- -------
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day.
Interest shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
"Interest Rate Margin" shall mean, with respect to each Term Loan of
--------------------
each Lender, the margin (expressed as a percentage rate per annum in the form of
a decimal to no more than four decimal places), as set forth in a letter dated
the date hereof from the Borrower to each such Lender accepting the Commitment
of such Lender and confirming such margin, to be added to or subtracted from the
LIBO Rate in order to determine the interest rate per annum applicable to such
Term Loan during a Eurodollar Period.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
---------
Interest Period, an interest rate per annum equal to the average (rounded
upwards, if necessary, to the next 1/16 of 1%) of the rates per annum at which
dollar deposits for a maturity comparable to such
<PAGE>
8
Interest Period are offered by the principal London offices of the Reference
Banks (or, if any Reference Bank does not at the time maintain a London office,
the principal London office of any Affiliate of such Reference Bank) in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period in amounts approximately equal to the amount of such Borrowing.
"Lien" shall mean any lien, security interest or other charge or
----
encumbrance, or any assignment of the right to receive income, or any other type
of preferential arrangement, in each case to secure any obligation of any
person.
"Loan Documents" shall mean this Agreement and the Fee Letter dated
--------------
November 3, 1994, among the Administrative Agent and the Borrower.
"Margin Stock" shall have the meaning given such term under
------------
Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
financial condition or operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis.
"Material Plan" shall mean any Plan the assets of which exceed
-------------
$50,000,000 or the liabilities of which for unfunded benefit liabilities exceed
$15,000,000.
"Maturity Date" shall mean November 15, 1997.
-------------
"Moody's" shall mean Moody's Investors Service.
-------
"Mortgage Indenture" shall mean the Consolidated Mortgage, dated
------------------
March 2, 1970, by Burlington Northern Inc. (the former name of the Borrower)
to Morgan Guaranty Trust Company of New York and Jacob M. Ford II, as trustees,
as amended to the date hereof and as amended, supplemented or modified from
time to time hereafter.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding
<PAGE>
9
five plan years made or accrued an obligation to make contributions, such plan
being maintained pursuant to one or more collective bargaining agreements.
"Multiple Employer Plan" shall mean a single employer plan, as defined
----------------------
in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the
Borrower or an ERISA Affiliate and at least one person other than the Borrower
and its ERISA Affiliates or (ii) was so maintained and in respect of which the
Borrower or an ERISA Affiliate could have liability under Section 4064 or 4069
of ERISA in the event such plan has been or were to be terminated.
"Parent" shall mean Burlington Northern Inc., a Delaware corporation.
------
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA, or any successor thereto.
"person" shall mean any natural person, corporation, business trust,
------
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of ERISA or Section 412 of the Code which
is maintained for employees of the Borrower or any ERISA Affiliate.
"Reference Banks" shall mean Texas Commerce Bank National Association,
---------------
Mellon Bank, N.A. and The Sanwa Bank, Limited.
"Register" shall have the meaning given such term in Section 9.04(d).
--------
"Regulation D" shall mean Regulation D of the Board as from time to time
------------
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board as from time to time
------------
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
<PAGE>
10
"Regulation X" shall mean Regulation X of the Board as from time to time
------------
in effect and all official rulings and interpretations thereunder or thereof.
"Required Lenders" shall mean, at any time, Lenders having Commitments
----------------
representing at least 55% of the Total Commitment or, after the Commitments
shall have terminated or for purposes of acceleration pursuant to clause (ii) of
Article VII, Lenders holding Term Loans representing at least 55% of the
aggregate principal amount of the Term Loans outstanding.
"Responsible Officer" shall mean with respect to the subject matter of
-------------------
any covenant, agreement, or obligation of the Borrower contained in this
Agreement, the president, any vice president, treasurer, assistant treasurer or
other officer of the Borrower who in the normal performance of his or her
operational responsibility would have knowledge of such subject matter and the
requirements of such covenants, agreements or obligations of the Borrower with
respect thereto.
"Series J Mortgage Bonds" shall mean the outstanding $150,000,000 in
-----------------------
principal amount of 10% Consolidated Mortgage Bonds, Series J, due November 1,
1997, issued by the Borrower.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves), expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months, in
the case of the Base CD Rate (as such term is used in the definition of
"Alternate Base Rate"). Statutory Reserves shall be adjusted automatically on
and as of the effective date of any change in any reserve percentage.
"subsidiary" shall mean, with respect to any person (herein referred to
----------
as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general
<PAGE>
11
partnership interests are, at the time any determination is being made, owned,
controlled or held, or (b) which is, at the time any determination is made,
otherwise controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
----------
"Termination Event" shall mean (i) a "reportable event," as such term is
-----------------
described in Section 4043 of ERISA, (ii) the withdrawal of the Borrower or any
ERISA Affiliate from a Multiple Employer Plan during a plan year in which it
was a "substantial employer," as such term is defined in Section 4001(a)(2) of
ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate
under Section 4064 of ERISA upon the termination of a Multiple Employer Plan,
(iii) the filing of a notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA, (iv) the
institution of proceedings to terminate a Plan by the PBGC under Section 4042
of ERISA, (v) a failure to make a required installment or other payment
(within the meaning of Section 412(n)(1) of the Code) with respect to any Plan
or (vi) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan.
"Term Loans" shall mean term loans made pursuant to Section 2.01. Each
----------
Term Loan shall be either a Eurodollar Term Loan or an ABR Term Loan.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Transfer" shall have the meaning given such term in Section 6.02.
--------
"Type", when used in respect of any Term Loan or Borrowing, shall refer
----
to the Rate by reference to which interest on such Term Loan or on the Term
Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the LIBO Rate and the Alternate Base Rate.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
--------------------
result of a complete or partial
<PAGE>
12
withdrawal from such Multiemployer Plan, as such terms are defined in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
----------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
--------
however, that, for purposes of determining compliance with any covenant set
- -------
forth in Section 5.04 or Article VI, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing the Borrower's audited
financial statements referred to in paragraph (e) of Article III.
ARTICLE II. THE CREDITS
SECTION 2.01 Commitments. On the terms, subject to the conditions and
------------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make one or more Term Loans which shall
be Eurodollar Term Loans to the Borrower on the Funding Date in an aggregate
principal amount equal to such Lender's Commitment as set forth opposite such
Lender's name on Schedule 2.01 and with an initial Interest Period of 6 months.
Amounts prepaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Term Loans. (a) Each Term Loan shall be made as part of
-----------
a Borrowing consisting of Term Loans made by the Lenders ratably in accordance
with their respective Commitments; provided, however, that the failure of any
-------- -------
Lender to make any Term Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender shall
be responsible for the failure of any other Lender to make any Term Loan
required to be made by such other Lender).
<PAGE>
13
(b) Each Lender shall make one or more Term Loans in an aggregate
principal amount equal to its Commitment hereunder on the Funding Date by wire
transfer of immediately available funds to the Administrative Agent in Houston,
Texas, not later than 11:00 a.m., Houston time, and the Administrative Agent
shall by 2:00 p.m., Houston time, credit the amounts so received to the general
deposit account of the Borrower with the Administrative Agent or, if a Borrowing
shall not occur on such date because any condition precedent herein specified
shall not have been met, return the amounts so received to the respective
Lenders. Unless the Administrative Agent shall have received notice from a
Lender prior to the Funding Date that such Lender will not make available to the
Administrative Agent such Lender's portion of the Borrowing, the Administrative
Agent may assume that such Lender has made such portion available to the
Administrative Agent on the date of such Borrowing in accordance with this
paragraph (b) and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have made such portion available
to the Administrative Agent, such Lender and the Borrower severally agree to
repay to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrower, the interest rate that
would have been applicable at the time to such Term Loan or Loans and (ii) in
the case of such Lender, the Federal Funds Effective Rate. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Term Loan or Loans as part of such Borrowing for
purposes of this Agreement.
SECTION 2.03. Fees. The Borrower agrees to pay the Agent, for the
-----
Agent's own account, the fees set forth in the Engagement Letter dated November
3, 1994, among the Administrative Agent, Chemical Securities Inc. and the
Borrower, and in the Fee Letter dated November 3, 1994, among the Administrative
Agent and the Borrower, at the times and in the amounts set forth therein (the
"Agent Fees").
SECTION 2.04. Repayment of Term Loans. (a) The Borrower agrees to pay
------------------------
the outstanding principal balance of each Term Loan on the Maturity Date. Each
Term Loan shall
<PAGE>
14
bear interest from and including the Funding Date on the outstanding principal
balance thereof as set forth in Section 2.05.
(b) Each Lender shall, and is hereby authorized by the Borrower to,
maintain, in accordance with its usual practice, records evidencing the
indebtedness of the Borrower to such Lender hereunder from time to time,
including the amount and Type at any time of and the Interest Period at any time
applicable to the Term Loan or Loans made by such Lender and the amounts of
principal and interest paid to such Lender from time to time in respect of such
Term Loan or Loans.
(c) The entries made in the records maintained pursuant to paragraph
(b) of this Section 2.04 and in the Register maintained by the Administrative
Agent pursuant to Section 9.04(d) shall be prima facie evidence of the existence
and amounts of the obligations of the Borrower to which such entries relate;
provided, however, that the failure of any Lender or the Administrative Agent to
- -------- -------
maintain or to make any entry in such records or the Register, as applicable, or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Term Loans in accordance with the terms of this Agreement.
SECTION 2.05. Interest on Term Loans. (a) Subject to the provisions
-----------------------
of Section 2.06, each Term Loan of each Lender shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 360 days) during
any Eurodollar Period at a rate per annum equal to the LIBO Rate for the
Interest Period in effect for such Borrowing plus the Interest Rate Margin
applicable to such Term Loan by such Lender.
(b) Subject to the provisions of Section 2.06, each Term Loan of each
Lender shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as appropriate, when determined by
reference to the Prime Rate and over a year of 360 days at all other times)
during any ABR Period at a rate per annum equal to the Alternate Base Rate.
(c) Interest on each Term Loan shall be payable in arrears on each
Interest Payment Date applicable to such Term Loan except as otherwise provided
in this Agreement. The applicable LIBO Rate or Alternate Base Rate for each
<PAGE>
15
Interest Period or day within an Interest Period, as the case may be, shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error. The Administrative Agent shall promptly
advise the Borrower and each Lender, as appropriate, of such determination.
SECTION 2.06. Default Interest. If the Borrower shall default in the
-----------------
payment of the principal of or interest on any Term Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, the Borrower shall on demand from time to time from
the Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as appropriate,
when determined by reference to the Prime Rate and over a year of 360 days at
all other times) equal to the Alternate Base Rate plus 1%.
SECTION 2.07. Alternate Rate of Interest. In the event, and on each
---------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined (i) that dollar deposits in the principal amounts of the Eurodollar
Term loans comprising such Borrowing are not generally available in the London
interbank market, or (ii) that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost to any Lender of making
or maintaining its Eurodollar Term Loan or Loans during such Interest Period, or
(iii) that reasonable means do not exist for ascertaining the LIBO Rate, the
Administrative Agent shall, as soon as practicable thereafter, give written or
telecopy notice of such determination to the Borrower and the Lenders. In the
event of any such determination, until the Administrative Agent shall have
advised the Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist, any request by the Borrower pursuant to Section 2.08 to
convert the Term Loans into Eurodollar Term Loans or to continue the Term Loans
as Eurodollar Term Loans shall be deemed to be a request for ABR Term Loans (x)
as to all Lenders, in the event the circumstances referred to in (i) or (iii)
above are applicable, or (y) as to each affected Lender, in the event only the
circumstances referred to in (ii) above are applicable. In the event the
circumstances referred to in (ii) above are applicable, all payments and
<PAGE>
16
prepayments of principal which would otherwise have been made on account of the
Eurodollar Term Loan or Loans of the affected Lender shall instead be applied to
repay the ABR Term Loan or Loans made by such Lender in lieu of such Eurodollar
Term Loan or Loans. Each determination by the Administrative Agent hereunder
shall be conclusive absent demonstrable error.
SECTION 2.08. Conversion and Continuation of Borrowings. The Borrower
------------------------------------------
shall have the right at any time (subject to Section 2.07) upon prior
irrevocable notice to the Agent (i) not later than 11:00 a.m., Houston time, one
Business Day prior to conversion, to convert the Term Loans, in whole but not in
part, into ABR Term Loans, (ii) not later than 11:00 a.m., Houston time, three
Business Days prior to conversion or continuation, to convert the Term Loans, in
whole but not in part, into Eurodollar Term Loans or to continue the Term Loans,
in whole but not in part, as Eurodollar Term Loans for an additional Interest
Period and (iii) not later than 11:00 a.m., Houston time, three Business Days
prior to conversion, to convert the Interest Period with respect to the Term
Loans, in whole but not in part, to another permissible Interest Period, subject
in each case to the following:
(a) accrued interest on the Term Loans shall be paid by the
Borrower at the time of any conversion;
(b) if any Eurodollar Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, the Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.12;
(c) the Term Loans may not be converted into or continued as
Eurodollar Term Loans if the Interest Period with respect thereto would
extend beyond the Maturity Date; and
(d) if the Term Loans cannot be converted into or continued as
Eurodollar Term Loans by reason of subparagraph (c) above they shall be
automatically converted at the end of the Interest Period in effect into
ABR Term Loans.
Each notice pursuant to this Section 2.08 shall be irrevocable and shall
refer to this Agreement and specify (i) whether the Term Loans are to be
converted to or
<PAGE>
17
continued as Eurodollar Term Loans or ABR Term Loans, (ii) if such notice
requests a conversion, the date of such conversion (which shall be a Business
Day) and (iii) if the Term Loans are to be converted to or continued as
Eurodollar Term Loans, the Interest Period with respect thereto. If no Interest
Period is specified in any such notice with respect to any conversion to or
continuation as Eurodollar Term Loans, the Borrower shall be deemed to have
selected an Interest Period of three months' duration. The Agent shall advise
the other Lenders of any notice given pursuant to this Section 2.08. If the
Borrower shall not have given notice in accordance with this Section 2.08 to
continue the Term Loans into a subsequent Interest Period (and shall not
otherwise have given notice in accordance with this Section 2.08 to convert the
Term Loans), the Term Loans shall, at the end of the Interest Period applicable
thereto (unless repaid pursuant to the terms hereof), automatically be
continued into a new Interest Period as ABR Term Loans.
SECTION 2.09. Prepayment. (a) The Borrower shall have the right at
-----------
any time and from time to time to prepay any Borrowing, in whole or in part,
upon giving written or telecopy notice (or telephone notice promptly confirmed
by written or telecopy notice) to the Administrative Agent: (i) before 11:00
a.m., Houston time, three Business Days prior to prepayment, in the case of a
Eurodollar Borrowing, and (ii) before 11:00 a.m., Houston time, one Business Day
prior to prepayment, in the case of an ABR Borrowing; provided, however, that
-------- -------
each partial prepayment shall be in an amount which is an integral multiple of
$1,000,000 and not less than $10,000,000.
(b) Each notice of prepayment shall specify the prepayment date and the
principal amount of the Borrowing to be prepaid, shall be irrevocable and shall
commit the Borrower to prepay such Borrowing by the amount stated therein on the
date stated therein. All prepayments under this Section 2.09 shall be subject
to Section 2.12 but otherwise without premium or penalty. All prepayments under
this Section 2.09 shall be accompanied by accrued interest on the principal
amount being prepaid to the date of payment.
SECTION 2.10. Reserve Requirements; Change in Circumstances.
----------------------------------------------
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
<PAGE>
18
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Term Loan or Loans made by such
Lender or other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or by any political subdivision or
taxing authority therein), or shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by such lender, or shall impose on such
Lender or the London interbank market any other condition affecting this
Agreement or any Eurodollar Term Loan or Loans made by such Lender, and the
result of any of the foregoing shall be to increase the cost to such Lender of
making or maintaining any Eurodollar Term Loan or Loans or to reduce the amount
of any sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise) by an amount deemed by such Lender to be
material, then the Borrower will pay to such Lender upon demand such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered. Notwithstanding the foregoing, no Lender shall
be entitled to request compensation under this paragraph with respect to its
Term Loan if such Lender shall have been aware of the change giving rise to such
request at the time it initially submitted its Commitment to make such Term Loan
or Loans pursuant to this Agreement to the Borrower.
(b) If any Lender shall have determined that the applicability of any
law, rule, regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule,
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such
<PAGE>
19
Lender's holding company, if any, as a consequence of this Agreement or the Term
Loan or Loans made by such Lender pursuant hereto to a level below that which
such Lender or such Lender's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration such
Lender's policies and the policies of such Lender's holding company with respect
to capital adequacy) by an amount deemed by such Lender to be material, then
from time to time the Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender or such Lender's holding company for
any such reduction suffered.
(c) A certificate of a Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender as specified in paragraph (a) or
(b) above, as the case may be, shall be delivered to the Borrower and shall be
conclusive absent demonstrable error. The Borrower shall pay each Lender the
amount shown as due on any such certificate delivered by it within 10 days after
the receipt of the same.
(d) Except as provided in this paragraph, failure on the part of any
Lender to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital with respect to any
period shall not constitute a waiver of such Lender's right to demand
compensation with respect to such period or any other period. The protection of
this Section shall be available to each Lender regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed. No Lender shall be entitled to compensation under this Section 2.10 for
any costs incurred or reductions suffered with respect to any date unless it
shall have notified the Borrower that it will demand compensation for such costs
or reductions under paragraph (c) above not more than 60 days after the later of
(i) such date and (ii) the date on which it shall have become aware of such
costs or reductions.
SECTION 2.11. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Term Loan or Loans or to give effect to its
obligations as contemplated hereby with
<PAGE>
20
respect to any Eurodollar Term Loan or Loans, then, by written notice to the
Borrower and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Term Loans will not thereafter be
made by such Lender hereunder, whereupon any request by the Borrower for
a Eurodollar Borrowing shall, as to such Lender only, be deemed a
request for an ABR Borrowing unless such declaration shall be
subsequently withdrawn (and such Lender agrees to withdraw any such
declaration if legally permissible); and
(ii) require that all outstanding Eurodollar Term Loans made by
it be converted to ABR Term Loans, as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Term Loan or Loans that would have been made by such Lender
or the converted Eurodollar Term Loan or Loans of such Lender shall instead be
applied to repay the ABR Term Loan or Loans made by such Lender in lieu of, or
resulting from the conversion of, such Eurodollar Term Loan or Loans.
(b) For purposes of this Section 2.11, a notice to the Borrower by any
Lender shall be effective as to such Lender's Eurodollar Term Loan or Loans, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Term Loan or Loans; in all other cases such notice shall be effective
on the date of receipt by the Borrower.
SECTION 2.12. Indemnity. The Borrower shall indemnify each Lender
----------
against any actual loss or expense which such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the Funding Date
hereunder the applicable conditions set forth in Article IV, (b) any failure by
the Borrower to borrow on the Funding Date or to convert or continue any Term
Loan hereunder after irrevocable notice of such conversion or continuation has
been given pursuant to Section 2.08, (c) any payment, prepayment or conversion
of a Eurodollar Term Loan required by any other provision of this Agreement or
otherwise made or deemed made, and any assignment of a
<PAGE>
21
Term Loan pursuant to Section 2.17, on a date other than the last day of the
Interest Period applicable thereto, (d) any default in payment or prepayment of
the principal amount of any Term Loan or any part thereof or interest accrued
thereon, as and when due and payable (at the due date thereof, whether by
scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise)
or (e) the occurrence of any Event of Default, including, in each such case, any
actual loss or reasonable expense sustained or incurred or to be sustained or
incurred in liquidating or employing deposits from third parties acquired to
effect or maintain such Term Loan or any part thereof as a Eurodollar Term Loan.
Such loss or reasonable expense shall include an amount equal to the excess, if
any, as reasonably determined by such Lender, of (i) its cost of obtaining the
funds for the Term Loan being paid, prepaid, converted, not borrowed, not
refinanced, not converted, not continued or assigned (assumed to be the LIBO
Rate) for the period from the date of such payment, prepayment, failure to
borrow, failure to convert, failure to continue or assignment to the last day of
the Interest Period for such Term Loan (or, in the case of a failure to borrow,
convert or continue, the Interest Period for such Term Loan which would have
commenced on the date of such failure) over (ii) the amount of interest (as
reasonably determined by such Lender) that would be realized by such Lender in
reemploying the funds so paid, prepaid, not borrowed, not refinanced, not
converted, not continued or assigned for such period or Interest Period, as the
case may be. A certificate of any Lender setting forth any amount or amounts
which such Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent demonstrable error.
SECTION 2.13. Pro Rata Treatment. Except as required under Section
-------------------
2.11, (a) each Borrowing and each payment or prepayment of principal of any
Borrowing shall be allocated pro rata among the Lenders in accordance with their
respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Term Loans), and (b) each payment of interest on the Term Loans
shall be allocated pro-rata among the Lenders in accordance with the respective
amounts of interest accrued on their Term Loans and not yet paid.
SECTION 2.14. Sharing of Setoffs. Each Lender agrees that if it shall,
-------------------
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower,
<PAGE>
22
or pursuant to a secured claim under Section 506 of Title 11 of the United
States Code or other security or interest arising from, or in lieu of, such
secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) from the Borrower or its assets in respect of
its Term Loan or Loans as a result of which the unpaid principal portion of its
Term Loan or Loans shall be proportionately less than the unpaid principal
portion of the Term Loans of any other Lender, it shall be deemed simultaneously
to have purchased from such other Lender at face value, and shall promptly pay
to such other Lender the purchase price for, a participation in the Term Loan or
Loans of such other Lender, so that the aggregate unpaid principal amount of the
Term Loan or Loans and participations in the Term Loan or Loans held by each
Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Term Loans then outstanding at the principal amount of its Term
Loan or Loans prior to such exercise of banker's lien, setoff or counterclaim
or other event was to the principal amount of all Term Loans outstanding prior
to such exercise of banker's lien, setoff or counterclaim or other event;
provided, however, that, if any such purchase or purchases or adjustments shall
- -------- -------
be made pursuant to this Section 2.14 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in any
Term Loan or Loans deemed to have been so purchased may exercise any and all
rights of banker's lien, setoff or counterclaim with respect to any and all
moneys owing by the Borrower to such Lender by reason thereof as fully as if
such Lender had made a Term Loan or Loans directly to the Borrower in the amount
of such participation.
SECTION 2.15. Payments. (a) The Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under each other Loan Document not later than 11:00 a.m.,
Houston time, on the date when due in dollars to the Administrative Agent at its
offices at 712 Main Street, Houston, Texas, in immediately available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts)
<PAGE>
23
hereunder or under any other Loan Document shall become due, or otherwise would
occur, on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or Fees, if applicable.
SECTION 2.16. Taxes. (a) Any and all payments by the Borrower hereunder
------
shall be made, in accordance with Section 2.15, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
---------
taxes, levies, imposts, deductions, charges and withholdings imposed on the
Administrative Agent's or any Lender's (or any transferee's or assignee's,
including a participation holder's (any such entity a "Transferee")) net income
and franchise, capital or license taxes imposed on the Administrative Agent or
any Lender (or Transferee) by the United States or any jurisdiction under the
laws of which it is organized, domiciled, resident or doing business (other than
doing business as a result of its participation in the transactions contemplated
by the Loan Documents) or any political subdivision thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders (or any Transferee) or the Administrative Agent, (i)
the sum payable shall be increased by the amount necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.16) such Lender (or Transferee) or the
Administrative Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
(or the Administrative Agent, as applicable) shall make such deductions at the
applicable rate and (iii) the Borrower (or the Administrative Agent, as
applicable) shall pay the full amount deducted to the relevant taxing authority
or other Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to,
<PAGE>
24
this Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Lender (or Transferee) and the
Administrative Agent for the full amount of Taxes and Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.16) paid by such Lender (or Transferee) or the Administrative Agent,
as the case may be, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted by the relevant taxing
authority or other Governmental Authority. Such indemnification shall be made
within 30 days after the date any Lender (or Transferee) or the Administrative
Agent, as the case may be, makes written demand therefor; provided, however,
-------- -------
that the Borrower shall not have any obligation to indemnify the Administrative
Agent or any Lender (or Transferee) for interest and penalties that are imposed
on the Administrative Agent or such Lender (or Transferee) with respect to the
period after the expiration of the Notice Period with respect to any Tax if such
Administrative Agent or such Lender fails to give written notice to the Borrower
within 45 days of its receipt of any written assertion by the relevant taxing
authority or other Governmental Authority that such Tax is due with respect to
the transactions contemplated by the Loan Documents (such 45 day period being
the "Notice Period" referred to above). If a Lender (or Transferee) or the
Administrative Agent shall become aware that it is entitled to receive a refund
(or a credit against taxes not indemnifiable hereunder) in respect of Taxes or
Other Taxes, it shall promptly notify the Borrower of the availability of such
refund (or credit) and shall, within 30 days after receipt of a request by the
Borrower, apply for such refund at the Borrower's expense. If any Lender (or
Transferee) or the Administrative Agent receives a refund (or a credit against
taxes not indemnifiable hereunder) in respect of any Taxes or Other Taxes for
which such Lender (or Transferee) or the Administrative Agent has received
payment from the Borrower hereunder it shall promptly notify the Borrower of
such refund (or credit) and shall, within 30 days after receipt or a request by
the Borrower (or promptly upon receipt, if the Borrower has requested
application for such refund (or credit) pursuant thereto), repay such refund (or
credit) to the Borrower, net of all out-of-pocket expenses (including taxes not
indemnifiable hereunder, to the extent that no deduction or credit has
previously been claimed and utilized
<PAGE>
25
in connection therewith by such Lender) of such Lender but including interest
received from a taxing authority or other Governmental Authority and fairly
attributable to such refund; provided that the Borrower, upon the request of
--------
such Lender (or Transferee) or the Administrative Agent, agrees to return such
refund (plus penalties, interest or other charges) to such Lender (or
Transferee) or the Administrative Agent in the event such Lender (or Transferee)
or the Administrative Agent is required to repay such refund. Each of the
Administrative Agent, each Lender and each Transferee, with respect to itself,
agrees to indemnify and hold harmless the Borrower (and, in the case of each
Lender and each Transferee, to indemnify and hold harmless the Administrative
Agent) from any taxes, penalties, interest and other expenses, costs and losses
incurred or payable by the Borrower (or the Administrative Agent, as applicable)
as a result of the failure of the Borrower to comply with clauses (ii) and (iii)
of Section 2.16(a) in reliance on any form or certificate provided to it by such
person pursuant to Section 2.16(f).
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Administrative Agent, the Borrower will furnish to the
Administrative Agent, at its address referred to in Section 9.01, the original
of a certified copy of a receipt evidencing payment thereof or other customary
evidence of such payment.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.16 shall
survive the payment in full of the principal of and interest on all Term Loans
made hereunder.
(f) On or prior to the Closing Date (in the case of any Lender and the
Administrative Agent) and on or prior to the date any Transferee becomes a
Transferee hereunder (in the case of any Transferee), and, upon written request
of the Borrower or the Administrative Agent, on or prior to the immediately
following due date of any payment by the Borrower hereunder, each Lender (or
Transferee) which is organized outside the United States shall deliver to the
Borrower such certificates, documents or other evidence, as required by the Code
or Treasury Regulations issued pursuant thereto, including Internal Revenue
Service Form 1001 or Form 4224 and any other certificate or statement of
<PAGE>
26
exemption required by Treasury Regulation Section 1.1441-1(a) or Section
1.1441-6(c) or any subsequent version thereof, properly completed and duly
executed by such Lender (or Transferee) establishing that such payment is (i)
not subject to withholding under the Code because such payment is effectively
connected with the conduct by such Lender (or Transferee) of a trade or business
in the United States or (ii) totally exempt from United States tax under a
provision of an applicable tax treaty. Unless the Borrower and the
Administrative Agent have received forms or other documents satisfactory to them
indicating that payments hereunder and in respect of the Term Loans are not
subject to United States withholding tax the Borrower or the Administrative
Agent shall withhold taxes from such payments at the applicable statutory rate
in the case of payments to or for any Lender (or Transferee) organized under the
laws of a jurisdiction outside the United States.
(g) The Borrower shall not be required to pay any additional amounts to
any Lender (or Transferee) in respect of United States withholding tax pursuant
to paragraph (a) above except to the extent such United States withholding tax
(a) results from (i) a change in applicable law, regulation or official
interpretation thereof or (ii) an amendment, modification or revocation of any
applicable tax treaty or a change in official position regarding the application
or interpretation thereof, in each case after the Closing Date (and, in the case
of a Transferee, after the date of assignment or transfer) or (b) in the case of
a Transferee, is imposed at a rate that does not exceed the rate (determined at
the time of transfer or assignment) of United States withholding tax with
respect to which the Borrower was required to pay to such Transferee's
transferor or assignor.
SECTION 2.17. Assignment or Prepayment of Term Loans Under Certain
----------------------------------------------------
Circumstances. (a) Any Lender (or Transferee) claiming any additional amounts
- --------------
payable pursuant to Section 2.10 or Section 2.16 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by the Borrower or to change the jurisdiction of its
applicable lending office if the making of such a filing or change would avoid
the need for or reduce the amount of any such additional amounts which may
thereafter accrue and would not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender (or Transferee).
<PAGE>
27
(b) In the event that any Lender shall have delivered a notice or
certificate pursuant to Section 2.10 or 2.11, or the Borrower shall be required
to make additional payments to any Lender under Section 2.16, the Borrower shall
have the right, at its own expense, upon notice to such Lender and the
Administrative Agent, (a) to prepay the Term Loan or Loans of such Lender or (b)
to require such Lender to transfer and assign without recourse (in accordance
with and subject to the restrictions contained in Section 9.04) all its
interests, rights and obligations under this Agreement to another financial
institution acceptable to the Administrative Agent which shall assume such
obligations; provided that (i) no such prepayment or assignment shall conflict
--------
with any law, rule or regulation or order of any Governmental Authority and (ii)
the Borrower or the assignee, as the case may be, shall pay to the affected
Lender in immediately available funds on the date of such prepayment or
assignment the principal of and interest accrued to the date of payment on the
Term Loan or Loans made by it hereunder and all other amounts accrued for its
account or owed to it hereunder.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders that:
(a) The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
The Borrower possesses all corporate powers and all other authorizations
and licenses necessary to engage in its business and operations as now
conducted, the failure to obtain or maintain which would result in a
Material Adverse Effect.
(b) The execution, delivery and performance by the Borrower of
this Agreement are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene
(i) the Borrower's certificate of incorporation or by-laws of (ii) any
law or contractual restriction binding on or affecting the Borrower.
(c) There is no authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority (including,
without limitation,
<PAGE>
28
the ICC) required for the due execution, delivery and performance by the
Borrower of this Agreement which has not been obtained or made, as the case may
be.
(d) This Agreement is the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms except as
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
or by the applicability of equitable principles.
(e) The consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at December 31, 1993, and as at June 30, 1994, and the related
consolidated statements of income and cash flows for the fiscal year then ended,
copies of which have been furnished to each Lender, fairly present the
consolidated financial condition of the Borrower and such Subsidiaries as at
such date and the results of their operations for the period ended on such date,
all in accordance with GAAP consistently applied, and since December 31, 1993,
there has been no material adverse change in such condition or operations.
(f) There is no pending or threatened action or proceeding against or
involving the Borrower before any Governmental Authority or arbitrator which has
a reasonable probability (taking into account the exhaustion of all appeals) of
resulting in a Material Adverse Effect.
(g) The Borrower has duly paid and discharged all taxes, assessments
and governmental charges upon it or against its properties now due and payable,
the failure to pay which would result in a Material Adverse Effect unless and to
the extent only that the same are being contested in good faith and by
appropriate proceedings by the Borrower.
(h) The Borrower has good title to its properties and assets except for
(i) existing or future liens, security interests, mortgages, conditional sales
arrangements and other encumbrances (including, without limitation, reversionary
title interests) either securing Debt or other liabilities of the Borrower or
any of its Subsidiaries or which the Borrower in its reasonable business
judgment determines would not be
<PAGE>
29
reasonably expected to materially interfere with the railroad business or
railroad operations of the Borrower and its Subsidiaries as conducted from time
to time and (ii) irregularities therein which do not materially interfere with
the business or operations of the Borrower and its Subsidiaries as conducted
from time to time.
(i) No Termination Event has occurred or is reasonably expected to
occur with respect to any Plan which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default under paragraph (g) of
Article VII.
(j) The statement of assets and liabilities of each Plan covered by the
report of Coopers & Lybrand referred to below as of December 31, 1993, and the
statements of changes in fund balance and in financial position, or the
statement of changes in net assets available for plan benefits, for the plan
year then ended, reported on by Coopers & Lybrand, copies of which have been
furnished to the Administrative Agent, fairly present the financial condition of
such Plan as at such date and the results of operations of such Plan for the
plan year ended on such date.
(k) Neither the Borrower nor any ERISA Affiliate has incurred, or is
reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan
which, when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liability (as of the date of
determination), exceeds $50,000,000.
(l) Neither the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan
is reasonably expected to be in reorganization or to be terminated within the
meaning of Title IV of ERISA, the effect of which reorganization or termination
would be the occurrence of an Event of Default under paragraph (i) of
Article VII.
(m) Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
<PAGE>
30
credit for the purpose of purchasing or carrying Margin Stock. No part of
the proceeds of any Term Loan will be used, whether directly or indirectly,
and whether immediately, incidentally or ultimately, for any purpose which
entails a violation of, or which is inconsistent with, the provisions of
the Regulations of the Board, including Regulation G, U or X.
(n) Neither the Borrower nor any Subsidiary is (i) an "investment
company" as defined in, or subject to regulation under, the Investment
Company Act of 1940 or (ii) a "holding company" as defined in, or subject
to regulation under, the Public Utility Holding Company Act of 1935.
(o) The Borrower will use the proceeds of the Term Loans only for the
purpose specified in the preamble to this Agreement.
(p) Neither the Borrower nor any of its Subsidiaries is, to the best of
its knowledge, in violation of any law or statute, or in default with
respect to any judgment, writ, injunction, decree, rule or regulation of
any court or governmental agency or instrumentality, where such violation
or default would result in a Material Adverse Effect.
(q) On the Closing Date, there has been no material adverse change in
or affecting the business, assets, liabilities or operations of the
Borrower or in the condition (financial or otherwise) or prospects of the
Borrower from those shown in the information furnished to the Lenders prior
to the date hereof.
(r) To the best knowledge of the Borrower, on the Closing Date all
insurable properties of the Borrower and each Subsidiary are adequately
insured as part of an insurance program including risk retention and self
insurance by financially sound and reputable insurers to such extent and
against such risks and liabilities (including liability under Federal,
state, local and other statutes and regulations relating to the environment
or to employee health and safety) as is customary with companies similarly
situated and in the same or similar businesses.
<PAGE>
31
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make term Loans hereunder are subject
to the satisfaction of the following conditions:
(a) The Agent shall have received the favorable written opinion of
Francis T. Kelly, Esq., counsel for the Borrower, dated the date hereof and
addressed to the Agent and the Lenders, to the effect set forth in Exhibit
C hereto, and the Borrower hereby instructs such counsel to deliver such
opinion to the Agent.
(b) The Agent shall have received a favorable written opinion of Douglas
J. Babb, Vice President and General Counsel of the borrower, as to certain
ICC regulatory matters, dated the date hereof and addressed to the Agent
and the Lenders, to the effect set forth in Exhibit D hereto, and the
Borrower hereby instructs such counsel to deliver such opinion to the
Agent.
(c) All legal matters incident to this Agreement and the borrowings
hereunder shall be satisfactory to the Lenders and their counsel and to
Cravath, Swaine & Moore, counsel for the Agent.
(d) The Agent shall have received (i) a copy of the certificate or
articles of incorporation, including all amendments thereto, of the
Borrower, certified as of a date shortly before the date hereof by the
Secretary of State of the state of its organization, and a certificate as
to the good standing of the Borrower as of a date shortly before the date
hereof, from such Secretary of State; (ii) a certificate of the Secretary
or Assistant Secretary of the Borrower dated the date hereof and certifying
(A) that attached thereto is a true and complete copy of the by-laws of the
Borrower as in effect on the date hereof and at all times since a date
prior to the date of the resolutions described in clause (B) below, (B)
that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of the Loan Documents and the
borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (C) that the
certificate or articles of incorporation of the Borrower have not been
amended since the date of the
<PAGE>
32
last amendment thereto shown on the certificate of good standing furnished
pursuant to clause (i) above, and (D) as to the incumbency and specimen
signature of each officer executing any Loan Document or any other document
delivered in connection herewith on behalf of the Borrower; (iii) a
certificate of another officer as to the incumbency and specimen signature
of the Secretary or Assistant Secretary executing the certificate pursuant
to (ii) above; and (iv) such other documents as the Lenders or their
counsel or Cravath, Swaine & Moore, counsel for the Agent, may reasonably
request.
(e) The Agent shall have received a certificate, dated the date hereof
and signed by the treasurer or the chief financial officer of the Borrower,
confirming compliance with the conditions precedent set forth in paragraphs
(f) and (g) of this Article IV.
(f) The representations and warranties set forth in Article III hereof
shall be true and correct in all material respects on and as of the Funding
Date, except to the extent such representations and warranties expressly
relate to an earlier date.
(g) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part to
be observed or performed, and at the time of and immediately after such
Borrowing no Event of Default or Default shall have occurred and be
continuing.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agent that,
so long as this Agreement shall remain in effect or the principal of or interest
on any Term Loan, any Fees or any other expenses or amounts payable under any
Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will:
SECTION 5.01. Existence; Businesses and Properties. (a) Preserve and
-------------------------------------
maintain its corporate existence, rights (charter and statute) and material
franchises, except as otherwise permitted by Sections 6.03 and 6.04.
<PAGE>
33
(b) Comply in all material respects with all applicable laws, rules,
regulations and orders (including, without limitation, laws requiring payment of
all taxes, assessments and governmental charges imposed upon it or upon its
property except to the extent contested in good faith by appropriate
proceedings) except where the failure to so comply would not have a Material
Adverse Effect.
(c) Maintain and preserve all of its properties which are used in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, to the extent that any failure to do so would have a Material
Adverse Effect and except for dispositions thereof permitted by Section 6.02;
SECTION 5.02. Insurance. Maintain insurance with responsible and
----------
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties as the Borrower.
SECTION 5.03. Reporting Requirements. Furnish to the Agent and each
-----------------------
Lender:
(a) within 60 days after the close of each of the first three quarters
of each of the Borrower's fiscal years, a copy of the quarterly report on
Form 10-Q containing the consolidated statement of income of the Borrower
and its consolidated Subsidiaries for the period from the beginning of such
fiscal year to the end of such quarter and the related consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such period, each certified by the chief financial officer of the Borrower
and accompanied by a certificate of such officer stating (i) that such
statement of income and such balance sheet has been prepared in accordance
with GAAP, (ii) whether or not he or she has knowledge of the occurrence of
any Event of Default or Default which is continuing hereunder and, if so,
stating in reasonable detail the facts with respect thereto and (iii) all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 5.04, 6.01 and 6.02;
(b) within 120 days after the close of each of the Borrower's fiscal
years, a copy of the annual report on
<PAGE>
34
Form 10-K of the Borrower and its consolidated Subsidiaries, including the
opinion of independent certified public accountants of internationally
recognized standing, together with financial statements consisting of the
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such year and the related consolidated statements of income,
retained earnings and cash flows of the Borrower and its consolidated
Subsidiaries for the year then ended and accompanied by an opinion signed by
said accountants stating that (i) such financial statements have been prepared
in accordance with GAAP and (ii) in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically stated, of any Event
of Default or default which is continuing hereunder;
(c) within 120 days after the close of each of the Borrower's fiscal
years, a certificate of the chief financial officer of the Borrower stating
(i) whether or not he or she has knowledge of the occurrence of any Event
of Default or Default which is continuing hereunder and, if so, stating in
reasonable detail the facts with respect thereto, and (ii) all relevant
facts in reasonable detail to evidence, and the computations as to, whether
or not the Borrower is in compliance with the requirements set forth in
Sections 5.04, 6.01 and 6.02;
(d) promptly upon their becoming available, all reports on Form 10-K,
10-Q or 8-K, or any successor form, and all proxy statements that the
Borrower or the Parent shall file with the Securities and Exchange
Commission or any national securities exchange;
(e) promptly in writing, notice of all litigation and of all
proceedings before any governmental or regulatory agencies affecting the
Borrower or any Subsidiary, except any litigation or proceeding which is
not likely to have any Material Adverse Effect;
(f) within three Business Days after a Responsible Officer of the
Borrower obtains knowledge of the occurrence of any Event of Default or
Default which is continuing, notice of such occurrence together with a
detailed statement by a Responsible Officer of the Borrower of the steps
being taken by the Borrower or
<PAGE>
35
the appropriate Subsidiary to cure the effect of such event;
(g) as soon as practicable and in any event (i) within 30 days after the
Borrower or any ERISA Affiliate knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination
Event with respect to any Plan has occurred and (ii) within 10 days after
the Borrower or any ERISA Affiliate knows or has reason to know that any
other Termination Event with respect to any Plan has occurred, a statement
of the treasurer or the chief financial officer of the Borrower describing
such Termination Event and the action, if any, which the Borrower or such
ERISA Affiliate proposes to take with respect thereto;
(h) promptly and in any event within two Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of each notice
received by the Borrower or any ERISA Affiliate from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(i) promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Plan;
(j) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by the Borrower or any
ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by a
Multiemployer Plan, (ii) the determination that a Multiemployer Plan is, or
is expected to be, in reorganization within the meaning of Title IV of
ERISA, (iii) the termination of a Multiemployer Plan within the meaning of
Title IV of ERISA, or (iv) the amount of liability incurred, or expected to
be incurred, by the Borrower or any ERISA Affiliate in connection with any
event described in clause (i), (ii) or (iii) above;
(k) within 10 days after the due date for filing with the PBGC pursuant
to Section 412(n) of the Code of a notice of failure to make a required
installment or
<PAGE>
36
other payment with respect to a Plan, a statement of the treasurer or the
chief financial officer setting forth details as to such failure and the
action proposed to be taken with respect thereto, together with a copy of
such notice given to the PBGC; and
(1) as soon as practicable but in any event within 60 days of any notice
of request therefor, such other information respecting the financial
condition and results of operations of the Borrower as the Agent, or a
Lender through the Agent, may from time to time reasonably request.
Each balance sheet and other financial statement furnished pursuant to
paragraphs (a) and (b) of this Section 5.03 shall contain comparative
information which conforms to the presentation required in Form 10-Q and 10-K,
as appropriate, under the Securities Exchange Act of 1934, as amended.
SECTION 5.04. Consolidated Tangible Net Worth. Maintain Consolidated
--------------------------------
Tangible Net Worth of not less than $1,700,000,000.
SECTION 5.05. Taxes. Pay and discharge promptly all material taxes,
------
assessments and governmental charges or levies, levied or assessed upon it or
upon its upon its income or profits or in respect of its property, before the
same shall become delinquent or in default; provided, however, that such payment
-------- -------
and discharge shall not be required with respect to any such tax, assessment,
charge or levy so long as the validity or amount thereof shall be contested in
good faith by appropriate proceedings.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the Agent that,
so long as this Agreement shall remain in effect or the principal of or interest
on any Term Loan, any Fees or any other expenses or amounts payable under any
Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing, the Borrower will not:
SECTION 6.01. Debt. Create or suffer to exist, or permit its
-----
Subsidiaries to create or suffer to exist, any Debt if, immediately after giving
effect to such Debt and the receipt and application of any proceeds thereof, the
sum of the aggregate amount of Debt of the Borrower and its
<PAGE>
37
consolidated Subsidiaries on a consolidated basis would exceed 140% of
Consolidated Tangible Net Worth. Notwithstanding anything contained in the
foregoing to the contrary, consolidated Debt of the Borrower and its
consolidated Subsidiaries, taken as a whole, shall not exceed at any time
$3,000,000,000.
SECTION 6.02. Sale, etc., of Assets. Sell, lease, dispose of, distribute
----------------------
or otherwise transfer, whether in a single transaction or a series of
transactions (collectively, a "Transfer"), all or any part of the property of
the Borrower, provided that the Borrower may Transfer:
--------
(a) properties (other than properties Transferred pursuant to any
other clause of this Section 6.02) having an aggregate net book value for
all such Transfers (determined with respect to each such property based on
the net book value reflected on the most recent consolidated balance sheet
of the Borrower delivered pursuant to Section 5.03 prior to the Transfer
thereof, in each case determined without regard to any writedown in such
net book value subsequent to the date hereof) not in excess of 10% of the
total book value of the assets of the Borrower and its consolidated
Subsidiaries (as reflected on the most recent consolidated balance sheet of
the Borrower delivered pursuant to Section 5.03) less the excess of the net
book value of all assets transferred since the date of such balance sheet
over the amount of cash and the fair market value of all other
consideration received in exchange therefor;
(b) properties to any person, provided that the Borrower or any of its
--------
Subsidiaries or the Borrower and any of its Subsidiaries has the power,
direct or indirect, (i) to vote more than 50% of the securities or
interests having ordinary voting power for the election of directors or
comparable governing persons of such person or (ii) to direct or cause the
direction of the management and policies of such person (whether by
contract or otherwise);
(c) properties abandoned or retired from use in the ordinary course of
business;
(d) properties usable by the Borrower in the operation of its business
as a railroad company
<PAGE>
38
including, without limitation, the Transfer of accounts receivable,
provided that the Borrower Transfers such property in arms-length
--------
transactions in exchange for property or cash of substantially equivalent
fair market value usable by the Borrower in the operation of its business
as a railroad company, and provided further that the amount of property
----------------
constituting the excess, if any, of (i) the fair market value of the
property Transferred by the Borrower over (ii) the fair market value of
property received by the Borrower in exchange therefor (in each case,
determined as of the date of such Transfer) may be transferred pursuant to
clause (a) above on and subject to the terms and conditions of such clause
(a); and
(e) property constituting Margin Stock.
SECTION 6.03. Mergers, etc. Merge or consolidate with any person, or
-------------
permit any of its Subsidiaries to merge or consolidate with any person, except
that (a) any Subsidiary may merge or consolidate with any other Subsidiary or
may merge or liquidate into the Borrower (if the Borrower shall be the
continuing or surviving corporation), (b) the Borrower or any Subsidiary may
merge or consolidate with any other corporation if (i) (A) the surviving
corporation shall be the Borrower or a Subsidiary of (B) the surviving
corporation, if not the Borrower or a Subsidiary, shall be a corporation
organized and existing under the laws of the United States or any state thereof
or the District of Columbia and shall expressly assume by a written assignment
executed and delivered to the Administrative Agent, in form and substance
satisfactory to the Administrative Agent, all of the rights and obligations of
the Borrower under this Agreement, and (ii) after giving effect to such merger
or consolidation no Event of Default or Default shall have occurred and be
continuing and (c) the Borrower and any Subsidiary may merge or consolidate as
required by a valid order of the ICC.
SECTION 6.04. Liens. Create or (in the case of clause (b) or (d) below)
------
suffer to exist, or permit its Subsidiaries to create or (in the case of clause
(b) or (d) below) suffer to exist, any Lien securing (a) Debt of the Borrower or
any of its consolidated Subsidiaries, (b) taxes imposed upon the Borrower or any
of its consolidated Subsidiaries, (c) reimbursement obligations of the Borrower
or any of its consolidated Subsidiaries in respect of letters of credit of (d)
liabilities of the Borrower or any
<PAGE>
39
of its consolidated Subsidiaries asserted in any legal or other proceeding
arising under the Comprehensive Environmental, Response, Compensation and
Liability Act of 1980, as amended from time to time, or other similar Federal or
state laws, regulations or decrees relating to environmental protection or the
release of any hazardous or toxic materials into the environment, in each case,
upon or with respect to all or a portion of the cash or accounts receivable of
the Borrower or any of its consolidated Subsidiaries arising from income from
railroad operations generated in the ordinary course of business (and excluding
in any event cash and accounts receivable constituting the proceeds of the sale
or other disposition of property), except, in each case for Liens (A) in respect
------
of taxes, the nonpayment of which would not constitute a default under Section
5.01(b), (B) arising by operation of law in the ordinary course of business, (C)
on cash or other property in any bank's possession arising either in the
ordinary course of business and securing daylight overdrafts and other Debt
incurred in favor of such bank in the ordinary course of the cash management
program of the Borrower and its Subsidiaries, or by operation of law, or
contractually in the ordinary course of establishing and/or maintaining deposit
and other accounts, letters of credit and other banking services (other than the
incurrence of indebtedness for borrowed money), (D) on cash or other property in
any Lender's possession securing (or entitling any Lender to set off against)
amounts owing to any Lender pursuant to this Agreement, (E) securing lessees'
obligations under leases referred to in clause (ii) of the definition of Debt,
and (F) Liens in respect of any liability referred to in clause (d) above which
liability does not have a reasonable probability (taking into account the
exhaustion of all corrective and other appropriate procedures and proceedings
and/or all appeals)of having a Material Adverse Effect; provided, however, that
-------- -------
this Section 6.04 shall not restrict the creation or existence of (1) Existing
Liens and Liens under Existing Mortgages and (2) Liens securing Debt outstanding
from time to time under the Mortgage Indenture.
SECTION 6.05. Sales of Accounts Receivable. Sell any accounts
-----------------------------
receivable other than pursuant to the Borrower's receivables sale facilities and
any extensions, renewals or replacements of any thereof, provided that the
--------
aggregate amount of accounts receivable sold pursuant to this Section 6.05 shall
in no event exceed $300,000,000.
<PAGE>
40
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening (and during the continuance) of any of the
following events ("Events of Default"):
(a) The Borrower shall (i) fail to pay any principal of any Term Loan
or (ii) fail to pay any interest on any Term Loan or any other amount
payable hereunder or pursuant hereto, in each case referred to in this
clause (ii) within two Business Days after the same shall be due;
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement
shall prove to have been incorrect in any material respect when made or
deemed made;
(c) The Borrower shall (i) fail to perform or observe any term,
covenant or agreement contained in Sections 5.04, 6.01, 6.02 or 6.03 of
this Agreement or (ii) fail to perform or observe any other term, covenant
or agreement contained in this Agreement on its part to be performed or
observed and any such failure referred to in this clause (ii) shall remain
unremedied for 30 days after written notice thereof shall have been given
to the Borrower by the Administrative Agent or by any Lender with a copy to
the Administrative Agent;
(d) The Borrower or any Subsidiary shall (i) fail to pay any Debt
(excluding Debt hereunder) of the Borrower or any Subsidiary (as the case
may be) in an aggregate principal amount of $50,000,000 or more, or any
installment of principal thereof or interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; (ii) default under any agreement or instrument relating to any Debt
(excluding Debt hereunder) in an aggregate principal amount of $25,000,00
or more, or any other event shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to accelerate the maturity of
such Debt; or
<PAGE>
41
(iii) default under any agreement or instrument relating to any Debt
(excluding Debt hereunder) in an aggregate principal amount of $101,000,000
or more, or any other event shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to permit the acceleration of the
maturity of such Debt, provided that, notwithstanding any provision
--------
contained in this paragraph (d) to the contrary, to the extent that
pursuant to the terms of any agreement or instrument relating to any Debt
referred to in this paragraph (d), any sale, pledge or disposal of Margin
Stock, or utilization of the proceeds thereof would result in a breach of
any covenant contained therein or otherwise give rise to a default or event
of default thereunder and/or acceleration of the maturity of the Debt
extended pursuant thereto and as a result of such terms or of such sale,
pledge, disposal, utilization, breach, default, event of default or
acceleration, or the provisions hereof relating thereto, this Agreement or
any Term Loan hereunder would otherwise be subject to the margin
requirements or any other restriction under Regulation U, then such breach,
default, event of default or acceleration shall not constitute a Default or
Event of Default under this paragraph (d);
(e) (i) The Borrower or any Subsidiary shall (A) generally not pay its
debts as such debts become due; or (B) admit in writing its inability to
pay its debts generally; or (C) make a general assignment for the benefit
of creditors; (ii) any proceeding shall be instituted or consented to by
the Borrower or any Subsidiary seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, or other similar official for it or for any
substantial part of its property; (iii) any such proceeding shall have been
instituted against the Borrower or any Subsidiary and either (A) such
relief shall have been granted or (B) such proceeding shall have been
pending undismissed for a period of 60 consecutive days; or (iv) the
Borrower or any Subsidiary shall take any
<PAGE>
42
corporate action to authorize any of the actions set forth above in this
paragraph (e);
(f) (i) One or more final and non-appealable judgments or orders for the
payment of money in excess of $50,000,000 in the aggregate shall be
rendered against the Borrower and/or one or more Subsidiaries and
enforcement proceedings shall have been commenced by creditors upon such
judgments or orders; or (ii) one or more judgments or orders for the
payment of money in excess of $100,000,000 shall be rendered against the
Borrower and/or one or more Subsidiaries and either (x) enforcement
proceedings shall have been commenced by creditors upon such judgments or
orders or (y) there shall be any period of 20 consecutive days during which
a stay of enforcement of such judgments or orders, by reason of a pending
appeal or otherwise, shall not be in effect;
(g) Any Termination Event with respect to a Material Plan shall have
occurred and, 30 days after notice thereof shall have been given to the
Borrower by the Administrative Agent, (i) such Termination Event shall
still exist and (ii) the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case of a
Plan with respect to which a Termination Event described in clause (ii) of
the definition of Termination Event shall have occurred and then exist, the
liability related thereto), in each case in respect of which the Borrower
or any ERISA Affiliate has liability, is equal to or greater than
$50,000,000;
(h) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability
to such Multiemployer Plan in an amount which, when aggregated with all
other amounts required to be paid to Multiemployer Plans in connection with
Withdrawal Liabilities (determined as of the date of such notification),
exceeds $50,000,000;
(i) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization
<PAGE>
43
or is being terminated, within the meaning of Title IV of ERISA, if as a
result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans which are then in reorganization or being terminated have been or
will be increased over the amounts contributed to such Multiemployer Plans
for the respective plan years which include the date hereof by an amount
exceeding $50,000,000; or
(j) There shall have occurred a Change in Control:
then, and in any such event, the Administrative Agent shall, at the request, or
may with the consent, of the Required Lenders, by notice to the Borrower, (i)
declare the Commitment of each Lender to make Term Loans to be terminated,
whereupon the same shall forthwith terminate, and (ii) declare the Term Loans,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Term Loans, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that if an Event of Default under
-------- -------
paragraph (e) of this Article VII (except under clause (i)(A) thereof) shall
occur, (A) the Commitment of each Lender to make Term Loans shall automatically
be terminated and (B) the Term Loans, all interest thereon and all other amounts
payable under this Agreement shall automatically become and be forthwith due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower.
ARTICLE VIII. THE AGENT
In order to expedite the transactions contemplated by this Agreement,
Texas Commerce Bank National Association is hereby appointed to act as
Administrative Agent on behalf of the Lenders. Each of the Lenders hereby
irrevocably authorizes the Agent to take such actions on behalf of such Lender
and to exercise such powers as are specifically delegated to the Agent by the
terms and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the
<PAGE>
44
Lenders, without hereby limiting any implied authority, (a) to receive on behalf
of the Lenders all payments of principal of and interest on the Term Loans and
all other amounts due to the Lenders hereunder, and promptly to distribute to
each Lender its proper share of each payment so received; (b) to give notice on
behalf of each of the Lenders to the Borrower of any Event of Default specified
in this Agreement of which the Administrative Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to distribute to each
Lender copies of all notices, financial statements and other materials delivered
by the Borrower pursuant to this Agreement as received by the Administrative
Agent.
Neither the Agent nor any of its directors, officers, employees or
agents shall be liable as such for any action taken or omitted by any of them
except for its, his or her own gross negligence or wilful misconduct, or be
responsible for any warranty or representation herein or the contents of any
document delivered in connection herewith, or be required to ascertain or to
make any inquiry concerning the performance or observance by the Borrower of any
of the terms, conditions, covenants or agreements contained in any Loan
Document other than those expressly provided for herein. The Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness (other than against the Agent) of this Agreement
or any other Loan Documents or other instruments or agreements. The Agent shall
in all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. The Agent shall,
in the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper person or persons. Neither the
Agent nor any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other Lender or Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The Agent
may execute any and all duties hereunder by or through agents or employees
<PAGE>
45
and shall be entitled to rely upon the advice of legal counsel reasonably
selected by them with respect to all matters arising hereunder and shall not be
liable for any action taken or suffered in good faith by it in accordance with
the advice of such counsel.
The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor. If no successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Agent may, on behalf of the Lenders, appoint a successor
Agent which shall be a bank with an office in the United States, having a
combined capital and surplus of at least $50,000,000 or an Affiliate of any such
bank. Upon the acceptance of any appointment as Agent hereunder by a successor
bank, such successor shall succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent shall
be discharged from its duties and obligations hereunder. After the Agent's
resignation hereunder, the provisions of this Article and Section 9.05 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
With respect to the Term Loans made by it hereunder, the Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not the Agent, and
the Agent and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Agent.
Each lender agrees (i) to reimburse the Agent, on demand, in the amount
of its pro rata share (based on its Commitment hereunder) of any reasonable
expenses incurred for the benefit of the Lenders by the Agent, including counsel
fees and compensation of agents and employees paid
<PAGE>
46
for services rendered on behalf of the Lenders, which shall not have been
reimbursed by the Borrower and (ii) to indemnify and hold harmless the Agent and
any of its directors, officers, employees or agents, on demand, in the amount of
such pro rata share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against it in its capacity as the Agent or any of
them in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have been
reimbursed by the Borrower; provided that no Lender shall be liable to the Agent
--------
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or wilful misconduct of the Agent or any of its directors,
officers, employees or agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agent or any other Lender and based on such
documents, and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement or any other Loan Document, any related agreement or any
document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy by the sending party, as follows:
(a) if to the Borrower, to it at 3200 Continental Plaza, 777 Main
Street, Fort Worth, Texas 76102, Attention of Treasurer (Telecopy No.
817-333-7484);
(b) if to the Administrative Agent, to it at 1111 Fannin Street,
9th Floor MS46, Houston, Texas 77002,
<PAGE>
47
Attention of Loan Syndication Services (Telecopy No. 713-750-3810); with a
copy to Texas Commerce Bank National Association, 201 Main Street, 3rd
Floor, Fort Worth, Texas 76102, Attention of Corporate Banking (Telecopy
No. 817-878-7591);
(c) if to a Lender, to it at its address (or telecopy number) set forth
in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such
Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with the
latest unrevoked direction from such party given in accordance with this Section
9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Term Loans regardless of any investigation made by the Lenders or on
their behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Term Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective when
---------------
it shall have been executed by the Borrower and the Administrative Agent and
when the Administrative Agent shall have received copies hereof which, when
taken together, bear the signatures of each Lender, and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Agent and each Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior consent of all the Lenders.
<PAGE>
48
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
-----------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and permitted assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of the Term Loan or Loans at the time owing to it); provided, however,
-------- -------
that (i) except in the case of an assignment to a Lender or an Affiliate of such
Lender, the Borrower and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld,
taking into account such factors as the financial responsibility and reputation
of a proposed assignee), (ii) the amount of the Term Loan or Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $10,000,000 (and integral multiples
of $1,000,000) or, if less, the entire amount of the assigning Lender's Term
Loan or Loans, (iii) the parties to each such assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, and the
assigning Lender shall deliver together therewith a processing and recordation
fee of $2,500 and (iv) the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent and Administrative Questionnaire. Upon acceptance
and recording pursuant to paragraph (e) of this Section 9.04, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, (B) the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto (but shall continue to be entitled to the benefits of Sections 2.10,
2.12, 2.16 and 9.05, as well as to any Fees
<PAGE>
49
accrued for its account hereunder and not yet paid)) and (C) Schedule 2.01 shall
be deemed amended to give affect to such assignment. The Interest Rate Margin
applicable to any assigned portion of a Term Loan shall at all times equal the
Interest Rate Margin applicable to such Term Loan on the Closing Date.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
the amount of its Term Loan without giving effect to assignments thereof which
have not become effective, is as set forth in such Assignment and Acceptance;
(ii) except as set forth in (i) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or any other any instrument or document furnished pursuant hereto, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto or the financial condition of the Borrower or
any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.03 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
the Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it
<PAGE>
50
will perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
The City of Houston a copy of each Assignment and Acceptance delivered to it and
a register for the recordation of the names and addresses of the Lenders, and
the principal amount of the Term Loan or Loans owing to each Lender pursuant to
the terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive in the absence of demonstrable error and the Borrower, the
Agent and the Lenders may treat each person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Borrower and the
Administrative Agent to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders.
(f) Each Lender may without the consent of the Borrower or the Agent
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of the Term Loan or Loans owing to it); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.10, 2.12 and 2.16 to the same extent as if they were Lenders and (iv)
the Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such lender shall retain the sole right to
enforce the obligations of the Borrower relating to the
<PAGE>
51
Term Loans and to approve any amendment, modification or waiver or any provision
of this Agreement (other than amendments, modifications or waivers decreasing
any fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Term Loans, or extending any scheduled principal
payment date or date fixed for the payment of interest on the Term Loans).
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; provided that, prior to any such disclosure of
--------
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank; provided that no such assignment
--------
shall release a Lender from any of its obligations hereunder. In order to
facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, to
the extent permissible without registration under applicable regulations of the
ICC, at the request of the assigning Lender, duly execute and deliver to the
assigning Lender a promissory note or notes evidencing the Term Loan or Loans
made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Lenders.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
--------------------
out-of-pocket expenses incurred by the Agent in connection with the preparation
of this Agreement and the other Loan Documents or in connection with any
amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions hereby contemplated shall be consummated) or
incurred by the Agent or any Lender in connection with the enforcement or
protection of their rights in connection with this Agreement and the other Loan
Document or in connection with the Term Loans made hereunder, including the
reasonable fees, charges
<PAGE>
52
and disbursements of Cravath, Swaine & Moore, counsel for the Agent, and, in
connection with any such amendment, modification or waiver or any such
enforcement or protection, the reasonable fees, charges and disbursements of any
other counsel for the Agent or any Lender. The Borrower further agrees that it
shall indemnify the Lenders from and hold them harmless against any documentary
taxes, assessments or charges made by any Governmental Authority by reason of
the execution and delivery of this Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, each Lender and each of
their respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the transactions contemplated thereby, (ii) the use of the
proceeds of the Term Loans or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing to which such Indemnitee reasonably
believes that it may become a party, whether or not any Indemnitee is a party
thereto; provided that such indemnity shall not, as to any Indemnitee, be
--------
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Term Loans, the invalidity or unenforceability of any
term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Agent or any Lender. All amounts due
under this Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to
<PAGE>
53
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any of and all the obligations of the Borrower
now or hereafter existing under this Agreement and other Loan Documents held by
such lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement or such other Loan Document and although such
obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
after any such setoff and application made by such lender, provided that the
--------
failure to give such notice shall not affect the validity of such setoff and
application. The rights of each lender under this Section are in addition to
other rights and remedies (including other rights of setoff) which such Lender
may have.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN
---------------
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Agent
-------------------
or any lender in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agent and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
-------- -------
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal
<PAGE>
54
payment date or date for the payment of any interest on, any Term Loan, or waive
or excuse any such payment or any part thereof, or decrease the rate of interest
on any Term Loan, without the prior written consent of each Lender affected
thereby, or (ii) amend or modify the provisions of Section 2.13, the provisions
of this Section, any provision of this agreement which by its terms requires the
consent or approval of all Lenders or the definition of "Required Lenders",
without the prior written consent of each Lender; provided further that no such
----------------
agreement shall amend, modify or otherwise affect the rights or duties of the
Agent hereunder without the prior written consent of the Agent.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein
-------------------------
to the contrary, if at any time the applicable interest rate, together with all
fees and charges which are treated as interest under applicable law
(collectively the "Charges"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by any Lender, shall exceed the maximum lawful rate (the
"Maximum Rate") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable on the Term Loan or Loans of such Lender, together with all Charges
payable to such Lender, shall be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other Loan
-----------------
Documents constitute the entire contract between the parties relative to the
subject matter hereof. Any previous agreement among the parties with respect to
the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of
<PAGE>
55
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) The
--------------------------------------------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against the Borrower or its properties in
the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this agreement or the other Loan Documents in any
New York State or Federal court sitting in New York City. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted
<PAGE>
56
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
IN WITNESS WHEREOF, the Borrower, the Lenders, and the Administrative
Agent have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
BURLINGTON NORTHERN RAILROAD COMPANY,
by /s/ ROBERT F. MCKENNEY
----------------------------------
Name: Robert F. McKenney
Title: Senior Vice President
and Treasurer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually and as
Administrative Agent,
by /s/ B. B. WUTHRICH
----------------------------------
Name: B. B. Wuthrich
Title: Vice President
<PAGE>
57
THE BANK OF TOKYO, LTD., Dallas Agency
by /s/ J. BECKWITH
-----------------------------------
Name: J. Beckwith
Title: Vice President
THE DAI-ICHI KANGYO BANK, LIMITED,
Los Angeles Agency,
by /s/ TOMOHIRO NOZAKI
-----------------------------------
Name: Tomohiro Nozaki
Title: Senior Vice President
and Joint General Manager
MELLON BANK, N.A.,
by /s/ PAUL A. BRIGGS
-----------------------------------
Name: Paul A. Briggs
Title: Senior Vice President
THE SANWA BANK, LIMITED,
by /s/ BLAKE WRIGHT
-----------------------------------
Name: Blake Wright
Title: Assistant Vice President
SOCIETE GENERALE, Southwest Agency,
by /s/ CHRISTOPHER J. SPELTZ
-----------------------------------
Name: Christopher J. Speltz
Title: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BURLINGTON
NORTHERN RAILROAD'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 722
<ALLOWANCES> 20
<INVENTORY> 100
<CURRENT-ASSETS> 1013
<PP&E> 9603
<DEPRECIATION> 3755
<TOTAL-ASSETS> 7088
<CURRENT-LIABILITIES> 1378
<BONDS> 719
<COMMON> 1191
0
0
<OTHER-SE> 1792
<TOTAL-LIABILITY-AND-EQUITY> 7088
<SALES> 0
<TOTAL-REVENUES> 4995
<CGS> 0
<TOTAL-COSTS> 4164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 769
<INCOME-TAX> 300
<INCOME-CONTINUING> 469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (10)
<NET-INCOME> 459
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
