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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ___________ TO __________
COMMISSION FILE NUMBER 1-8159
BURLINGTON NORTHERN INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 41-1400580
(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)
</TABLE>
Registrant's telephone number, including area code (817) 333-2000
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
Common Stock, Without Par Value New York, Chicago and Pacific Stock Exchanges
6 1/4% Cumulative Convertible Preferred
Stock,
Series A, No Par Value New York, Chicago and Pacific Stock Exchanges
Preferred Stock Purchase Rights New York, Chicago and Pacific Stock Exchanges
9% Debentures due 2016 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the common stock on January
31, 1994 was approximately $5,702,932,001.
As of January 31, 1994, registrant had outstanding 88,890,276 shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Burlington Northern Inc.'s definitive proxy statement, to be filed not
later than 120 days after the end of the fiscal year covered by this report, is
incorporated by reference into Part III.
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TABLE OF CONTENTS
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ITEM PAGE
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<S> <C> <C> <C>
Part I 1. Business................................................................ 1
2. Properties.............................................................. 1
3. Legal Proceedings....................................................... 7
4. Submission of Matters to a Vote of Security Holders..................... 8
Executive Officers of the Registrant and Principal Subsidiary........... 8
Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters... 12
6. Selected Financial Data................................................. 12
7. Management's Discussion and Analysis of Financial Condition and Results 13
of Operations.........................................................
8. Financial Statements and Supplementary Data............................. 24
9. Changes in and Disagreements With Accountants on Accounting and 47
Financial Disclosure..................................................
Part III 10. Directors and Executive Officers of the Registrant...................... 47
11. Executive Compensation.................................................. 47
12. Security Ownership of Certain Beneficial Owners and Management.......... 47
13. Certain Relationships and Related Transactions.......................... 47
Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 48
</TABLE>
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PART I
ITEM 1. BUSINESS
and
ITEM 2. PROPERTIES
Burlington Northern Inc. (BNI) was incorporated in Delaware in 1981 as part
of a holding company reorganization. BNI and its majority-owned subsidiaries
(collectively BN) are primarily engaged in the rail transportation business. The
principal subsidiary is Burlington Northern Railroad Company (Railroad). BN
Leasing Corporation, a wholly owned subsidiary of BNI, was formed during 1989 to
acquire railroad rolling stock and other equipment necessary for the
transportation and other business affairs of BN.
Railroad transportation
Railroad operates the largest railroad system in the United States based on
miles of road and second main track, with approximately 24,500 total miles at
December 31, 1993. The principal cities served include Chicago, Minneapolis-St.
Paul, Fargo-Moorhead, Billings, Spokane, Seattle, Portland, St. Louis, Kansas
City, Des Moines, Omaha, Lincoln, Cheyenne, Denver, Fort Worth, Dallas, Houston,
Galveston, Tulsa, Wichita, Springfield (Missouri), Memphis, Birmingham, Mobile
and Pensacola.
During 1993, BN refined Railroad's customer oriented business units by
creating smaller, more focused business units. The following table presents BN's
revenue information by Railroad business unit, and includes reclassification of
prior-year information to conform to current year presentation.
Percent of revenues was calculated before consideration of shortline
payments and other miscellaneous revenues. The principal contributors to rail
transportation revenues were as follows (revenues and revenue ton miles in
millions, carloadings in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1993 1992 1991
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<S> <C> <C> <C>
Coal:
Revenues........................................... $ 1,532 $ 1,520 $ 1,554
Percent of revenues................................ 32% 32% 33%
Revenue ton miles.................................. 122,832 117,139 119,028
Revenues per revenue ton mile...................... 1.25cents 1.30cents 1.31cents
Carloadings........................................ 1,468 1,448 1,472
Agricultural Commodities:
Revenues........................................... $ 784 $ 777 $ 778
Percent of revenues................................ 16% 16% 17%
Revenue ton miles.................................. 35,451 36,831 38,123
Revenues per revenue ton mile...................... 2.21cents 2.11cents 2.04cents
Carloadings........................................ 423 454 450
Intermodal:
Revenues........................................... $ 730 $ 711 $ 687
Percent of revenues................................ 15% 15% 15%
Revenue ton miles.................................. 23,726 22,749 22,191
Revenues per revenue ton mile...................... 3.08cents 3.13cents 3.10cents
Carloadings........................................ 1,003 1,017 1,018
Forest Products:
Revenues........................................... $ 483 $ 489 $ 469
Percent of revenues................................ 10% 10% 10%
Revenue ton miles.................................. 19,724 20,030 18,747
Revenues per revenue ton mile...................... 2.45cents 2.44cents 2.50cents
Carloadings........................................ 280 283 278
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1993 1992 1991
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<S> <C> <C> <C>
Chemicals:
Revenues........................................... $ 405 $ 388 $ 346
Percent of revenues................................ 8% 8% 7%
Revenue ton miles.................................. 14,625 14,142 12,952
Revenues per revenue ton mile...................... 2.77cents 2.74cents 2.67cents
Carloadings........................................ 262 244 218
Consumer Products:
Revenues........................................... $ 257 $ 258 $ 250
Percent of revenues................................ 5% 5% 5%
Revenue ton miles.................................. 9,052 9,098 8,879
Revenues per revenue ton mile...................... 2.84cents 2.84cents 2.82cents
Carloadings........................................ 145 146 141
Minerals Processors:
Revenues........................................... $ 195 $ 180 $ 184
Percent of revenues................................ 4% 4% 4%
Revenue ton miles.................................. 7,982 7,410 7,625
Revenues per revenue ton mile...................... 2.44cents 2.43cents 2.41cents
Carloadings........................................ 178 170 163
Iron & Steel:
Revenues........................................... $ 172 $ 178 $ 170
Percent of revenues................................ 4% 4% 4%
Revenue ton miles.................................. 8,178 8,086 7,615
Revenues per revenue ton mile...................... 2.10cents 2.20cents 2.23cents
Carloadings........................................ 225 244 238
Vehicles & Machinery:
Revenues........................................... $ 187 $ 166 $ 166
Percent of revenues................................ 4% 4% 3%
Revenue ton miles.................................. 2,416 2,165 2,209
Revenues per revenue ton mile...................... 7.74cents 7.67cents 7.51cents
Carloadings........................................ 123 101 102
Aluminum, Non-Ferrous Metals & Ores:
Revenues........................................... $ 103 $ 108 $ 103
Percent of revenues................................ 2% 2% 2%
Revenue ton miles.................................. 3,919 4,180 3,632
Revenues per revenue ton mile...................... 2.63cents 2.58cents 2.84cents
Carloadings........................................ 68 71 69
</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, 1993. These coal shipments were destined for coal-fired electric generating
stations primarily in the North Central, South Central and Mountain regions of
the United States with smaller quantities exported.
Railroad also handles increasing amounts of low-sulfur coal from the Powder
River Basin for delivery to markets in the eastern and southeastern portion of
the United States. The low-sulfur coal from the Powder River Basin is abundant,
inexpensive to mine and clean-burning. Since the Clean Air Act of 1990 requires
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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 as well as direct
entry to consuming markets in southern Mexico through its Protexa Burlington
International affiliate.
Intermodal
Intermodal transportation moves traffic on specially designed flatcars or
doublestack equipment which competes with motor carriers. Railroad's intermodal
transportation system integrates the movement of approximately 46 daily trains
operating between 30 rail hubs and 28 satellite rail hubs (Railroad-operated
marshalling points for trailer/container movements). These operations are
strategically located across Railroad's rail network and also serve major
distribution centers outside BN's system. Strategic alliances have been formed
to enhance Railroad's market access both with other railroads and with major
truck transportation providers.
Forest Products
The Forest Products business unit is primarily comprised of lumber,
plywood, pulpmill feedstock, wood pulp and paper products. These products
primarily come from the Pacific Northwest, upper Midwest and Southeast areas of
the United States.
Chemicals
The Chemicals business unit is comprised of fertilizer, petroleum and
chemical commodities as well as Railroad's environmental logistics business.
Primary origin markets for Railroad include the Gulf Coast, the Pacific
Northwest, and various Canadian ports of entry. Environmental logistics is an
area of significant opportunity as municipalities exhaust their traditional
disposal sources and must increasingly transport their waste longer distances.
Consumer Products
Products included in Railroad's Consumer Products business unit represent a
wide variety of commodities. Some of the major products in this group are food
products, beverages, frozen foods, canned foods, appliances and electronics.
Because this business unit handles a wide variety of consumer goods, the
business unit performance typically mirrors the country's economy.
Minerals Processors
Commodities in this group include clays, cements, sands and other minerals
and aggregates. This group services both the oil and construction industries.
Iron & Steel
The Iron & Steel business unit handles virtually all of the commodities
included in or resulting from the production of steel. Taconite, an iron ore
derivative produced in northern Minnesota, scrap steel and coal coke are the
business unit's primary input products, while finished steel products range from
structural beams and coil to wire and nails.
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Vehicles & Machinery
The Vehicles & Machinery business unit is responsible for both domestic and
international vehicle manufacturers as well as an assortment of primary and
secondary markets for heavy machinery. Through the development and
implementation of Autostack technology (using containers to move motor
vehicles), Railroad is redefining transit time and ride quality. Heavy machinery
includes primary markets for aircraft, construction, farm and railroad equipment
and secondary markets for used equipment. The business unit is also responsible
for military and other miscellaneous traffic for the United States government.
Aluminum, Non-Ferrous Metals & Ores
The Aluminum, Non-Ferrous Metals & Ores business unit handles alumina and
aluminum products, petroleum coke and a variety of other metals and ores such as
zinc, copper and lead.
Operating factors
Certain significant operating statistics were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1993 1992 1991 1990 1989*
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<S> <C> <C> <C> <C> <C>
Carloadings (in thousands)............... 4,175 4,178 4,149 4,335 4,215
Freight revenues per carload............. $1,099 $1,080 $1,071 $1,052 $1,063
Revenue ton miles (in millions).......... 237,339 232,799 232,441 234,291 232,527
Revenues per revenue ton mile............ 1.98cents 1.99cents 1.96cents 1.99cents 1.98cents
Revenue tons per carload................. 83 82 82 79 75
Revenue tons per train................... 3,315 3,193 3,188 3,141 3,032
Freight train miles (in millions)........ 72 73 73 75 77
Average length of haul (miles)........... 778 764 770 766 783
Gross ton miles, excluding locomotives
(in millions).......................... 409,808 400,917 402,527 409,991 395,878
Operating ratio (excluding the 1991
special charge)........................ 86% 87% 90% 87% 86%
Operating expense per gross ton mile
(excluding the 1991 special charge).... .99cents 1.01cents 1.02cents .99cents 1.00cents
Gallons of fuel used (in millions)....... 588 560 562 593 591
Average fuel price per gallon............ 61.5cents 62.2cents 65.5cents 69.5cents 55.5cents
Gross ton miles per gallon of fuel
used................................... 697 716 716 691 670
Revenue ton miles per employee
(in thousands)......................... 7,781 7,461 7,317 7,120 7,060
Revenues per employee (in thousands)..... $154 $148 $144 $142 $140
</TABLE>
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* Beginning in 1990, BN reduced revenues and mileage for the effects of
shortline railroads, which complete hauls for BN. In prior years, payments to
shortline railroads were classified in operating expenses.
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Properties
In 1993, approximately 96 percent of the total ton miles, both revenue and
non-revenue generating, carried by Railroad were handled on its main lines. At
December 31, 1993, approximately 18,828 miles of Railroad's track consisted of
112-lb. per yard or heavier rail, including approximately 10,461 track miles of
132-lb. per yard or heavier rail. Additions and replacements to properties were
as follows:
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YEAR ENDED DECEMBER 31,
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1993 1992 1991 1990 1989
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<S> <C> <C> <C> <C> <C>
Track miles of rail additions and
replacements:
New...................................... 387 461 380 301 326
Used..................................... 356 299 281 299 208
Track miles surfaced or reballasted........ 7,854 7,610 7,710 7,119 6,974
Ties inserted (in thousands):
Wood..................................... 1,914 1,684 1,515 1,331 1,342
Concrete................................. 195 500 527 691 651
</TABLE>
Equipment
BN owned or leased, under both capital and operating leases, with an
initial lease term in excess of one year, the following units of railroad
rolling stock at December 31, 1993:
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NUMBER OF UNITS
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OWNED LEASED TOTAL
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<S> <C> <C> <C>
Locomotives:
Freight........................................................ 753 1,162 1,915
Passenger...................................................... -- 2 2
Multi-purpose.................................................. 159 50 209
Switching...................................................... 176 18 194
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Total locomotives........................................... 1,088 1,232 2,320
------- ------- -------
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Freight Cars:
Box-general purpose............................................ 947 2,642 3,589
Box-specially equipped......................................... 4,587 689 5,276
Gondola........................................................ 6,067 757 6,824
Hopper-open top................................................ 8,240 714 8,954
Hopper-covered................................................. 17,528 11,640 29,168
Refrigerator................................................... 3,347 9 3,356
Flat........................................................... 3,407 367 3,774
Caboose........................................................ 498 -- 498
Other.......................................................... 559 -- 559
------- ------- -------
Total freight cars.......................................... 45,180 16,818 61,998
------- ------- -------
------- ------- -------
Commuter passenger cars.......................................... -- 141 141
------- ------- -------
------- ------- -------
</TABLE>
In addition to the owned and leased locomotives identified above, BN
operates 199 freight locomotives under power purchase agreements.
The average age of locomotives and freight cars was 14.5 years and 18.6
years, respectively, at December 31, 1993, compared with 13.5 years and 18.4
years, respectively, at December 31, 1992.
The average percentage of BN's locomotives and freight cars awaiting
repairs during 1993 was 7.4 and 3.3, respectively, compared with 7.4 and 4.1,
respectively, in 1992. The average time between locomotive failures was 67.9
days in 1993 compared with 71 days in 1992.
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During 1993, BN entered into an agreement to acquire 350 new-technology
alternating current traction motor locomotives. BN 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.
BN accepted delivery of one locomotive during 1993 and anticipates delivery of
between approximately 60 and 100 each year from 1994 through 1997.
Employees
BN employed an average of 30,502 employees in 1993 compared with 31,204 in
1992 and 31,760 in 1991. BN's payroll and employee benefits costs, including
capitalized labor costs, were approximately $1.9 billion for each of the years
ended December 31, 1993, 1992 and 1991. Almost 90 percent of BN's employees are
covered by collective bargaining agreements with 14 different labor
organizations.
In October 1991, Railroad entered into an agreement (Crew Consist Agreement
No. 1) with the United Transportation Union (UTU) covering the southern portion
of Railroad's system. Crew Consist Agreement No. 1 provided for crews on most
through-freight trains to consist of one conductor and one engineer and for
crews on all other trains to consist of one brakeman, one conductor and one
engineer.
Under the terms of Crew Consist Agreement No. 1, Railroad offered the
opportunity for voluntary separation from employment in return for severance
payments of up to $60,000 per employee. Remaining conductors or brakemen who, as
a result of Crew Consist Agreement No. 1, were unable to hold a position in
active service, due to relative seniority, were placed on a reserve board.
Employees in reserve status received compensation at a rate equal to either 75
percent of their previous 12-month earnings, or 75 percent of the basic five-day
yard helper rate of pay, whichever is greater, and are required to be available
for return to active service on 15 days' notice. Each UTU member on the southern
portion of Railroad's system received a lump-sum payment of $1,000 upon
ratification of Crew Consist Agreement No. 1.
In May 1993, Railroad entered into an agreement (Crew Consist Agreement No.
2) with the UTU covering approximately 3,400 UTU members in the northern portion
of Railroad's system. Crew Consist Agreement No. 2 provides for crews on most
through-freight trains to consist of one conductor and one engineer and for
crews on all other trains to consist of one brakeman, one conductor and one
engineer. It is similar to Crew Consist Agreement No. 1, covering the southern
portion of Railroad's system. Each UTU member on the northern portion of
Railroad's system received a one-time lump-sum payment of $5,000, pursuant to
Crew Consist Agreement No. 2.
Under the terms of Crew Consist Agreement No. 2, Railroad offered the
opportunity for voluntary separation from employment in return for severance
payments of up to $80,000 per employee. Conductors and brakemen who choose not
to accept the voluntary separation offer can elect volunteer surplus status
pursuant to which they will receive $60,000 to be paid out over a period of 18
to 48 months, as each selects. If such employee has not been recalled to active
service by the time such payments cease upon expiration of the selected period,
such employee will remain in volunteer surplus status, without further
compensation or benefits, until recalled to active service. Employees in
volunteer surplus status may be called back to service only after the
individuals in reserve status, within their own subdivided seniority district,
have been recalled. Remaining conductors and brakemen who, as a result of Crew
Consist Agreement No. 2, are not needed in train service, and who do not elect
one of the above severance options, will be placed on a reserve board.
Employees in reserve status will receive compensation equal to either 75
percent of their previous 12-month earnings, or 75 percent of the basic five-day
yard helper rate of pay, whichever is greater, and are required to be available
for return to active service on 15 days' notice.
In October 1993, the UTU elected to adopt Crew Consist Agreement No. 2 for
those southern portion UTU members who were previously covered by Crew Consist
Agreement No. 1. Crew Consist Agreement No. 2 was implemented on the southern
portion of the Railroad's system during the fourth quarter of 1993. Upon
implementation, each of the approximately 3,300 UTU members on the southern
portion of Railroad's system received a one-time lump-sum payment of $4,000,
which was the incremental difference between the
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$1,000 lump-sum payment received following ratification of Crew Consist
Agreement No. 1 and the amount received by UTU members following adoption of
Crew Consist Agreement No. 2.
Railroad will continue to remove excess positions from train service
through the implementation of Crew Consist Agreement No. 2. Approximately 1,350
excess positions have been removed as a result of employees accepting severance
or voluntary surplus payments. Other excess positions have been eliminated and
personnel formerly in those positions have been assigned to reserve boards,
absorbed through additional train starts and/or utilized in quality and safety
initiatives. Based upon its experience under Crew Consist Agreement No. 1,
Railroad anticipates that the number of employees on reserve status will decline
over time.
In July 1993, the American Train Dispatchers Association ratified an April
agreement which will facilitate the consolidation of all dispatching functions
into a centralized train dispatching office in Fort Worth, Texas by the end of
1995.
Competition
The general environment in which BN 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, BN 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. BN's primary rail
competitors in the western region of the United States consist of Atchison,
Topeka & Santa Fe Railway Company; Chicago & Northwestern Transportation Company
(C&NW); Southern Pacific Transportation Company; and Union Pacific Railroad
Company (UP). Coal, one of BN's primary commodities, has experienced significant
pressure on rates due to competition from the joint effort of C&NW/UP and BN'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 BN.
Environmental
BN'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 BN's corporate environmental
policy, BN'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 BN's business operations.
ITEM 3. LEGAL PROCEEDINGS
Wheat and barley transportation rates
In September 1980 a class action lawsuit was filed against Railroad in
United States District Court for the District of Montana (District Court)
challenging the reasonableness of Railroad's export wheat and barley rates. The
class consists of Montana grain producers and elevators. The plaintiffs sought a
finding that Railroad's single car export wheat and barley rates for shipments
moving from Montana to the Pacific Northwest were unreasonably high and
requested damages in the amount of $64 million. In March 1981 the District Court
referred the rate reasonableness issue to the Interstate Commerce Commission
(ICC). Subsequently, the State of Montana filed a complaint at the ICC
challenging Railroad's multiple car rates for Montana wheat and barley movements
occurring after October 1, 1980.
The ICC issued a series of decisions in this case from 1988 to 1991. Under
these decisions, the ICC applied a revenue to variable cost test to the rates
and determined that Railroad owed $9,685,918 in reparations plus interest. In
its last decision, dated November 26, 1991, the ICC found Railroad's total
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reparations exposure to be $16,559,012 through July 1, 1991. The ICC also found
that Railroad's current rates were below a reasonable maximum and vacated its
earlier rate prescription order.
Railroad appealed to the United States Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) those portions of the ICC's decisions concerning
the post-October 1, 1980 rate levels. Railroad's primary contention on appeal
was that the ICC erred in using the revenue to variable cost rate standard to
judge the rates instead of Constrained Market Pricing/Stand Alone Cost
principles. The limited portions of decisions that cover pre-October 1, 1980
rates were appealed to the Montana District Court.
On March 24, 1992, the Montana District Court dismissed plaintiffs' case as
to all aspects other than those relating to pre-October 1, 1980 rates. On
February 9, 1993, the D.C. Circuit served its decision regarding the appeal of
the several ICC decisions in this case. The Court held that the ICC did not
adequately justify its use of the revenue to variable cost standard as Railroad
had argued and remanded the case to the ICC for further administrative
proceedings.
On July 22, 1993, the ICC served an order in response to the D.C. Circuits'
February 9, 1993 decision. In its order, the ICC stated it would use the
Constrained Market Pricing/Stand Alone Cost standards in assessing the
reasonableness of BN wheat and barley rates moving from Montana to Pacific Coast
ports from 1978 forward. The ICC assigned the case to the Office of Hearings to
develop a procedural schedule. The parties are now engaged in discovery.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1993, no matters were submitted to a vote of
security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT AND PRINCIPAL SUBSIDIARY
The following information concerning executive officers is as of February
14, 1994:
GERALD GRINSTEIN, 61
Chairman and Chief Executive Officer
Burlington Northern Inc.
July 1991 to Present
Director
October 1985 to Present
Chairman and Chief Executive Officer
Burlington Northern Railroad Company
July 1991 to Present
Chairman, President and Chief Executive Officer, October 1990 to July 1991,
Burlington Northern Inc.; Chairman, President and Chief Executive Officer,
February 1990 to July 1991, Burlington Northern Railroad Company; President and
Chief Executive Officer, January 1989 to October 1990, Burlington Northern Inc.;
Chief Operating Officer, February 1989 to February 1990, Burlington Northern
Railroad Company. Mr. Grinstein is a Director of Delta Air Lines, Inc., Browning
Ferris Industries, Inc., Seafirst Corporation and Sunstrand Corporation.
WILLIAM E. GREENWOOD, 55
Chief Operating Officer
Burlington Northern Railroad Company
February 1990 to Present
Executive Vice President, Marketing and Sales, January 1987 to January
1990, Burlington Northern Railroad Company.
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DAVID C. ANDERSON, 52
Executive Vice President, Chief Financial Officer and Chief Accounting
Officer
Burlington Northern Inc.
October 1991 to Present
Executive Vice President, Chief Financial Officer
Burlington Northern Railroad Company
October 1991 to Present
Senior Vice President and Chief Financial Officer, July 1983 to September
1991, Federal Express Corporation. Mr. Anderson is a Director of Concord EFS,
Inc.
JOHN Q. ANDERSON, 42
Executive Vice President, Marketing and Sales
Burlington Northern Railroad Company
February 1990 to Present
Principal, January 1982 to January 1990, McKinsey & Company, Inc.
DOUGLAS J. BABB, 41
Vice President and General Counsel
Burlington Northern Railroad Company
December 1986 to Present
EDMUND W. BURKE, 45
Executive Vice President, Law and Secretary
Burlington Northern Inc.
August 1989 to Present
Executive Vice President, Law and Government Affairs
Burlington Northern Railroad Company
February 1990 to Present
Executive Vice President, Law and Government Affairs and Secretary,
September 1989 to February 1990, Burlington Northern Railroad Company; Senior
Vice President, Law and Secretary, January 1989 to July 1989, Burlington
Northern Inc.; Senior Vice President, Law and Government Affairs and Secretary,
December 1986 to August 1989, Burlington Northern Railroad Company.
MARK S. CANE, 38
Vice President, Intermodal
Burlington Northern Railroad Company
September 1992 to Present
Vice President, Equipment Management, March 1991 to September 1992; Vice
President, Service Design, December 1989 to March 1991; Assistant Vice
President, Marketing Resources, May 1988 to December 1989, Burlington Northern
Railroad Company.
JOHN T. CHAIN, JR., 59
Executive Vice President, Safety and Corporate Support
Burlington Northern Railroad Company
March 1993 to Present
Executive Vice President, Operations, February 1991 to February 1993,
Burlington Northern Railroad Company. Commander in Chief of the Strategic Air
Command, June 1986 to January 1991. Mr. Chain is a Director of Kemper
Corporation, Northrop Corporation and R.J.R. Nabisco.
9
<PAGE> 12
JAMES B. DAGNON, 54
Executive Vice President, Employee Relations
Burlington Northern Inc.
January 1992 to Present
Executive Vice President, Employee Relations
Burlington Northern Railroad Company
January 1992 to Present
Senior Vice President, Human Resources, August 1991 to January 1992; Senior
Vice President, Labor Relations, June 1987 to August 1991, Burlington Northern
Railroad Company.
WILLIAM W. FRANCIS, 53
Executive Vice President, Network Management
Burlington Northern Railroad Company
February 1993 to Present
Senior Vice President, Network Management, July 1990 to January 1993; Vice
President, Northern Region, October 1988 to July 1990, Burlington Northern
Railroad Company.
DAVID L. HULL, 46
Vice President, Revenue Management
Burlington Northern Railroad Company
April 1992 to Present
Vice President, Financial Planning, December 1989 to April 1992; Vice
President, Revenue and Cost Accounting, March 1988 to September 1989, Burlington
Northern Railroad Company.
FRANCIS T. KELLY, 46
Securities and Finance Counsel
Burlington Northern Railroad Company
November 1989 to Present
SEC Counsel, December 1988 to November 1989, Burlington Northern Railroad
Company.
RICHARD L. LEWIS, 53
Senior Vice President, Corporate Development
Burlington Northern Railroad Company
February 1993 to Present
Vice President, Strategic Planning, February 1991 to January 1993; Vice
President, Freight Equipment and Strategic Planning, January 1989 to January
1991; Vice President, Strategic Planning, May 1988 to January 1989, Burlington
Northern Railroad Company.
10
<PAGE> 13
ROBERT F. MCKENNEY, 40
Senior Vice President and Treasurer
Burlington Northern Inc.
October 1991 to Present
Senior Vice President and Treasurer
Burlington Northern Railroad Company
October 1991 to Present
Senior Vice President, Treasurer, Acting Chief Financial Officer and Acting
Chief Accounting Officer, April 1991 to October 1991, Burlington Northern Inc.;
Senior Vice President, Treasurer and Acting Chief Financial Officer, April 1991
to October 1991, Burlington Northern Railroad Company; Vice President and
Treasurer, October 1989 to April 1991, Burlington Northern Inc. and Burlington
Northern Railroad Company; Vice President, September 1985 to September 1989,
D'Accord Incorporated and D'Accord Financial Services, Inc.
RICHARD A. RUSSACK, 55
Vice President, Communications
Burlington Northern Railroad Company
October 1991 to Present
Managing Director, October 1989 to September 1991, Ogilvy, Adams &
Rinehart, Inc.; Executive Vice President, September 1985 to September 1989,
Gavin Anderson & Co., Inc.
DON S. SNYDER, 45
Vice President, Controller and Chief Accounting Officer
Burlington Northern Railroad Company
April 1990 to Present
Vice President, Controller, December 1987 to March 1990, Burlington
Northern Railroad Company.
PHILIP F. WEAVER, 53
Vice President, Agricultural Commodities
Burlington Northern Railroad Company
July 1990 to Present
Acting Assistant Vice President, Marketing Resources, December 1989 to July
1990; Assistant Vice President Agricultural Products, August 1987 to July 1990,
Burlington Northern Railroad Company.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
BNI's common stock is traded on the New York, Chicago and Pacific Stock
Exchanges. At January 31, 1994, the number of common stockholders of record was
28,131. Information on quarterly dividends and common stock prices is shown on
page 46.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data shown below should be read in conjunction with
the consolidated financial statements and related notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
For the year:
Revenues(1)..................................... $4,699 $4,630 $4,559 $4,674 $4,606
Special charge(2)............................... -- -- (708) -- --
Operating income (loss)......................... 661 597 (239) 595 657
Income (loss) before extraordinary items and
cumulative effect of changes in accounting
methods...................................... $ 296 $ 299 $ (306) $ 222 $ 243
Extraordinary items, net of tax(3).............. -- -- (14) 14 --
Cumulative effect of changes in accounting
methods, net of tax(4)....................... -- (21) -- -- --
------ ------ ------ ------ ------
Net income (loss)(5)....................... $ 296 $ 278 $ (320) $ 236 $ 243
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Earnings (loss) available for common
stockholders................................. $ 274 $ 275 $ (321) $ 235 $ 242
Earnings (loss) per common share:
Before extraordinary items and cumulative
effect of changes in accounting methods.... $ 3.06 $ 3.35 $(3.96) $ 2.89 $ 3.19
Extraordinary items(3)....................... -- -- (.18) .18 --
Cumulative effect of changes in accounting
methods(4)................................. -- (.24) -- -- --
------ ------ ------ ------ ------
Earnings (loss) per common share(5)..... $ 3.06 $ 3.11 $(4.14) $ 3.07 $ 3.19
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Number of shares used in computation of earnings
(loss) per common share (in thousands)(6).... 89,672 88,617 77,462 76,624 75,829
Dividends declared per common share............. $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
At year end:
Total assets(7)................................. $7,045 $6,563 $6,324 $6,061 $6,144
Long-term debt, including current portion and
commercial paper............................. 1,737 1,567 1,982 2,133 2,333
Redeemable preferred stock...................... -- 9 11 12 14
Stockholders' equity............................ 1,919 1,728 1,202 1,241 1,080
Other:
Operating ratio(8).............................. 86% 87% 90% 87% 86%
Total debt to total capital, excluding
redeemable preferred stock................... 48% 48% 62% 63% 68%
Return on average stockholders' equity(9)....... 16% 22% 10% 19% 25%
</TABLE>
(1) Beginning in 1990, shortline expenses were reported as a reduction of
revenues. Prior to 1990, these expenses had been included in purchased
services expense. The reclassification had no effect on net income.
Previously issued consolidated financial statements were not restated to
reflect the reclassification.
(2) The 1991 pre-tax special charge relates to: (i) restructuring costs for
reducing surplus crew positions and a management separation pay program,
(ii) increases in estimated personal injury costs and (iii) increases in
estimated environmental clean-up costs.
(3) During 1991, BN extinguished debt through an early redemption resulting in
an extraordinary loss, net of income taxes, of $14 million, or $.18 per
common share. During 1990, BN extinguished debt through
12
<PAGE> 15
note exchange agreements and the purchase of certain debentures. The net
income for the year ended December 31, 1990 includes a resulting
extraordinary gain, net of income taxes, of $14 million, or $.18 per common
share.
(4) Results for 1992 reflect the cumulative effect of the change in accounting
method for revenue recognition, and the cumulative effect of the
implementation of the accounting standard for postretirement benefits
(Statement of Financial Accounting Standards (SFAS) No. 106). The
cumulative effect of the change in accounting method for revenue
recognition decreased 1992 net income by $11 million, or $.13 per common
share. The cumulative effect of the change in accounting method for
postretirement benefits decreased 1992 net income by $10 million, or $.11
per common share, and had no immediate effect on cash flows.
(5) Results for 1993 include the effects of the Omnibus Budget Reconciliation
Act of 1993 (the Act) which was signed into law on August 10, 1993. The Act
increased the corporate federal income tax rate by one percent, effective
January 1, 1993, which reduced net income by $29 million, or $.32 per
common share, through the date of enactment.
(6) Beginning in November 1991, shares used in computation of earnings (loss)
per common share reflect a November 1991 public offering of 10,350,000
shares.
(7) During 1993, BN adopted SFAS No. 109, "Accounting for Income Taxes." 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. Certain 1992
balance sheet data was reclassified to conform to the 1993 presentation.
These reclassifications had no effect on previously reported net income,
stockholders' equity or cash flows.
(8) The 1991 operating ratio excludes the special charge discussed in note (2)
above.
(9) Net income used to calculate return on average stockholders' equity
excludes, in the year of occurrence, the special charge, extraordinary
items and the cumulative effect of accounting changes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Inc. (BNI) and its majority-owned
subsidiaries (collectively BN). The principal subsidiary is Burlington Northern
Railroad Company (Railroad).
CAPITAL RESOURCES AND LIQUIDITY
Cash from operations and other resources
Cash generated from operations is BN's principal source of liquidity and is
primarily used for dividends and capital expenditures. Operating activities
provided cash of $578 million in 1993, compared with $680 million in 1992 and
$368 million in 1991. The decrease in cash from operations in 1993 compared with
1992 was primarily attributable to an $81 million increase in labor-related
payments, a decline in the level of accounts receivables sold and a one-time
settlement agreement payment received in 1992. These items were partially offset
by a decrease in interest paid during 1993. The increase in cash from operations
in 1992 over 1991 was primarily due to increased profitability, a smaller
decline in the level of accounts receivable sold and the one-time settlement
agreement payment received in 1992. While operating cash flows for 1993 and 1991
were sufficient to fund dividends, such cash flows were not sufficient to
completely fund capital expenditures. In 1992, operating cash flows were
sufficient to fund both dividends and capital expenditures. Cash shortfalls as a
result of these cash outlays are generally financed with debt. Sources available
for such financing are discussed below.
During the first quarter of 1993, BN entered into an agreement to acquire
350 new-technology alternating current traction motor locomotives. BN accepted
delivery of one locomotive during 1993 and anticipates delivery of between
approximately 60 and 100 each year from 1994 through 1997. Future cash from
operations during this strategic investment period may not, at times, be
sufficient to completely fund dividends as well as capital expenditures and
strategic investments. Therefore, these requirements will likely be financed
using a
13
<PAGE> 16
combination of sources including, but not limited to, cash from operations,
operating leases, debt issuances and other miscellaneous sources. Each financing
decision will be based upon the most appropriate alternative available.
During December 1993, BNI filed a registration statement with the
Securities and Exchange Commission for the issuance, from time to time, of up to
$500 million aggregate principal amount of debt securities. Net proceeds from
the sale of the debt securities, if any are offered and sold, will be used to
pay down debt or for other general corporate purposes.
BNI acquired equipment which was financed in December 1993 through the
issuance of $78 million of 6.32 percent notes due 1994 to 2012.
In July 1993, BNI issued $150 million of 7 1/2 percent senior unsecured
debentures due 2023 and used the proceeds for general corporate purposes,
including working capital. These debentures were the final borrowing under the
registration statement filed on September 24, 1991 covering the issuance, from
time to time, of up to $500 million aggregate principal amount of debt
securities.
Railroad maintains an effective program for the issuance, from time to
time, of commercial paper. These borrowings are supported by Railroad's bank
credit agreement, thus outstanding commercial paper balances reduce available
borrowings under this agreement. The bank credit agreement allows borrowings of
up to $500 million on a short-term basis. The agreement is currently scheduled
to expire in November 1994. At Railroad's option, borrowing rates are based on
prime, certificate of deposit or London Interbank Offered rates. Annual facility
fees are 0.25 percent. The maturity value of commercial paper outstanding at
December 31, 1993 was $27 million, leaving a total of $473 million of the credit
agreement available, while no commercial paper was outstanding at December 31,
1992.
Railroad has an agreement to sell, on a revolving basis, an undivided
percentage ownership interest in a designated pool of accounts receivable with
limited recourse. As of December 31, 1993, the agreement allowed for the sale of
accounts receivable up to a maximum of $175 million. The agreement expires not
later than December 1994. At December 31, 1993 and 1992, accounts receivable
were net of $100 million and $189 million, respectively, representing
receivables sold.
In November 1992, BNI completed a public offering of 6,900,000 shares of
6 1/4 percent cumulative convertible preferred stock at $50 per share. Most of
the $337 million net proceeds from the offering were placed in trust to fund the
redemption of BNI's $300 million 9 5/8 percent notes due 1996. Under the terms
of the indenture, the 9 5/8 percent notes were redeemable at par, commencing
February 1, 1993. The notification for redemption of the 9 5/8 percent notes was
issued to holders of the notes in December 1992 with a redemption date of
February 1, 1993. The debt was considered to be extinguished as of December 31,
1992, because BNI had irrevocably placed assets in trust, prior to such date, to
be used solely to satisfy scheduled payments of both the interest on and
principal of the $300 million 9 5/8 percent notes. The difference between BNI's
redemption price and the net carrying value resulted in an immaterial loss which
was recorded in other income (expense), net in 1992.
In July 1992, BNI issued $150 million of 7 percent senior unsecured notes
due 2002. The proceeds were used to retire $100 million of 14 3/4 percent notes
due August 15, 1992 and to reduce outstanding commercial paper balances. In
February 1992, BNI issued $200 million of 8 3/4 percent senior unsecured
debentures due 2022 and used the proceeds to reduce outstanding commercial paper
balances. These debt instruments provided favorable long-term interest rates and
matched long-term borrowing to the long-lived assets of BN's capital program.
In November 1991, BNI completed a public offering of 10,350,000 shares of
common stock. The transaction resulted in net proceeds of $359 million which
were used primarily to retire $250 million of 11 5/8 percent subordinated
debentures.
14
<PAGE> 17
Capital expenditures and resources
A breakdown of capital expenditures is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Road, roadway structures and real estate.............................. $459 $403 $317
Equipment............................................................. 217 84 192
---- ---- ----
Total capital expenditures.......................................... $676 $487 $509
---- ---- ----
---- ---- ----
</TABLE>
Equipment expenditures for 1993 increased primarily as a result of
acquiring freight cars through purchases rather than through operating leases
and increased information system purchases. Capital roadway expenditures for
1993 increased compared with 1992 primarily due to spending related to the
severe flooding in the Midwest. Spending for signal and communication projects
and new strategic initiatives for transportation network management further
contributed to this increase. The average age of locomotives and freight cars at
year-end 1993 was 14.5 years and 18.6 years compared to 13.5 years and 18.4
years at year-end 1992.
Capital roadway spending in 1992 reflects an increase in track programs in
the Powder River Basin to support BN's coal unit train service, as well as
additional signal and communication projects. Equipment expenditures were lower
in 1992 primarily due to the 1991 purchase of 50 high horsepower locomotives at
a cost of $76 million.
BN projects capital spending for the next few years to be higher than in
previous years partially as a result of certain strategic investments, with a
projection for 1994 of approximately $650 million. As discussed in "Cash from
operations and other resources," BN has a commitment to acquire 350
new-technology alternating current traction motor locomotives through 1997.
Also, BN will continue its implementation of several strategic initiatives for
transportation network management using information systems technology.
In addition to capital expenditures, BN continues to utilize operating
leases to fulfill certain equipment requirements. In 1994, BN anticipates
financing approximately $200 million of equipment through operating leases. The
method used to finance this equipment will depend upon current market conditions
and other factors. During 1993, BN renewed leases primarily for intermodal
doublestack cars and containers, and locomotives. In 1992, renewals were
primarily for covered hoppers, locomotives and coal cars.
Dividends
Common stock dividends declared have remained constant at $1.20 per common
share for 1993, 1992 and 1991. Dividends paid on common and preferred stock
during these periods were $125 million, $106 million and $92 million,
respectively. The increase in 1993 dividends was primarily attributable to the
issuance of 6,900,000 shares of 6 1/4 percent cumulative convertible preferred
stock in November 1992. The increase in 1992 was due in large part to the
issuance of 10,350,000 shares of common stock in November 1991. BNI expects to
continue its current policy of paying regular quarterly dividends on its common
and preferred stock, however, dividends are declared by the Board of Directors
based on profitability, capital expenditure requirements, debt service and other
factors.
Capital structure
BN's ratio of total debt to total capital, excluding redeemable preferred
stock, was 48 percent at the end of both 1993 and 1992 and 62 percent at the end
of 1991. In 1992, the total debt to total capital ratio improved from 1991
because debt was reduced, the 6 1/4 percent cumulative convertible preferred
stock was issued and net income exceeded dividend requirements.
RESULTS OF OPERATIONS
Year ended December 31, 1993 compared with year ended December 31, 1992
BN had net income of $296 million, or $3.06 per common share, on 89.7
million shares for 1993 compared with net income of $278 million, or $3.11 per
common share, on 88.6 million shares for 1992.
15
<PAGE> 18
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. BN 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 or
$.55 per common share. Net income for 1993 included the retroactive effects of
the Omnibus Budget Reconciliation Act of 1993 (the Act), which was passed into
law during August 1993. The Act increased the corporate federal income tax rate
by one percent, effective January 1, 1993, which reduced net income by $29
million, or $.32 per common share, through the date of enactment. BN recognized
a one-time, non-cash charge of $28 million to income tax expense to adjust
deferred taxes as of the enactment date and a charge of $1 million to current
income tax expense. Net income for 1992 included settlement payments received
for the reimbursement of attorneys' fees and costs incurred by BN in connection
with litigation filed by Energy Transportation Systems, Inc., and others, and
reimbursement of a portion of the amount paid by BN in settlement of that
action. The pre-tax amount recorded in other income (expense), net was
approximately $47 million. Also during 1992, BN's net income included a $21
million, or $.24 per common share, cumulative effect of changes in accounting
methods and a $17 million, or $.19 per common share, favorable tax settlement
with the Internal Revenue Service (IRS).
Revenues
During 1993, BN refined Railroad's customer oriented business units by
creating smaller, more focused business units. The following table presents BN's
revenue information by Railroad business unit, and includes reclassification of
prior-year information to conform to current year presentation:
<TABLE>
<CAPTION>
REVENUES PER
REVENUE TON
REVENUES REVENUE TON MILES MILE
--------------- ------------------ ------------
1993 1992 1993 1992 1993 1992
------ ------ -------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS) (IN MILLIONS) (IN CENTS)
Coal.......................................... $1,532 $1,520 122,832 117,139 1.25 1.30
Agricultural Commodities...................... 784 777 35,451 36,831 2.21 2.11
Intermodal.................................... 730 711 23,726 22,749 3.08 3.13
Forest Products............................... 483 489 19,724 20,030 2.45 2.44
Chemicals..................................... 405 388 14,625 14,142 2.77 2.74
Consumer Products............................. 257 258 9,052 9,098 2.84 2.84
Minerals Processors........................... 195 180 7,982 7,410 2.44 2.43
Iron & Steel.................................. 172 178 8,178 8,086 2.10 2.20
Vehicles & Machinery.......................... 187 166 2,416 2,165 7.74 7.67
Aluminum, Non-Ferrous Metals & Ores........... 103 108 3,919 4,180 2.63 2.58
Shortlines and other.......................... (149) (145) (10,566) (9,031) -- --
------ ------ -------- -------
Total....................................... $4,699 $4,630 237,339 232,799 1.98 1.99
------ ------ -------- -------
------ ------ -------- -------
</TABLE>
Coal revenues improved $12 million compared with 1992, primarily as a
result of increased traffic caused by a rise in the demand for electricity.
Higher revenues resulting from volume increases were partially offset by lower
yields arising from competitive pricing pressures in contract renegotiations,
traffic mix and other factors. Additionally, BN estimated lost coal revenues of
approximately $35 million for the third quarter of 1993 as a result of
flood-related problems in July and August which interrupted service to several
utilities.
Agricultural Commodities revenues were $7 million higher than 1992 as
stronger yields were partially offset by lower volumes. Improved yields resulted
from a traffic mix with a greater portion of wheat traffic in 1993. Stronger
export demand, for high-quality wheat grown in regions served by BN, contributed
to a $74 million improvement in wheat revenues. Reduced crop quality and
production problems, stemming from poor planting and growing conditions,
resulted in lower corn volumes and produced a year-over-year decline in corn
revenues of $45 million.
16
<PAGE> 19
Intermodal revenues were $19 million higher in 1993 compared with 1992. BN
AMERICA (BNA) revenues in 1993 surpassed revenues in 1992 as a result of
continued escalating demand for containerized transportation and an increased
demand for intermodal service due generally to a shortage in truck capacity. As
import traffic expanded and shifted from ports in California to ports served by
BN in the Pacific Northwest, intermodal-international revenues increased.
Domestic trailer revenues declined as trailer traffic continued to convert to
containers, partially offsetting other Intermodal increases.
Chemicals revenues for 1993 were $17 million greater than in 1992.
Increased plastics shipments for existing customers led improvements in overall
Chemicals revenues. Environmental logistics and fertilizer traffic in 1993
surpassed 1992 levels, also contributing to the higher revenues for Chemicals.
Revenues for Minerals Processors increased $15 million compared with 1992.
As drilling activity increased, export traffic for clays and aggregates
expanded, contributing to greater revenues in 1993 than in 1992. Glass minerals
and cement revenues exceeded 1992 levels. This increase was due to expanded sand
traffic, which also benefited from increased drilling activity, and increased
cement traffic, related to certain highway and airport construction projects.
Vehicles & Machinery revenues were $21 million greater than in 1992. This
improvement was due in part to growth in production and sales of light vehicles
which increased domestic traffic volumes. A rise in demand for heavy machinery
also contributed to greater revenues. Yields increased in 1993 primarily as a
result of a decline in the average length of haul.
Forest Products, Iron & Steel and Aluminum, Non-Ferrous Metals & Ores had
lower revenues in 1993 compared with 1992. Current year Forest Products revenues
were $6 million less than in 1992 because of reduced lumber traffic, resulting
from a weak timber industry market, which was partially offset by increased
particle and construction board traffic. Iron & Steel revenues declined $6
million compared with 1992, primarily due to lower taconite traffic caused by
labor strikes at two large customers. Aluminum, Non-Ferrous Metals & Ores
revenues decreased by $5 million as aluminum production declined. Revenues for
Consumer Products were relatively flat compared with 1992.
Expenses
Total operating expenses for 1993 were $4,038 million compared with $4,033
million for 1992. Despite the adverse effects of the Midwest flooding on
operating expenses during the third quarter of 1993, BN's year-to-date operating
ratio improved one percentage point, to 86 percent, compared with 87 percent for
1992.
Overall compensation and benefits expenses for 1993 remained constant with
1992. Cost of living allowances (COLAs) for union employees were $24 million
lower during 1993 compared with 1992 due to timing differences of vesting
periods. Work force reductions and a decrease in railroad unemployment taxes
lowered expenses in 1993. These savings were offset by increases in incentive
compensation, wages and salaries, and higher costs for union health, welfare and
life insurance benefits. Increased wages were partially caused by a scheduled
three percent basic wage increase effective July 1993 and inefficiencies
associated with the Midwest flooding during 1993.
Fuel expenses were $14 million higher during 1993 compared with 1992,
primarily due to weather-related reductions in fuel efficiency. Increased fuel
consumption due to higher traffic volume was substantially offset by the
decrease in the average price paid for diesel fuel, 61.5 cents per gallon in
1993 compared with 62.2 cents per gallon in 1992. Included in the 1993 average
price per gallon is a 4.3 cents per gallon increase in the federal fuel tax
effective October 1, 1993, as part of the Omnibus Budget Reconciliation Act of
1993. This increased tax added approximately $7 million to expense in the fourth
quarter.
Materials expenses for 1993 increased $5 million compared with 1992. The
combination of flood-related problems and a larger fleet size increased
materials costs for locomotive repairs. Also, safety and protective equipment
expenditures were higher due to continued emphasis of BN's safety programs.
Offsetting these increases were lower car materials expenses.
17
<PAGE> 20
Equipment rents expenses were $6 million higher in 1993 compared with 1992
due to increases in both car-hire expenses and locomotive rentals. A reduction
in car-hire expenses during the first half of 1993, due to improved utilization
of equipment, was more than offset by flood-related inefficiencies which
increased car-hire expenses during the second half of 1993.
Purchased services expenses for 1993 were $8 million higher than in 1992.
Contributing to this increase were cost increases for intermodal logistics,
training, moving and derailments. Lower trackage rights credits, which reduces
purchased services expenses, were received from the Southern Pacific
Transportation Company (SPTC) as the floods reduced SPTC volumes over BN track.
These increases were partially offset by decreases in contracted locomotive
repairs and consultant fees.
Depreciation expense for 1993 was $14 million higher compared with 1992
primarily due to an increase in the asset base.
The $42 million decrease in other operating expenses compared with 1992 was
primarily due to a $35 million decline in costs associated with personal injury
claims. BN has introduced a number of programs to improve worker safety and
counter increasing personal injury costs. Reductions in bad debt expense and
various other costs were partially offset by losses on property retired due to
flood damages and increased moving expenses.
Interest expense declined $41 million in 1993 compared with 1992. This
decline was mainly due to a lower average long-term debt balance outstanding
during 1993 and the refinancing of higher interest rate debt throughout 1992.
Other income (expense), net was $36 million lower in 1993 than in 1992. The
higher 1992 income was due to a first quarter net gain of $47 million for
payments and reimbursements received for the settlement of prior litigation.
This decline was partially offset by an increase in the net gain on property
dispositions in 1993 compared with 1992.
The effective tax rate was 43.2 percent for 1993 compared with 33.8 percent
for 1992. This increase resulted primarily from the retroactive increase,
effective January 1, 1993, in tax rates as part of the Omnibus Budget
Reconciliation Act of 1993. Excluding the retroactive effect of the tax rate
change on deferred tax balances at January 1, 1993, BN's effective tax rate was
38.2 percent for 1993. Additionally, a favorable tax settlement with the IRS
reduced the 1992 effective tax rate by 3.8 percent.
Year ended December 31, 1992 compared with year ended December 31, 1991
BN had net income of $278 million, or $3.11 per common share, on 88.6
million shares for 1992 compared with a net loss of $320 million, or $4.14 per
common share, on 77.5 million shares for 1991. Results for 1992 were reduced by
$11 million, or $.13 per common share, net of tax, cumulative effect of an
accounting change in revenue recognition method and $10 million, or $.11 per
common share, net of tax, cumulative effect of an accounting change for
postretirement benefits. Results for 1991 included an after-tax special charge
of $442 million, or $5.79 per common share, related to railroad restructuring
costs and increases in liabilities for casualty and environmental clean-up
costs, and an extraordinary loss of $14 million, or $.18 per common share, net
of tax benefits, as a result of early retirement of debt.
The 1991 special charge included the following pre-tax components (in
millions):
<TABLE>
<S> <C>
RESTRUCTURING
Surplus crew position reduction program....................................... $185
Separation pay program........................................................ 40
OTHER
Increase in estimated personal injury costs................................... $350
Increase in estimated environmental clean-up costs............................ 133
</TABLE>
18
<PAGE> 21
Revenues
During 1993, BN refined Railroad's customer oriented business units by
creating smaller, more focused business units. The following table presents BN's
revenue information by Railroad business unit, and includes reclassification of
prior-year information to conform to current year presentation:
<TABLE>
<CAPTION>
REVENUES PER
REVENUE TON
REVENUES REVENUE TON MILES MILE
--------------- ----------------- ------------
1992 1991 1992 1991 1992 1991
------ ------ ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS) (IN MILLIONS) (IN CENTS)
Coal............................................ $1,520 $1,554 117,139 119,028 1.30 1.31
Agricultural Commodities........................ 777 778 36,831 38,123 2.11 2.04
Intermodal...................................... 711 687 22,749 22,191 3.13 3.10
Forest Products................................. 489 469 20,030 18,747 2.44 2.50
Chemicals....................................... 388 346 14,142 12,952 2.74 2.67
Consumer Products............................... 258 250 9,098 8,879 2.84 2.82
Minerals Processors............................. 180 184 7,410 7,625 2.43 2.41
Iron & Steel.................................... 178 170 8,086 7,615 2.20 2.23
Vehicles & Machinery............................ 166 166 2,165 2,209 7.67 7.51
Aluminum, Non-Ferrous Metals & Ores............. 108 103 4,180 3,632 2.58 2.84
Shortlines and other............................ (145) (148) (9,031) (8,560) -- --
------ ------ ------- -------
Total......................................... $4,630 $4,559 232,799 232,441 1.99 1.96
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
Coal revenues in 1992 were $34 million below 1991. The decrease included
the effects of a two-day work stoppage during the second quarter. The effects of
the work stoppage were not recovered later in 1992 because of continued weak
demand. Mild weather during the first three quarters of 1992 decreased demand
for coal and slowed traffic compared with the prior year. In addition,
competitive pricing pressures in contract renegotiations and declining cost
indices, on which many coal contract rates are based, also contributed to lower
1992 revenues.
Revenues for Agricultural Commodities were $1 million less in 1992 than in
1991. The decrease was primarily due to weak export demand for corn in the
latter three quarters of 1992 which contributed to a $36 million reduction
compared with 1991. This decrease was substantially offset by a $34 million
increase in wheat that resulted from strong export shipments during 1992.
The $24 million increase in Intermodal revenues was driven by a $59 million
increase in BNA traffic that was attributable to increased demand for
containerized transportation. A portion of the increase in containerized
transportation was due to a conversion from trailer transportation which
decreased by $24 million compared with 1991.
Forest Products revenues increased $20 million compared with 1991. The
increase reflects an improvement in lumber revenues that resulted from good
spring building conditions, favorable movements because of product pricing
pressures and increased demand caused by Hurricane Andrew's destruction.
Pulpmill feedstock revenues also increased because of higher demand for
woodchips. These increases were slightly offset by a decreased demand for paper
and paper products during 1992, partly due to excess supplies of newsprint.
Revenues for Chemicals were $42 million greater in 1992 than in 1991. The
increase was primarily due to increased plastics shipments from new contracts.
Higher fertilizer and petroleum products revenues were also contributing
factors. Fertilizer traffic improved due to a strong spring application season
and increased shipments at the beginning of the year to replenish low inventory
levels from the fall of 1991. Petroleum products benefited from a stronger
economy in 1992 than in 1991.
Revenues in 1992 for Consumer Products and Iron & Steel both improved by $8
million compared with 1991. The improvement for Consumer Products resulted from
higher bulk food products revenues, due largely from an increased movement of
sugar, and higher frozen foods revenues. Frozen foods revenues improved over
19
<PAGE> 22
the prior year due largely to increased french fry traffic resulting from
favorable product prices. Iron & Steel revenues improved due to increased
traffic because of two new pipe projects.
Revenues for Minerals Processors, Vehicles & Machinery and Aluminum,
Non-Ferrous Metals & Ores were relatively flat in 1992 compared with 1991. While
Vehicles & Machinery revenues were flat overall, automotive revenues increased
as higher traffic volume more than offset lower yields. Declining yields reflect
the rates used in late 1991 and 1992 long-term contract renewals, which were
influenced by competitive pricing pressures. This increase in automotive
revenues was offset by declines in heavy machinery and government traffic
revenues. The slight decrease in Minerals Processors revenues was attributable
to a weaker demand for glass minerals and cement products related to the
construction and automobile industries. Aluminum, Non-Ferrous Metals & Ores
benefited from a stronger economy in 1992 than in 1991.
Expenses
Total operating expenses for 1992 were $4,033 million compared with
expenses of $4,090 million, excluding a $708 million special charge, in 1991.
The operating ratio for 1992 was 87 percent compared with the 1991 ratio,
excluding the special charge, of 90 percent. The improvement in operating
expenses was primarily attributable to savings in compensation and benefits and
fuel costs.
Compensation and benefits expenses decreased by $47 million compared with
1991. During 1991, BN recorded a $77 million accrual for union employees'
signing bonuses and for COLAs. The 1992 COLA accruals were $58 million.
Current-year savings of $22 million were also noted in health, welfare and life
insurance benefits due to union contract modifications. Smaller crew sizes and a
full year of reduced pay rates for employees on reserve boards, which were
established in the second half of 1991, also contributed to lower wages and
salaries in 1992. These combined savings were somewhat offset by increases in
mechanical, maintenance crew and other wages. Also, increasing use of the wage
continuation program for injured employees, which was phased in during 1991,
served to further offset the savings.
Fuel expenses were $20 million lower than in 1991. In 1992, BN paid 62.2
cents per gallon compared with 65.5 cents in 1991. This lower average fuel price
per gallon resulted in approximately $19 million of the overall savings. Reduced
consumption also contributed slightly to the overall decrease.
Materials expenses for 1992 were $12 million higher than in 1991. Materials
costs were higher due to increased locomotive repairs during 1992. Increasing
track repair cost and related work equipment repair cost also contributed to the
overall increase.
The $12 million decrease in equipment rents expenses compared with 1991 was
largely due to a decline in locomotive related expenses. Locomotive cost savings
resulted from a renegotiated purchased power agreement and the expiration,
during 1992, of several locomotive leases which were not renewed. These cost
savings were somewhat offset by an increase in car-hire expenses due to lower
1992 than 1991 recoveries for prior period car-hire overpayments, which offset
car-hire expenses in the period recovered.
Purchased services expenses increased $7 million in 1992 compared with
1991. The increases over 1991 were a result of higher expenses related to
computer programming costs associated with the implementation of several
strategic initiatives, the expansion of a BNA customer service center due to
increased BNA traffic, payments for car repairs and intermodal logistics costs.
These increases were somewhat offset by lower environmental clean-up expenses,
decreased relocation costs, fewer locomotive overhauls and increased payments
from SPTC for trackage rights.
Depreciation expense for 1992 was $9 million lower than in 1991. The
decrease was primarily attributable to reduced depreciation for rail subsequent
to the current-year implementation of an Interstate Commerce Commission required
service life study for rail. The effect of the study on rail depreciation was to
reduce 1992 expense by $28 million. This decrease was partially offset by
increased depreciation, due to a larger asset base.
Other expenses for 1992 was $12 million greater than in 1991. Although
reported injury claims decreased, personal injury expense, excluding wage
continuation costs discussed in compensation and benefits, increased by
approximately $18 million as settlement costs for claims settled increased, and
hearing loss claims
20
<PAGE> 23
continued to develop. Bad debt accruals also contributed to this increase. Lower
derailment expenses and a decline in moving expenses partially offset this
increase.
Interest expense decreased $40 million in 1992 compared with 1991. Lower
market interest rates and reduced commercial paper balances were significant
contributors to this decrease. The reduction of long-term debt and the
refinancing of high interest rate debt, during 1992 and late 1991, added to the
current-year savings. Also, 1991 interest expense included an interest accrual
related to a rate litigation case.
In 1992, BN recorded other income, net of expense, of $41 million versus
other expense, net of income, of $25 million in 1991. The 1992 income is due
primarily to a first quarter net gain of $47 million for payments and
reimbursements received for the settlement of prior litigation. Loss on
investment and loss on sale of receivables were also lower in 1992 than in 1991.
The effective tax rate was 33.8 percent and 37.6 percent in 1992 and 1991,
respectively. The lower 1992 rate was the result of a fourth quarter Appeals
Division settlement of IRS audits for the years 1981 through 1985. The total tax
benefit recorded in 1992 was $17 million which reduced the effective tax rate by
3.8 percent.
OTHER MATTERS
In October 1991, Railroad entered into an agreement (Crew Consist Agreement
No. 1) with the United Transportation Union (UTU) covering the southern portion
of Railroad's system. Crew Consist Agreement No. 1 provided for crews on most
through-freight trains to consist of one conductor and one engineer and for
crews on all other trains to consist of one brakeman, one conductor and one
engineer.
Under the terms of Crew Consist Agreement No. 1, Railroad offered the
opportunity for voluntary separation from employment in return for severance
payments of up to $60,000 per employee. Remaining conductors or brakemen who, as
a result of Crew Consist Agreement No. 1, were unable to hold a position in
active service, due to relative seniority, were placed on a reserve board.
Employees in reserve status received compensation at a rate equal to either 75
percent of their previous 12-month earnings, or 75 percent of the basic five-day
yard helper rate of pay, whichever is greater, and are required to be available
for return to active service on 15 days' notice. Each UTU member on the southern
portion of Railroad's system received a lump-sum payment of $1,000 upon
ratification of Crew Consist Agreement No. 1.
In May 1993, Railroad entered into an agreement (Crew Consist Agreement No.
2) with the UTU covering approximately 3,400 UTU members in the northern portion
of Railroad's system. Crew Consist Agreement No. 2 provides for crews on most
through-freight trains to consist of one conductor and one engineer and for
crews on all other trains to consist of one brakeman, one conductor and one
engineer. It is similar to Crew Consist Agreement No. 1, covering the southern
portion of Railroad's system. Each UTU member on the northern portion of
Railroad's system received a one-time lump-sum payment of $5,000, pursuant to
Crew Consist Agreement No. 2.
Under the terms of Crew Consist Agreement No. 2, Railroad offered the
opportunity for voluntary separation from employment in return for severance
payments of up to $80,000 per employee. Conductors and brakemen who choose not
to accept the voluntary separation offer can elect volunteer surplus status
pursuant to which they will receive $60,000 to be paid out over a period of 18
to 48 months, as each selects. If such employee has not been recalled to active
service by the time such payments cease upon expiration of the selected period,
such employee will remain in volunteer surplus status, without further
compensation or benefits, until recalled to active service. Employees in
volunteer surplus status may be called back to service only after the
individuals in reserve status, within their own subdivided seniority district,
have been recalled. Remaining conductors and brakemen who, as a result of Crew
Consist Agreement No. 2, are not needed in train service, and who do not elect
one of the above severance options, will be placed on a reserve board.
Employees in reserve status will receive compensation equal to either 75
percent of their previous 12-month earnings, or 75 percent of the basic five-day
yard helper rate of pay, whichever is greater, and are required to be available
for return to active service on 15 days' notice.
21
<PAGE> 24
In October 1993, the UTU elected to adopt Crew Consist Agreement No. 2 for
those southern portion UTU members who were previously covered by Crew Consist
Agreement No. 1. Crew Consist Agreement No. 2 was implemented on the southern
portion of the Railroad's system during the fourth quarter of 1993. Upon
implementation, each of the approximately 3,300 UTU members on the southern
portion of Railroad's system received a one-time lump-sum payment of $4,000,
which was the incremental difference between the $1,000 lump-sum payment
received following ratification of Crew Consist Agreement No. 1 and the amount
received by UTU members following adoption of Crew Consist Agreement No. 2.
Railroad will continue to remove excess positions from train service
through the implementation of Crew Consist Agreement No. 2. Approximately 1,350
excess positions have been removed as a result of employees accepting severance
or voluntary surplus payments. Other excess positions have been eliminated and
personnel formerly in those positions have been assigned to reserve boards,
absorbed through additional train starts and/or utilized in quality and safety
initiatives. Based upon its experience under Crew Consist Agreement No. 1,
Railroad anticipates that the number of employees on reserve status will decline
over time.
In July 1993, the American Train Dispatchers Association ratified an April
agreement which will facilitate the consolidation of all dispatching functions
into a centralized train dispatching office in Fort Worth, Texas by the end of
1995.
Since 1935, BN 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 BN and its employees are
subject to a tax on employee earnings which is above the normal social security
rate assessed to those who are employed outside the railroad industry.
Personal injury claims, including work-related injuries to employees, are a
significant expense for the railroad industry. Employees of BN are compensated
for work-related injuries according to the provisions of the Federal Employers'
Liability Act (FELA). FELA's system of requiring finding of fault, coupled with
unscheduled awards and reliance on the jury system, has resulted in significant
increases in expense. The result has been a trend during the last several years
of significant increases in BN's personal injury expense which reflects the
combined effects of increasing medical expenses, legal judgments and
settlements. To improve worker safety and counter increasing costs, BN has
introduced a number of programs to reduce the number of personal injury claims
and the dollar amount of claims settlements which helped reduce cost in 1993. If
these efforts continue to be successful, future expenses could be further
reduced. The total amount of personal injury expenses (including wage
continuation payments) were $216 million, $253 million and $224 million in 1993,
1992 and 1991, respectively. BN 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.
BN'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 BN's corporate environmental
policy, BN'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 BN's business operations.
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws, BN is
potentially liable for the cost of clean-up of various contaminated sites
identified by the U.S. Environmental Protection Agency and other agencies. BN
has been notified that it is a potentially responsible party (PRP) for study and
clean-up costs at a number of sites and, in many instances, is one of several
PRPs. BN 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, BN can be held jointly and severally liable for all
environmental costs associated with a site.
22
<PAGE> 25
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 BN'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. BN conducts
an ongoing environmental contingency analysis, which considers a combination of
factors, including independent consulting reports, site visits, legal reviews,
analysis of the likelihood of participation in and ability to pay for clean-up
by other PRPs, and historical trend analysis.
BN is involved in a number of administrative and judicial proceedings in
which it is being asked to participate in the clean-up of sites contaminated by
material discharged into the environment. BN paid $27 million, $20 million and
$21 million during 1993, 1992 and 1991, respectively, relating to mandatory
clean-up efforts, including amounts expended under federal and state voluntary
clean-up programs. At this time, BN expects to spend approximately $120 million
in future years to remediate and restore these sites.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. BN's best estimate of unasserted claims was approximately $5 million as
of the end of 1993. Although recorded liabilities include BN's best estimates of
all costs, without reduction for anticipated recovery from insurance, BN'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 BN's consolidated financial position, cash flow or liquidity.
In November 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits." This standard requires employers to
recognize benefits provided to former or inactive employees after employment but
before retirement, if certain conditions are met. In the first quarter of 1994,
BN will adopt SFAS No. 112. The principal effect of adopting this standard will
be to establish liabilities for long-term and short-term disability plans. The
effect upon earnings to adopt this standard is expected to be approximately $15
to $20 million. The initial effect of applying this standard will be reported as
the effect of a change in accounting method and previously issued financial
statements will not be restated.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting requirements for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities, and is effective for fiscal years beginning after December 15, 1993.
The initial effect of applying this standard is to be reported as the effect of
a change in accounting method and previously issued financial statements may not
be restated. No material effect on BN's financial condition or results of
operations is anticipated from the adoption of SFAS No. 115.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues....................................................... $4,699 $ 4,630 $ 4,559
Costs and expenses:
Compensation and benefits.................................... 1,709 1,709 1,756
Fuel......................................................... 362 348 368
Materials.................................................... 300 295 283
Equipment rents.............................................. 395 389 401
Purchased services........................................... 457 449 442
Depreciation................................................. 352 338 347
Other........................................................ 463 505 493
Special charge............................................... -- -- 708
------ ------- -------
Total costs and expenses.................................. 4,038 4,033 4,798
------ ------- -------
Operating income (loss)........................................ 661 597 (239)
Interest expense............................................... 145 186 226
Other income (expense), net.................................... 5 41 (25)
------ ------- -------
Income (loss) before income taxes, extraordinary item and
cumulative effect of changes in accounting methods........... 521 452 (490)
Income tax expense (benefit)................................... 225 153 (184)
------ ------- -------
Income (loss) before extraordinary item and cumulative effect
of changes in accounting methods............................. 296 299 (306)
Extraordinary item, loss on extinguishment of debt, net of
tax.......................................................... -- -- (14)
------ ------- -------
Income (loss) before cumulative effect of changes in accounting
methods...................................................... 296 299 (320)
Cumulative effect of changes in accounting methods, net of
tax.......................................................... -- (21) --
------ ------- -------
Net income (loss)....................................... $ 296 $ 278 $ (320)
------ ------- -------
------ ------- -------
Earnings (loss) per common share:
Income (loss) before extraordinary item and cumulative effect
of changes in accounting methods.......................... $ 3.06 $ 3.35 $ (3.96)
Extraordinary item........................................... -- -- (.18)
Cumulative effect of changes in accounting methods........... -- (.24) --
------ ------- -------
Earnings (loss) per common share........................ $ 3.06 $ 3.11 $ (4.14)
------ ------- -------
------ ------- -------
Number of shares used in computation of earnings (loss) per
common share (in thousands)............................... 89,672 88,617 77,462
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 27
CONSOLIDATED BALANCE SHEETS
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 17 $ 57
Accounts receivable, net.................................................. 589 473
Materials and supplies.................................................... 91 106
Current portion of deferred income taxes.................................. 167 144
Other current assets...................................................... 27 23
------ ------
Total current assets................................................... 891 803
Property and equipment, net................................................. 5,909 5,568
Other assets................................................................ 245 192
------ ------
Total assets......................................................... $7,045 $6,563
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 492 $ 473
Casualty and environmental reserves....................................... 286 249
Compensation and benefits payable......................................... 271 321
Taxes payable............................................................. 123 128
Accrued interest.......................................................... 44 41
Other current liabilities................................................. 102 101
Current portion of long-term debt......................................... 185 40
Commercial paper.......................................................... 26 --
------ ------
Total current liabilities.............................................. 1,529 1,353
Long-term debt.............................................................. 1,526 1,527
Deferred income taxes....................................................... 1,342 1,167
Casualty and environmental reserves......................................... 426 483
Other liabilities........................................................... 303 296
------ ------
Total liabilities...................................................... 5,126 4,826
------ ------
Redeemable preferred stock.................................................. -- 9
------ ------
Stockholders' equity:
Convertible preferred stock, no par value, $345 liquidation value;
25,000,000 shares authorized; 6,900,000 shares issued.................. 337 337
Common stock, without par value, at stated value, 300,000,000 shares
authorized; 88,881,675 shares and 88,085,632 shares issued,
respectively........................................................... 1 1
Additional paid-in capital................................................ 1,420 1,385
Retained earnings......................................................... 198 30
Treasury stock, at cost, 85,536 shares and 61,743 shares, respectively.... (4) (2)
Other..................................................................... (33) (23)
------ ------
Total stockholders' equity............................................. 1,919 1,728
------ ------
Total liabilities and stockholders' equity........................... $7,045 $6,563
------ ------
------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 296 $ 278 $(320)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Extraordinary loss.......................................... -- -- 14
Cumulative effect of changes in accounting methods.......... -- 21 --
Depreciation................................................ 352 338 347
Deferred income taxes....................................... 156 56 (238)
Special charge.............................................. -- -- 708
Changes in current assets and liabilities:
Accounts receivable, net................................. (116) (29) (104)
Materials and supplies................................... 6 2 9
Other current assets..................................... (4) 2 (7)
Accounts payable......................................... 19 6 (1)
Casualty and environmental reserves...................... 32 2 10
Compensation and benefits payable........................ (47) 14 (58)
Taxes payable............................................ -- 28 8
Accrued interest......................................... 3 (14) (27)
Other current liabilities................................ (2) 4 24
Changes in long-term casualty and environmental reserves.... (57) 16 (14)
Other, net.................................................. (60) (44) 17
----- ----- -----
Net cash provided by operating activities................ 578 680 368
----- ----- -----
Cash flows from investing activities:
Additions to property and equipment.............................. (676) (487) (509)
Proceeds from property and equipment dispositions................ 35 34 10
Other, net....................................................... (18) (17) (10)
----- ----- -----
Net cash used in investing activities.................... (659) (470) (509)
----- ----- -----
Cash flows from financing activities:
Proceeds from issuance of preferred stock........................ -- 337 --
Proceeds from issuance of common stock........................... -- -- 359
Net increase (decrease) in commercial paper...................... 26 (353) 118
Proceeds from issuance of long-term debt......................... 224 416 51
Payments on long-term debt....................................... (88) (470) (343)
Dividends paid................................................... (125) (106) (92)
Proceeds from exercise of common stock options................... 15 11 12
Redemption of redeemable preferred stock......................... (9) (2) (1)
Other, net....................................................... (2) (2) (3)
----- ----- -----
Net cash provided by (used in) financing activities...... 41 (169) 101
----- ----- -----
Increase (decrease) in cash and cash equivalents....... (40) 41 (40)
Cash and cash equivalents:
Beginning of year................................................ 57 16 56
----- ----- -----
End of year................................................... $ 17 $ 57 $ 16
----- ----- -----
----- ----- -----
Supplemental cash flow information:
Interest paid, net of amounts capitalized........................ $ 144 $ 197 $ 246
Income taxes paid, net of refunds................................ 70 76 52
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 29
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER
-------------
UNEARNED
CONVERTIBLE ADDITIONAL RETAINED COMPENSATION,
PREFERRED COMMON PAID-IN EARNINGS TREASURY RESTRICTED
THREE YEARS ENDED DECEMBER 31, 1993 STOCK STOCK CAPITAL (DEFICIT) STOCK STOCK
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990........................... $ -- $ 965 $ -- $ 276 $ -- $ --
Net loss............................................... (320)
Dividends:
Common stock, $1.20 per share........................ (95)
Redeemable preferred stock, $.55 per share........... (1)
Issuance of common stock (10,350,000 shares)........... 359
Adjustments associated with unearned compensation,
restricted stock (223,850 shares).................... 5 (1)
Exercise of stock options and related tax benefit
(573,521 shares)..................................... 15
Transfer capital in excess of stated value of common
stock to additional paid-in capital.................. (1,343 ) 1,343
Transfer restricted stock deferred compensation to
unearned compensation, restricted stock.............. 14 (14)
Other (24,726 shares).................................. (1)
----- ------- ---------- -------- --- -----
Balance at December 31, 1991......................... -- 1 1,356 (140) (1) (14)
Net income............................................. 278
Dividends:
Common stock, $1.20 per share........................ (105)
Redeemable preferred stock, $.55 per share........... (1)
Convertible preferred stock, $3.125 per share........ (2)
Issuance of convertible preferred stock (6,900,000
shares).............................................. 337
Adjustments associated with unearned compensation,
restricted stock (214,475 shares).................... 12 (1) (5)
Exercise of stock options and related tax benefit
(438,139 shares)..................................... 14
Equity adjustment from minimum pension liability.......
Other (15,253 shares).................................. 3
----- ------- ---------- -------- --- -----
Balance at December 31, 1992......................... 337 1 1,385 30 (2) (19)
Net income............................................. 296
Dividends:
Common stock, $1.20 per share........................ (106)
Convertible preferred stock, $3.125 per share........ (22)
Adjustments associated with unearned compensation,
restricted stock (232,354 shares).................... 12 (2) (4)
Exercise of stock options and related tax benefit
(499,779 shares)..................................... 20
Equity adjustment from minimum pension liability.......
Other (40,117 shares).................................. 3
----- ------- ---------- -------- --- -----
Balance at December 31, 1993......................... $ 337 $ 1 $1,420 $ 198 $ (4) $ (23)
----- ------- ---------- -------- --- -----
----- ------- ---------- -------- --- -----
<CAPTION>
OTHER
---------
MINIMUM
PENSION
THREE YEARS ENDED DECEMBER 31, 1993 LIABILITY TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1990........................... $ -- $1,241
Net loss............................................... (320)
Dividends:
Common stock, $1.20 per share........................ (95)
Redeemable preferred stock, $.55 per share........... (1)
Issuance of common stock (10,350,000 shares)........... 359
Adjustments associated with unearned compensation,
restricted stock (223,850 shares).................... 4
Exercise of stock options and related tax benefit
(573,521 shares)..................................... 15
Transfer capital in excess of stated value of common
stock to additional paid-in capital.................. --
Transfer restricted stock deferred compensation to
unearned compensation, restricted stock.............. --
Other (24,726 shares).................................. (1)
------- ------
Balance at December 31, 1991......................... -- 1,202
Net income............................................. 278
Dividends:
Common stock, $1.20 per share........................ (105)
Redeemable preferred stock, $.55 per share........... (1)
Convertible preferred stock, $3.125 per share........ (2)
Issuance of convertible preferred stock (6,900,000
shares).............................................. 337
Adjustments associated with unearned compensation,
restricted stock (214,475 shares).................... 6
Exercise of stock options and related tax benefit
(438,139 shares)..................................... 14
Equity adjustment from minimum pension liability....... (4) (4)
Other (15,253 shares).................................. 3
------- ------
Balance at December 31, 1992......................... (4) 1,728
Net income............................................. 296
Dividends:
Common stock, $1.20 per share........................ (106)
Convertible preferred stock, $3.125 per share........ (22)
Adjustments associated with unearned compensation,
restricted stock (232,354 shares).................... 6
Exercise of stock options and related tax benefit
(499,779 shares)..................................... 20
Equity adjustment from minimum pension liability....... (6) (6)
Other (40,117 shares).................................. 3
------- ------
Balance at December 31, 1993......................... $ (10) $1,919
------- ------
------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
1. ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Burlington
Northern Inc. (BNI) and its majority-owned subsidiaries (collectively BN). The
principal subsidiary is Burlington Northern Railroad Company (Railroad). All
significant intercompany accounts and transactions have been eliminated.
Property and equipment
Main line track is depreciated on a group basis using a units-of-production
method. All other property and equipment are depreciated on a straight-line
basis over estimated useful lives. Interstate Commerce Commission (ICC)
regulations require periodic formal studies of ultimate service lives for all
railroad assets. Resulting service life estimates are subject to review and
approval by the ICC. An annual review of rates and accumulated depreciation is
performed and appropriate adjustments are recorded. Significant premature
retirements are recorded as gains or losses at the time of their occurrence,
which would include major casualty losses, abandonments, sales and obsolescence
of assets. Expenditures which significantly increase asset values or extend
useful lives are capitalized. Repair and maintenance expenditures are charged to
operating expense when the work is performed. All properties are stated at cost.
Materials and supplies
Materials and supplies consist mainly of diesel fuel, repair parts for
equipment and other railroad property and are valued at average cost.
Revenue recognition
Transportation revenues are recognized proportionately as a shipment moves
from origin to destination.
Income taxes
Income taxes are provided based on earnings reported for tax return
purposes in addition to a provision for deferred income taxes. The provision for
income taxes includes deferred taxes determined by the change in the deferred
tax liability, which is computed based on the differences between the financial
statement and tax basis of assets and liabilities as measured by applying
enacted tax laws and rates. Deferred tax expense is the result of changes in the
net liability for deferred taxes. Investment tax credits were accounted for
under the "flow-through" method.
Earnings (loss) per common share
Earnings (loss) per common share are determined by dividing net income,
after deduction of preferred stock dividends, by the weighted average number of
common shares outstanding and common share equivalents. Common share equivalents
were not included in the computation of the loss per common share in 1991 since
their effect would have been antidilutive.
Cash and cash equivalents
All short-term investments which mature in less than 90 days when purchased
are considered cash equivalents for purposes of disclosure in the consolidated
balance sheets and consolidated statements of cash flows. Cash equivalents are
stated at cost, which approximates market value.
Reclassifications
Certain prior year data has been reclassified to conform to the current
year presentation. These reclassifications had no effect on previously reported
net income, stockholders' equity or cash flows.
28
<PAGE> 31
2. ACCOUNTS RECEIVABLE, NET
Railroad has an agreement to sell, on a revolving basis, an undivided
percentage ownership interest in a designated pool of accounts receivable with
limited recourse. As of December 31, 1993, the agreement allowed for the sale of
accounts receivable up to a maximum of $175 million. The agreement expires not
later than December 1994. Average monthly proceeds from the sale of accounts
receivable were $182 million, $190 million and $269 million in 1993, 1992 and
1991, respectively. At December 31, 1993 and 1992, accounts receivable were net
of $100 million and $189 million, respectively, representing receivables sold.
Included in other income (expense), net were expenses of $9 million, $11 million
and $20 million in 1993, 1992 and 1991, respectively, relating to the sale. BN
maintains an allowance for doubtful accounts based upon the expected
collectibility of all trade accounts receivable, including receivables sold with
recourse. Allowances for doubtful accounts and recourse on receivables sold of
$17 million and $16 million have been recorded at December 31, 1993 and 1992.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net was as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Road, roadway structures and real estate................................. $7,493 $7,161
Equipment................................................................ 2,143 1,965
------ ------
Total cost............................................................. 9,636 9,126
Less accumulated depreciation............................................ 3,727 3,558
------ ------
Property and equipment, net......................................... $5,909 $5,568
------ ------
------ ------
</TABLE>
Certain noncancellable leases were classified as capital leases and were
included in property and equipment. The consolidated balance sheets at December
31, 1993 and 1992 included $36 million and $35 million, respectively, of
property and equipment under capital leases. The related depreciation was
included in depreciation expense. Accumulated depreciation for property and
equipment under capital leases was $31 million and $29 million at December 31,
1993 and 1992, respectively.
Main line track is depreciated on a group basis using a units-of-production
method. The accumulated depreciation and annual depreciation accrual rates for
railroad assets other than main line track are calculated using a straight-line
method and statistical group measurement techniques, which closely approximate
unit depreciation. The group techniques project depreciation expense and
estimated accumulated depreciation utilizing historical experience and expected
future conditions relating to the timing of asset retirements, cost of removal,
salvage proceeds, maintenance practices and technological changes. In this
manner, the net book value of reported assets reflects estimated remaining asset
utility on a historical cost basis.
Due to the imprecision of annual reviews using statistical group
measurement techniques for long-term asset retirement, replacement and
deterioration patterns, BN 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, BN
conducts service life studies on an annual basis. Results of service life
studies are recorded over the remaining life of the asset group studied. During
1993, BN completed service life studies of equipment and road property. During
1992, the service life studies consisted of rail. The effect of implementing the
results of new service life studies and similar rate adjustments were to
decrease depreciation expense in 1993 by $2 million compared with 1992 and to
decrease depreciation expense in 1992 by $28 million compared with 1991. In
future periods, service life studies will be conducted on other asset groups as
well as these same assets under ICC requirements. However, the impact of such
studies is not determinable at this time.
In 1993, capitalization of certain software development costs increased as
a result of new strategic initiatives. Capitalization of software development
costs begins upon establishment of technological feasibility.
29
<PAGE> 32
The establishment of technological feasibility is based upon completion of
planning, design and other technical performance requirements.
Capitalized software development costs are amortized over a seven-year
estimated useful life using the straight-line method. No amortization was
recorded for the year ended December 31, 1993. Unamortized capitalized software
costs were $6 million as of December 31, 1993.
4. DEBT
Debt outstanding was as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT
BNI:
7 1/2% debentures, due 2023.............................................. $ 150 $ --
8 3/4% debentures, due 2022.............................................. 200 200
9% debentures, due 1997 to 2016.......................................... 157 158
7% notes, due 2002....................................................... 150 150
Equipment obligations, weighted average rate of 7.21% and 8.59%,
respectively, due 1994 to 2013........................................ 191 117
Railroad:
Consolidated mortgage bonds, 3 1/5% to 10%, due serially to 2045......... 622 673
Equipment and other obligations, weighted average rate of 7.33% and
7.72%, respectively, due serially to 2009............................. 113 139
General mortgage bonds, 3 1/8% and 2 5/8%, due 2000 and 2010,
respectively.......................................................... 62 62
Prior lien railway and land grant bonds, 4%, due 1997.................... 57 57
General lien railway and land grant bonds, 3%, due 2047.................. 35 35
First mortgage bonds, series A, 4%, due 1997............................. 24 26
Capitalized lease obligations, weighted average rate of 8.20% and 7.92%,
respectively, expiring 1996 and 2003.................................. 10 13
Income debentures, series A, 5%, due 2006................................ 8 8
Commercial paper......................................................... 26 --
Unamortized discount....................................................... (68) (71)
------ ------
Total................................................................. 1,737 1,567
Less:
Current portion of long-term debt........................................ 185 40
Commercial paper......................................................... 26 --
------ ------
Long-term debt...................................................... $1,526 $1,527
------ ------
------ ------
</TABLE>
Railroad maintains an effective program for the issuance, from time to
time, of commercial paper. These borrowings are supported by Railroad's bank
credit agreement, thus outstanding commercial paper balances reduce available
borrowings under this agreement. The bank credit agreement allows borrowings of
up to $500 million on a short-term basis. The agreement is currently scheduled
to expire in November 1994. At Railroad's option, borrowing rates are based on
prime, certificate of deposit or London Interbank Offered rates. Annual facility
fees are 0.25 percent. The maturity value of commercial paper outstanding at
December 31, 1993 was $27 million, leaving a total of $473 million of the credit
agreement available, while no commercial paper was outstanding at December 31,
1992.
The financial covenants of the bank credit agreement require that
Railroad's consolidated tangible net worth, as defined in the agreement, be at
least $1.4 billion, and its debt, as defined in the agreement, cannot exceed the
lesser of 140 percent of its consolidated tangible net worth or $2.5 billion.
The agreement contains an event of default arising out of the occurrence
and continuance of a "Change in Control." A "Change in Control" is generally
defined as the acquisition of more than 50 percent of the voting securities of
BNI, which has not been approved by the BNI Board of Directors, a change in the
control
30
<PAGE> 33
relationship between BNI and Railroad, and finally, a "Change in Control" is
deemed to occur when a majority of the seats on the BNI Board of Directors is
occupied by persons who are neither nominated by BNI management nor appointed by
directors so nominated.
The commercial paper program is further summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at year end............................................................ $ 26 $ --
Weighted average interest rate................................................. 3.55% --
Maximum outstanding during the year............................................ $179 $427
Average daily amount outstanding during the year............................... $ 41 $129
Weighted daily average interest rate during the year........................... 3.27% 4.07%
</TABLE>
Maturities of commercial paper averaged 4 and 14 days in 1993 and 1992,
respectively.
During December 1993, BNI filed a registration statement with the
Securities and Exchange Commission for the issuance, from time to time, of up to
$500 million aggregate principal amount of debt securities. Net proceeds from
the sale of the debt securities, if any are offered and sold, will be used to
pay down debt or for other general corporate purposes.
BNI acquired equipment which was financed in December 1993 through the
issuance of $78 million of 6.32 percent notes due 1994 to 2012.
In July 1993, BNI issued $150 million of 7 1/2 percent senior unsecured
debentures due 2023 and used the proceeds for general corporate purposes,
including working capital. These debentures were the final borrowing under the
registration statement filed on September 24, 1991 covering the issuance, from
time to time, of up to $500 million aggregate principal amount of debt
securities.
In November 1992, BNI completed a public offering of 6,900,000 shares of
6 1/4 percent cumulative convertible preferred stock at $50 per share. Most of
the $337 million net proceeds from the offering were placed in trust to fund the
redemption of BNI's $300 million 9 5/8 percent notes due 1996. Under the terms
of the indenture, the 9 5/8 percent notes were redeemable at par, commencing
February 1, 1993. The notification for redemption of the 9 5/8 percent notes was
issued to holders of the notes in December 1992 with a redemption date of
February 1, 1993. The debt was considered to be extinguished as of December 31,
1992, because BNI had irrevocably placed assets in trust, prior to such date, to
be used solely to satisfy scheduled payments of both the interest on and
principal of the $300 million 9 5/8 percent notes. The difference between BNI's
redemption price and the net carrying value resulted in an immaterial loss which
was recorded in other income (expense), net in 1992.
In July 1992, BNI issued $150 million of 7 percent senior unsecured notes
due 2002. The proceeds were used to retire $100 million of 14 3/4 percent notes
due August 15, 1992 and to reduce outstanding commercial paper balances. In
February 1992, BNI issued $200 million of 8 3/4 percent senior unsecured
debentures due 2022 and used the proceeds to reduce outstanding commercial paper
balances.
Aggregate long-term debt scheduled maturities for 1994 through 1998 and
thereafter are $185 million, $31 million, $25 million, $248 million, $24 million
and $1,266 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 BN's financial instruments at December 31,
1993 and 1992 and the methods and assumptions used to estimate the fair value of
each class of financial instruments held by BN, were as follows:
31
<PAGE> 34
Cash and short-term investments
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 8.7 percent and 10 percent at December
31, 1993 and 1992, were determined to be appropriate when considering current
U.S. Treasury rates and the credit risk associated with these notes.
Accrued interest payable
The carrying amount approximated fair value as the majority of interest
payments are made semiannually.
Long-term debt and commercial paper
The fair value of BN's long-term debt, excluding unamortized discount, was
primarily based on secondary market indicators. For those issues not actively
quoted, estimates were based on each obligation's characteristics. Among the
factors considered were the maturity, interest rate, credit rating, collateral,
amortization schedule, liquidity and option features such as optional redemption
or optional sinking funds. These features were compared to other similar
outstanding obligations to determine an appropriate increment or spread, above
U.S. Treasury rates, at which the cash flows were discounted to determine the
fair value. The carrying amount of commercial paper approximated fair value
because of the short maturity of these instruments.
Redeemable preferred stock
The fair value of BN's redeemable preferred stock represented the market
value as shown on the New York Stock Exchange at December 31, 1992.
Recourse liability from sale of receivables
It is unlikely that BN would be able to pay a second entity to assume its
recourse obligation. Therefore, the carrying value of the allowance for doubtful
accounts on receivables sold approximated the fair value of the recourse
liability related to those receivables.
The carrying amount and estimated fair values of BN's financial instruments
were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- ----------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and short-term investments........................ $ 17 $ 17 $ 57 $ 57
Notes receivable....................................... 9 11 9 9
Accrued interest payable............................... 44 44 41 41
Long-term debt and commercial paper.................... 1,805 1,884 1,638 1,646
Redeemable preferred stock............................. -- -- 9 8
Recourse liability from sale of receivables............ 4 4 5 5
</TABLE>
BN 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 $19
million and $22 million in the December 31, 1993 and 1992 consolidated balance
sheets. There were no quoted market prices available for the shares held in the
affiliated entities, and the cost of obtaining an independent valuation would
have been excessive considering the materiality of these investments to BN.
In addition, BN 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,
32
<PAGE> 35
1993 and 1992. As it is not practicable to forecast the traffic volume over the
remaining life of the note, it was not included in the notes receivable amount
shown above.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting requirements for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities, and is effective for fiscal years beginning after December 15, 1993.
The initial effect of applying this standard is to be reported as the effect of
a change in accounting method and previously issued financial statements may not
be restated. No material effect on BN's financial condition or results of
operations is anticipated from the adoption of SFAS No. 115.
6. INCOME TAXES
Effective January 1, 1993, BN 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 BN effective
January 1, 1986. BN 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, stockholders' equity or cash flows.
Income tax expense (benefit), excluding the effect of the extraordinary
item and the cumulative effect of changes in accounting methods, was as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal............................................................ $ 61 $ 82 $ 48
State.............................................................. 8 15 6
---- ---- -----
69 97 54
---- ---- -----
Deferred:
Federal............................................................ 136 52 (207)
State.............................................................. 20 4 (31)
---- ---- -----
156 56 (238)
---- ---- -----
Total........................................................... $225 $153 $(184)
---- ---- -----
---- ---- -----
</TABLE>
Reconciliation of the federal statutory income tax rate to the effective
tax rate, excluding the extraordinary item and the cumulative effect of changes
in accounting methods, was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate...................................... 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit......................... 3.4 3.4 3.4
Effect of one percent federal tax rate increase on deferred tax
balances at January 1, 1993.......................................... 5.0 -- --
Internal Revenue Service settlement.................................... -- (3.8) --
Other, net............................................................. (.2) .2 .2
---- ---- ----
Effective tax rate................................................... 43.2% 33.8% 37.6%
---- ---- ----
---- ---- ----
</TABLE>
33
<PAGE> 36
The components of deferred tax assets and liabilities were as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation and amortization.............................. $(1,667) $(1,540)
Other.................................................................. (96) (87)
------- -------
Total deferred tax liabilities...................................... (1,763) (1,627)
------- -------
Deferred tax assets:
Casualty and environmental reserves.................................... 270 278
Pensions............................................................... 45 39
Other.................................................................. 273 287
------- -------
Total deferred tax assets........................................... 588 604
------- -------
Valuation allowance.................................................... -- --
------- -------
Net deferred tax liability........................................ $(1,175) $(1,023)
------- -------
------- -------
Noncurrent deferred income tax liability............................... $(1,342) $(1,167)
Current deferred income tax asset...................................... 167 144
------- -------
Net deferred tax liability........................................ $(1,175) $(1,023)
------- -------
------- -------
</TABLE>
As of December 31, 1993, approximately $5 million of alternative minimum
tax credit carryovers with no expiration date are available to offset future tax
liabilities. The alternative minimum tax credits have been fully recognized for
financial accounting purposes. In 1993, tax benefits of $4 million related to
the adjustment to recognize a minimum pension liability were allocated directly
to stockholders' equity.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 (the Act)
was signed into law. The Act increased the corporate federal income tax rate by
one percent, effective January 1, 1993, which reduced net income by $29 million,
or $.32 per common share, through the date of enactment. A one-time, non-cash
charge of $28 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, BN 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, except per share
data):
<TABLE>
<S> <C>
Current tax expense................................................................... $ 2
Deferred tax benefit.................................................................. (19)
----
Total tax benefit................................................................... $(17)
----
----
Increase in earnings per common share................................................. $.19
----
----
</TABLE>
34
<PAGE> 37
7. REDEEMABLE PREFERRED STOCK
On July 15, 1993, BNI redeemed all of the outstanding shares of its $10 Par
Value 5 1/2 percent Cumulative Redeemable Preferred Stock. BNI purchased the
shares for $10.067222 per share or for a total of $9 million, representing the
redemption price of $10 per share plus accrued dividends for the period from
June 2, 1993 to July 15, 1993.
Redeemable preferred stock activity was as follows (dollars in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year........ 899,009 $ 9 1,076,734 $ 11 1,227,673 $ 12
Acquired during year................ 899,009 9 177,725 2 150,939 1
------- ------ --------- ------ --------- ------
Balance at end of year............ -- $ -- 899,009 $ 9 1,076,734 $ 11
------- ------ --------- ------ --------- ------
------- ------ --------- ------ --------- ------
</TABLE>
8. PREFERRED CAPITAL STOCK
No Par Value Preferred Stock, authorized 25,000,000 shares -- 6,900,000 shares
issued
In November 1992, BNI issued 6,900,000 shares of 6 1/4 percent Cumulative
Convertible Preferred Stock, Series A No Par Value. The convertible preferred
stock is not redeemable prior to December 26, 1995. Thereafter, the shares may
be redeemed at BNI's option, in whole or in part, during the twelve months
beginning November 24 of each year except for 1995 which commences December 26,
at the following redemption prices per share: $52.1875 in 1995, $51.875 in 1996,
$51.5625 in 1997, $51.25 in 1998, $50.9375 in 1999, $50.625 in 2000, $50.3125 in
2001, and $50 in 2002 and thereafter. The convertible preferred stock may be
converted, at the option of the holder at any time, into the number of shares of
BNI's common stock equal to the liquidation preference of each share of
convertible preferred stock, $50, divided by the conversion price of $47 per
share of common stock. The convertible preferred stockholders have no voting
rights unless six quarterly dividend payments are in default. In a default, such
stockholders may vote separately as a class with all other series of the No Par
Value Preferred Stock to elect two additional directors. Voting rights will
continue until all arrearages have been paid. As of December 31, 1993, there had
been no such defaults.
Class A Preferred Stock Without Par Value, authorized 50,000,000
shares -- unissued
At December 31, 1993, BNI had available for issuance 50,000,000 shares of
Class A Preferred Stock Without Par Value. The Board of Directors has the
authority to issue such stock in one or more series, to fix the number of shares
and to fix the designations and the powers. On July 10, 1986, the Board of
Directors designated a series of 800,000 shares of Class A Preferred Stock
Without Par Value as Series A Junior Participating Class A Preferred Stock. On
December 19, 1991, the Board of Directors increased the Series A Junior
Participating Class A Preferred Stock designation to 3,000,000 shares. Each one
one-hundredth of a share will have dividend and voting rights approximately
equal to those of one share of common stock of BNI. In addition, on July 10,
1986, the Board of Directors declared a dividend distribution of one right for
each outstanding share of common stock of BNI. The rights become exercisable if,
without BNI's prior consent, a person or group acquires securities having 20
percent or more of the voting power of all of BNI's voting securities or
announces a tender offer which would result in such ownership. Each right, when
exercisable, entitles the registered holder to purchase from BNI one
one-hundredth of a share of Series A Junior Participating Class A Preferred
Stock at a price of $190 per one one-hundredth of a share, subject to
adjustment. If, after the rights become exercisable, BNI were to be acquired
through a merger, each right would permit the holder to purchase, for the
exercise price, stock of the acquiring company having a value of twice the
exercise price. In addition, if any person acquires 25 percent or more of BNI
(other than as a result of a cash offer for all shares), each right not owned by
the holder of such 25 percent would permit the purchase, for the exercise price,
of stock of BNI having a value of twice the exercise price. The rights may be
redeemed by BNI under certain circumstances until their expiration date for $.05
per right.
35
<PAGE> 38
9. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
BNI is authorized to issue 300,000,000 shares of Common Stock Without Par
Value. At December 31, 1993, there were 88,796,139 shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
stockholders. Subject to the rights and preferences of the convertible preferred
stock and any future issuance of additional preferred stock, each share of
common stock is entitled to receive dividends as may be declared by the Board of
Directors out of funds legally available and to share ratably in all assets
available for distribution to stockholders upon dissolution or liquidation. No
holder of common stock has any preemptive right to subscribe for any securities
of BNI.
Effective December 1991, the Board of Directors of BNI authorized the
transfer, to additional paid-in capital, of $1,343 million representing capital
in excess of the stated value of common stock.
10. STOCK OPTIONS AND OTHER CAPITAL STOCK
Stock options
Under BN's stock option plans, options may be granted to officers and key
salaried employees at fair market value on the date of grant. All options expire
within ten years after the date of grant. BN may also grant stock appreciation
rights (SARs) in tandem with stock options which would be exercisable during the
same period as the options. SARs entitle an option holder to receive a payment
equal to the difference between the option price and the fair market value of
the common stock at the date of exercise of the SAR. To the extent the SAR is
exercised, the related option is cancelled and to the extent the option is
exercised the related SAR is cancelled. Any change in the current market value
over the SARs exercise price would be recognized at such time as an adjustment
to compensation expense. During the third quarter of 1991, following a change in
rules 16(a) and 16(b) promulgated under the Securities and Exchange Act of 1934,
as amended, substantially all holders of SARs relinquished those rights. As a
result, there were no further adjustments to compensation expense in times of
changing market prices after the year ended December 31, 1991. Adjustments to
compensation expense during the year ended December 31, 1991 were not
significant.
Activity in stock option plans was as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTIONS SARS PRICE PER SHARE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1990...................... 2,687,298 1,173,747 $ 6.48 to $34.88
Granted......................................... 947,788 45,150 29.88 to 39.88
Exercised....................................... (573,533) (86,128) 9.59 to 34.88
Cancelled....................................... (158,733) (1,078,543) 15.26 to 34.88
--------- ----------
Balance at December 31, 1991...................... 2,902,820 54,226 6.48 to 39.88
Granted......................................... 984,515 -- 40.88 to 44.24
Exercised....................................... (438,500) (54,226) 6.48 to 34.88
Cancelled....................................... (197,511) -- 20.48 to 44.24
--------- ----------
Balance at December 31, 1992...................... 3,251,324 -- 10.32 to 44.24
Granted......................................... 947,125 -- 55.56 to 55.94
Exercised....................................... (508,476) -- 10.32 to 44.24
Cancelled....................................... (54,882) -- 22.50 to 55.94
--------- ----------
Balance at December 31, 1993...................... 3,635,091 -- 12.49 to 55.94
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
EXERCISE
OPTIONS SARS PRICE PER SHARE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exercisable at December 31:
1993......................................... 2,153,170 -- $12.49 to $44.24
1992......................................... 1,711,726 -- 10.32 to 44.24
1991......................................... 1,427,987 31,051 6.48 to 34.88
Available for future grants at December 31:
1993......................................... 5,151,315
1992......................................... 5,995,545
1991......................................... 1,365,314
</TABLE>
Shares issued upon exercise of options may be issued from treasury shares
or from authorized but unissued shares.
Other capital stock
BN has restricted stock award plans under which up to 1,700,000 common
shares may be awarded to eligible employees and directors of BN. No cash payment
is required by the individual. Shares awarded under the plan may not be sold,
transferred or used as collateral by the holder until the shares awarded become
free of the restrictions, generally by one-thirds on the third, fourth and fifth
anniversaries of the date of grant. All shares still subject to restrictions are
generally forfeited and returned to the plan if the employee or director's
relationship with BN is terminated. If the employee or director retires, becomes
disabled or dies, the restrictions will lapse at that time. The compensation
expense resulting from the award of restricted stock is valued at the average of
the high and low market prices of BNI common stock on the date of the award,
recorded as a reduction of stockholders' equity, and charged to expense evenly
over the service period. Restricted stock awards under these plans, net of
forfeitures, were 232,354, 214,475 and 223,850 shares in 1993, 1992 and 1991,
respectively. A total of 870,525, 824,877 and 757,565 restricted common shares
were outstanding at December 31, 1993, 1992 and 1991, respectively. Compensation
expense was not significantly affected for all periods presented.
BN also has a stock award plan which provides for grants of shares of BNI's
common stock to full-time employees, excluding officers, based upon performance.
A total of 100,000 shares of common stock has been authorized for these awards.
The shares awarded contain no restrictions and the recipients have full
shareholder rights and privileges. Compensation expense is based upon the
average of the high and low market prices of BNI common stock on the date of
grant. During the years ended December 31, 1993, 1992 and 1991, 5,540, 11,720
and 7,790 shares were awarded under this plan. The related compensation expense
was not significant.
An employee stock purchase plan was adopted in 1992 effective in 1993 as a
means to encourage employee ownership of BNI common stock. A total of 500,000
shares of common stock were authorized for distribution under this plan. The
plan allows eligible BN employees to use the proceeds of incentive compensation
awards to purchase shares of BNI common stock at a discount, as determined by
the BNI Board of Directors, from the market price and may require that the
shares purchased be held for a specific time period as also determined by the
Board of Directors. The difference between the market price and the employees'
purchase price is recorded as additional compensation expense. During the year
ended December 31, 1993, 34,629 shares were awarded under this plan. The related
compensation expense was not significant.
11. RETIREMENT PLANS
BN has non-contributory defined benefit pension 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 based upon the projected unit credit actuarial
funding method and are limited to
37
<PAGE> 40
amounts that are currently deductible for tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future.
The funded status of BN plans and the net accrued pension cost reflected in
the consolidated balance sheets were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................................. $ 539 $ 476
----- -----
----- -----
Accumulated benefit obligation............................................. $ 604 $ 523
----- -----
----- -----
Projected benefit obligation............................................... $ 740 $ 622
Plan assets, primarily marketable equity and debt securities, at fair
value................................................................... (490) (452)
----- -----
Projected benefit obligation in excess of plan assets...................... 250 170
Unrecognized net loss...................................................... (153) (68)
Unrecognized prior service cost............................................ (6) (6)
Unamortized net transition obligation...................................... (33) (38)
Adjustment required to recognize minimum liability......................... 56 14
----- -----
Net accrued pension cost................................................ $ 114 $ 72
----- -----
----- -----
</TABLE>
Components of the net pension cost were as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost, benefits earned during the period......................... $ 9 $ 10 $ 8
Interest cost on projected benefit obligation........................... 50 52 49
Actual return on plan assets............................................ (57) (36) (66)
Net amortization and deferred amounts................................... 24 5 32
---- ---- ----
Net pension cost...................................................... $ 26 $ 31 $ 23
---- ---- ----
---- ---- ----
</TABLE>
Net pension cost for 1993 was lower than 1992 primarily due to a decrease
in the rate of future compensation growth from 6 percent to 5.5 percent. The
changes in pension cost for the two years ended December 31, 1992 were primarily
attributable to the expected year-to-year changes in the discount rates.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the benefit obligations were 7
percent and 5.5 percent at December 31, 1993 and 8.5 percent and 5.5 percent at
December 31, 1992. The expected long-term rate of return on assets was 9.5
percent for 1993 and 10 percent for the other years presented.
BN sponsors a 401(k) thrift and profit sharing plan which covers
substantially all non-union employees. BN 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 BN's
performance, an additional matching contribution of 20 to 40 percent can be made
at the end of the year. BN's expense was $6 million, $4 million and $6 million
in 1993, 1992 and 1991, respectively. Effective January 1, 1994, BN also
sponsors a 401(k) retirement savings plan covering substantially all union
employees which is non-contributory on the part of BN.
12. OTHER BENEFIT PLANS
Postretirement benefits
Effective January 1, 1992, BN adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." BN provides certain
postretirement health care benefits, payable until age 65, for a small number of
retirees who retired on or before March 1986.
38
<PAGE> 41
Both the accumulated postretirement benefits obligation and cost associated
with this plan were insignificant. Life insurance benefits are provided for
eligible non-union employees. BN 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. BN pays benefits as claims
are processed.
The following table presents the status of the plans and the accrued
postretirement benefit cost reflected in the consolidated balance sheets (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1992
- --------------------------------------------------------------------------------------------------
HEALTH LIFE HEALTH LIFE
------ ---- ------ ----
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................... $ 1 $ 13 $ 2 $ 12
Fully eligible active participants............................ -- 2 -- 1
Other active participants..................................... -- 1 -- 1
------ ---- ------ ----
Accrued postretirement benefit cost........................ $ 1 $ 16 $ 2 $ 14
------ ---- ------ ----
------ ---- ------ ----
</TABLE>
Components of the postretirement benefit cost were as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992
- --------------------------------------------------------------------------------------------------
HEALTH LIFE HEALTH LIFE
------ ---- ------ ----
<S> <C> <C> <C> <C>
Service cost.................................................. $ -- $ -- $ -- $ --
Interest cost................................................. -- 1 -- 1
------ ---- ------ ----
Net postretirement benefit cost............................ $ -- $ 1 $ -- $ 1
------ ---- ------ ----
------ ---- ------ ----
</TABLE>
The discount rate used in determining the benefit obligation was 7 percent
at December 31, 1993 and 8.5 percent at December 31, 1992. The health care cost
trend rate is assumed to decrease gradually from 15 percent in 1994 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, 1993 and 1992 as
well as the aggregate of the service and interest cost components in 1993 and
1992.
Under collective bargaining agreements, Railroad participates in
multi-employer benefit plans which provide certain postretirement health care
and life insurance benefits for eligible union employees. Insurance premiums
attributable to retirees, which are expensed as incurred, were $10 million in
1993 and $11 million in both 1992 and 1991.
Postemployment benefits
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This standard requires employers to recognize benefits
provided to former or inactive employees after employment but before retirement,
if certain conditions are met. In the first quarter of 1994, BN will adopt SFAS
No. 112. The principal effect of adopting this standard will be to establish
liabilities for long-term and short-term disability plans. The effect upon
earnings to adopt this standard is expected to be approximately $15 to $20
million. The initial effect of applying this standard will be reported as the
effect of a change in accounting method and previously issued financial
statements will not be restated.
13. CASUALTY AND ENVIRONMENTAL RESERVES
Casualty reserves consist primarily of personal injury claims, including
work-related injuries to employees. Employees of BN 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. BN conducts an ongoing review
and analysis of claims and other information to ensure the continued adequacy of
casualty reserves. To the extent costs exceed recorded accruals they will not
materially affect BN's financial condition, results of operations or liquidity.
39
<PAGE> 42
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and certain other laws, BN is
potentially liable for the cost of clean-up of various contaminated sites
identified by the U.S. Environmental Protection Agency and other agencies. BN
has been notified that it is a potentially responsible party (PRP) for study and
clean-up costs at a number of sites and, in many instances, is one of several
PRPs. BN 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, BN 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 BN'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. BN conducts
an ongoing environmental contingency analysis, which considers a combination of
factors, including independent consulting reports, site visits, legal reviews,
analysis of the likelihood of participation in and ability to pay for clean-up
by other PRPs, and historical trend analysis.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. BN's best estimate of unasserted claims was approximately $5 million as
of the end of 1993. Although recorded liabilities include BN's best estimates of
all costs, without reduction for anticipated recovery from insurance, BN's total
clean-up cost at these sites cannot be predicted with certainty due to various
factors such as the extent of corrective actions that may be required, evolving
environmental laws and regulations, advances in environmental technology, the
extent of other PRPs participation in clean-up efforts, developments in ongoing
environmental analyses related to sites determined to be contaminated, and
developments in environmental surveys and studies of potentially contaminated
sites. As a result, charges to income for environmental liabilities could
possibly have a significant effect on results of operations in a particular
quarter or fiscal year as individual site studies and remediation and
restoration efforts proceed or as new sites arise. However, expenditures
associated with such liabilities are typically paid out over a long period, in
some cases up to 40 years, and are therefore not expected to have a material
adverse effect on BN's consolidated financial position, cash flow or liquidity.
14. COMMITMENTS AND CONTINGENCIES
Lease commitments
BN has substantial lease commitments for railroad, highway and data
processing equipment, office buildings and a taconite dock facility. Most of
these leases provide the option to purchase the equipment at fair market value
at the end of the lease. However, some provide fixed purchase price options.
Lease rental expense for operating leases was $175 million, $189 million
and $195 million for the years ended December 31, 1993, 1992 and 1991,
respectively.
40
<PAGE> 43
Minimum annual rental commitments were as follows (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
1994.................................................................... $ 5 $ 169
1995.................................................................... 4 140
1996.................................................................... 2 117
1997.................................................................... -- 102
1998.................................................................... -- 101
Thereafter.............................................................. 1 565
------- ---------
Total................................................................. 12 $ 1,194
---------
---------
Less amount representing interest....................................... 2
-------
Present value of minimum lease payments............................... $10
-------
-------
</TABLE>
In addition to the above, BN also receives and pays rents for railroad
equipment on a per diem basis, which is included in equipment rents.
Other commitments and contingencies
During 1993, BN entered into an agreement to acquire 350 new-technology
alternating current traction motor locomotives. BN accepted delivery of one
locomotive in 1993 and anticipates delivery of between approximately 60 and 100
each year from 1994 through 1997.
BN has two locomotive electrical power purchase agreements, expiring in
1998 and 2001, that currently involve 199 locomotives. Payments required by the
agreements are based upon the number of megawatt hours of energy consumed,
subject to specified take-or-pay minimums. The rates specified in the two
agreements are renegotiable every two years. BN's 1994 minimum commitment
obligation is $48 million. Based on projected locomotive power requirements,
BN's payments in 1994 are expected to be in excess of the minimum. Payments
under the agreements totaled $53 million, $56 million and $55 million in 1993,
1992 and 1991, respectively, which exceeded the applicable minimums in each
year. In 1990, BN 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, BN has agreed to make certain payments for services
performed by the operators in connection with traffic that involves the
shortlines and Railroad as carriers. These payments are not fixed in amount,
will vary with such factors as traffic volumes and shortline costs and are not
expected to exceed normal business requirements for services received. These
payments are reflected as reductions to revenue to conform with reporting to the
ICC. Revenues for these joint moves, including amounts applicable to the
independent operator portion of the line haul, are reflected by BN as revenue
from operations.
There are no other commitments or contingent liabilities which BN believes
would have a material adverse effect on the consolidated financial position,
results of operations or liquidity.
41
<PAGE> 44
15. OTHER INCOME (EXPENSE), NET
Other income (expense), net includes the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Gain on property dispositions......................................... $17 $ 3 $ 4
Interest income....................................................... 6 4 5
Loss on sale of receivables........................................... (9 ) (11) (20)
Litigation settlement agreement....................................... -- 47 --
Loss on investment.................................................... -- -- (14)
Miscellaneous, net.................................................... (9 ) (2) --
---- ---- ----
Total............................................................... $ 5 $ 41 $(25)
---- ---- ----
---- ---- ----
</TABLE>
In the first quarter of 1992, BN entered into a settlement agreement
relating to the reimbursement of attorneys' fees and costs incurred by BN 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 BN
in settlement of that action. Under the terms of the settlement, BN received
approximately $50 million before legal fees.
16. ACCOUNTING CHANGES
Effective January 1, 1993, BN 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 BN effective
January 1, 1986. BN 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, stockholders' equity or cash flows.
In January 1992, the Emerging Issues Task Force of the FASB reached a
consensus that origination of service revenue recognition was not an acceptable
method beginning in 1992 for the freight services industry. Accordingly,
effective January 1, 1992, BN 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, or $.13 per common share.
In the fourth quarter of 1992, effective January 1, 1992, BN 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, or $.11 per common share.
Financial results for the first quarter of 1992 have previously been
restated for the cumulative effect of the change in accounting method for
revenue recognition, which had previously been reported in other income
(expense), net and for the cumulative effect of the implementation of the
accounting standard for postretirement benefits. There was no material effect on
the second and third quarter, and those quarters were not restated for the
adoption of SFAS No. 106.
17. 1991 SPECIAL CHARGE
Included in 1991 results was a pre-tax special charge of $708 million
related to railroad restructuring costs and increases in liabilities for
casualty claims and environmental clean-up costs. The 1991 special charge
included the following components:
Restructuring
This program provided for work force reduction of employees. The
restructuring program and related charge had two components:
- $185 million to provide for employee related costs for the elimination
of surplus crew positions.
42
<PAGE> 45
- $40 million to provide for employee related costs for a separation
program.
Other
- $350 million to increase casualty reserves based on an actuarial
valuation and escalations in both the cost and number of projected
hearing loss claims.
- $133 million to increase environmental reserves based on studies and
analyses of potential environmental clean-up and restoration costs.
The special charge reduced 1991 net income by $442 million, or $5.79 per
common share.
18. EXTRAORDINARY ITEM
The extraordinary loss for 1991 of $14 million, $.18 per common share,
resulted from the loss on redemption of 11 5/8 percent debentures, net of an $8
million income tax benefit. The 1991 redemption of the 11 5/8 percent debentures
was completed using proceeds from the issuance of common stock.
43
<PAGE> 46
REPORT OF MANAGEMENT
To the Stockholders and Board of Directors of
Burlington Northern Inc. and Subsidiaries
The accompanying consolidated financial statements have been prepared by
management in conformity with generally accepted accounting principles. The
fairness and integrity of these financial statements, including any judgments
and estimates, are the responsibility of management, as is all other information
presented in this Annual Report on Form 10-K.
In the opinion of management, the financial statements are fairly stated,
and, to that end, BN maintains a system of internal control which: provides
reasonable assurance that transactions are recorded properly for the preparation
of financial statements; safeguards assets against loss or unauthorized use;
maintains accountability for assets; and requires proper authorization and
accounting for all transactions. Management is responsible for the effectiveness
of internal controls. This is accomplished through accounting and other control
systems, policies and procedures, employee selection and training, appropriate
delegation of authority and segregation of responsibilities, and an established
code of ethics for employees. To further ensure compliance with established
standards and related control procedures, BN conducts a substantial corporate
audit program.
Our independent accountants provide an objective independent review through
their audit of BN's financial statements. Their audit includes a review of
internal accounting controls to the extent deemed necessary for the purposes of
their audit.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets regularly with the independent accountants, management and
corporate audit to review the work of each and to ensure that each is properly
discharging its financial reporting and internal control responsibilities. To
ensure complete independence, the independent accountants and the corporate
audit department have full and free access to the Audit Committee to discuss the
results of their audits, the adequacy of internal accounting controls and the
quality of financial reporting.
David C. Anderson
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
January 17, 1994
44
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Burlington Northern Inc. and Subsidiaries
We have audited the consolidated financial statements and financial
statement schedules of Burlington Northern Inc. and Subsidiaries listed in Item
14 of this Form 10-K. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits according to generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Burlington Northern Inc. and Subsidiaries as of December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Note 16 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 and for
revenue recognition and postretirement benefits other than pensions in 1992.
COOPERS & LYBRAND
Fort Worth, Texas
January 17, 1994
45
<PAGE> 48
QUARTERLY FINANCIAL DATA-UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER
- -------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST
------ ------ ------ ------
<S> <C> <C> <C> <C>
1993
Revenues................................................ $1,246 $1,141 $1,142 $1,170
Operating income........................................ 224 121 148 168
Net income(1)........................................... 118 24 72 82
Primary earnings per common share(2).................... $ 1.25 $ .21 $ .74 $ .86
Fully diluted earnings per common share(2)(3)........... 1.21 .21 .74 .85
Dividends declared per common share..................... .30 .30 .30 30
Common stock price:
High................................................. $ 58 $57 1/2 $58 5/8 $ 52
Low.................................................. 48 3/4 51 1/8 50 42 1/4
1992
Revenues................................................ $1,196 $1,158 $1,091 $1,185
Operating income........................................ 198 147 104 148
Income before cumulative effect of changes in accounting
methods.............................................. 111 61 36 91
Cumulative effect of changes in accounting methods, net
of tax(4)............................................ -- -- -- (21)
------ ------ ------ ------
Net income(5)...................................... $ 111 $ 61 $ 36 $ 70
------ ------ ------ ------
------ ------ ------ ------
Earnings (loss) per common share:(2)
Income before cumulative effect of changes in
accounting methods................................. $ 1.23 $ .68 $ .40 $ 1.04
Cumulative effect of changes in accounting methods... -- -- -- (.24)
------ ------ ------ ------
Primary earnings per common share.................. $ 1.23 $ .68 $ .40 $ .80
------ ------ ------ ------
------ ------ ------ ------
Fully diluted earnings per common share(3).............. $ 1.22 $ .68 $ .40 $ .80
Dividends declared per common share..................... .30 .30 .30 .30
Common stock price:
High................................................. $43 7/8 $39 5/8 $47 1/4 $44 3/4
Low.................................................. 35 7/8 33 1/2 36 1/8 38 1/8
</TABLE>
- ---------------
(1) Results for the third quarter of 1993 include the effects of the Omnibus
Budget Reconciliation Act of 1993 (the Act) which was signed into law on
August 10, 1993. The Act increased the corporate federal income tax rate by
one percent, effective January 1, 1993, which reduced net income by $29
million, or $.32 per common share, through the date of enactment. Results
for the third quarter of 1993 also include the effects of the severe
flooding in the Midwest. BN estimates the flooding reduced revenues and
operating income during the quarter by $44 million and $79 million,
respectively, and reduced net income by $49 million, or $.55 per common
share.
(2) Amounts may not total to the annual earnings per share because each quarter
and the year are calculated separately based on average outstanding shares
and common share equivalents during that period.
(3) The higher of average or end of period market price is used to determine
common share equivalents for fully diluted earnings per share. In addition,
the if-converted method is used for convertible preferred stock when
computing fully diluted earnings per common share.
(4) Results for 1992 reflect the cumulative effect of the change in accounting
method for revenue recognition, and the cumulative effect of the
implementation of the accounting standard for postretirement benefits
(Statement of Financial Accounting Standards No. 106). The cumulative
effect of the change in accounting method for revenue recognition decreased
1992 net income by $11 million, or $.13 per common share. The cumulative
effect of the change in accounting method for postretirement benefits
46
<PAGE> 49
decreased 1992 net income by $10 million, or $.11 per common share, and had
no immediate effect on cash flows.
(5) Results for the fourth quarter of 1992 include a $17 million reduction in
income tax expense as a result of a favorable Internal Revenue Service
settlement which allowed BN to recognize additional depreciation deductions
for income taxes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
and
ITEM 11. EXECUTIVE COMPENSATION
A definitive proxy statement of Burlington Northern Inc. will be filed not
later than 120 days after the end of the fiscal year with the Securities and
Exchange Commission. The information set forth therein under "Election of
Directors" and "Executive Compensation" will be incorporated herein by
reference. Executive Officers of Burlington Northern Inc. and the principal
subsidiary are listed on pages 8-11 of this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required is set forth under the caption "Election of Directors"
in the Proxy Statement for the 1994 Annual Meeting of Stockholders and will be
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required is set forth under the caption "Executive
Compensation" in the Proxy Statement for the 1994 Annual Meeting of Stockholders
and will be incorporated herein by reference.
47
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements
Consolidated Statements of Operations for the three years ended December 31, 1993... 24
Consolidated Balance Sheets at December 31, 1993 and 1992........................... 25
Consolidated Statements of Cash Flows for the three years ended December 31, 1993... 26
Consolidated Statements of Changes in Stockholders' Equity for the three years ended
December 31, 1993................................................................ 27
Notes to Consolidated Financial Statements.......................................... 28
Report of Management.................................................................. 44
Report of Independent Accountants..................................................... 45
Quarterly financial data -- unaudited................................................. 46
Consolidated Financial Statement Schedules for the three years ended December 31,
1993:
Schedule II-Amounts Receivable From Related Parties and Underwriters, Promoters, and
Employees Other Than Related Parties............................................. 52
Schedule V-Property, Plant and Equipment............................................ 53
Schedule VI-Accumulated Depreciation, Depletion, and Amortization of Property, Plant
and Equipment.................................................................... 54
Schedule VIII-Valuation and Qualifying Accounts..................................... 55
Schedule X-Supplementary Income Statement Information............................... 56
</TABLE>
Schedules other than those listed above are omitted for the reason that they are
not required or not applicable, or the required information is included in the
consolidated financial statements or related notes.
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------- ---------------------------------------------------------------------------- ------
<S> <C> <C>
3.1 -- Certificate of Incorporation of Burlington Northern Inc. as Amended **
Through February 28, 1992.
3.2 -- Certificate of Increase of Number of Shares of Series A Junior *
Participating Class A Preferred Stock of Burlington Northern Inc., dated
January 9, 1992 (1991 Form 10-K, filed February 1992).
3.3 -- By-Laws of Burlington Northern Inc. as Amended Through July 17, 1991. **
4.1 -- Form of Rights Agreement dated as of July 14, 1986, between Burlington *
Northern Inc. and The First National Bank of Boston which includes, as
Exhibit A thereto, the Form of Certificate of Designation specifying the
terms of the Preferred Stock and as Exhibit B thereto, the form of Rights
Certificate (Form 8-A, No. 1-8159, filed July 1986). The Company and its
subsidiaries either have previously filed with the Securities and
Exchange Commission or upon request will furnish a copy of any instrument
with respect to long-term debt of the Company and its subsidiaries.
4.2 -- Certificate of Designation of 6 1/4% Cumulative Convertible Preferred *
Stock, Series A, No Par Value of Burlington Northern Inc., dated November
24, 1992 (1992 Form 10-K, filed February 1993).
10.1 -- Form of Tax Sharing Agreement between Burlington Northern Inc. and *
Burlington Resources Inc. (1988 Form 10-K Amendment No. 1, filed March
1989).
10.2 -- The 1987 Burlington Northern Inc. Stock Option Incentive Plan as filed on *
Form S-8 No. 33-18082.
</TABLE>
48
<PAGE> 51
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------- ---------------------------------------------------------------------------- ------
<S> <C> <C>
10.3 -- The 1982 Burlington Northern Inc. Stock Option Incentive Plan as filed on *
Form S-8 No. 2-80478.
10.4 -- Burlington Northern Inc. Incentive Compensation Plan as filed on Form S-8 *
No. 33-25806.
10.5 -- Burlington Northern Inc. Senior Executive Survivor Benefit Plan as of *
April 1, 1986 (1987 Form 10-K Amendment No. 1, filed March 1988).
10.6 -- Burlington Northern Inc. Deferred Compensation Plan as of January 1, 1988 *
(1987 Form 10-K Amendment No. 1, filed March 1988).
10.7 -- Burlington Northern Inc. Performance Share Unit Plan (1981) as of January *
1, 1988 (1987 Form 10-K Amendment No. 1, filed March 1988).
10.8 -- Burlington Northern Inc. 1987 Performance Share Unit Plan as of January *
1, 1988 (1987 Form 10-K Amendment No. 1, filed March 1988).
10.9 -- Burlington Northern Inc. Supplemental Benefits Plan as of January 1987 *
(1987 Form 10-K Amendment No. 1, filed March 1988).
10.10 -- 1989 Burlington Northern Inc. Restricted Stock Incentive Plan (1990 Form *
10-K, filed March 1991).
10.11 -- 1990 Burlington Northern Inc. Directors Stock Option Plan (1990 Form *
10-K, filed March 1991).
10.12 -- 1990 Burlington Northern Inc. Directors Restricted Stock Plan (1990 Form *
10-K, filed March 1991).
10.13 -- 1992 Burlington Northern Inc. Stock Option Incentive Plan (1992 Form *
10-K, filed February 1993).
10.14 -- 1993 Burlington Northern Inc. Employee Stock Purchase Plan (1992 Form *
10-K, filed February 1993).
10.15 -- $500,000,000 Competitive Advance Facility and Revolving Credit Facility *
Agreement between Burlington Northern Railroad Company and a consortium
of lenders, dated October 18, 1991. (Form 10-Q for the quarter ended
September 30, 1991, filed October 1991).
10.16 -- Employment Agreement, dated as of December 20, 1988, by and between *
Burlington Northern Inc. and Mr. Gerald Grinstein (1988 Form 10-K
Amendment No. 1, filed March 1989).
10.17 -- Employment Agreement, dated as of April 27, 1992, by and between *
Burlington Northern Inc. and Mr. Gerald Grinstein (1992 Form 10-K, filed
February 1993).
10.18 -- Employment Agreement, dated as of August 21, 1991, by and between *
Burlington Northern Inc. and Mr. David C. Anderson (1991 Form 10-K, filed
February 1992).
11 -- Computation of Earnings per Common Share. **
12 -- Computation of Ratio of Earnings to Fixed Charges. **
21 -- Subsidiaries of Burlington Northern Inc. **
23 -- Consent of Independent Accountants. **
</TABLE>
- ---------------
* Exhibit is incorporated by reference as indicated.
** Exhibit is filed with Form 10-K for the year ended December 31, 1993.
REPORTS ON FORM 8-K
During the fourth quarter of 1993, there were no reports filed on Form 8-K.
49
<PAGE> 52
SIGNATURES REQUIRED FOR FORM 10-K
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Burlington Northern Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BURLINGTON NORTHERN INC.
/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 Inc. and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ GERALD GRINSTEIN Chairman, Chief Executive February 14, 1994
Gerald Grinstein Officer and Director
/s/ DAVID C. ANDERSON Executive Vice President, February 14, 1994
David C. Anderson Chief Financial Officer and
Chief Accounting Officer
/s/ JACK S. BLANTON Director February 14, 1994
Jack S. Blanton
/s/ RICHARD P. COOLEY Director February 14, 1994
Richard P. Cooley
/s/ DANIEL P. DAVISON Director February 14, 1994
Daniel P. Davison
/s/ DANIEL J. EVANS Director February 14, 1994
Daniel J. Evans
/s/ BARBARA C. JORDAN Director February 14, 1994
Barbara C. Jordan
/s/ BEN F. LOVE Director February 14, 1994
Ben F. Love
/s/ ARNOLD R. WEBER Director February 14, 1994
Arnold R. Weber
/s/ EDWARD E. WHITACRE, JR. Director February 14, 1994
Edward E. Whitacre, Jr.
/s/ MICHAEL B. YANNEY Director February 14, 1994
Michael B. Yanney
</TABLE>
50
<PAGE> 53
DIRECTORS OF BURLINGTON NORTHERN INC.
<TABLE>
<S> <C> <C>
Jack S. Blanton(2)(3) Gerald Grinstein Arnold R. Weber(1)
President and Chief Chairman and Chief President
Executive Officer Executive Officer Northwestern University
Eddy Refining Company Burlington Northern Inc.
Chairman and Chief Edward E. Whitacre, Jr.(1)
+Richard P. Cooley(1)(3) Executive Officer Chairman and Chief
Chairman of the Executive Burlington Northern Railroad Executive Officer
Committee Company Southwestern Bell Corp.
Seafirst Bank Barbara C. Jordan(3) Michael B. Yanney(2)
Daniel P. Davison(2)(3) Professor Chairman and Chief
Director and Consultant The Lyndon B. Johnson School Executive Officer
Retired Chairman and CEO of Public Affairs America First Companies
U.S. Trust Corporation University of Texas at Austin Committee Assignments:
Daniel J. Evans(2) Ben F. Love(2)(3) (1) Audit
Chairman Director and Consultant (2) Compensation and
Daniel J. Evans Associates Retired Chairman and Nominating
Chief Executive (3) Finance
+ Mr. Cooley will not stand Officer (1972-1989)
for re-election to the Texas Commerce
Board on April 21, 1994. Bancshares, Inc.
CORPORATE INFORMATION
PRINCIPAL CORPORATE OFFICE STOCK EXCHANGE LISTINGS Additional copies of
Burlington Northern Inc. New York Stock Exchange this Annual Report on
3800 Continental Plaza Chicago Stock Exchange Form 10-K are
777 Main Street Pacific Stock Exchange available, without
Fort Worth, Texas Symbol: BNI charge, by writing or
76102-5384 calling:
(817) 333-2000 ANNUAL MEETING
The Annual Meeting of EDMUND W. BURKE
STOCK TRANSFER AGENT AND Stockholders will be in Executive Vice
REGISTRAR Fort Worth, Texas, on President, Law and
The First National Bank April 21, 1994. Formal Secretary
of Boston notice of the meeting will Burlington Northern
Shareholder Services be mailed in advance. Inc.
P.O. Box 644 3800 Continental Plaza
Boston, Massachusetts 02102 777 Main St.
(617) 575-2900 Fort Worth, Texas
76102-5384
(817) 333-7951
</TABLE>
51
<PAGE> 54
SCHEDULE II
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------- ------------ --------- ------------------------ ----------------------
BALANCE AT END
DEDUCTIONS OF PERIOD
BALANCE AT ------------------------ ----------------------
BEGINNING AMOUNTS AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT
- --------------------- ------------ --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993:
Gerald Grinstein... $880,000 $1,600,000 $ -- $ -- $ -- $2,480,000
DECEMBER 31, 1992:
Gerald Grinstein... $ -- $ 880,000 $ -- $ -- $ -- $ 880,000
</TABLE>
- ---------------
NOTE: Mr. Gerald Grinstein, Chairman of the Board, received noninterest-bearing
loans, payable upon demand, in the principal amount of $1,600,000 and
$880,000 in 1993 and 1992, respectively. Both loans are secured by shares
of BNI common stock.
52
<PAGE> 55
SCHEDULE V
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------- ------------ -------- ----------- -------- --------
BALANCE
BALANCE AT END
AT BEGINNING ADDITIONS OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS OTHER(1) PERIOD
- ---------------------------------------- ------------ -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993:
Road, roadway structures and real
estate............................. $7,161 $459 $ 146 $ 19 $7,493
Equipment............................. 1,965 217 44 5 2,143
------------ -------- ----------- --- --------
Total................................. $9,126 $676 $ 190 $ 24 $9,636
------------ -------- ----------- --- --------
------------ -------- ----------- --- --------
DECEMBER 31, 1992:
Road, roadway structures and real
estate............................. $6,893 $403 $ 151 $ 16 $7,161
Equipment............................. 1,953 84 73 1 1,965
------------ -------- ----------- --- --------
Total................................. $8,846 $487 $ 224 $ 17 $9,126
------------ -------- ----------- --- --------
------------ -------- ----------- --- --------
DECEMBER 31, 1991:
Road, roadway structures and real
estate............................. $6,754 $317 $ 190 $ 12 $6,893
Equipment............................. 1,812 192 52 1 1,953
------------ -------- ----------- --- --------
Total................................. $8,566 $509 $ 242 $ 13 $8,846
------------ -------- ----------- --- --------
------------ -------- ----------- --- --------
</TABLE>
- ---------------
(1) Relates primarily to reused track materials from Materials and Supplies
inventory used for additions to property.
See accompanying notes to consolidated financial statements
for information regarding depreciation methods and other matters.
53
<PAGE> 56
SCHEDULE VI
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------- ------------ -------- ----------- -------- --------
ADDITIONS BALANCE
BALANCE CHARGED AT END
AT BEGINNING TO OF
CLASSIFICATION OF PERIOD INCOME RETIREMENTS OTHER(1) PERIOD
- ---------------------------------------- ------------ -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993:
Road, roadway structures and real
estate............................. $2,622 $260 $ 83 $(63) $2,736
Equipment............................. 936 92 33 (4) 991
------------ -------- ----------- -------- --------
Total................................. $3,558 $352 $ 116 $(67) $3,727
------------ -------- ----------- -------- --------
------------ -------- ----------- -------- --------
DECEMBER 31, 1992:
Road, roadway structures and real
estate............................. $2,536 $245 $ 88 $(71) $2,622
Equipment............................. 904 93 53 (8) 936
------------ -------- ----------- -------- --------
Total................................. $3,440 $338 $ 141 $(79) $3,558
------------ -------- ----------- -------- --------
------------ -------- ----------- -------- --------
DECEMBER 31, 1991:
Road, roadway structures and real
estate............................. $2,472 $267 $ 115 $(88) $2,536
Equipment............................. 870 80 38 (8) 904
------------ -------- ----------- -------- --------
Total................................. $3,342 $347 $ 153 $(96) $3,440
------------ -------- ----------- -------- --------
------------ -------- ----------- -------- --------
</TABLE>
- ---------------
(1) Relates primarily to estimated net book value of retirements plus the cost
to remove property before determination of excess depreciation on assets
retained.
See accompanying notes to consolidated financial statements
for information regarding depreciation methods and other matters.
54
<PAGE> 57
SCHEDULE VIII
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(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, 1993:
Casualty and environmental
reserves................ $ 732 $ 261 $ 281 $712
------ ------ ------ ------
------ ------ ------ ------
DECEMBER 31, 1992:
Casualty and environmental
reserves................ $ 714 $ 312 $ 294 $732
------ ------ ------ ------
------ ------ ------ ------
DECEMBER 31, 1991:
Casualty and environmental
reserves................ $ 221 $ 798 $ 305 $714
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- ---------------
Notes:
(1) Principally represents cash payments.
(2) Classified in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Casualty and environmental reserves (current liabilities)............. $286 $249 $247
Casualty and environmental reserves (noncurrent liabilities).......... 426 483 467
---- ---- ----
$712 $732 $714
---- ---- ----
---- ---- ----
</TABLE>
55
<PAGE> 58
SCHEDULE X
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- ---------------------------------------------------------------------------------- ----------
CHARGED TO
COSTS AND
ITEM EXPENSES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1993:
Maintenance and repairs......................................................... $1,765
Taxes, other than payroll and income taxes:
Property..................................................................... 73
Other........................................................................ 32
1992:
Maintenance and repairs......................................................... $1,748
Taxes, other than payroll and income taxes:
Property..................................................................... 72
Other........................................................................ 33
1991:
Maintenance and repairs......................................................... $1,781
Taxes, other than payroll and income taxes:
Property..................................................................... 71
Other........................................................................ 37
</TABLE>
- ---------------
Note: Items omitted are either less than one percent of consolidated revenues or
are disclosed elsewhere in the consolidated financial statements or notes
thereto.
56
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
3.1 -- Certificate of Incorporation of Burlington Northern Inc. as
Amended Through February 28, 1992.
3.3 -- By-Laws of Burlington Northern Inc. as Amended Through July 17,
1991.
11 -- Computation of Earnings per Common Share.
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of Burlington Northern Inc.
23 -- Consent of Independent Accountants.
</TABLE>
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
BURLINGTON NORTHERN HOLDING COMPANY
FIRST: The name of the corporation is Burlington Northern Holding
Company.
SECOND: The registered office of the corporation in the State of
Delaware is located at 100 West 10th Street in the City of Wilmington, County
of New Castle, and the name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is 127,485,043 shares, of which
2,485,043 shall be Preferred Stock, having a par value of $10.00 per share
(hereinafter referred to as the "$10 Par Value Preferred Stock"), 25,000,000
shall be Preferred Stock having no par value (hereinafter referred to as the
"No Par Value Preferred Stock") (such $10 Par Value Preferred Stock and No Par
Value Preferred Stock being hereinafter referred to collectively as the
"Preferred Stock"), and 100,000,000 shall be Common Stock without par value.
SECTION I--PROVISIONS RELATING TO $10 PAR VALUE PREFERRED STOCK
1. The $10 Par Value Preferred Stock of the corporation shall
constitute a single class of Preferred Stock, shall be designated "$10 Par
Value Preferred Stock" and shall have a par value of $10.00 per share.
2. The holders of $10 Par Value Preferred Stock shall be entitled to
receive fully cumulative dividends when and as declared by the Board of
Directors of the corporation out of funds legally available therefor at the
rate of 5 1/2% of the par value per share, and no more, per annum. Such
dividends shall be payable quarterly on the first day of each March, June,
September and December, commencing on the first of such dates after shares of
the $10 Par Value Preferred Stock are first issued, and shall be paid to
holders of record on such respective dates which, with respect to the initial
quarterly dividend payment date, shall not be earlier than the date on which
shares of such series are first issued and, with respect to subsequent
quarterly dividend payment dates, shall not exceed 50 days preceding such
dividend payment dates, as may be determined by the Board of Directors in
advance of the payment of the particular dividend.
3. The corporation may at any time redeem the whole or from time to
time any part of the $10 Par Value Preferred Stock at the par value thereof
plus an amount equal to all dividends, if any, accrued thereon to the date
designated for redemption with respect to each share so to be redeemed, and in
addition thereto (except with respect to shares redeemed for purposes of the
Sinking Funds referred to in paragraph 5 of this Section I) a premium per share
payable upon redemption, over and above the par value thereof and any accrued
dividends thereon, of $0.20 from the date of issue thereof to and including
March 1, 1983; $0.10 from March 2, 1983 to and including March 1, 1985; and
such shares shall be redeemable without premium thereafter.
4. In the event of any liquidation, dissolution or winding up of the
corporation, before any payment or distribution of the assets of the
corporation (whether capital or surplus) shall be made to or set apart for the
holders of any class or classes of stock of the corporation ranking junior to
the $10 Par Value Preferred Stock upon liquidation, the holders of the shares
of the $10 Par Value Preferred Stock shall be entitled to receive a payment at
the rate of $10 per share, plus an amount equal to all
<PAGE> 2
dividends (whether or not earned or declared) accrued thereon to the date of
final distribution to such holders: provided, however, that upon any voluntary
liquidation, dissolution or winding up of the corporation (including any
liquidation, dissolution or winding up of the corporation resulting from
government seizure by right of eminent domain), the holders of shares of $10
Par Value Preferred Stock shall be entitled to receive at the time thereof,
over and above the par value thereof and any accrued dividends thereon, a
premium equal to the then applicable optional redemption premium fixed in
paragraph 3 of this Section 1.
5. (i) During each calendar year, as and for a Mandatory Sinking Fund
the corporation shall retire through redemption in such year in the manner
hereinafter provided or through the cancellation of shares purchased in such
year at or below $10 per share (plus accrued dividends) 123,458 shares of $10
Par Value Preferred Stock; provided, however, that said redemptions and
purchases may be made only out of the net assets of the corporation legally
available therefor remaining after full cumulative dividends upon all shares of
the $10 Par Value Preferred Stock then outstanding to the end of the last
preceding dividend period shall have been paid, or declared and a sum
sufficient for the payment thereof set apart for payment. Subject to the
provisions of subparagraph (iv) of this paragraph 5, the number of shares of
$10 Par Value Preferred Stock required to be retired in each year as and for
the Mandatory Sinking Fund shall be subject to reduction by the application of
credits in respect of the Optional Sinking Fund as provided in subparagraph
(ii) of this paragraph 5 and in respect of shares previously purchased as
provided in subparagraph (iii) of this paragraph 5.
(ii) During each calendar year, out of such net assets, as and for an
Optional Sinking Fund the corporation may retire through redemption a number of
shares up to but not more than 123,458 shares of $10 Par Value Preferred Stock,
and retirements as and for the Optional Sinking Fund may be credited against
the number of shares required to be retired as and for the Mandatory Sinking
Fund for any subsequent year or years selected by the Board of Directors in its
discretion, subject to the provisions of subparagraph (iv) of this paragraph 5;
provided, however, that no $10 Par Value Preferred Stock may be retired as and
for the Optional Sinking Fund when there exists any deficiency in the Mandatory
Sinking Fund. The right to retire $10 Par Value Preferred Stock as and for the
Optional Sinking Fund is noncumulative and to the extent not exercised in any
year shall terminate.
(iii) There shall be allowed to the corporation as a further credit
against the number of shares to be retired as and for the Mandatory Sinking
Fund for any year or years selected by the Board of Directors in its
discretion, subject to the provisions of subparagraph (iv) of this paragraph 5,
shares of $10 Par Value Preferred Stock which the corporation has at any time
theretofore purchased at or below $10 per share (plus accrued dividends) and
cancelled and which have not theretofore been used for the purpose of any such
credit.
(iv) The credits against the Mandatory Sinking Fund provided for by
subparagraphs (ii) and (iii) of this paragraph 5 may not be applied to reduce
the Mandatory Sinking Fund for a particular year when the effect of such
application would be to relieve the corporation for more than two consecutive
calendar years from the requirement of retiring in such year in the manner
specified in the first sentence of subparagraph (i) of this paragraph 5 the
number of shares required to be retired annually, prior to the application of
said credits, as and for the Mandatory Sinking Fund.
(v) The Mandatory Sinking Fund shall be cumulative, so that if in any
calendar year the corporation shall not retire the number of shares required to
be retired as and for the Mandatory Sinking Fund after the application of said
credits, the obligation to retire such shares shall continue.
(vi) Shares of $10 Par Value Preferred Stock shall be redeemed for the
Mandatory or Optional Sinking Fund at the redemption price of $10 per share,
plus an amount equal to the dividends accrued thereon to the redemption date.
Shares of $10 Par Value Preferred Stock to be redeemed for the
-2-
<PAGE> 3
Mandatory or Optional Sinking Fund shall be selected, and notice of redemption
shall be given, as provided in paragraph 2 of Section III of this Article, and
the corporation shall pay on such redemption from its general funds an amount
equal to the accrued dividends on the shares so called for redemption.
6. Shares of $10 Par Value Preferred Stock redeemed, purchased or
otherwise acquired by the corporation (whether for the Sinking Funds or
otherwise) may not be reissued.
7. If at any time the corporation shall have failed to pay dividends
in full on the $10 Par Value Preferred Stock, thereafter and until dividends in
full, including all dividends on the $10 Par Value Preferred Stock outstanding
accrued to the last preceding quarterly dividend payment date, shall have been
declared and set apart for payment or paid, (a) the corporation without the
affirmative vote or consent of the holders of at least 66 2/3% of all the $10
Par Value Preferred Stock at the time outstanding, given in person or by proxy,
either in writing or by resolution adopted at a special meeting called for the
purpose, shall not redeem less than all of the $10 Par Value Preferred Stock at
such time outstanding and (b) neither the corporation nor any subsidiary shall
purchase any $10 Par Value Preferred Stock except in accordance with a purchase
offer made in writing to all holders of $10 Par Value Preferred Stock upon such
terms as the Board of Directors in their sole discretion shall determine (which
determination shall be final and conclusive) to be fair and equitable;
provided, however, that nothing shall prevent the corporation from completing
the redemption of shares of $10 Par Value Preferred Stock as and for the
Mandatory or Optional Sinking Fund, the notice of redemption of which was
mailed prior to such failure.
8. Except when otherwise herein or by the laws of the State of
Delaware specifically provided, the holders of the $10 Par Value Preferred
Stock shall not be entitled to vote on any question or in any proceedings or to
be represented at or to receive notice of any meeting of stockholders of the
corporation; provided, however, that whenever dividends payable on the $10 Par
Value Preferred Stock shall be in default in an aggregate amount equivalent to
six full quarterly dividends, the holders of the $10 Par Value Preferred Stock
shall have the exclusive and special right, voting as a single class separately
from the holders of any other class of stock of the corporation, to elect at
the next annual meeting of the stockholders of the corporation two directors of
the corporation and the remaining directors shall be elected by the other class
or classes of stock entitled to vote therefor. Such right of election shall
continue until such time as all dividends accumulated on the $10 Par Value
Preferred Stock shall have been paid in full, or declared and set apart for
payment, at which time such right of election shall terminate, subject to
revesting in the event of each and every subsequent default in an aggregate
amount equivalent to six full quarterly dividends. In the exercise of the
special voting rights provided in this paragraph 8, the holders of the $10 Par
Value Preferred Stock shall have one vote per share. Nothing herein contained
shall in any way restrict the power of the Board of Directors to increase or
decrease the number of directors in accordance with the laws of the State
of Delaware and the By-Laws of the corporation.
9. At any annual meeting of stockholders at which the holders of the
$10 Par Value Preferred Stock shall have the right of election provided in
paragraph 8 of this Section I, the presence, in person or by proxy, of the
holders of a majority of the $10 Par Value Preferred Stock shall be required to
constitute a quorum of the $10 Par Value Preferred Stock for the election of
any director by the holders of the $10 Par Value Preferred Stock. At any such
meeting or adjournment thereof, (a) the absence of a quorum of the $10 Par
Value Preferred Stock shall not prevent the election of the directors to be
elected by the other class or classes of stock entitled to vote therefor, and
the absence of a quorum of such other class or classes of stock shall not
prevent the election of the directors to be elected by the $10 Par Value
Preferred Stock, and (b) in the absence of either or both such quorums, a
majority of the holders present in person or by proxy of the stock or stocks
which lack a quorum shall have the power to adjourn the meeting for the
election of directors which they are entitled to elect, from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
-3-
<PAGE> 4
10. The directors elected by the holders of the $10 Par Value
Preferred Stock in exercise of the right of election provided in paragraph 8 of
this Section I shall continue in office until their successors shall have been
elected by such holders or until termination of such right of election. The
vacancies in the Board of Directors so occurring upon the termination of such
right of election shall be filled by the majority vote of the remaining
directors. Any vacancies in the Board of Directors occurring during any period
when the holders of the $10 Par Value Preferred Stock have such right of
election shall be filled only by vote of a majority (even if that be only a
single director) of the remaining directors theretofore elected by the holders
of the class or classes of stock which elected the director whose office shall
have become vacant.
11. So long as any $10 Par Value Preferred Stock is outstanding, the
corporation will not:
(a) declare, or pay, or set apart for payment, any dividends
(other than dividends payable in shares of stock of the corporation
ranking junior to the $10 Par Value Preferred Stock, both as to
dividends and upon liquidation) or make any distribution, on any class
or classes of stock of the corporation ranking junior to the $10 Par
Value Preferred Stock either as to dividends or upon liquidation, and
will not redeem, purchase or otherwise acquire, whether voluntarily,
for a mandatory or optional sinking or retirement fund or otherwise,
or permit any subsidiary to purchase or otherwise acquire, any shares
of any such junior class if at the time of making such declaration,
payment, distribution, redemption, purchase or acquisition the
corporation shall be in default with respect to any dividend payable
on the $10 Par Value Preferred Stock or any obligation to redeem
shares of the $10 Par Value Preferred Stock pursuant to any mandatory
sinking or retirement fund; provided, however, that the corporation
may at any time redeem, purchase or otherwise acquire shares of any
such junior class in exchange for, or out of the net cash proceeds
from the substantially concurrent sale of, shares of any class of
stock of the corporation ranking junior to the $10 Par Value Preferred
Stock both as to dividends and upon liquidation;
(b) without the affirmative vote or consent of the holders of
at least 66 2/3% of all the $10 Par Value Preferred Stock at the time
outstanding, voting together as a single class separately from the
holders of any other class of stock of the corporation, given in
person or by proxy, either in writing or by resolution adopted at a
special meeting called for the purpose, (i) create any other class or
classes of stock ranking prior to the $10 Par Value Preferred Stock,
either as to dividends or upon liquidation, or increase the authorized
number of shares of any such other class of stock or (ii) amend, alter
or repeal any of the provisions of this Article so as to adversely
affect the preferences, special rights or powers of the $10 Par Value
Preferred Stock; provided, however, that no vote or consent of the $10
Par Value Preferred Stock shall be required for increasing the
authorized amount of the $10 Par Value Preferred Stock or for the
creation of one or more classes of preferred stock so long as such
class or classes do not rank prior to the $10 Par Value Preferred
Stock, either as to dividends or upon liquidation; and
(c) without the affirmative vote or consent of the holders of
at least a majority of all the $10 Par Value Preferred Stock at the
time outstanding, voting as a single class separately from the holders
of any other class of stock of the corporation, given in person or by
proxy, either in writing or by resolution adopted at a special
meeting called for the purpose, voluntarily dissolve, liquidate or
wind up.
SECTION II--PROVISIONS RELATING TO NO PAR VALUE PREFERRED STOCK
Part A. $9.00 Series No Par Value Preferred Stock.
1. There shall be a series of the No Par Value Preferred Stock to be
known as "$9.00 Series No Par Value Preferred Stock" (hereinafter referred to
as the "$9 Preferred Stock"), consisting of 510,000 shares of No Par Value
Preferred Stock.
-4-
<PAGE> 5
2. The holders of the $9 Preferred Stock shall be entitled to receive
fully cumulative dividends, when and as declared by the Board of Directors of
the corporation out of funds legally available therefor, at the rate of $9.00
per share, and no more, per annum. Such dividends shall be payable quarterly on
the first day of each March, June, September and December, commencing on the
first of such dates after shares of the $9 Preferred Stock are first issued,
and shall be paid to holders of record on such respective dates which, with
respect to the initial quarterly dividend payment date, shall not be earlier
than the date on which shares of such series are first issued and, with respect
to subsequent quarterly dividend payment dates, shall not exceed 50 days
preceding such dividend payment dates, as may be determined by the Board of
Directors in advance of the payment of the particular dividend.
3. The corporation may at any time redeem the whole or from time to
time any part of the $9 Preferred Stock at $100 per share plus an amount equal
to all dividends, if any, accrued thereon to the date designated for redemption
with respect to each share so to be redeemed, and in addition thereto a premium
per share payable upon redemption, over and above the $100 per share and any
accrued dividends thereon, as follows:
<TABLE>
<CAPTION>
IF REDEEMED DURING
THE TWELVE MONTHS
BEGINNING MARCH 1, A PREMIUM OF
----------------- ------------
<S> <C>
1981 $7.00
1982 6.00
1983 5.00
1984 4.00
1985 3.00
1986 2.00
1987 1.00
1988 None
</TABLE>
provided, however, that prior to March 1, 1984 the corporation shall not redeem
any of the $9 Preferred Stock at its option, directly or indirectly, from the
proceeds of or in anticipation of any refunding operation involving the
incurring of debt or the issuance of preferred stock ranking equal or prior to
the $9 Preferred Stock in respect of dividends or preference on liquidation and
having a cost to the corporation, computed in accordance with generally
accepted financial practice, of less than 9% per annum.
4. In the event of any liquidation, dissolution or winding up of the
corporation, before any payment or distribution of the assets of the
corporation (whether capital or surplus) shall be made to or set apart for the
holders of any shares of stock of the corporation ranking junior to the $9
Preferred Stock upon liquidation, the holders of the $9 Preferred Stock shall
be entitled to receive a payment at the rate of $100 per share plus an amount
equal to all dividends accrued thereon to the date of final distribution to
such holders; provided, however, that upon any voluntary liquidation,
dissolution or winding up of the corporation (including any liquidation,
dissolution or winding up of the corporation resulting from government seizure
by right of eminent domain), the holders of the $9 Preferred Stock shall be
entitled to receive at the time thereof, over and above the amount of $100 per
share and any accrued dividends thereon, a premium per share equal to the then
applicable optional redemption premium fixed in paragraph 3 of this Part A.
5. (a) On March 1 in each year, commencing in 1985, the corporation
shall retire through redemption 102,000 shares of $9 Preferred Stock (such
number and redemption price to be adjusted appropriately in the event of any
stock split, issuance of additional shares of such series pursuant to paragraph
8 of this Part A, combination or any other recapitalization and such number, so
adjusted if appropriate, to be reduced by a percentage obtained by dividing
such number of shares of $9 Preferred Stock, if any, which the corporation has,
at any time prior to the record date for
-5-
<PAGE> 6
redemption, acquired by purchase or redemption or otherwise retired except
pursuant to paragraph 3 of this Part A or this paragraph 5 by 510,000 (or
510,000 as adjusted pursuant to the first clause in this parenthetical)) at a
redemption price of $100 per share plus an amount equal to all dividends, if
any, accrued thereon to the date designated for redemption; provided, however,
that such redemptions may be made only out of the net assets of the corporation
legally available therefor remaining after full cumulative dividends upon all
of the shares of $9 Preferred Stock and upon any other shares of equal rank
therewith as to dividends then outstanding to the end of the last preceding
dividend period shall have been paid or declared and a sum sufficient for the
payment thereof set apart for payment.
(b) The obligation of the corporation to retire shares of $9 Preferred
Stock pursuant to subparagraph (a) of this paragraph 5 shall be cumulative so
that, if in any calendar year the corporation shall not retire the number of
shares of such series so required to be retired, the obligation to retire such
shares shall continue and funds legally available therefor shall be applied for
such purpose until such obligation is discharged.
6. Notwithstanding the provisions of paragraph 2(a) of Section III of
this Article, if less than all of the $9 Preferred Stock then outstanding is to
be redeemed pursuant to paragraphs 3 or 5 of this Part A, the corporation shall
prorate, as nearly as practical, the shares to be redeemed among all registered
holders of shares of such series in proportion to the respective number of
shares of such series held by each such holder.
7. If at any time the corporation shall have failed to pay, or declare
and set apart for payment, dividends accrued on the $9 Preferred Stock to the
last preceding quarterly dividend payment date, or shall have failed to redeem,
or to set aside funds necessary for the redemption of, the number of shares
required to be redeemed pursuant to subparagraph (a) of paragraph 5 of this
Part A, thereafter and until such dividends shall have been paid, or sums
sufficient for the payment thereof shall have been set apart for payment, or
until such shares shall have been redeemed, or funds necessary for the
redemption thereof shall have been set aside, as the case may be, (i) the
corporation shall not exercise any optional right to redeem any Preferred Stock
of any other class or series or less than all of the $9 Preferred Stock at the
time outstanding and (ii) neither the corporation nor any subsidiary shall
purchase any Preferred Stock except in accordance with a purchase offer made in
writing to all holders of Preferred Stock of all classes and series upon such
terms as the Board of Directors, in its sole discretion after consideration of
the respective annual dividend rates and other relative rights and preferences
of the respective classes and series, shall determine will result in fair and
equitable treatment among the respective classes and series. Nothing in this
paragraph 7 shall prevent the corporation from completing the redemption of any
Preferred Stock of any class or series, notice of the redemption of which was
mailed prior to any failure to pay dividends on or redeem shares of the $9
Preferred Stock.
8. So long as any of the $9 Preferred Stock is outstanding, the
corporation will not, without the affirmative vote or consent, in addition to
any other vote or consent required hereby or by the laws of the State of
Delaware, of the holders of at least a majority of the shares of such series at
the time outstanding, voting as a single class separate from the holders of any
class or series of stock of the corporation, given in person or by proxy,
either in writing or by resolution adopted at a special meeting called for the
purpose, increase the authorized number of shares of $9 Preferred Stock to more
than 510,000 or increase the aggregate amount payable pursuant to paragraph 4
of this Part A upon any involuntary liquidation, dissolution or winding up of
the corporation to more than $51,000,000 plus accrued dividends, if any.
9. Any shares of $9 Preferred Stock which shall at any time have been
redeemed, purchased or otherwise acquired by the corporation (whether pursuant
to paragraph 3 or subparagraph (a) of paragraph 5 of this Part A or otherwise)
shall cease to be shares of such series and may not be
-6-
<PAGE> 7
reissued as shares of such series but shall, after such redemption, purchase or
other acquisition, have the status of authorized but unissued shares of the No
Par Value Preferred Stock without designation as to series until once more
designated as part of a particular series by the Board of Directors.
Part B. $2.125 Series No Par Value Preferred Stock, $25 Redemption Value.
1. There shall be a series of the No Par Value Preferred Stock to be
known as "$2.125 Series No Par Value Preferred Stock, $25 Redemption Value"
(hereinafter referred to as the "$2.125 Preferred Stock"), consisting of
1,340,023 shares of the No Par Value Preferred Stock.
2. The holders of the $2.125 Preferred Stock shall be entitled to
receive fully cumulative dividends, when and as declared by the Board of
Directors of the corporation out of funds legally available therefor, at the
rate of $2.125 per share, and no more, per annum. Such dividends shall be
payable quarterly on the first day of each March, June, September and December,
commencing on the first of such dates after shares of the $2.125 Preferred
Stock are first issued, and shall be paid to holders of record on such
respective dates which, with respect to the initial quarterly dividend payment
date, shall not be earlier than the date on which shares of such series are
first issued and, with respect to subsequent quarterly dividend payment dates,
shall not exceed 50 days preceding such quarterly dividend payment dates, as
may be determined by the Board of Directors in advance of the payment of the
particular dividend.
3. The corporation may at any time on or after November 21, 1985
redeem the whole or from time to time any part of the $2.125 Preferred Stock at
$25 per share plus an amount equal to all dividends, if any, accrued thereon to
the date designated for redemption with respect to each share so to be
redeemed, and in addition thereto a premium per share payable upon redemption
over and above the $25 per share and any accrued dividends thereon, as follows:
<TABLE>
<CAPTION>
IF REDEEMED DURING
THE TWELVE MONTHS
BEGINNING
NOVEMBER 21, PREMIUM
------------ -------
<S> <C>
1985 $1.40
1986 1.30
1987 1.15
1988 1.00
1989 .85
1990 .70
1991 .55
1992 .40
1993 .30
1994 .15
</TABLE>
and such shares shall be redeemable without premium thereafter; provided,
however, that prior to November 21, 1990, the corporation shall not redeem any
of the $2.125 Preferred Stock at its option, directly or indirectly, from the
proceeds of or in anticipation of any refunding operation involving the
incurring of debt or the issuance of Preferred Stock having a cost to the
corporation, computed in accordance with generally accepted financial practice,
of less than 8 1/2% per annum.
4. In the event of any liquidation, dissolution or winding up of the
corporation, before any payment or distribution of the assets of the
corporation (whether capital or surplus) shall be made to or set apart for the
holders of any shares of stock of the corporation ranking junior to the $2.125
Preferred Stock upon liquidation, the holders of the $2.125 Preferred Stock
shall be entitled to receive a payment at the rate of $25 per share, plus an
amount equal to all dividends accrued thereon to the
-7-
<PAGE> 8
date of final distribution to such holders; provided, however, that upon any
voluntary liquidation, dissolution or winding up of the corporation (including
any liquidation, dissolution or winding up of the corporation resulting from
government seizure by right of eminent domain), the holders of the $2.125
Preferred Stock shall be entitled to receive at the time thereof, over and
above the amount of $25 per share and any accrued dividends thereon, a premium
per share as follows:
<TABLE>
<CAPTION>
DURING THE
TWELVE MONTHS
BEGINNING
NOVEMBER 21, PREMIUM
------------ -------
<S> <C>
1980 $2.125
1981 2.00
1982 1.85
1983 1.70
1984 1.55
</TABLE>
and thereafter a premium per share equal to the then applicable optional
redemption premium fixed in paragraph 3 of this Part B.
5. (a) On or before December 31, 1985, but not before November 21,
1985, and on or before each December 31 thereafter, the corporation shall
retire through redemption in the manner hereinafter provided a number of shares
of $2.125 Preferred Stock equal to 6 2/3% of the largest number of shares of
such series which shall at any time have been issued and outstanding (such
number to be appropriately adjusted in the event of any stock split,
combination or any other recapitalization or in the event that any shares of
such series are issued after the first date on which shares are selected for
redemption pursuant to this subparagraph (a)), so that all shares of $2.125
Preferred Stock will be redeemed on or before November 21, 2000; provided,
however, that such redemptions may be made only out of the net assets of the
corporation legally available therefor remaining after full cumulative
dividends upon all of the shares of $2.125 Preferred Stock then outstanding to
the end of the last preceding dividend period shall have been paid, or declared
and a sum sufficient for the payment thereof set apart for payment. The number
of shares required to be retired in each year pursuant to this subparagraph (a)
shall be subject to reduction by the application of a credit as provided in
subparagraph (c) of this paragraph 5.
(b) On each date designated for the redemption of shares of $2.125
Preferred Stock pursuant to subparagraph (a) of this paragraph 5, out of such
net assets, the corporation may at its option and in addition to shares of such
series required to be retired pursuant thereto retire through redemption up to
a number of shares of such series not exceeding the number of shares so
required to be retired annually (prior to the application of any credits);
provided, however, that no shares of such series may be retired pursuant to
this subparagraph (b) when there exists any deficiency in the retirement of
shares pursuant to subparagraph (a) of this paragraph 5. The right to retire
shares pursuant to this subparagraph (b) is noncumulative and to the extent not
exercised in any year shall terminate.
(c) There shall be allowed to the corporation as a credit against the
number of shares of $2.125 Preferred Stock required to be retired pursuant to
subparagraph (a) of this paragraph 5 for any year or years selected by the
Board of Directors in its discretion shares of such series which the
corporation has at any time theretofore redeemed otherwise than pursuant to
subparagraphs (a) and (b) of this paragraph 5, purchased or otherwise acquired
and canceled and which have not theretofore been used for the purpose of any
such credit.
(d) The obligation of the corporation to retire shares of $2.125
Preferred Stock pursuant to subparagraph (a) of this paragraph 5 shall be
cumulative, so that, if in any year the corporation shall not retire the number
of shares so required to be retired after the application of the credit
provided for in subparagraph (c) of this paragraph 5, the obligation to retire
such shares shall continue and funds legally available therefor shall be
applied for such purpose until such obligation is discharged.
-8-
<PAGE> 9
(e) Shares of $2.125 Preferred Stock shall be redeemed pursuant to
this paragraph 5 at the redemption price of $25 per share, plus an amount equal
to the dividends accrued thereon to the date designated for redemption. Notice
of redemption of shares pursuant to this paragraph 5 shall be given at least
30, but not more than 50, days in advance of the date designated for
redemption.
6. If at any time the corporation shall have failed to pay, or declare
and set apart for payment, dividends accrued on the $2.125 Preferred Stock to
the last preceding quarterly dividend payment date, or shall have failed to
redeem, or to set aside funds necessary for the redemption of, the number of
shares required to be redeemed pursuant to subparagraph (a) of paragraph 5 of
this Part B after the application of the credit provided for in subparagraph
(c) of such paragraph 5, thereafter and until such dividends shall have been
paid, or sums sufficient for the payment thereof shall have been set apart for
payment, or until such shares shall have been redeemed, or funds necessary for
the redemption thereof shall have been set aside, as the case may be, (i) the
corporation shall not exercise any optional right to redeem any Preferred Stock
of any other class or series or less than all of the $2.125 Preferred Stock at
the time outstanding and (ii) neither the corporation nor any subsidiary shall
purchase any Preferred Stock except in accordance with a purchase offer made in
writing to all holders of Preferred Stock of all classes and series upon such
terms as the Board of Directors, in its sole discretion after consideration of
the respective annual dividend rates and other relative rights and preferences
of the respective classes and series, shall determine will result in fair and
equitable treatment among the respective series. Nothing in this paragraph 6
shall prevent the corporation from completing the redemption of any Preferred
Stock of any class or series, notice of the redemption of which was mailed
prior to any failure to pay dividends on or redeem shares of the $2.125
Preferred Stock.
7. So long as any of the $2.125 Preferred Stock is outstanding, the
corporation will not:
(a) redeem, purchase or otherwise acquire shares of any class or
classes of stock of the corporation ranking junior to the $2.125 Preferred
Stock either as to dividends or upon liquidation if such redemption, purchase
or acquisition complies with the provisions of paragraph 2(a) of Part D of this
Section II only by application of the proviso thereof;
(b) amend, alter or repeal any of the provisions applicable to the
$2.125 Preferred Stock so as to change the dividend payable thereon, the amount
payable thereon upon liquidation or redemption or the mandatory redemption
provisions applicable thereto without the affirmative vote or consent of the
holders of at least 66 2/3% thereof at the time outstanding, voting as a
separate class, given in person or by proxy, either in writing or by resolution
adopted at a special meeting called for the purpose;
(c) create any other class or classes of stock ranking prior to the No
Par Value Preferred Stock as to dividends, sinking fund or upon liquidation, or
increase the authorized number of shares of any other class or classes of stock
ranking prior to the No Par Value Preferred Stock, without the affirmative vote
or consent, in addition to all other votes or consents required hereby or by
the laws of the State of Delaware, of the holders of at least a majority of all
the No Par Value Preferred Stock at the time outstanding which shall not by the
terms thereof then or thereafter be convertible into Common Stock, voting
together as a single class separate from the holders of any other class,
classes or series of stock of the corporation, given in person or by proxy,
either in writing or by resolution adopted at a special meeting called for the
purpose; provided, however, that if such other class or classes of stock shall
rank prior to less than all series of the No Par Value Preferred Stock, only
the affirmative vote or consent of at least a majority of the number of shares
at the time outstanding of the series so affected shall be required.
8. Any shares of $2.125 Preferred Stock which shall at any time have
been redeemed, purchased or otherwise acquired by the corporation (whether
pursuant to subparagraph (a) or (b) of paragraph 5 of this Part B or otherwise)
shall, except for purposes of the credit provided in subparagraph (c) of such
paragraph 5, cease to be shares of such series and may not be reissued as
shares of such series but shall, after such redemption, purchase or other
acquisition, have the status of authorized but unissued shares of the No Par
Value Preferred Stock without designation as to series until once more
designated as part of a particular series by the Board of Directors.
-9-
<PAGE> 10
Part C. Other Series of No Par Value Preferred Stock.
1. The Board of Directors is expressly authorized to adopt, from time
to time, a resolution or resolutions providing for the issue of No Par Value
Preferred Stock in one or more series (in addition to the $9 Preferred Stock and
the $2.125 Preferred Stock), to fix the number of shares in each such series
and to fix the designations and the powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions, of each such series. The authority of the Board
of Directors with respect to each such series shall include determination of
the following (which may vary as between the different series of No Par Value
Preferred Stock):
(a) The number of shares constituting the series and the
distinctive designation of the series;
(b) The dividend rate on the shares of the series and the
extent, if any, to which dividends thereon shall be cumulative;
(c) Whether shares of the series shall be redeemable and, if
redeemable, the redemption price payable on redemption thereof, which
price may, but need not, vary according to the time or circumstances
of such redemption;
(d) The amount or amounts payable upon the shares of the
series in the event of voluntary or involuntary liquidation,
dissolution or winding up of the corporation prior to any payment or
distribution of the assets of the corporation to any class or classes
of stock of the corporation ranking junior to the Preferred Stock,
provided, however, that the aggregate amount payable upon the shares
of all series of No Par Value Preferred Stock upon voluntary or
involuntary liquidation shall not exceed $500,000,000;
(e) Whether the shares of the series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase
or redemption of shares of the series and, if so entitled, the amount
of such fund and the manner of its application, including the price or
prices at which the shares may be redeemed or purchased through the
application of such fund;
(f) Whether the shares of the series shall be convertible
into, or exchangeable for, shares of any other class or classes or of
any other series of the same or any other class or classes of stock of
the corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(g) The extent, if any, to which the holders of shares of the
series shall be entitled to vote on any question or in any proceedings
or to be represented at or to receive notice of any meeting of
stockholders of the corporation; and
(h) Any other preferences, privileges and powers, and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as the
Board of Directors may deem advisable, which shall not affect
adversely any other class or series of Preferred Stock at the time
outstanding and which shall not be inconsistent with the provisions of
this certificate of incorporation.
Part D. All Series of No Par Value Preferred Stock.
1. (a) Except as otherwise specifically provided by the laws of the
State of Delaware or by this certificate of incorporation or by the resolution
of the Board of Directors creating any series of No Par Value Preferred Stock,
the holders of the No Par Value Preferred Stock shall not be entitled to vote
on any question or in any proceedings or to be represented at or to receive
notice of any meeting of stockholders of the corporation; provided, however,
that whenever accrued dividends on any series of the No Par Value Preferred
Stock shall not be paid in an aggregate amount equivalent to six full
-10-
<PAGE> 11
quarterly dividends, the holders of the shares of such series shall have the
special right, voting together with the holders of any other series of the No
Par Value Preferred Stock, if they shall then have such right, as a single
class separately from the holders of any other class of stock of the
corporation, to elect at the next annual meeting of the stockholders of the
corporation two directors of the corporation, and the remaining directors shall
be elected by the other class, classes or series of stock entitled to vote
therefor. Such right of election shall continue until such time as all
dividends on the shares of the series having such right accrued to the date of
payment, if the date of payment shall be a quarterly dividend payment date, or
to the last preceding quarterly dividend payment date, if the date of payment
shall be other than a quarterly dividend payment date, shall have been paid in
full, or declared and set apart for payment, at which time such right of
election shall terminate, subject to revesting in the event of each and every
subsequent failure to pay in an aggregate amount equivalent to six full
quarterly dividends. In the exercise of the special voting rights provided in
this paragraph 1, the holders of shares shall have one vote per share. Nothing
herein contained shall in any way restrict the power of the Board of Directors
to increase or decrease the number of directors in accordance with the laws of
the State of Delaware, this certificate of incorporation and the By-Laws of the
corporation.
(b) At any annual meeting of stockholders at which holders of any
series of the No Par Value Preferred Stock shall have the right of election
provided in this paragraph 1, the presence, in person or by proxy, of the
holders of a majority of the shares of No Par Value Preferred Stock entitled to
participate in such election shall be required to constitute a quorum of such
shares for the election of any director by the holders of such shares. At any
such meeting or adjournment thereof, (i) the absence of a quorum of such shares
of No Par Value Preferred Stock shall not prevent the election of the directors
to be elected by the other class, classes or series of stock entitled to vote
therefor, and the absence of a quorum of such other class, classes or series of
stock shall not prevent the election of the directors to be elected by such
shares of No Par Value Preferred Stock, and (ii) in the absence of either or
both such quorums, a majority of the holders present in person or by proxy of
the class, classes or series of stock which lack a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled to
elect, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
(c) The directors elected by the holders of shares of No Par Value
Preferred Stock in exercise of the right of election provided in this paragraph
1 shall continue in office until their successors shall have been elected by
such holders or until termination of such right of election. The vacancies in
the Board of Directors so occurring upon the termination of such right of
election shall be filled by the majority vote of the remaining directors. Any
vacancies in the Board of Directors occurring during any period when the
holders of shares of No Par Value Preferred Stock have such right of election
shall be filled only by vote of a majority (even if that be only a single
director) of the remaining directors theretofore elected by the holders of the
class, classes or series of stock which elected the director whose office shall
have become vacant.
2. Except as otherwise specifically provided with respect to any
series of No Par Value Preferred Stock, so long as any of the No Par Value
Preferred Stock is outstanding, the corporation will not:
(a) declare or pay, or set apart for payment, any dividends
(other than dividends payable in shares of stock of the corporation
ranking junior to the No Par Value Preferred Stock, both as to
dividends and upon liquidation) or make any distribution, on any class
or classes of stock of the corporation ranking junior to the No Par
Value Preferred Stock either as to dividends or upon liquidation, and
will not redeem, purchase or otherwise acquire, whether voluntarily,
for a mandatory or optional sinking or retirement fund or otherwise,
or permit any subsidiary to purchase or otherwise acquire, any shares
of any such junior class if at the time of making such declaration,
payment, distribution, redemption, purchase or acquisition the
corporation shall not have paid, or declared and set apart for
payment, all dividends accrued on the No Par Value
-11-
<PAGE> 12
Preferred Stock to the date of such declaration, payment,
distribution, redemption, purchase or acquisition, if such date shall
be a quarterly dividend payment date, or to the last preceding
quarterly dividend payment date, if such date shall be other than a
quarterly dividend payment date, or shall not have redeemed, or set
aside funds necessary for the redemption of, any shares of No Par
Value Preferred Stock required to be redeemed pursuant to this
certificate of incorporation or the resolution or resolutions of the
Board of Directors creating any series of No Par Value Preferred
Stock; provided, however, that the corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior class in
exchange for, or out of the net cash proceeds from the substantially
concurrent sale of, shares of any class of stock of the corporation
ranking junior to the No Par Value Preferred Stock both as to
dividends and upon liquidation;
(b) without the affirmative vote or consent of the holders of
at least 66 2/3% of all the No Par Value Preferred Stock at the time
outstanding, voting together as a single class separate from the
holders of any other class of stock of the corporation, given in
person or by proxy, either in writing or by resolution adopted at a
special meeting called for the purpose, (i) create any other class or
classes of stock ranking prior to the No Par Value Preferred Stock,
either as to dividends or upon liquidation, or increase the authorized
number of shares of any such other class of stock or (ii) amend, alter
or repeal any of the provisions of this Article so as to affect
adversely the preferences, special rights or powers of the No Par
Value Preferred Stock; provided, however, that if such amendment,
alteration or repeal affects adversely the preferences, special rights
or powers of one or more but not all series of No Par Value Preferred
Stock at the time outstanding, only the affirmative vote or consent of
at least 66 2/3% of the number of shares at the time outstanding of
the series so affected shall be required; and provided, further, that
no vote or consent of the No Par Value Preferred Stock shall be
required to increase the authorized amount of the No Par Value
Preferred Stock or for the creation of one or more classes of
preferred stock so long as such class or classes do not rank prior to
the No Par Value Preferred Stock, either as to dividends or upon
liquidation;
(c) without the affirmative vote or consent of the holders of
at least a majority of all the No Par Value Preferred Stock at the
time outstanding, voting together as a single class separately from
the holders of any other class of stock of the corporation, given in
person or by proxy, either in writing or by resolution adopted at a
special meeting called for the purpose, voluntarily dissolve,
liquidate or wind up.
SECTION III--PROVISIONS RELATING TO ALL PREFERRED STOCK
1. All shares of Preferred Stock shall be of equal rank as to dividends
and as to distribution upon liquidation, dissolution or winding up except to
the extent otherwise provided with respect to any series of the No Par Value
Preferred Stock by the resolution or resolutions of the Board of Directors
creating such series. If dividends shall at any time be declared or paid on
shares of the Preferred Stock which are of equal rank as to dividends in any
amount less than the full dividends accrued and unpaid to and including the
date of such declaration or payment on all such outstanding shares, such
dividends shall be divided among such shares of Preferred Stock in proportion
to the aggregate amounts of dividends accrued and unpaid to such date on all
such outstanding shares. If, upon any liquidation, dissolution or winding up of
the corporation, the assets of the corporation, or proceeds thereof,
distributable among the holders of the shares of Preferred Stock which are of
equal rank as to distribution upon liquidation, dissolution or winding up shall
be insufficient to pay in full the preferential amount payable with respect to
such shares, then such assets, or the proceeds thereof, shall be distributed
among such holders ratably in accordance with the respective amounts which
would be payable on such shares if all amounts payable thereon were paid in
full.
-12-
<PAGE> 13
2. The provisions of this paragraph 2 shall be applicable, except to
the extent otherwise provided with respect to any series of No Par Value
Preferred Stock in the resolution or resolutions of the Board of Directors
creating such series, to the redemption of any Preferred Stock which is
redeemable under this certificate of incorporation or the resolution or
resolutions of the Board of Directors creating any series of the No Par Value
Preferred Stock:
(a) In the case of any redemption of Preferred Stock, whether
with or without premium, notice of redemption shall be mailed at least
30 days in advance of the date designated for such redemption to the
holders of record of the shares of Preferred Stock so to be redeemed
at their respective addresses as the same shall appear on the books of
the corporation. In order to facilitate the redemption of any shares
of Preferred Stock that may be selected for redemption as provided in
this paragraph 2, the Board of Directors is authorized to cause the
transfer books of the corporation to be closed as to such shares at
any time not exceeding 50 days prior to the date designated for
redemption thereof. In case of the redemption of less than all of the
$10 Par Value Preferred Stock or of any particular series of the No
Par Value Preferred Stock at the time outstanding, the shares so to be
redeemed shall be selected by lot or in such other equitable manner as
the Board of Directors may determine.
(b) If notice shall have been given as aforesaid, and if on or
before the redemption date the funds necessary for such redemption
shall have been set aside by the corporation, separate and apart from
its other funds, for the pro rata benefit of the holders of the shares
so called for redemption, then, notwithstanding that any certificates
for shares of Preferred Stock so called for redemption shall not have
been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding, the right to receive dividends
thereon shall cease to accrue from and after the date for redemption
so designated and all rights of holders of the shares of Preferred
Stock so called for redemption shall forthwith, after such redemption
date, cease and terminate, except the right of the holders thereof to
receive the amount payable to them upon such redemption, without
interest, and except the right, if any, of the holders of such shares
to convert such shares on or before the third day prior to the date
designated for such redemption or any other date (not later than the
date designated for such redemption) specified in the resolution or
resolutions of the Board of Directors creating the series of Preferred
Stock of which such shares are a part. Any moneys so set aside by the
corporation and unclaimed at the end of six years from the date fixed
for such redemption shall revert to the general funds of the
corporation after which reversion the holders of such shares so called
for redemption shall look only to the corporation for payment of the
amount payable to them upon such redemption and such shares shall
still not be deemed to be outstanding. Any moneys so set aside by the
corporation which shall not be required for such redemption because of
the exercise of any conversion right of any shares to be redeemed
shall revert to the general funds of the corporation forthwith.
3. No holder of Preferred Stock as such shall have any preemptive
right to subscribe to stock, obligations, warrants, rights to subscribe to
stock or other securities of the corporation of any class, whether now or
hereafter authorized.
4. Except as otherwise provided in the resolution or resolutions of
the Board of Directors creating a series of No Par Value Preferred Stock,
dividends on all shares of Preferred Stock shall be cumulative:
(a) in the case of shares of Preferred Stock issued upon the
merger of a wholly-owned subsidiary of the corporation into Burlington
Northern Inc., a Delaware corporation which changed its name to
Burlington Northern Railroad Company (hereinafter referred to as the
"Railroad Company") coincident with such merger, from the last
dividend payment date to which dividends have been paid in full, or
declared and set apart for payment, on the shares of preferred stock
of the Railroad Company in respect of which such shares of Preferred
Stock have been issued or from the last dividend payment date to which
dividends have been paid in full, or
-13-
<PAGE> 14
declared and set apart for payment, on such shares of Preferred
Stock, whichever is later; provided, however, that if any shares of
preferred stock of the Railroad Company are issued after the record
date for the determination of holders entitled to receive dividends on
such last dividend payment date, dividends on shares of Preferred
Stock issued in respect thereof shall be cumulative from the date of
issue of such preferred stock of the Railroad Company or from the last
dividend payment date to which dividends have been paid in full, or
declared and set apart for payment, on such shares of Preferred Stock,
whichever is later; and
(b) in the case of all other shares of Preferred Stock, from
the date on which such shares are first issued and sold or from the
last dividend payment date to which dividends have been paid in full,
or declared and set apart for payment, whichever is later.
5. For the purposes of this Article:
(a) The term "subsidiary" shall mean any corporation of which
the corporation, directly or indirectly, owns or controls such number
of shares of outstanding stock as have ordinary voting power to elect
a majority of the board of directors of such corporation;
(b) The term "outstanding", when used in reference to shares
of stock, shall mean issued shares, excluding shares held by the
corporation or a subsidiary and shares called for redemption funds for
the redemption of which shall have been set aside in accordance with
paragraph 2 of this Section III;
(c) The amount of dividends "accrued" on any share of
Preferred Stock at any quarterly dividend payment date shall be the
amount of any unpaid dividends accumulated thereon to and including
such quarterly dividend payment date, whether or not earned or
declared and whether or not there shall be funds legally available
for the payment of dividends thereon, and the amount of dividends
"accrued" on any share of Preferred Stock as at any date other than a
quarterly dividend payment date shall be the amount of dividends
accrued thereon at the last preceding quarterly dividend payment date
plus a pro rata portion of the annual dividend for the period after
such last preceding quarterly dividend payment date to and including
the date as of which the calculation is made, calculated on the
basis of a 360-day year of twelve 30-day months.
(d) Any class, classes or series of stock of the corporation
shall be deemed to rank
(i) prior to any other class, classes or series of
stock of the corporation either as to dividends or upon
liquidation if the holders of such class, classes or series
shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in preference or priority to the holders
of the class, classes or series as to which such
determination is being made;
(ii) junior to any class, classes or series of
stock of the corporation either as to dividends or upon
liquidation if the rights of the holders of such class,
classes or series shall be subject or subordinate to the
rights of the holders of the class, classes or series as to
which such determination is being made in respect of the
receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
SECTION IV--PROVISIONS RELATING TO COMMON STOCK
1. At all times each holder of Common Stock of the corporation shall
be entitled to one vote for each share of such stock standing in the name of
such holder on the books of the corporation. This paragraph shall not affect
the special voting rights of the Preferred Stock hereinabove set forth.
2. No holder of the Common Stock as such shall have any preemptive
right to subscribe to stock, obligations, warrants, rights to subscribe to
stock or other securities of the corporation of any class, whether now or
hereafter authorized.
-14-
<PAGE> 15
3. The rights of holders of the Common Stock shall be subject and
subordinate to the rights of the holders of the Preferred Stock in respect of
dividends and amounts distributable upon liquidation, dissolution or winding
up.
FIFTH: In furtherance and not in limitation of the powers conferred by
law, the Board of Directors is expressly authorized:
1. To adopt, amend or repeal the By-Laws of the corporation
subject to the power of the stockholders of the corporation having
voting power to adopt By-Laws and to amend or repeal By-Laws adopted
or amended by the Board of Directors.
2. To remove at any time any officer elected or appointed by
the Board of Directors by such vote of the Board of Directors as may
be provided for in the By-Laws. Any other officer of the corporation
may be removed at any time by a vote of the Board of Directors, or by
any committee or superior officer upon whom such power of removal may
be conferred by the By-Laws or by a vote of the Board of Directors.
3. To establish bonus, profit sharing, stock option, stock
purchase, retirement or other types of incentive or compensation plans
for the employees (including officers and directors) of the
corporation and to fix the terms of such plans and to determine, or
prescribe the method for determining, the persons to participate in
any such plans and the amount of their respective participations.
4. From time to time to determine whether and to what extent,
and at what time and places and under what conditions and regulations,
the accounts and books of the corporation (other than the stock
ledger) or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any
account or book or document of the corporation, except as conferred by
the laws of the State of Delaware or as authorized by the Board of
Directors.
SIXTH: The corporation shall indemnify each person who is or was a
director, officer, employee or agent of the corporation or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise to the full extent permitted by the General Corporation Law of the
State of Delaware.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: The name and mailing address of the incorporator are:
Frank S. Farrell
176 East Fifth Street
St. Paul, Minnesota 55101
-15-
<PAGE> 16
NINTH: The name and mailing address of the person who is to serve as
director of the corporation until the first annual meeting of stockholders or
until his successor or successors are elected and qualify are:
Frank S. Farrell
176 East Fifth Street
St. Paul, Minnesota 55101
IN WITNESS WHEREOF, the undersigned, being the sole incorporator named
herein, hereby makes this certificate for the purpose of forming a corporation
pursuant to the General Corporation Law of the State of Delaware, certifies
that the facts set forth herein are true and correct and has signed this
certificate this 27th day of March, 1981.
/s/ FRANK S. FARRELL
-----------------------------
Frank S. Farrell
-16-
<PAGE> 17
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BURLINGTON NORTHERN HOLDING COMPANY
BURLINGTON NORTHERN HOLDING COMPANY, a corporation organized and
existing under the Delaware General Corporation Law,
DOES HEREBY CERTIFY:
FIRST: That the sole Director of Burlington Northern Holding Company,
by written consent dated March 30, 1981 pursuant to Section 141(f) of the
Delaware General Corporation Law, adopted resolutions setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and submitting said amendment to the sole
stockholder of said corporation for consideration thereof. The text of said
amendment is as follows:
That the Certificate of Incorporation of the Company be amended by
striking out Article FIRST thereof and substituting in lieu thereof
the following:
FIRST: The name of the corporation is Burlington Northern
Inc.
SECOND: That thereafter, pursuant to resolutions of said sole
Director, the proposed amendment was submitted
<PAGE> 18
to the sole stockholder of said corporation and was adopted by said sole
stockholder by written consent dated March 30, 1981 pursuant to Section 228 of
the Delaware General Corporation Law.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
FOURTH: That the capital of said corporation will not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said Burlington Northern Holding Company has
caused this certificate to be signed by its President and attested by its
Secretary this 14th day of May, 1981.
BURLINGTON NORTHERN HOLDING COMPANY
By /s/ FRANK S. FARRELL
--------------------------------
President
ATTEST:
/s/ FRANK S. FARRELL
- --------------------------------
Secretary
-2-
<PAGE> 19
CERTIFICATE OF RETIREMENT STOCK
Burlington Northern Inc., a corporation organized and existing under
The General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 7, 1981, a resolution was duly adopted which
identified shares of the capital stock of said corporation, which, to the
extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation, which are
retired, are identified as being one hundred twenty-three thousand four hundred
and fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissue of the shares of $10 Par Value Preferred Stock when so
retired; and, pursuant to the provisions of Section 243 of The General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the authorized
number of shares of the $10 Par Value Preferred Stock to the extent of one
hundred twenty-three thousand four hundred fifty-eight (123,458) shares, being
the total number of shares retired with a par value of ten dollars ($10.00) per
share and an aggregate par value of one million two hundred thirty-four
thousand five hundred and eighty dollars ($1,234,580).
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by Chester A. Rose, its Senior Vice President and
Chief Financial Officer, and attested by G.A. Troy, its Assistant Secretary,
this 8th day of December 1981.
BURLINGTON NORTHERN INC.
By /s/ CHESTER A. ROSE
--------------------------------
Chester A. Rose
(CORPORATE SEAL) Senior Vice President and
Chief Financial Officer
ATTEST:
By /s/ G. A. TROY
--------------------------------
G. A. Troy
Assistant Secretary
<PAGE> 20
CERTIFICATE OF REDUCTION OF CAPITAL
Burlington Northern Inc., a corporation organized and existing under
The General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 7, 1981, resolutions were duly adopted setting
forth a proposed reduction of the capital of said corporation in the manner and
to the extent hereinafter set forth.
SECOND: That pursuant to the provisions of Section 244 of The General
Corporation Law of the State of Delaware a reduction of the capital of the
corporation by the amount of one million two hundred thirty-four thousand five
hundred and eighty dollars ($1,234,580) was authorized in the following manner:
By reducing the capital represented by the shares which have been retired, and
the shares of capital stock of the corporation, which are retired in connection
with the reduction of capital, are identified as being one hundred twenty-three
thousand four hundred and fifty-eight (123,458) shares of the $10 Par Value
Preferred Stock.
THIRD: That the assets of the corporation remaining after such
reduction are sufficient to pay any debts for which payment has not been
otherwise provided.
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by Chester A. Rose, its Senior Vice President and
Chief Financial Officer, and attested by G.A. Troy, its Assistant Secretary,
this 8th day of December 1981.
BURLINGTON NORTHERN INC.
By /s/ CHESTER A. ROSE
--------------------------------
Chester A. Rose
(CORPORATE SEAL) Senior Vice President and
Chief Financial Officer
ATTEST:
By /s/ G. A. TROY
--------------------------------
G. A. Troy
Assistant Secretary
<PAGE> 21
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 20, 1982, a resolution was duly adopted which
identified shares of the capital stock of said corporation, which, to the
extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation, which are
retired, are identified as being one hundred twenty-three thousand four hundred
and fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissue of the shares of $10 Par Value Preferred Stock when so
retired; and, pursuant to the provisions of Section 243 of The General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the authorized
number of shares of the Par Value Preferred Stock to the extent of one hundred
twenty-three thousand four hundred fifty-eight (123,458) shares, being the
total number of shares retired with a par value of ten dollars ($10.00 per
share and an aggregate par value of one million two hundred thirty-four
thousand five hundred and eighty dollars ($1,234,580).
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by John B. Parrish, its Senior Vice President and
Chief Financial Officer, and attested by G.A. Troy, its Assistant Secretary,
this 23rd day of December, 1982
BURLINGTON NORTHERN INC.
By /s/ JOHN B. PARRISH
--------------------------------
John B. Parrish
(CORPORATE SEAL) Senior Vice President and
Chief Financial Officer
ATTEST:
By /s/ GERALD A. TROY
--------------------------------
Gerald A. Troy
Assistant Secretary and
Assistant General Solicitor
<PAGE> 22
CERTIFICATE OF REDUCTION OF CAPITAL
Burlington Northern Inc., a corporation organized and existing under
The General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 20, 1982, resolutions were duly adopted setting
forth a proposed reduction of the capital of said corporation in the manner and
to the extent hereinafter set forth.
SECOND: That pursuant to the provisions of Section 244 of The General
Corporation Law of the State of Delaware a reduction of the capital of the
corporation by the amount of one million two hundred thirty-four thousand five
hundred and eighty dollars ($1,234,580) was authorized in the following manner:
By reducing the capital represented by the shares which have been retired, and
the shares of capital stock of the corporation, which are retired in connection
with the reduction of capital, are identified as being one hundred twenty-three
thousand four hundred and fifty-eight (123,458) shares of the $10 Par Value
Preferred Stock.
THIRD: That the assets of the corporation remaining after such
reduction are sufficient to pay any debts for which payment has not been
otherwise provided.
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by John B. Parrish, its Senior Vice President and
Chief Financial Officer, and attested by G.A. Troy, its Assistant Secretary,
this 23rd day of December, 1982
BURLINGTON NORTHERN INC.
By /s/ JOHN S. PARRISH
--------------------------------
John S. Parrish
(CORPORATE SEAL) Senior Vice President and
Chief Financial Officer
ATTEST:
By /s/ G.A. TROY
--------------------------------
G.A. Troy
Assistant Secretary and
Assistant General Solicitor
<PAGE> 23
BURLINGTON NORTHERN INC.
CERTIFICATE OF DESIGNATION RELATING
TO THE ADJUSTABLE RATE SERIES NO PAR VALUE
PREFERRED STOCK OF BURLINGTON NORTHERN INC.
-----------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
-----------------
The undersigned hereby certifies that the following resolution was
duly adopted by the Board of Directors of Burlington Northern Inc. (the
"Company"), at a meeting held pursuant to proper notice at which a quorum was
present and acting throughout, with certain of the preferences and rights
relating to dividends, redemption, dissolution and any distribution of assets
of the Company, having been fixed by the Executive Committee of the Board of
Directors, at a meeting held pursuant to proper notice at which a quorum was
present and acting throughout pursuant to authority delegated to it by the
Board of Directors:
RESOLVED, that, pursuant to the authority expressly granted by the
Certificate of Incorporation, as amended, of the Company, there is hereby
created a series of the No Par Value Preferred Stock consisting of 7,436,354
shares, the issuance of which is hereby authorized, which shall be designated
"Adjustable Rate Series No Par Value Preferred Stock" (hereinafter referred to
as the "Adjustable Rate Preferred Stock") and which shall have a stated value
of $48 per share and the following powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
and restrictions in addition to those set forth in the Certificate of
Incorporation, as amended, of the Company
1. (a) The holders of the Adjustable Rate Preferred Stock shall be
entitled to receive fully cumulative dividends, when and as declared by the
Board of Directors of the Company out of funds legally available therefor, at
the following rates per share (i) for the period (the "Initial Dividend
Period") from the date of their original issue to and including February 29,
1984, at a rate per annum of 11.20% on the stated value thereof, and (ii) for
each quarterly dividend period (hereinafter referred to as a "Quarterly
Dividend Period", the Initial Dividend Period or any Quarterly Dividend Period
being hereinafter individually referred to as a "Dividend Period", thereafter,
which Quarterly Dividend Periods shall commence on March 1, June 1, September 1
and December 1 in each year and shall end on and include the day next preceding
the first day of the next Quarterly Dividend Period, at a rate per annun on the
stated value thereof equal to the Applicable Rate (as defined in paragraph (b)
of the Section 1) in respect of such Quarterly Dividend Period. Such dividends
shall be payable quarterly on the first day of each March, June, September and
December commencing on the first of such dates to occur after shares of the
Adjustable Rate Preferred Stock are first quarterly dividend payment date,
shall not be earlier than the date on which shares of such series are first
issued and, with respect to subsequent quarterly dividend payment dates, shall
not exceed 50 days preceding such quarterly dividend payment dates, as may be
determined by the Board of Directors in advance of the payment of the particular
dividend. Dividends shall commence to accrue from the date of original issuance
of the Adjustable Rate Preferred Stock
(b) Except as provided below in the paragraph, the "Applicable Rate"
for any Quarterly Dividend Period shall be (i) 75% less than (ii) the highest
of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Twenty
Year Constant Maturity Rate (each as hereinafter defined) for such Quarterly
Dividend Period. In the event that the Company determines, after compliance
with the procedures set forth below for determination of the Treasury Bill
Rate, Ten Year Constant Maturity Rate and Twenty Year Constant Maturity Rate,
in good faith that for any reason
(A) any one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Twenty Year Constant Maturity Rate cannot be determined
for any Quarterly Dividend Period then the applicable
<PAGE> 24
Rate for such Quarterly Dividend Period shall be .79% less then the higher of
whichever two of such Rates can be so determined:
(B) only one of the Treausry Bill Rate, the Ten Year Constant
Maturity Rate and the Twenty Year Constant Maturity Rate can be
determined for any Quarterly Dividend Period, then the Applicable Rate
for such Quarterly Dividend Period shall be .75% less than whichever
such Rate can be so determined; or
(C) some of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Twenty Year Constant Maturity Rate can be
determined for any Quarterly Dividend Period, then the Applicable Rate
in effect for the preceding Quarterly Dividend Period shall be
continued for such Quarterly Dividend Period.
Anything herein to the contrary notwithstanding, the Applicable Rate for any
Quarterly Dividend Period shall in no event be less than 8.75% per annum or
greater than 12.5% per annum.
(c) Except as provided blow in this paragraph, the "Treasury BIll
Rate" for each Quarterly Dividend Period shall be the arithmetic average of
the two most recent weekly per annum market discount rates, (or the one weekly
per annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period (as defined below)) for three-month U.S. Treasury
bills as published weekly by the Federal Reserve Board during the Calendar
Period immediately prior to the last ten calendar days of February, May, August
or November, as the case may be, prior to the Quarterly Dividend Period for
which the dividend rate on the Adjustable Rate Preferred Stock is being
determined. In the event that the Federal Reserve Board does not publish such a
weekly per annum market discount rate during such Calendar Period, then the
Treausry Bill Rate for such Quarterly Dividend Period shall be the arithmetic
average of the two most recent weekly per annum market discount rates (or the
one weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period for three-month U.S. Treasury
bills, as published weekly during such Calendar Period by any Federal Reserve
Bank or by any U.S. Government Department or agency selected by the Company. In
the event that a per annum market discount rate for three-month U.S. Treasury
bills shall not be published by the Federal Reserve Board or by any Federal
Reserve Bank or by any U.S. Government department or agency during such
Calendar Period, then the Treasury Bill Rate for such Quarterly Dividend Period
shall be the arithmetic average of the two most recent weekly per annum market
discount rates (or the one weekly per annum market discount rate, if only one
such rate shall be published during the relevant Calendar Period as provided
below) for all of the U.S. Treasury bills then having maturities of not less
than 90 nor more than 100 days, as published during such Calendar Period by the
Federal Reserve Board or, if the Federal Reserve Board shall not publish such
rates, by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Company. In the event that the Company determines in
good faith that for any reason no such U.S. Treasury bill rates are published
as provided above during such Calendar Period, then the Treasury Bill Rate for
such Quarterly Dividend Period shall be the arithmetic average of the per annum
market discount rates based upon the closing bids during such Calendar Period
for each of the issues of marketable noninterest bearing U.S. Treasury
securities with a maturity of not less than 80 nor more than 100 days from the
date of each such quotation, as chosen and quoted daily for each business day
in New York City or less frequently if daily quotations shall not be generally
available) to the Company by at least three recognized dealers in U.S.
Government securities selected by the Company. In the event that the Company
determines in good faith that for any reason the Company cannot determine the
Treasury Bill Rate for any Quarterly Dividend Period as provided above in this
paragraph, the Treasury BIll Rate for such Quarterly Dividend Period shall be
the arithmetic average of the per annum market discount rates based upon the
closing bids during such Calendar Period for each of the issues of marketable
interest-bearing U.S. Treasury securities with a maturity of not less than 80
nor more than 100 days, as chosen, and quoted daily for each business day in
New York City for less frequently if daily quotations shall not be generally
available) to the Company by at least three recognized dealers in U.S.
Government securities selected by the Company.
2
<PAGE> 25
(d) Except as provided below in this paragraph, the "Ten Year Constant
Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic
average of the two most recent weekly per annum Ten Year Average Yields (or the
one weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period as provided below), as published
weekly by the Federal Reserve Board during the Calendar Period immediately
prior to the last ten calendar days of February, May, August or November as
the case may be, prior to the Quarterly Dividend Period for which the dividend
rate on the Adjustable Rate Preferred Stock is being determined. In the event
that the Federal Reserve Board does not publish such a weekly per annum Ten
Year Average Yield during such Calendar Period, then the Ten Year Constant
Maturity Rate for such Quarterly Dividend Period shall be the arithmetic average
of the two most recent weekly per annum Ten Year Average Yields (or the one
weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period as provided below), as published
weekly during such Calendar Period by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the event that a
per annum Ten Year Average Yield shall not be published by the Federal Reserve
Board or by any Federal Reserve Bank or by any U.S. Government department or
agency during such Calendar Period, then the Ten Year Constant Maturity Rate
for such Quarterly Dividend Period shall be the arithmetic average of the two
most recent weekly per annum average yields to maturity (or the one weekly
average yield to maturity, if only one such yield shall be published during the
relevant Calendar Period as provided below) for all of the actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities) then having maturities of not less than eight nor more than twelve
years, as published during such Calendar Period by the Federal Reserve Board
or, if the Federal Reserve Board shall not publish such yields, by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Company. In the event that the Company determines in good faith that for any
reason the Company cannot determine the Ten Year Constant Maturity Rate for any
Quarterly Dividend Period as provided above in this paragraph, then the Ten
Year Constant Maturity Rate for such Quarterly Dividend Period shall be the
arithmetic average of the per annum average yields to maturity based upon the
closing bids during such Calendar Period for each of the issues of actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) with a final maturity date not less than eight nor more
than twleve years from the date of each such quotation, as chosen and quoted
daily for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the Company by at least three
recognized dealers in U.S. Government securities selected by the Company.
(e) Except as parovided below in this paragraph, the "Twenty Year
Constant Maturity Rate" for each Quarterly Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year Average
Yields (or the one weekly per annum Twenty Year Average Yield, if only one such
Yield shall be published during the relevant Calendar Period as provided
below), as published weekly by the Federal Reserve Board during the Calendar
Period immediately prior to the last ten calendar days of February, May, August
or November, as the case may be, prior to the Quarterly Dividend Period for
which the dividend rate on the Adjustable Rate Preferred Stock is being
determined. In the event that the Federal Reserve Board does not publish such a
weekly per annum Twenty Year Average Yield during such Calendar Period, then
the Twenty Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year Average
Yields (or the one weekly per annum Twenty Year Average Yield, if only one such
Yield shall be published during the relevant Calendar Period as provided
below), as published weekly during such Calendar Period by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the Company. In
the event that a per annum Twenty Year Average Yield shall not be published by
the Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency during such Calendar Period, then the Twenty
Year Constant Maturity Rate for such Quarterly Dividend Period shall be the
arithmetic average of the two most recent weekly per annum average yields to
maturity (or the one weekly average yield to maturity, if only one such yield
shall be published during the relevant Calendar Period as provided below) for
all of the actively traded marketable U.S. Treasury fixed interest rate
securities (other than Special Securities) then having maturities of not less
than eighteen nor more than twenty-two years, as published during such Calendar
Period by the
3
<PAGE> 26
Federal Reserve Board or, if the Federal Reserve Board shall not publish such
yields, by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Company. In the event that the Company determines in
good faith that for any reason the Company cannot determine the Twenty Year
Constant Maturity Rate for any Quarterly Dividend Period as provided above in
the paragrah, then the Twenty Year Constant Maturity Rate for such Quarterly
Dividend Period shall be the arithmetic average of the per annum average yields
to maturity based upon the closing bids during such Calendar Period for each
of the issues of actively traded marketable U.S. Treasury fixed interest rate
securities (other than Special Securities) with a final maturity date not less
than eighteen nor more than twenty-two years from the date of each such
quotations, as chosen and quoted daily for each business day in New York City
(or less frequently if daily quotations shall not be generally available) to
the Company by at least three recognized dealers in U.S. Government securities
selected by the Company.
(f) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and
the Twenty Year Constant Maturity Rate shall each be rounded to the nearest
five one-hundredths of a percentage point.
(g) The Applicable Rate with respect to each Quarterly Dividend
Period will be calculated as promptly as practicable by the Company according
to the appropriate method described herein. The Company will cause each
Applicable Rate to be published in a newspaper of general circulation in New
York City prior to the commencement of the Quarterly Dividend Period to which
it applies and will cause notice of such Applicable Rate to be enclosed with
the dividend payment checks next mailed to the holders of shares of the
Adjustable Rate Preferred Stock.
(h) For purposes of this Section (1), the term
(i) "Calendar Period" shall mean 14 calendar days.
(ii) "Special Securities" shall mean securities which can, at
the option of the holder, be surrendered at face value in payment of
any Federal estate tax or which provide tax benefits to the holder
and are priced to reflect such tax benefits or which were originally
issued at a deep or substantial discount.
(iii) "Ten Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest
rate securities (adjusted to constant maturities of ten years) and
(iv) "Twenty Year Average Yield" shall mean the average yield
to maturity for actively traded marketable U.S. Treasury fixed
interest rate securities (adjusted to constant maturities of twenty
years)
(i) Holders of shares of the Adjustable Rate Preferred Stock shall
not be entitled to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends, as herein provided, on the Adjustable Rate
Preferred Stock. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Adjustable Rate
Preferred Stock which may be in arrears.
(j) Dividends payable on the Adjustable Rate Preferred Stock for
each full Quarterly Dividend Period shall be computed by annualizing the
Applicable Rate and dividing by four Dividends payable on the Adjustable Rate
Preferred Stock for any period less than a full Dividend Period shall be
computed on the basis of a 360-day year of 30-day months and the actual number
of days elapsed in the period for which payable.
2. On or after December 1, 1986 the Company may at any time redeem
the whole or from time to time as part of the Adjustable Rate Preferred Stock
at $48 per share plus an amount equal to all dividends of any, accrued thereon
to the date designated for redemption with respect to each share so to be
accrued.
3. In the event of any liquidation, dissolution or winding up of the
Company before any payment or distribution of the assets of the Company
(whether capital or surplus) shall be made to or not apart for the holder,
of any shares of stock of the Company ranking junior to the Adjustable Rate
Preferred Stock upon liquidation, the holders of the Adjustable Rate
Preferred Stock shall be entitled to reserve a payment at the
4
<PAGE> 27
rate of $48 per share plus an amount equal to all dividends accrued thereon to
the date of final distribution to such holders, and no more.
4. (a) on December 1k, 1989, and on each December 1 thereafter, the
Company shall retire through redemption in the manner hereafter provided a
number of shares of Adjustable Rate Preferred Stock equal to 5% of the largest
number of shares of such series which shall at any time have been missed and
oustanding (such number to be appropriately adjusted in the event of any stock
split, combination or any other recapitalization or in the event that any
shares of such series are issued after the first date on which shares are
selected for redemption pursuant to this subparagraph (a)), so that all shares
of Adjustable Rate Preferred Stock will be redeemed on or before December 1,
2008, provided, however, that such redemptions may be made only out of the net
assets of the Company legally available therefor remaining after full
cumulative dividends upon all of the shares of Adjustable Rate Preferred Stock
then outstanding to the end of the last preceding dividend period shall have
been paid or declared and a sum sufficient for the payment thereof set apart
for payment. The number of shares required to be retired in each year pursuant
to this subparagraph (a) shall be subject to reduction by the application of a
credit as provided in subparagraph (c) of this paragraph 4.
(b) On each date designated for the redemption of shares of Adjustable
Rate Preferred Stock pursuant to subparagraph (a) of this paragraph 4 our of
such net assets, the Company may set its option and in addition to shares of
such series required to be retired pursuant thereto retire through redemption
up to a number of shares of such series not exceeding the number of shares so
required to be retired annually (prior to the application of any credits);
provided, however, that no shares of such series may be retired pursuant to
this subparagraph when there exists any deficiency in the retirement of shares
pursuant to subparagraph (a) of this paragraph 4. The right to retire shares
pursuant to the subparagraph (b) is noncumulative and to the extent not
exercised in any year shall terminate.
(c) There shall be allowed to the Company as a credit against the
number of shares of Adjustable Rate Preferred Stock required to be retired
pursuant to subparagraph (a) of this paragraph 4 for any year or years selected
by the Board of Directors in its discretion of shares of such series which the
Company has at any time theretofore redeemed otherwise than pursuant to
subparagraphs (a) and (b) of this paragraph 4, purchased or otherwise acquired
and canceiled and which have not theretofore been used for the purpose of any
given credit.
(d) The obligation of the Company to retire shares of Adjustable Rate
Preferred Stock pursuant to subparagraph (a) of this paragraph 4 shall be
cumulative, so that, if in any year the Company shall not retire the number of
shares not required to be retired after the application of the credit provided
for in subparagraph (c) of this paragraph 4, the obligation to retire such
shares shall continue and funds legally available therefor shall be applied for
such purpose until such obligation is discharged.
(e) Shares of Adjustable Rate Preferred Stock shall be redeemed
pursuant to this paragraph 4 at the redemption price of $48 per share, plus an
amount equal to the dividends accrued thereon to the date designated for
redemption with respect to each share not to be redeemed. Notice of redemption
of shares pursuant to paragraph 2 and thus paragraph 4 shall be given at least
30, but not more than 50, days in advance of the date designated for
redemption.
5. If at any time the Company shall have failed to pay, or declare
and set apart for payment, dividends accrued on the Adjustable Rate Preferred
Stock to the last preceding quarterly dividend payment date, or shall have
failed to redeem, or to set aside funds necessary for the redemption of, the
number of shares required to be redeemed pursuant to subparagraph (a) of
paragraph 4 hereof after the application of the credit provided for in
subparagraph (c) of such paragraph 4, thereafter and unitl such dividends shall
have been paid, or sums sufficient for the payment thereof shall have been set
apart for payment, or until such shares shall have been redeemed, or funds
necessary for the redemptikon thereof shall have been set aside so the case may
be (i) the Company shall not exercise any optional right to redeem any
Preferred Stock of any
5
<PAGE> 28
other class or series or less than all of the Adjustable Rate Preferred Stock at
the time outstanding and (ii) neither the Company nor any subsidiary shall
purchase any Preferred Stock except in accordance with a purchase offer made in
writing to all holders of Preferred Stock of all classes and series upon such
term as the Board of Directors, in its sole discretion after consideration of
the respective annual dividend rates and other relative rights and preferences
of the respective classes and series, shall determine will result in fair and
equitable treatment among the respective series. Nothing in the paragraph 5
shall prevent the Company from completing the redemption of any Preferred Stock
of any class or series, notice of the redemption of which was mailed prior to
any failure to pay dividends on or redeem shares of the Adjustable Rate
Preferred Stock.
6. So long as any of the Adjustable Rate Preferred Stock is
outstanding, the Company will not:
(a) amend, alter or repeal any of the provisions applicable to
the Adjustable Rate Preferred Stock so as to change the dividend
payable thereon, the amount payable thereon upon liquidation or
redemption or the mandatory redemption provisions applicable thereto
without the affirmative vote or consent of the holders of at least
66-2/3% thereof at the time outstanding, voting as a separate class,
given in person or by proxy, either in writing or by resolution adopted
at a special meeting called for the purpose:
(b) create any other class or classes of stock ranking prior to
the Adjustable Rate Preferred Stock as to dividends, sinking fund or
upon liquidation, or increase the authorized number of shares of any
other class or classes of stock ranking prior to the Adjustable Rate
Preferred Stock, without the affirmative vote or consent, in addition
to all other votes or consents required hereby or by the laws of the
State of Delaware of the holders of at least a majority of all the No
Par Value Preferred Stock at the time outstanding which shall not by
the terms thereof then or thereafter be convertible into Common Stock,
voting together as a single class separate from the holders of any
other class, classes or series of stock of the Company, given in person
or by proxy, either in writing or by resolution adopted at a special
meeting called for the purpose, provided, however, that if such other
class or classes of stock shall rank prior to less than all series of
the No Par Value Preferred Stock, only the affirmative vote or consent
of at least a majority of the number of shares at the time outstanding
of the series so affected shall be required.
7. Any shares of Adjustable Rate Preferred Stock which shall at any
time have been redeemed, purchased or otherwise acquired by the Company (whether
pursuant to subparagraph (a) or (b) of paragraph 4, herof or otherwise) shall,
except for purposes of the credit provided in subparagraph (c) of such
paragraph 4, cease to be shares of such series and may not be reissued as
shares of such series but shall, after such redemption, purchase or other
acquisition, have the status of authorized but unissued shares of the No Par
Value Preferred Stock without designation as to series until once more
designated as part of a particular series by the Board of Directors of the
Company.
In Witness Whereof, the undersigned has caused its officers to set
their hand and affix its corporate seal this 10th day of December 1993.
Burlington Northern Inc.
By /s/ MCLEARY
--------------------------------
(Corporate seal)
Attest
/s/
- --------------------------------
6
<PAGE> 29
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
The General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 19, 1983, a resolution was duly adopted which
identified shares of the capital stock of said corporation, which, to the
extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation, which
are retired, are identified as being one hundred twenty-three thousand four
hundred and fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissue of the shares of $10 Par Value Preferred Stock when so
retired; and, pursuant to the provisions of Section 243 of The General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the authorized
number of shares of the $10 Par Value Preferred Stock to the extent of one
hundred twenty-three thousand four hundred fifty-eight (123,458) shares, being
the total number of shares retired with a par value of ten dollars ($10.00) per
share and an aggregate par value of one million two hundred thirty-four
thousand five hundred and eight dollars ($1,234,580).
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by Donald R. Wood, Jr., its Senior Vice President,
Finance and Planning and attested by Gregory J. Terry, its Secretary, this 9th
day of January, 1984.
BURLINGTON NORTHERN INC.
By: /s/ DONALD R. WOOD, JR.
{CORPORATE SEAL} ----------------------------------
Donald R. Wood, Jr.
Senior Vice President
Finance and Planning
ATTEST:
By: /s/ GREGORY J. TERRY
----------------------------------
Gregory J. Terry
Secretary
<PAGE> 30
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BURLINGTON NORTHERN INC.
BURLINGTON NORTHERN INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of Burlington Northern Inc., at
a regular meeting held on January 23, 1984 adopted resolutions setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and submitting said amendment to the
stockholders of said corporation for consideration thereof. The resolutions
setting forth the proposed amendment are attached hereto as Exhibit A
and made a part thereof.
SECOND: That thereafter, pursuant to resolutions of the Board of
Directors, the proposed amendment was submitted to the stockholders of said
corporation entitled to vote thereon at the annual meeting of stockholders
held, pursuant to proper notice, on April 19, 1984 and was adopted by a
majority of the outstanding stock of said corporation entitled to vote thereon.
<PAGE> 31
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation law of the State of
Delaware.
FOURTH: That the capital of said corporation will not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by its Vice President and Secretary and its
Assistant Secretary and its corporate seal to be hereunto affixed this 27th day
of April, 1984.
BURLINGTON NORTHERN INC.
By------------------------------
Vice President and Secretary
ATTEST:
- -----------------------------------
Assistant Secretary
(Corporate Seal)
-2-
<PAGE> 32
EXHIBIT A
BURLINGTON NORTHERN INC.
------------------
BOARD OF DIRECTORS
------------------
INCREASE IN AUTHORIZED NUMBER OF SHARES OF COMMON STOCK OF THE
COMPANY HAVING NO PAR VALUE FROM 100,000,000 TO 300,000,000 AND TO
CREATE A NEW CLASS OF PREFERRED STOCK OF 50,000,000 SHARES HAVING NO
PAR VALUE TO BE DESIGNATED CLASS A PREFERRED STOCK WITHOUT PAR VALUE.
RESOLVED, that it is hereby proposed and declared advisable that the
Certificate of Incorporation of the Company be amended in the following
respects:
1. the first sentence of Article FOURTH be amended to read:
"The total number of shares of all classes of stock which the
corporation shall have authority to issue is 377,114,669 shares, of
which 2,114,669 shall be Preferred Stock, having a par value of $10.00
per share (hereinafter referred to as the "$10 Par Value Preferred
Stock"), 25,000,000 shall be Preferred Stock having no par value
(hereinafter referred to as the "No Par Value Preferred Stock"),
50,000,000 shall be Class A Preferred Stock having no par value
(hereinafter referred to as the "Class A Preferred Stock Without Par
Value"), (such $10 Par Value Preferred Stock, No Par Value Preferred
Stock and Class A Preferred Stock Without Par Value being hereinafter
referred to collectively as the "Preferred Stock"), and 300,000,000
shall be Common Stock without par value."
2. a new Section III be inserted in Article FOURTH to read as
follows:
-1-
<PAGE> 33
"Section III-Provisions Relating to Class A Preferred Stock Without
Par Value
1. The Class A Preferred Stock Without Par Value shall
constitute a single class of Preferred Stock and shall be designated
"Class A Preferred Stock Without Par Value."
2. The Board of Directors is expressly authorized to
adopt, from time to time, a resolution or resolutions providing for
the issuance of Class A Preferred Stock Without Par Value in one or
more series, to fix the number of shares in each such series and to
fix the designations and the powers, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations and restrictions, of each such series. The
authority of the Board of Directors with respect to each such series
shall include determination of the following (which may vary as
between the different series of Class A Preferred Stock Without Par
Value).
(a) The number of shares constituting the series and the
distinctive designation of the series;
(b) The dividend rate on the shares of the series and the
extent, if any, to which dividends thereon shall be cumulative;
(c) Whether shares of the series shall be redeemable and,
if redeemable, the redemption price payable on redemption thereof,
which price may, but need not, vary according to the time or
circumstances of such redemption;
(d) The amount or amounts payable upon the shares of the
series in the event of voluntary or involuntary liquidation,
dissolution or winding up of the corporation prior to any payment or
distribution of the assets of the corporation to any class or classes
of stock of the corporation ranking junior to the Preferred Stock;
(e) Whether the shares of the series shall be entitled to
the benefit of a sinking or retirement fund to be applied to the
purchase or redemption of shares of the series and, if so entitled,
the amount of such fund and the manner of its
-2-
<PAGE> 34
application, including the price or prices at which the shares may
be redeemed or purchased through the application of such fund;
(f) Whether the shares of the series shall be convertible
into, or exchangeable for, shares of any other class or classes or of
any other series of the same or any other class or classes of stock of
the corporation, and if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(g) The extent, if any, to which the holders of shares of
the series shall be entitled to vote on any question or in any
proceedings or to be represented at or to receive notice of any
meeting of stockholders of the corporation;
(h) Whether, and the extent to which, any of the voting
powers, designations, preferences, rights and qualifications,
limitations or restrictions of any such series may be made dependent
upon facts ascertainable outside of the Certificate of Incorporation
or of any amendment thereto, or outside the resolution or resolutions
providing for the issuance of such series adopted by the Board of
Directors, provided that the manner in which such facts shall operate
upon the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of such series is clearly
and expressly set forth in the resolution or resolutions providing for
the issuance of such series adopted by the Board of Directors; and
(i) Any other preferences, privileges and powers and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as the
Board of Directors may deem advisable, which shall not affect
adversely any other class or series of Preferred Stock at the time
outstanding and which shall not be inconsistent with the provisions of
this Certificate of Incorporation."
3. the present Section III of Article FOURTH be renumbered
Section IV.
-3-
<PAGE> 35
4. the present Section IV of Article FOURTH be renumbered Section
V.
5. the first sentence of Subsection 1 of the new Section IV of
Article FOURTH be amended to read:
"1. All shares of Preferred Stock shall be of equal rank
as to dividends and as to distribution upon liquidation, dissolution
or winding up except to the extent otherwise provided with respect to
any series of the No Par Value Preferred Stock or any series of the
Class A Preferred Stock Without Par Value by the resolution or
resolutions of the Board of Directors creating such series."
6. the first sentence of Subsection 2 of the new Section IV of
Article FOURTH be amended to read:
"2. The provisions of this paragraph 2 shall be
applicable, except to the extent otherwise provided with respect to
any series of No Par Value Preferred Stock or any series of Class A
Preferred Stock Without Par Value in the resolution or resolutions of
the Board of Directors creating such series, to the redemption of any
Preferred Stock which is redeemable under this Certificate of
Incorporation or the resolution or resolutions of the Board of
Directors creating any series of the No Par Value Preferred Stock or
any series of Class A Preferred Stock Without Par Value."
7. the first sentence of Subsection 4 of the new Section IV of
Article FOURTH be amended to read:
"4. Except as otherwise provided in the resolution or
resolutions of the Board of Directors creating a series of No Par
Value Preferred Stock or a series of Class A Preferred Stock Without
Par Value, dividends on all shares of Preferred Stock shall be
cumulative."
-4-
<PAGE> 36
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE
To: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of Title 8 of the Delaware
Code, the undersigned Agent for service of process, in order to change the
address of the registered office of the corporations for which it is registered
agent, hereby certifies that:
1. The name of the agent is: The Corporation Trust Company
2. The address of the old registered office was:
100 West Tenth Street
Wilmington, Delaware 19801
3. The address to which the registered office is to be changed is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The new address will be effective on July 30, 1984.
4. The names of the corporations represented by said agent are
set forth on the list annexed to this certificate and made a
part hereof by reference.
IN WITNESS WHEREOF, said agent has caused this
certificate to be signed on its behalf by its Vice-President
and Assistant Secretary this 25th day of July, 1984.
THE CORPORATION TRUST COMPANY
-----------------------------------
(Name of Registered Agent)
By /s/ VIRGINIA COLNELL
----------------------------------
(Vice-President)
ATTEST:
/s/ MARY G. MURRAY
- ------------------------
(Assistant Secretary)
<PAGE> 37
PAGE 807
STATE OF DELAWARE - DIVISION OF CORPORATIONS
CHANGE OF ADDRESS FILING FOR
CORPORATION TRUST AS OF JULY 27, 1984
DOMESTIC
0911167 BURLINGTON NORTHERN INC.
03/30/1981 D DE
<PAGE> 38
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
The General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 17, 1984, a resolution was duly adopted which
identified shares of the capital stock of said corporation, which, to the
extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation, which are
retired are identified as being one hundred twenty-three thousand four hundred
and fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissue of the shares of $10 Par Value Preferred Stock when so
retired; and, pursuant to the provisions of Section 243 of The General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this Certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the authorized
number of shares of the $10 Par Value Preferred Stock to the extent of one
hundred twenty-three thousand four hundred fifty-eight (123,458) shares, being
the total number of shares retired with a par value of ten dollars ($10.00) per
share and an aggregate par value of one million two hundred thirty-four
thousand five hundred and eighty dollars ($1,234,580).
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by Luino Dell'Osso, Jr., its Senior Vice President,
Finance and Planning and attested by Gregory J. Terry, its Vice President and
Secretary, this 3rd day of January, 1985.
BURLINGTON NORTHERN INC.
By: /s/ LUINO DELL'OSSO, JR.
------------------------------
(CORPORATE SEAL) Luino Dell'Osso, Jr.
Senior Vice President
Finance and Planning
ATTEST:
By: /s/ GREGORY J. TERRY
--------------------------
Gregory J. Terry
Vice President and Secretary
<PAGE> 39
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify:
The amendments to the corporation's Certificate of Incorporation in
the form attached as Exhibit A to this Certificate were duly adopted by the
Corporation's Board of Directors and stockholders in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Burlington Northern Inc. has caused this
Certificate to be signed and attested by its duly authorized officers this 21
day of May, 1985.
BURLINGTON NORTHERN INC.
By /s/ JAMES W. BECKER
-------------------------------
James W. Becker, Vice President
ATTEST:
/s/ GREGORY J. TERRY
- ------------------------------
Gregory J. Terry, Secretary
<PAGE> 40
EXHIBIT A
1. a new Article SIXTH is added to read as follows:
SIXTH. In addition to any affirmative vote required by law, this
Certificate of Incorporation, any agreement with any national securities
exchange or otherwise, any "Business Combination" (as hereinafter defined)
involving the corporation shall be subject to approval in the manner set forth
in this Article SIXTH.
Section I--Definitions
For the purposes of Article SIXTH and Article SEVENTH of this
Certificate of Incorporation:
(a) "Affiliate" and "beneficial owner" are used herein as
defined in Rule 12b-2 and Rule 13d-3, respectively, under the
Securities Exchange Act of 1934 as in effect on the date of adoption
of this Section I by the stockholders of the corporation ("1934 Act").
The term "Affiliate" as used herein shall exclude the corporation, but
shall include the definition of "Associate" as contained in said Rule
12b-2.
(b) An "Interested Stockholder" is a Person other than
the corporation who is (i) the beneficial owner of ten percent or more
of the stock of the corporation entitled to vote for the election of
directors ("Voting Stock") or (ii) an Affiliate of the corporation and
(A) at any time within a two-year period prior to the record date to
vote on a Business Combination was the beneficial owner of ten percent
or more of the Voting Stock, or (B) at the completion of the Business
Combination will be the beneficial owner of ten percent or more of the
Voting Stock.
(c) A "Person" is a natural person or a legal entity of
any kind, together with any Affiliate of such person or entity, or any
person or entity with whom such person, entity or an Affiliate has any
agreement or understanding relating to acquiring, voting, or holding
Voting Stock.
(d) A "Disinterested Director" is a member of the Board
of Directors of the corporation (other than the Interested
Stockholder) who was a director prior to the
<PAGE> 41
time the Interested Stockholder became an Interested Stockholder, or
any director who was recommended for election by the Disinterested
Directors. Any action to be taken by the Disinterested Directors
shall require the affirmative vote of at least two-thirds of the
Disinterested Directors.
(e) A "Business Combination" is (i) a merger or
consolidation of the corporation or any of its subsidiaries with an
Interested Stockholder; (ii) the sale, lease, exchange, pledge,
transfer or other disposition (A) by the corporation or any of its
subsidiaries of all or a Substantial Part of the corporation's Assets
to an Interested Stockholder, or (B) by an Interested Stockholder of
any of its assets, except in the ordinary course of business, to the
corporation or any of its subsidiaries; (iii) the issuance of stock or
other securities of the corporation or any of its subsidiaries to an
Interested Stockholder, other than on a pro rata basis to all holders
of Voting Stock of the same class held by the Interested Stockholder
pursuant to a stock split, stock dividend or distribution of warrants
or rights; (iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on behalf
of an Interested Stockholder; (v) any reclassification of securities,
recapitalization, merger or consolidation or other transaction which
has the effect, directly or indirectly, of increasing the
proportionate share of any Voting Stock beneficially owned by an
Interested Stockholder; or (vi) any agreement, contract or other
arrangement providing for any of the foregoing transactions.
(f) A "Substantial Part of the corporation's Assets"
shall mean assets of the corporation or any of its subsidiaries in an
amount equal to twenty percent or more of the fair market value, as
determined by the Disinterested Directors, of the total consolidated
assets of the corporation and its subsidiaries taken as a whole as of
the end of its most recent fiscal year ended prior to the time the
determination is made.
Section II--Vote Required for Business Combinations
The affirmative vote of not less than fifty-one percent of the Voting
Stock, excluding the Voting Stock of an Interested Stockholder who is a party
to the Business Combination, shall be required for the adoption or
authorization of a Business Combination, unless the Disinterested Directors
determine that:
(a) The Interested Stockholder is the beneficial owner of
not less than eighty percent of the Voting Stock
-2-
<PAGE> 42
and has declared its intention to vote in favor of or approve such
Business Combination; or
(b) (i) The fair market value of the consideration per
share to be received or retained by the holders of each class or
series of stock of the corporation in a Business Combination is equal
to or greater than the consideration per share (including brokerage
commissions and soliciting dealer's fees) paid by such Interested
Stockholder in acquiring the largest number of shares of such class of
stock previously acquired in any one transaction or series of related
transactions, whether before or after the Interested Stockholder
became an Interested Stockholder and (ii) the Interested Stockholder
shall not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances, guarantees,
pledges or other financial assistance provided by the corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
Section III--Information Requirements
In the event any vote of holders of Voting Stock is required for the
adoption or approval of any Business Combination, a proxy or information
statement describing the Business Combination and complying with the
requirements of the 1934 Act shall be mailed at a date determined by the
Disinterested Directors to all stockholders of the corporation whether or not
such statement is required under the 1934 Act. The statement shall contain any
recommendations as to the advisability of the Business Combination which the
Disinterested Directors, or any of them, may choose to state and, if deemed
advisable by the Disinterested Directors, an opinion of an investment banking
firm as to the fairness of the terms of such Business Combination. Such firm
shall be selected by the Disinterested Directors and paid a fee for its
services by the corporation as approved by the Disinterested Directors.
2. a new Article SEVENTH is added to read as follows:
SEVENTH. Any action by stockholders of the corporation shall
be taken at a meeting of stockholders and no action may be taken by written
consent of stockholders entitled to vote upon such action. No amendment to the
Certificate of Incorporation shall amend, alter, change or repeal any of the
provisions of Article SIXTH hereof or of this Article SEVENTH
-3-
<PAGE> 43
unless such amendment shall receive the affirmative vote of not less than
fifty-one percent of the Voting Stock, excluding the Voting Stock of any
Interested Stockholder as defined in Article SIXTH.
3. the present Articles SIXTH, SEVENTH, EIGHTH and NINTH are
renumbered EIGHTH, NINTH, TENTH and ELEVENTH, respectively.
-4-
<PAGE> 44
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES A JUNIOR PARTICIPATING CLASS A PREFERRED STOCK
Of
BURLINGTON NORTHERN INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, James W. Becker, Vice President, Law and Leslie S. Gibbs,
Corporate Secretary, of Burlington Northern Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the said Corporation, the said Board of
Directors on July 10, 1986, adopted the following resolution creating a series
of 800,000 shares of Class A Preferred Stock Without Par Value designated as
Series A Junior Participating Class A Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. There shall be a series of the
Class A Preferred Stock Without Par Value of the Company which shall be
designated as the "Series A Junior Participating Class A Preferred Stock," no
par value, and the number of shares constituting such series shall be 800,000.
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
Series A Junior Participating Class A Preferred Stock to a number less than
that of the shares then outstanding plus the number of shares issuable upon
exercise of outstanding rights, options of
<PAGE> 45
warrants or upon conversion of outstanding securities issued by the Company.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Class A Preferred Stock Without Par Value (the
"Preferred Stock") or any other preferred stock of the Company ranking prior
and superior to the shares of Series A Junior Participating Class A Preferred
Stock with respect to dividends, the holders of shares of Series A Junior
Participating Class A Preferred Stock, in preference to the holders of shares
of Common Stock, without par value (the "Common Stock"), of the Company and any
other junior stock, shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June, September
and December in each year (or, in each case, if not a date on which the
Company is open for business, the next date on which the Company is so open)
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Class A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $10.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock,
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Company shall at any time after July 24, 1986 (the
"Rights Declaration Date") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Junior
Participating Class A Preferred Stock were entitled immediately prior to such
event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of
2
<PAGE> 46
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the
Series A Junior Participating Class A Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $10.00 per share on the Series A Junior Participating Class A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Class A Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Class A Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Junior Participating Class A
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Junior Participating Class A Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Junior
Participating Class A Preferred Stock entitled to receive payment of a dividend
or distribution declared thereon, which record date shall be no more than 30
days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Class A Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior
3
<PAGE> 47
Participating Class A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Company.
In the event the Company shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the number
of votes per share to which holders of shares of Series A Junior Participating
Class A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Class A Preferred Stock and the holders
of shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Company.
(C) (i) If at any time dividends on any Series A Junior
Participating Class A Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such contingency shall
mark the beginning of a period (herein called a "default period") which shall
extend until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on all
shares of Series A Junior Participating Class A Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series A Junior Participating Class A Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly dividends thereon, voting as a
class, irrespective of series, shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders
of Series A Junior Participating Class A Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders, provided that neither such voting right nor
the right of the holders of any other series of Preferred Stock, if any, to
increase, in certain cases, the authorized number of Directors shall be
exercised unless the holders of ten percent (10%) in number of shares of
Preferred Stock outstanding shall be present in person or by proxy. The
4
<PAGE> 48
absence of a quorum of the holders of Common Stock shall not affect the
exercise by the holders of Preferred Stock of such voting right. At any
meeting at which the holders of Preferred Stock shall exercise such voting
right initially during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if any, in the
Board of Directors as may then exist up to two (2) Directors or, if such right
is exercised at an annual meeting, to elect two (2) Directors. If the number
which may be so elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit the
election by them of the required number. After the holders of the Preferred
Stock shall have exercised their right to elect Directors in any default period
and during the continuance of such period, the number of Directors shall not
be increased or decreased except by vote of the holders of Preferred Stock as
herein provided or pursuant to the rights of any equity securities ranking
senior to or pari passu with the Series A Junior Participating Class A
Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request,
the calling of special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice-President or the Secretary
of the Company. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by mailing
a copy of such notice to him at his last address as the same appears on the
books of the Company. Such meeting shall be called for a time not earlier than
20 days and not later than 60 days after such order or request or in default of
the calling of such meeting within 60 days after such order or request, such
meeting may be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding. Notwithstanding the provisions of this
paragraph (C)(iii), no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next annual meeting
of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Company if applicable,
5
<PAGE> 49
shall continue to be entitled to elect the whole number of Directors until the
holders of Preferred Stock shall have exercised their right to elect two (2)
Directors voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock shall continue in office
until their successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C)(ii) of this Section 3) be
filled by vote of a majority of the remaining Directors theretofore elected by
the holders of the class of stock which elected the Director whose office shall
have become vacant. References in this paragraph (C) to Directors elected by
the holders of a particular class of stock shall include Directors elected by
such Directors to fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred Stock
as a class shall terminate, and (z) the number of Directors shall be such
number as may be provided for in the Certificate of Incorporation or By-laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however to change
thereafter in any manner provided by law or in the Certificate of Incorporation
or By-laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Class A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Class A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Junior Participating Class A Preferred Stock outstanding shall have
keen paid in full, the Company shall not
6
<PAGE> 50
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Class A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Class A Preferred Stock, except
dividends paid ratably on the Series A Junior Participating Class A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Class A Preferred Stock, provided that
the Company may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Company ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Class A Preferred Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Class A Preferred Stock, or
any shares of stock ranking on a parity with the Series A Junior
Participating Class A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
7
<PAGE> 51
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Class A Preferred Stock purchased or otherwise acquired by the
Company in any manner whatsoever shall be retired and cancelled promptly after
the acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Class A Preferred Stock and may be reissued
as part of a new series of Class A Preferred Stock to be created by resolution
or resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the Company,
no distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Class A Preferred Stock unless, prior thereto,
the holders of shares of Series A Junior Participating Class A Preferred Stock
shall have received $19,000 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series A Liquidation Preference"). Following the
payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Class A Preferred Stock unless, prior thereto, the holders
of shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of
the Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Junior Participating Class A Preferred Stock and
Common Stock, respectively, holders of Series A Junior Participating Class A
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in
the ratio of the Adjustment Number to 1 with respect to such Preferred Stock
and Common Stock, on a per share basis, respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of preferred stock, if any, which rank on a
parity with the Series A Junior Participating Class A Preferred Stock, then
such remaining assets shall be distributed ratably to the
8
<PAGE> 52
holders of such parity shares in proportion to their respective liquidation
preferences. In the event there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Company shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Class A Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Participating Class A Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that are outstanding immediately prior to such event.
Section 8. Redemption. The shares of Series A Junior Participating
Class A Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior participating Class A
Preferred Stock shall rank junior to all other series of the Company's
Preferred Stock as to the payment
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<PAGE> 53
of dividends and the distribution of assets, unless the terms of any such
series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
Company shall not be further amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Junior
Participating Class A Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority or more of the outstanding
shares of Series A Junior Participating Class A Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series A Junior Participating Class
A Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Class A
Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 18th
day of July, 1986.
/s/ JAMES W. BECKER
-----------------------------
Vice President, Law
Attest:
/s/ LESLIE S. GIBBS
- -----------------------
Secretary
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<PAGE> 54
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
The General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of directors of Burlington
Northern Inc., held on December 16, 1985, a resolution was duly adopted
which identified shares of the capital stock of said corporation, which, to
the extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation,
which are retired, are identified as being one hundred twenty-three thousand
four hundred and fifty-eight (123,458) shares of the $10 Par Value Preferred
Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohiblts the reissuance of the shares of $10 Par Value Preferred Stock when
so retired; and, pursuant to the provisions of Section 243 of The General
Corporation Law of the State of Delaware, upon the effective date of the
filing of this Certificate as therein provided the Certificate of incorporation
of said corporation shall be amended so as to effect a reduction in the
authorized number of shares of the $10 Par Value Preferred Stock to the extent
of one hundred twenty-three thousand four hundred fifty-eight (123,458)
shares, being the total number of shares retired with a par value of ten
dollars ($10.00) per share and an aggregate par value of one million two
hundred thirty-four thousand five hundred and eighty dollars ($1,234,580).
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by Luino Dell'Osso, Jr., its Senior Vice President,
Finance and Planning and attested by Leslie S. Gibbs, its Corporate
Secretary, this 10th day of July, 1986.
BURLINGTON NORTHERN INC.
By /s/ LUINO DELL 'OSSO, JR.
-------------------------
Luino Dell'Osso, Jr.
Senior Vice President
Finance and Planning
ATTEST:
By /s/ LESLIE S. GIBBS
-------------------
Leslie S. Gibbs
Corporate Secretary
<PAGE> 55
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify:
1. The following amendment to the Certificate of Incorporation of
Burlington Northern Inc. (the "Company") was duly adopted by the Corporation's
Board of Directors and stockholders in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware:
A new Article TWELFTH is added to the Certificate of Incorporation to
read as follows:
"TWELFTH. To the full extent that the Delaware General
Corporation Law, as it exists on the date hereof or may hereafter be
amended, permits the limitation or elimination of the liability of
directors, a director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any amendment to or repeal of this
Article TWELFTH shall not adversely affect any right or protection of
a director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or
repeal."
IN WITNESS WHEREOF, Burlington Northern Inc. has caused this
Certificate to be signed and attested by its duly authorized officers this 20th
day of April, 1987.
BURLINGTON NORTHERN INC.
By /s/ JAMES W. BECKER
--------------------------
James W. Becker
Senior Vice President, Law
ATTEST:
/s/ LESLIE S. GIBBS
- --------------------------
Leslie S. Gibbs, Secretary
<PAGE> 56
CERTIFlCATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized existing under The
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 11, 1986, a resolution was duly adopted which
identified shares of the capital stock of said corporation, which, to the
extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation, which
are retired, are identified as being one hundred twenty-three thousand four
hundred and fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissuance of the shares of $10 Par Value Preferred Stock when
so retired; and, pursuant to the provisions of Section 243 of The General
Corporation Law of the State of Delaware, upon the effective date of the
filing of this Certificate as therein provided the Certificate of Incorporation
of said corporation shall be amended so as to effect a reduction in the
authorized number of shares of the $10 par Value Preferred Stock to the extent
of one hundred twenty-three thousand four hundred fifty-eight (123,458) shares,
being the total number of shares retired with a par value of ten dollars
($10.00) per share and an aggregate par value of one million two hundred
thirty-four thousand five hundred and eighty dollars ($1,234,580).
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by Luino Dell'Osso, Jr., its Senior Vice President,
Finance and Planning and attested by Leslie S. Gibbs, its Corporate Secretary,
this 30th day of April, 1987.
(CORPORATE SEAL) BURLINGTON NORTHERN INC.
By: /s/ LUINO DELL'OSSO, JR.
------------------------------
Luino Dell'Osso, Jr.
Senior Vice President
Finance and Planning
ATTEST:
By: /s/ LESLIE S. GIBBS
------------------------------
Leslie S. Gibbs
Corporate Secretary
<PAGE> 57
CERTIFICATE
I, Leslie S. Gibbs, Corporate Secretary of Burlington Northern Inc.
("Corporation"), do hereby certify that attached hereto is a true and correct
copy of a resolution which was duly adopted at a meeting of the Board of
Directors of the Corporation, duly convened and held on December 11, 1986, at
which meeting a quorum was present and acting throughout; and said resolution
is in full force and effect as of the date hereof and has not been rescinded,
amended or modified.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of the
Corporation, this 30th day of April 1987.
/s/ LESLIE S. GIBBS
------------------------
Corporate Secretary
(CORPORATE SEAL)
<PAGE> 58
AUTHORIZATON TO CANCEL AND RETIRE $10 PAR VALUE
PREFERRED STOCK ACQUIRED FOR MANDATORY SINKING FUND
After full discussion and on motion duly made and seconded, the
following resolutions were unanimously adopted:
WHEREAS, Section I of the Certificate of Incorporation requires during
each calendar year, as and for a Mandatory Sinking Fund, that the Company
retire through the redemption or cancellation of shares purchased in such year
at or below $10 per share (plus accrued dividends) 123,458 shares of the $10
Par Value Preferred Stock outstanding, that such sinking fund obligation cannot
be eliminated for more than two consecutive years by the application of shares
purchased in prior years and that such shares so acquired may not be reissued;
WHEREAS, in accordance with the above provisions, the Company has
purchased 123,458 of said Preferred Shares which are being held uncancelled in
the Company's treasury pending authorization for their retirement, cancellation
and application for said sinking fund purpose for the year ending December 31,
1986;
WHEREAS, the law of the State of Delaware provides that a corporation
by resolution of its Board of Directors may retire any shares of its capital
stock that are issued but are not outstanding and that where its Certificate of
Incorporation prohibits reissuance of such shares, a Certificate of Retirement
of Stock shall be filed with the Secretary of State, which shall have the
effect of amending the Certificate of Incorporation to reduce accordingly the
number of authorized shares of such class of stock;
RESOLVED, that said 123,458 shares of the Company's $10 Par Value
Preferred Stock be, and hereby are, cancelled and retired, and reduction of the
capital of the Company in the amount of $1,234,580 represented by said shares
be, and hereby is, authorized and approved, and the proper officers of the
Company be, and hereby are, severally authorized, for and in the name and on
behalf of the Company, to prepare, execute, acknowledge and file with the
Secretary of State of Delaware, a Certificate of Retirement of Stock and a
Certificate of Reduction of Capital of the Company represented by said shares.
Meeting of the Board of Directors
Burlington Northern Inc.
December 11, 1986
<PAGE> 59
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of Delaware, does hereby certify:
1. The following corrections to the Certificate of Incorporation
of Burlington Northern Inc. (the "Company"), shall be made effective as of
April 22, 1987, pursuant to Section 103 of the General Corporation Law of the
State of Delaware. To correctly reflect corporate action, the text of the
Certificate of Incorporation of the Company shall be changed as follows:
Article EIGHTH of the Certificate of Incorporation shall be
deleted in its entirety.
Article TWELFTH of the Certificate of Incorporation shall be
renumbered as Article EIGHTH and shall read as follows:
"EIGHTH. To the full extent that the Delaware General
Corporation Law, as it exists on the date hereof or may hereafter be
amended, permits the limitation or elimination of the liability of
directors, a director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any amendment to or repeal of this
Article EIGHTH shall not adversely affect any right or protection of a
director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or
repeal."
IN WITNESS WHEREOF, Burlington Northern Inc. has caused this
Certificate to be signed and attested by its duly authorized officers this
25th day of June, 1987.
BURLINGTON NORTHERN INC.
By /s/ JAMES W. BECKER
------------------------------
James W. Becker
Senior Vice President, Law
ATTEST:
/s/ LESLIE S. GIBBS
- ------------------------------
Leslie S. Gibbs
Corporate Secretary
<PAGE> 60
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 10, 1987, a resolution was duly adopted
which identified shares of the capital stock of said corporation, which,
to the extent hereinafter set forth, had the status of retired shares, and
which retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation,
which are retired, are identified as being one hundred twenty-three thousand
four hundred fifty-eight (123,458) shares of the $10 Par Value Preferred
Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissuance of the shares of $10 Par Value Preferred Stock when
so retired; and, pursuant to the provisions of Section 243 of the General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this Certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the
authorized number of shares of the $10 Par Value Preferred Stock to the extent
of one hundred twenty-three thousand four hundred fifty-eight (123,458)
shares, being the total number of shares retired with a par value of ten
dollars ($10) per share and an aggregate par value of one million two
hundred thirty-four thousand five hundred eighty dollars ($1,234,580).
IN WITNESS WHEREOF, said Burlington Northern Inc. has caused this
certificate to be signed by James W. Becker, its Senior Vice President, Law
and attested by Leslie S. Leland, its Corporate Secretary, this 25th day of
February, 1988.
(CORPORATE SEAL) BURLINGTON NORTHERN INC.
By: /s/ JAMES W. BECKER
--------------------------
James W. Becker,
Senior Vice President, Law
ATTEST:
By: /s/ LESLIE S. LELAND
--------------------
Leslie S. Leland,
Corporate Secretary
<PAGE> 61
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized, and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 15, 1988, a resolution was duly adopted
which identified shares of the capital stock of said corporation,
which, to the extent hereinafter set forth, had the status of retired
shares, and which retired shares had capital applied in connection with
their acquisition.
SECOND: That the shares of capital stock of the corporation, which
are retired, are identified as being one hundred twenty-three thousand four
hundred fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissuance of the shares of $10 Par Value Preferred Stock when so
retired; and, pursuant to the provisions of Section 243 of the General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this Certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the authorized
number of shares of the $10 Par Value Preferred Stock to the extent of one
hundred twenty-three thousand four hundred fifty-eight (123,458) shares, being
the total number of shares retired with a par value of ten dollars ($10) per
share and an aggregate par value of one million two hundred thirty-four
thousand five hundred eighty dollars ($1,234,580).
IN WITNESS WHEREIN, said Burlington Northern Inc. has caused this
certificate to be signed by Edmund W. Burke, its Senior Vice President, Law
and Secretary and attested by Beverly A. Edwards, its Assistant Corporate
Secretary, this 13th day of January, 1989.
(CORPORATE SEAL) BURLINGTON NORTHERN INC.
By: /s/ EDMUND W. BURKE
------------------------
Edmund W. Burke,
Senior Vice President,
Law and Secretary
ATTEST:
By: /s/ BEVERLY A. EDWARDS
------------------------------
Beverly A. Edwards,
Assistant Corporate Secretary
<PAGE> 62
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of
Burlington Northern Inc., held on December 14, 1989, a resolution
was duly adopted which identified shares of the capital stock of said
corporation, which, to the extent hereinafter set forth, had the status
of retired shares, and which retired shares had capital applied in
connection with their acquisition.
SECOND: That the shares of capital stock of the
corporation, which are retired, are identified as being one hundred
twenty-three thousand four hundred fifty-eight (123,458) shares of the
$10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the
corporation prohibits the reissuance of the shares of $10 Par Value Preferred
Stock when so retired; and, pursuant to the provisions of Section 243 of
the General Corporation Law of the State of Delaware, upon the effective
date of the filing of this Certificate as therein provided the
Certificate of Incorporation of said corporation shall be amended so as
to effect a reduction in the authorized number of shares of the $10 Par
Value Preferred Stock to the extent of one hundred twenty-three
thousand four hundred fifty-eight (123,458) shares, being the total
number of shares retired with a par value of ten dollars ($10) per share
and an aggregate par value of one million two hundred thirty-four thousand
five hundred eighty dollars ($1,234,580).
IN WITNESS WHEREIN, said Burlington Northern Inc. has caused this
certificate to be signed by Edmund W. Burke, its Executive Vice President, Law
and Secretary and attested by Beverly A. Edwards, its Assistant Corporate
Secretary, this 31st day of January, 1990.
(CORPORATE SEAL) BURLINGTON NORTHERN INC.
By: /s/ EDMUND W. BURKE
-------------------
Edmund W. Burke,
Executive Vice President,
Law and Secretary
ATTEST:
By: /s/ BEVERLY A. EDWARDS
----------------------
Beverly A. Edwards,
Assistant Corporate Secretary
<PAGE> 63
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 13, 1990, a resolution was duly adopted
which identified shares of the capital stock of said corporation, which,
to the extent hereinafter set forth, had the status of retired shares, and
which retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the
corporation, which are retired, are identified as being one hundred
twenty-three thousand four hundred fifty-eight (123,458) shares of the
$10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissuance of the shares of $10 Par Value Preferred Stock
when so retired; and, pursuant to the provisions of Section 243 of the General
Corporation Law of the State of Delaware, upon the effective date of
the filing of this Certificate as therein provided the Certificate of
Incorporation of said corporation shall be amended so as to effect a reduction
in the authorized number of shares of the $10 Par Value Preferred Stock to the
extent of one hundred twenty-three thousand four hundred fifty-eight (123,458)
shares, being the total number of shares retired with a par value of ten
dollars ($10) per share and an aggregate par value of one million two hundred
thirty-four thousand five hundred eighty dollars ($1,234,580).
IN WITNESS WHEREIN, said Burlington Northern Inc. has caused this
certificate to be signed by Edmund W. Burke, its Executive Vice President, Law
and Secretary and attested by Beverly A. Edwards, its Assistant Corporate
Secretary, this 22nd day of January, 1991.
(CORPORATE SEAL) BURLINGTON NORTHERN INC.
By: /s/ EDMUND W. BURKE
-------------------
Edmund W. Burke,
Executive Vice President,
Law and Secretary
ATTEST:
By: /s/ BEVERLY A. EDWARDS
----------------------
Beverly A. Edwards,
Assistant Corporate Secretary
<PAGE> 64
CERTIFICATE OF INCREASE OF
NUMBER OF SHARES OF SERIES A JUNIOR PARTICIPATING
CLASS A PREFERRED STOCK OF BURLINGTON NORTHERN INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by Section 151(g) of the General Corporation Law of the State of Delaware, the
Board of Directors of the Corporation on December 19, 1991 adopted the
following resolution increasing the number of shares of that certain series of
the Corporation's Class A Preferred Stock Without Par Value designated as
Series A Junior Participating Class A Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation and Section 151(g) of the General Corporation Law
of the State of Delaware, the number of shares constituting that certain
series of the Corporation's Class A Preferred Stock Without Par Value
designated as the Series A Junior Participating Class A Preferred Stock shall
be increased to 3,000,000.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Edmund W. Burke, its Executive Vice President, Law and Secretary and
attested by Beverly A. Edwards, its Assistant Corporate Secretary, this 9th day
of January, 1992.
(CORPORATE SEAL) BURLINGTON NORTHERN INC.
By: /s/ EDMUND W. BURKE
-------------------
Edmund W. Burke,
Executive Vice President,
Law and Secretary
ATTEST:
By: /s/ BEVERLY A. EDWARDS
----------------------
Beverly A. Edwards,
Assistant Corporate Secretary
<PAGE> 65
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 19, 1991, a resolution was duly adopted which
identified shares of the capital stock of said corporation, which, to the
extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation, which
are retired, are identified as being one hundred twenty-three thousand four
hundred fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissuance of the shares of $10 Par Value Preferred Stock when so
retired; and, pursuant to the provisions of Section 243 of the General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this Certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the authorized
number of shares of the $10 Par Value Preferred Stock to the extent of one
hundred twenty-three thousand four hundred fifty-eight (123,458) shares, being
the total number of shares retired with a par value of ten dollars ($10) per
share and an aggregate par value of one million two hundred thirty-four
thousand five hundred eighty dollars ($1,234,580).
IN WITNESS WHEREIN, said Burlington Northern Inc. has caused this
certificate to be signed by Edmund W. Burke, its Executive Vice President,
Law and Secretary and attested by Beverly A. Edwards, its Assistant Corporate
Secretary, this 21st day of January, 1992.
(CORPORATE SEAL) BURLINGTON NORTHERN INC.
By: /s/ EDMUND W. BURKE
-------------------------
Edmund W. Burke,
Executive Vice President,
Law and Secretary
ATTEST:
By: /s/ BEVERLY A. EDWARDS
---------------------------------
Beverly A. Edwards,
Assistant Corporate Secretary
<PAGE> 66
CERTIFICATE OF DESIGNATION
OF
% CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES A, NO PAR VALUE
OF
BURLINGTON NORTHERN INC.
(PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
-------------------------------------------------
BURLINGTON NORTHERN INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolution was adopted by the Finance Committee of
the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and vested in the
Board of Directors of the Corporation (the "Board of Directors") by the
provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), and duly delegated to this Committee of the
Board of Directors pursuant to Section 141(c) of the General Corporation Law of
the State of Delaware, and pursuant to resolutions adopted by this Board of
Directors on July 16, 1992, there hereby is created, out of the 25,000,000
shares of preferred Stock, no par value, of the Corporation authorized in
Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock consisting of 6,900,000 shares, which series
shall have the following powers, designations, preferences, and relative,
participating, optional, or other rights, and the following qualifications,
limitations, and restrictions (in addition to the powers, designations,
preferences, and relative, participating, optional, or other rights, and the
qualifications, limitations, and restrictions, set forth in the Certificate of
Incorporation which are applicable to preferred stock and/or to the Preferred
Stock):
SECTION 1. DESIGNATION OF AMOUNT. The shares of such series shall be designated
as "6 1/4% Cumulative Convertible Preferred Stock, Series A, No Par Value," (the
"6 1/4% Preferred Stock") and the authorized number of shares constituting such
series shall be 6,900,000. The 6 1/4% Preferred Stock shall be no par value
stock.
<PAGE> 67
SECTION 2. DIVIDENDS.
(a) The holders of shares of the 6 1/4% Preferred Stock will be
entitled to receive when, as, and if declared by the Board of
Directors out of funds of the Corporation legally available
therefor, cumulative cash dividends on the shares of the 6 1/4%
Preferred Stock at the rate of $3.125 per annum per share of
6 1/4% Preferred Stock, AND NO MORE, payable in arrears in
equal quarterly installments on January 1, April 1, July 1,
and October 1 of each year, commencing on January 1, 1993.
Such dividends shall be cumulative from the date of original
issuance of any shares of the 6 1/4% Preferred Stock. Each such
dividend shall be paid to the holders of record of the shares
of the 6 1/4% Preferred Stock as they appear on the stock
register of the Corporation on such record date, which shall
be not more than 30 days nor less than 10 days preceding the
dividend payment date thereof, as shall be fixed by the Board
of Directors or a duly authorized committee thereof. If a
holder converts a share or shares of the 6 1/4% Preferred Stock
after the close of business on the record date for a dividend
and before the opening of business on the payment date for
such dividend (except for a share or shares called for
redemption on a Redemption Date (as defined in Section 3(c)
hereof) during the period from the close of business on any
dividend payment record date to the close of business on the
corresponding dividend payment date), then, pursuant to
Section 6 hereof, the holder will be required to pay to the
Corporation at the time of such conversion the amount of such
dividend.
(b) If dividends are not paid in full, or declared in full, and
sums set apart for the payment thereof, upon the shares of the
6 1/4% Preferred Stock and shares of any other preferred stock
ranking on a parity as dividends with the 6 1/4% Preferred
Stock, all dividends declared upon shares of the 6 1/4%
Preferred Stock, and of any other preferred stock ranking on a
parity as to dividends, shall be paid or declared pro rata so
that in all cases the amount of dividends paid or declared per
share on the 6 1/4% Preferred Stock, and such other preferred
stock, shall bear to each other the same ratio that
accumulated dividends per share, including dividends accrued
or in arrears, if any, on the shares of the 6 1/4% Preferred
Stock, and such other preferred stock, bear to each other.
Except as provided in the preceding sentence, unless full
cumulative dividends on the shares of the 6 1/4% Preferred
Stock have been paid or declared in full and sums set aside
for the payment thereof, no dividends (other than dividends
in shares of, or options, warrants, or rights to subscribe for
or purchase shares
-2-
<PAGE> 68
of the Common Stock (as hereinafter defined) or in shares of
any other capital stock of the Corporation ranking junior to
the 6 1/4% Preferred Stock as to dividends) shall be paid or
declared and set aside for payment or other distribution made
upon the Corporation's Common Stock, without par value (the
"Common Stock"), or, except as provided above, on any other
capital stock of the Corporation ranking junior to or on a
parity with the 6 1/4% Preferred Stock as to dividends, nor
shall any shares of the Common Stock or shares of any other
capital stock of the Corporation ranking junior to or on a
parity with the 6 1/4% Preferred Stock as to dividends be
redeemed, purchased, or otherwise acquired for any
consideration (or any payment made to or available for a
sinking fund for the redemption of any such shares) by the
Corporation or any subsidiary of the Corporation (except by
conversion into or exchange for shares of capital stock of the
Corporation ranking junior to the 6 1/4% Preferred Stock as to
dividends). Holders of shares of the 6 1/4% Preferred Stock
shall not be entitled to any dividends, whether payable in
cash, property, or shares of capital stock, in excess of full
accrued and cumulative dividends as herein provided. No
interest or sum of money in lieu of interest shall be payable
in respect of any dividend payment or payments on the shares
of the 6 1/4% Preferred Stock that may be in arrears.
The terms "accrued dividends," "dividends accrued," and
"dividends in arrears," whenever used herein with reference to
shares of preferred stock shall be deemed to mean an amount
which shall be equal to dividends thereon at the annual
dividend rates per share for the respective series from the
date or dates on which such dividends commence to accrue to
the end of the then current quarterly dividend period for such
preferred stock (or, in the case of redemption, to the date of
redemption), less the amount of all dividends paid, or
declared in full and sums set aside for the payment thereof,
upon such shares of preferred stock.
(c) Dividends payable on the shares of the 6 1/4% Preferred Stock
for any period less than a full quarterly dividend period
shall be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed in the
period for which payable. Any dividend otherwise payable on a
date which is not a business day will be paid on the next day
which is a business day, but without interest.
-3-
<PAGE> 69
SECTION 3. OPTIONAL REDEMPTION.
(a) The shares of the 6 1/4% Preferred Stock will be redeemable at
the option of the Corporation by resolution of its Board of
Directors, in whole, or, from time to time, in part, at any
time on or after December 26, 1995, at the following
redemption prices per share, if redeemed during the
twelve-month period beginning November 24 of the year
indicated below, plus, in each case, all dividends accrued and
unpaid on the shares of the 6 1/4% Preferred Stock up to the
date fixed for the redemption, upon giving notice as provided
hereinbelow:
<TABLE>
<CAPTION>
PRICE
-----
<S> <C>
1995 ................... $52.1875
1996 ................... 51.8750
1997 ................... 51.5625
1998 ................... 51.2500
1999 ................... 50.9375
2000 ................... 50.6250
2001 ................... 50.3125
2002 and thereafter .... 50
</TABLE>
(b) If fewer than all of the outstanding shares of the 6 1/4%
Preferred Stock are to be redeemed, the number of shares to be
redeemed shall be determined by the Board of Directors and the
shares to be redeemed shall be determined pro rata or by lot
or in such other manner and subject to such regulations as the
Board of Directors in its sole discretion shall prescribe.
(c) At least 30 days, but not more than 60 days, prior to the
date fixed for the redemption of shares of the 6 1/4% Preferred
Stock, a written notice shall be mailed in a postage prepaid
envelope to each holder of record of the shares of 6 1/4%
Preferred Stock to be redeemed, addressed to such holder at
his post office address as shown on the records of the
Corporation, notifying such holder of the election of the
Corporation to redeem such shares, stating the date fixed for
redemption thereof (the "Redemption Date"), and calling upon
such holder to surrender to the Corporation, on the Redemption
Date at the place designated in such notice, his certificate
or certificates representing the number of shares specified in
such notice of redemption. On or after the Redemption Date,
each holder of shares of the 6 1/4% Preferred Stock to be
redeemed shall present and surrender his certificate or
certificates for such shares to the Corporation at the place
designated in such notice and thereupon the redemption price
of such shares shall be paid to or on the order of the person
whose name appears on such certificate or certificates as the
owner thereof and
-4-
<PAGE> 70
each surrendered certificate shall be cancelled. In case less
than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the
unredeemed shares.
From and after the Redemption Date (unless default shall be
made by the Corporation in payment of the redemption price),
all dividends on the shares of the 6 1/4% Preferred Stock
designated for redemption in such notice shall cease to
accrue, and all rights of the holders thereof as stockholders
of the Corporation, except the right to receive the redemption
price of such shares (including all accrued and unpaid
dividends up to the Redemption Date) upon the surrender of
certificates representing the same, shall cease and terminate
and such shares shall not thereafter be transferred (except
with the consent of the Corporation) on the books of the
Corporation, and such shares shall not be deemed to be
outstanding for any purpose whatsoever. At its election, the
Corporation, prior to the Redemption Date, may deposit the
redemption price (including all accrued and unpaid dividends
up to the Redemption Date) of shares of the 6 1/4% Preferred
Stock so called for redemption in trust for the holders
thereof with a bank or trust company (having a capital surplus
and undivided profits aggregating not less than $50,000,000)
in the Borough of Manhattan, City and State of New York, or in
any other city in which the Corporation at the time shall
maintain a transfer agency with respect to such shares, in
which case the aforesaid notice to holders of shares of the
6 1/4% Preferred Stock to be redeemed shall state the date of
such deposit, shall specify the office of such bank or trust
company as the place of payment of the redemption price, and
shall call upon such holders to surrender the certificates
representing such shares at such place on or after the date
fixed in such redemption notice (which shall not be later than
the Redemption Date) against payment of the redemption price
(including all accrued and unpaid dividends up to the
Redemption Date). Any interest accrued on such funds shall be
paid to the Corporation from time to time. Any moneys so
deposited which shall remain unclaimed by the holders of such
shares of the 6 1/4% Preferred Stock at the end of two years
after the Redemption Date shall be returned by such bank or
trust company to the Corporation.
If a notice of redemption has been given pursuant to this
Section 3 and any holder of shares of the 6 1/4% Preferred
Stock shall, prior to the close of business on the last
business day preceding the Redemption Date, give written
notice to the Corporation pursuant to Section 6 below of the
conversion of any or all of the
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shares to be redeemed held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or
assigned to the Corporation, and any necessary transfer tax
payment, as required by Section 6 below), then such redemption
shall not become effective as to such shares to be converted,
such conversion shall become effective as provided in Section
6 below, and any moneys set aside by the Corporation for the
redemption of such shares of converted 6 1/4% Preferred Stock
shall revert to the general funds of the Corporation.
(d) Shares of the 6 1/4% Preferred Stock redeemed, repurchased,
retired, or otherwise acquired by the Corporation (whether
pursuant to the provisions of Section 3 or otherwise), or
surrendered to the Corporation upon conversion, or which were
not originally issued as part of a contemplated public
offering of such 6 1/4% Preferred Stock, shall cease to be
shares of the 6 1/4% Preferred Stock and shall thereupon be
retired and may not be reissued as shares of the 6 1/4%
Preferred Stock, but shall thereafter have the status of
authorized but unissued shares of the Preferred Stock, without
designation as to series, until such shares are once more
designated as part of a particular series of the Preferred
Stock by the Board of Directors.
SECTION 4. VOTING RIGHTS.
(a) Except as otherwise set forth hereafter, or by the laws of
the State of Delaware specifically provided, the holders of
shares of the 6 1/4% Preferred Stock shall not be entitled to
vote on any question or matter, or in any proceedings, or to
be represented at or to receive notice of any meeting of
stockholders of the Corporation; provided, however, that the
holders of the 6 1/4% Preferred Stock will have voting rights
as provided in this Section 4 and in Section 8 hereof. When
the holders of the 6 1/4% Preferred Stock vote on any matter as
members of a class which does not include the holders of
Common Stock, the holders of 6 1/4% Preferred Stock shall be
entitled to an aggregate number of votes which is in the same
proportion to the total number of class votes as the aggregate
liquidation preference of the outstanding shares of 6 1/4%
Preferred Stock bears to the aggregate liquidation preference
of all shares of capital stock in the class; and each holder
of 6 1/4% Preferred Stock shall be entitled to his or her
proportionate share of the aggregate number of votes to which
the holders of 6 1/4% Preferred Stock are entitled.
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(b) In the event that the Corporation shall have failed to declare
and pay or set apart for payment in full the dividends
accumulated on the outstanding shares of the 6 1/4% Preferred
Stock for any six quarterly dividend payment periods, whether
or not consecutive (a "Preferential Dividend Non-Payment"), the
number of directors of the Corporation shall be increased by
two and the holders of outstanding shares of the 6 1/4%
Preferred Stock, voting together as a class with all other
series of Preferred Stock of the Corporation ranking on a
parity with the 6 1/4% Preferred Stock with respect to
dividends or distribution of assets upon liquidation and then
entitled to vote on the election of such additional directors,
shall be entitled to elect, as a single class separately from
the holders of any other class of capital stock of the
Corporation, two additional directors until the full dividends
accumulated on all outstanding shares of the 6 1/4% Preferred
Stock have been declared and paid or set apart for payment.
Upon the occurrence of a Preferential Dividend Non-Payment,
the Board of Directors shall, within a reasonable period, call
a special meeting of the holders of shares of the 6 1/4%
Preferred Stock and all holders of other classes or series of
preferred stock of the Corporation ranking on a parity with
the 6 1/4% Preferred Stock with respect to the payment of
dividends or distribution of assets upon liquidation who are
then entitled to vote on the election of such additional
directors for the purpose of electing the additional directors
provided by the foregoing provisions. If and when all
accumulated dividends on the shares of the 6 1/4% Preferred
Stock have been declared and paid or set aside for payment in
full, the holders of shares of the 6 1/4% Preferred Stock shall
be divested of the special voting rights provided by this
Section 4(b), subject to revesting in the event of each and
every subsequent Preferential Dividend Non-Payment. Upon
termination of such special voting rights attributable to all
holders of shares of the 6 1/4% Preferred Stock and shares of
any other class or series of preferred stock of the
Corporation ranking on a parity with the 6 1/4% Preferred Stock
with respect to payment of dividends or distribution of assets
upon liquidation, the term of office of each Director elected
by the holders of shares of the 6 1/4% Preferred Stock and such
parity Preferred Stock (a "Preferred Stock Director") pursuant
to such special voting rights shall forthwith terminate and
the number of directors constituting the entire Board of
Directors shall be reduced by the number of Preferred Stock
Directors. Any Preferred Stock Director may be removed by, and
shall not be removed otherwise than by, the vote of the
holders of record of a majority of the outstanding shares of
the 6 1/4% Preferred Stock and
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all other series of Preferred Stock ranking on a parity with
the 6 1/4% Preferred Stock with respect to the payment of
dividends or distribution of assets upon liquidation who were
entitled to vote in such Preferred Stock Director's election,
voting as a separate class, at a meeting called for such
purpose.
(c) So long as any shares of this Series are outstanding, the
bylaws of the Corporation shall contain provisions ensuring
that the number of Directors constituting the entire Board of
Directors of the Corporation shall at all times be such that
the exercise, by the holders of shares of the 6 1/4% Preferred
Stock and the holders of parity Preferred Stock, of the right
to elect Directors under the circumstances provided for in
subclause (a) of this Section 4 will not contravene any
provision of this Certificate of Incorporation restricting the
number of Directors which may constitute the entire Board of
Directors of the Corporation.
(d) Directors elected pursuant to subclause (b) of this Section 4
shall serve until the earlier of (1) the next annual meeting
of the stockholders of the Corporation and the election (by
the holders of shares of the 6 1/4% Preferred Stock and the
holders of parity Preferred Stock) and qualification of their
respective successors, or (2) the date upon which all
dividends in default on the shares of the 6 1/4% Preferred
Stock and such other parity Preferred Stock shall have been
paid in full.
(e) So long as a Preferential Dividend Non-Payment shall continue,
any vacancy in the office of a Preferred Stock Director may be
filled by written consent of the Preferred Stock Director
remaining in office or, if none remain in office, by vote of
the holders of record of a majority of the outstanding shares
of the 6 1/4% Preferred Stock and all other series of Preferred
Stock ranking on a parity with the 6 1/4% Preferred Stock with
respect to the payment of dividends or distribution of assets
upon liquidation who are then entitled to vote in the election
of such Preferred Stock Directors as provided above. As long
as the preferential Dividend Non-Payment shall continue,
holders of shares of the 6 1/4% Preferred Stock shall not, as
such stockholders, be entitled to vote on the election or
removal of directors other than Preferred Stock Directors, but
shall not be divested of any other voting rights provided to
such stockholders by law with respect to any other matter to
be acted upon by the stockholders of the Corporation.
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SECTION 5. LIQUIDATION RIGHTS
(a) In the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation, whether voluntary or
otherwise, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holders of
shares of the 6 1/4% Preferred Stock shall be entitled to
receive, in cash, out of the remaining net assets of the
Corporation, the amount of Fifty Dollars ($50.00) for each
share of the 6 1/4% Preferred Stock, plus an amount equal to
all dividends accrued and unpaid on each such share up the
date fixed for distribution, AND NO MORE, before any
distribution shall be made to the holders of shares of the
Common Stock or any other capital stock of the Corporation
ranking (as to any such distribution) junior to the 6 1/4%
Preferred Stock. If, upon any liquidation, dissolution, or
winding up of the Corporation, the assets distributable among
the holders of shares of the 6 1/4% Preferred Stock and all
other classes and series of preferred stock ranking (as to any
such distribution) on a parity with the 6 1/4% Preferred Stock
are insufficient to permit the payment in full to the holders
of all such shares of all preferential amounts payable to all
such holders, then the entire assets of the Corporation thus
distributable shall be distributed ratably among the holders
of the shares of the 6 1/4% Preferred Stock and any such other
classes and series of preferred stock ranking (as to any such
distribution) on a parity with the 6 1/4% Preferred Stock in
proportion to the respective amounts that would be payable per
share if such assets were sufficient to permit payment in
full.
(b) For purposes of this Section 5, a distribution of assets in
any dissolution, winding up, or liquidation shall not include
(i) any consolidation or merger of the Corporation with or
into any other corporation or (ii) a sale or other disposition
of all or substantially all of the Corporation's assets to
another corporation.
(c) After the payment of the full preferential amounts provided
for herein to the holders of shares of the 6 1/4% Preferred
Stock or funds necessary for such payment have been set aside
in trust for the holders thereof, such holders shall be
entitled to no other or further participation in the
distribution of the assets of the Corporation.
SECTION 6. CONVERSION
(a) Holders of shares of the 61/4% Preferred Stock shall have the
right, exercisable at any time and from time
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to time, except in the case of shares of the 6 1/4% Preferred
Stock called for redemption, to convert all or any such shares
of the 6 1/4% Preferred Stock into such number of whole shares
of the Common Stock as is equal to the aggregate liquidation
preference amount of the shares of 6 1/4% Preferred Stock
surrendered for conversion divided by the conversion price of
$47 per share of such Common Stock (equivalent to a conversion
rate of 1.0638298 shares of the Common Stock for each share of
the 6 1/4% Preferred Stock so converted), subject to adjustment
as described below. In the case of shares of the 6 1/4%
Preferred Stock called for redemption, conversion rights will
expire at the close of business on the day preceding the date
fixed for redemption. Notice of an optional redemption must be
mailed not less than 30 days and not more than 60 days prior
to the Redemption Date. Upon conversion, no adjustment or
payment will be made on account of accrued or unpaid
dividends, but if any holder surrenders a share of the 6 1/4%
Preferred Stock for conversion after the close of business on
the record date for the payment of a dividend and prior to the
opening of business on the next dividend payment date, then,
notwithstanding such conversion, the dividend payable on such
dividend payment date will be paid to the registered holder of
such share of the 6 1/4% Preferred Stock on such record date.
In such event, such share of the 6 1/4% Preferred Stock, when
surrendered for conversion during the period between the close
of business on any dividend payment record date and the
opening of business on the corresponding dividend payment date
(except for a share or shares of the 6 1/4% Preferred Stock
called for redemption on a Redemption Date (as defined in
Section 3(c) hereof) during the period from the close of
business on any dividend payment record date to the close of
business on the corresponding dividend payment date), must be
accompanied by payment of an amount equal to the dividend
payable on such dividend payment date on the share so
converted. A holder of shares of the 6 1/4% Preferred Stock on
a dividend payment record date who (or whose transferee)
converts such shares of 6 1/4% Preferred Stock on a dividend
payment date will receive the dividend payable on such shares
of 6 1/4% Preferred Stock by the Corporation on such dividend
payment date, and the converting holder need not include
payment in the amount of such dividend upon surrender of
shares of the 6 1/4% Preferred Stock for conversion on such
dividend payment date.
(b) Any holder of a share or shares of the 6 1/4% Preferred Stock
electing to convert such share or shares thereof shall deliver
the certificate or certificates therefor to the principal
office of any transfer agent for the
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Common Stock, with the form of notice of election to convert
as the Corporation shall prescribe fully completed and duly
executed and (if so required by the Corporation or any
conversion agent) accompanied by instruments of transfer in
form satisfactory to the Corporation and to any conversion
agent, duly executed by the registered holder or his duly
authorized attorney, and transfer taxes, stamps or funds
therefor or evidence of payment thereof if required pursuant
to Section 6(a) or 6(d) hereof. The conversion right with
respect to any such shares shall be deemed to have been
exercised at the date upon which the certificates therefor
accompanied by such duly executed notice of election and
instruments of transfer and such taxes, stamps, funds or
evidence of payment shall have been so delivered, and the
person or persons entitled to receive the shares of the Common
Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of the
Common Stock upon said date.
(c) No fractional shares of the Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of
the 6 1/4% Preferred Stock. If more than one share of the
6 1/4% Preferred Stock shall be surrendered for conversion at
one time by the same holder, the number of full shares of the
Common Stock which shall be issuable upon conversion thereof
shall be computed on the basis of the aggregate number of
shares of the 6 1/4% Preferred Stock so surrendered. Instead of
any fractional shares of the Common Stock which would
otherwise be issuable upon conversion of any shares of the
6 1/4% Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to
the same fraction of the closing price for the Common Stock on
the last trading day preceding the date of conversion. The
closing price for such day shall be the last reported sales
price regular way or, in case no such reported sale takes
place on such date, the average of the reported closing bid
and asked prices regular way, in either case on the New York
Stock Exchange, or if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal
national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the closing sale
price of the Common Stock or in case no reported sale takes
place, the average of the closing bid and asked prices, on
NASDAQ or any comparable system. If the Common Stock is not
quoted on NASDAQ or any comparable system, the Board of
Directors shall in good faith determine the current market
price on the basis of such quotation as it considers
appropriate.
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(d) If a holder converts a share or shares of the 6 1/4% Preferred
Stock, the Corporation shall pay any documentary, stamp or
similar issue or transfer tax due on the issue of Common Stock
upon the conversion. The holder, however, shall pay to the
Corporation the amount of any tax which is due (or shall
establish to the satisfaction of the Corporation payment
thereof) if the shares are to be issued in a name other than
the name of such holder and shall pay to the Corporation any
amount required by the last sentence of Section 6(a) hereof.
(e) The Corporation shall reserve and shall at all times have
reserved out of its authorized but unissued shares of the
Common Stock enough shares of the Common Stock to permit the
conversion of the then outstanding shares of the 6 1/4%
Preferred Stock. All shares of Common Stock which may be
issued upon conversion of shares of the 6 1/4% Preferred Stock
shall be validly issued, fully paid and nonassessable. In
order that the Corporation may issue shares of the Common
Stock upon conversion of shares of the 6 1/4% Preferred Stock,
the Corporation will endeavor to comply with all applicable
Federal and State securities laws and will endeavor to list
such shares of the Common Stock to be issued upon conversion
on each securities exchange on which the Common Stock is
listed.
(f) The conversion price in effect at any time shall be subject to
adjustment from time to time as follows:
(i) In case the Corporation shall (1) pay a dividend or
make a distribution in shares of the Common Stock to
holders of any class of capital stock of the
Corporation, (2) subdivide or reclassify the
outstanding shares of the Common Stock into a greater
number of shares of the Common Stock or (3) combine
the outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock, the
conversion price immediately prior to such action
shall be adjusted so that the holder of any shares of
the 6 1/4% Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of
shares of the Common Stock which he would have owned
immediately following such action had such shares of
the 6 1/4% Preferred Stock been converted immediately
prior thereto. An adjustment made pursuant to this
Section 6(f)(i) shall become effective immediately
after the record date in the case of a dividend or
distribution and shall become effective immediately
after the effective date in the case of a subdivision
or combination.
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(ii) In case the Corporation shall issue rights or
warrants to all holders of the Common Stock (other
than those rights to purchase shares of Series A
Junior Participating Class A Preferred Stock,
declared and distributed on July 10, 1986, to holders
of the Common Stock, which became exercisable if a
person or group acquires securities representing 20
percent or more of the Corporation's voting
securities or announces a tender offer which would
result in such ownership without the prior consent of
the Corporation or any similar rights issued under
any successor shareholder rights plan) entitling them
to subscribe for or purchase shares of the Common
Stock (or securities convertible into shares of the
Common Stock) at a price per share less than the
current market price (as determined pursuant to
Section 6(f)(iv)) of the Common Stock on such record
date, the number of shares of the Common Stock into
which each share of the 6 1/4% Preferred Stock shall
be convertible shall be adjusted so that the same
shall be equal to the number determined by
multiplying the number of shares of the Common Stock
into which such share of the 6 1/4% Preferred Stock
was convertible immediately prior to such record date
by a fraction of which the numerator shall be the
number of shares of the Common Stock outstanding on
such record date plus the number of additional shares
of the Common Stock offered (or into which the
convertible securities so offered are convertible),
and of which the denominator shall be the number of
shares of the Common Stock outstanding on such record
date, plus the number of shares of the Common Stock
which the aggregate offering price of the offered
shares of the Common Stock (or the aggregate
conversion price of the convertible securities so
offered) would purchase at such current market price.
Such adjustments shall become effective immediately
after such record date.
(iii) In case the Corporation shall distribute to all
holders of the Common Stock evidences of indebtedness
or other assets, including securities, but excluding
those dividends, rights, warrants, and distributions
referred to in Section 6(f)(i) and (ii), and
dividends and distributions paid in cash out of
profits or surplus, or shall distribute to all
holders of the Common Stock rights or warrants to
subscribe for securities (other than those referred
to in Section 6(f)(ii), then, in each such case, the
number of shares of the Common Stock into which each
share of the 6 1/4%
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Preferred Stock shall be convertible shall be
adjusted so that the same shall equal the number
determined by multiplying the number of shares of the
Common Stock into which such share of the 6 1/4%
Preferred Stock was convertible immediately prior to
the date of such distribution by a fraction of which
the numerator shall be the current market price
(determined as provided in Section 6(f)(iv) of the
Common Stock on the record date mentioned below, and
of which the denominator shall be such current market
price of the Common Stock, less the then fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such
fair market value) of the portion of the assets so
distributed or of such subscription rights or
warrants applicable to one share of the Common
Stock. Such adjustment shall become effective
immediately after the record date for the
determination of the holders of the Common Stock
entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the
Corporation shall distribute rights or warrants
(other than those referred to in Section 6(f)(ii))
("Rights") pro rata to holders of the Common Stock,
the Corporation may, in lieu of making any adjustment
pursuant to this Section 6(f)(iii), make proper
provision so that each holder of a share of the 6 1/4%
Preferred Stock who converts such share after the
record date for such distribution and prior to the
expiration or redemption of the Rights shall be
entitled to receive upon such conversion, in addition
to the shares of the Common Stock issuable upon such
conversion (the "Conversion Shares"), a number of
Rights to be determined as follows: (i) if such
conversion occurs on or prior to the date for the
distribution to the holders of Rights of separate
certificates evidencing such Rights (the
"Distribution Date"), the same number of Rights to
which a holder of a number of shares of the Common
Stock equal to the number of Conversion Shares is
entitled at the time of such conversion in accordance
with the terms and provisions of and applicable to
the Rights; and (ii) if such conversion occurs after
the Distribution Date, the same number of Rights to
which a holder of the number of the Common Stock into
which a share of the 6 1/4% Preferred Stock so
converted was convertible immediately prior to the
Distribution Date would have been entitled on the
Distribution Date in accordance with the terms and
provisions of and applicable to the Rights.
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(iv) The current market price per share of the Common
Stock on any date shall be deemed to be the average
of the daily closing prices for thirty consecutive
trading days commencing forty-five trading days
before the day in question. The closing price for
each day shall be the last reported sales price
regular way or, in case no such reported sale takes
place on such date, the average of the reported
closing bid and asked prices regular way, in either
case on the New York Stock Exchange, or if the Common
Stock is not listed or admitted to trading on such
Exchange, on the principal national securities
exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the
closing sale price of the Common Stock, or in case no
reported sale takes place the average of the closing
bid and asked prices, on NASDAQ or any comparable
system, or if the Common Stock is not quoted on
NASDAQ or any comparable system, the closing sale
price or, in case no reported sale takes place, the
average of the closing bid and asked prices, as
furnished by any two members of the National
Association of Securities Dealers, Inc. selected from
time to time by the Corporation for that purpose.
(v) In any case in which this Section 6 shall require
that an adjustment be made immediately following a
record date, the Corporation may elect to defer (but
only until five business days following the mailing
of the notice described in Section 6(j)) issuing to
the holder of any share of the 6 1/4% Preferred Stock
converted after such record date the shares of the
Common Stock and other capital stock of the
Corporation issuable upon such conversion over and
above the shares of the Common Stock and other
capital stock of the Corporation issuable upon such
conversion only on the basis of the conversion price
prior to adjustment; and, in lieu of the shares the
issuance of which is so deferred, the Corporation
shall issue or cause its transfer agents to issue due
bills or other appropriate evidence of the right to
receive such shares.
(g) No adjustment in the conversion price shall be required until
cumulative adjustments result in a concomitant change of 1% or
more of the conversion price as existed prior to the last
adjustment of the conversion price; provided, however, that
any adjustments which by reason of this Section 6(g) are not
required to be made shall be carried forward and taken into
account in any subse-
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quent adjustment. All calculations under this Section 6 shall
be made to the nearest cent or to the nearest one-hundredth of
a share, as the case may be. No adjustment to the conversion
price shall be made for cash dividends.
(h) In the event that, as a result of an adjustment made pursuant
to Section 6(f), the holder of any share of the 6 1/4%
Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of capital stock of the
Corporation other than shares of the Common Stock, thereafter
the number of such other shares so receivable upon conversion
of any shares of the 6 1/4% Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section 6.
(i) The Corporation may make such decreases in the conversion
price, in addition to those required by Sections 6(f)(i), (ii)
and (iii), as it considers to be advisable in order that any
event treated for Federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the holders of
the Common Stock.
(j) Whenever the conversion price is adjusted, the Corporation
shall promptly mail to all holders of record of shares of the
6 1/4% Preferred Stock a notice of the adjustment and shall
cause to be prepared a certificate signed by a principal
financial officer of the corporation setting forth the
adjusted conversion price and a brief statement of the facts
requiring such adjustment and the computation thereof; such
certificate shall forthwith be filed with each transfer agent
for the shares of the 6 1/4% Preferred Stock.
(k) In the event that:
(1) the Corporation takes any action which would require
an adjustment in the conversion price,
(2) the Corporation consolidates or merges with, or
transfers all or substantially all of its assets to,
another corporation and stockholders of the
Corporation must approve the transaction, or
(3) there is a dissolution or liquidation of the
Corporation,
a holder of shares of the 6 1/4% Preferred Stock may wish to
convert some or all of such shares into shares of the Common
Stock prior to the record date for, or
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the effective date of, the transaction so that he may receive
the rights, warrants, securities or assets which a holder of
shares of the Common Stock on that date may receive.
Therefore, the Corporation shall mail to holders of shares of
the 6 1/4% Preferred Stock a notice stating the proposed record
or effective date of the transaction, as the case may be. The
Corporation shall mail the notice at least 10 days before such
date; however, failure to mail such notice or any defect
therein shall not affect the validity of any transaction
referred to in clause (1), (2) or (3) of this Section 6(k).
(1) If any of the following shall occur, namely: (i) any
reclassification or change of outstanding shares of the Common
Stock issuable upon conversion of shares of the 6 1/4%
Preferred Stock (other than a change in par value, or as a
result of a subdivision or combination), (ii) any
consolidation or merger to which the Corporation is a party
other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification
of, or change (other than a change in name, or par value, or
from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination) in,
outstanding shares of the Common Stock or (iii) any sale or
conveyance of all or substantially all of the property or
business of the Corporation as an entirety, then the
Corporation, or such successor or purchasing corporation, as
the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or
conveyance, provide in its certificate of incorporation or
other charter document that each share of the 6 1/4% Preferred
Stock shall be convertible into the kind and amount of shares
of capital stock and other securities and property (including
cash) receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the
number of shares of the Common Stock deliverable upon
conversion of such share of the 6 1/4% Preferred Stock
immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such certificate of
incorporation or other charter document shall provide for
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6.
The foregoing, however, shall not in any way affect the right
a holder of a share of the 6 1/4% Preferred Stock may otherwise
have, pursuant to clause (ii) of the last sentence of Section
6(f)(iii), to receive Rights upon conversion of a share of the
6 1/4% Preferred Stock. If, in the case of any such
consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon
by a
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holder of the Common Stock includes shares of capital stock or
other securities and property of a corporation other than the
successor or purchasing corporation, as the case may be, in
such consolidation, merger, sale or conveyance, then the
certificate of incorporation or other charter document of such
other corporation shall contain such additional provisions to
protect the interests of the holders of shares of the 6 1/4%
Preferred Stock as the Board of Directors shall reasonably
consider necessary by reason of the foregoing. The provision
of this Section 6(1) shall similarly apply to successive
consolidations, mergers, sales or conveyances.
SECTION 7. RANKING. With regard to rights to receive dividends or
distributions upon liquidation of the Corporation, the 6 1/4% Preferred Stock
shall rank prior to the Common Stock and on a parity with any other Preferred
Stock or the $10 par value Preferred Stock issued by the Corporation, unless
the terms of such other Preferred Stock provide otherwise and, if applicable,
the requirements of Section 8 hereof have been complied with.
SECTION 8. LIMITATIONS. In addition to any other rights provided by applicable
law, so long as any shares of the 6 1/4% Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote, or the written consent as
provided by law, of the holders of at least two-thirds (2/3) of the outstanding
shares of the 6 1/4% Preferred Stock, voting as a single class:
(a) create, authorize, or issue any class or series of, or rights
to subscribe to or any security convertible into, capital
stock ranking senior to the 6 1/4% Preferred Stock as to
payment of dividends, in distribution of assets upon
liquidation or in voting rights; or
(b) amend, alter or appeal, whether by merger, consolidation or
otherwise, any of the provisions of the Certificate of
Incorporation (including this Certificate of Designation) that
would change the preferences, rights or powers with respect to
the 6 1/4% Preferred Stock so as to affect the 6 1/4% Preferred
Stock adversely;
but (except as otherwise required by applicable law) nothing herein contained
shall require such a vote or consent (i) in connection with any increase in the
total number of authorized shares of the Common Stock, or (ii) in connection
with the authorization or increase of any class or series of shares ranking, as
to dividends and distribution of assets upon liquidation, pari passu with or
junior to the 6 1/4% Preferred Stock; provided, however, that no such vote or
written consent of the holders of the shares of the 6 1/4% Preferred Stock shall
be required if, at or prior to the time when the issuance of any such shares
ranking
-18-
<PAGE> 84
ration (whether now or hereafter authorized) or securities of the Corporation
convertible into or carrying a right to subscribe to or acquire shares of
capital stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation
to be signed by David C. Anderson, its Executive Vice President - Chief
Financial Officer, and attested by Edmund W. Burke, Esq., its Executive Vice
President, Law and Secretary, this 24th day of November 1992.
BURLINGTON NORTHERN INC.
By: /s/ DAVID C. ANDERSON
--------------------------
David C. Anderson
Executive Vice President -
Chief Financial Officer
Attested:
By: /s/ EDMUND W. BURKE, ESQ.
-------------------------
Edmund W. Burke, Esq.
Executive Vice President,
Law and Secretary
-19-
<PAGE> 85
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 17, 1992, a resolution was duly adopted which
identified shares of the capital stock of said corporation, which, to the
extent hereinafter set forth, had the status of retired shares, and which
retired shares had capital applied in connection with their acquisition.
SECOND: That the shares of capital stock of the corporation, which are
retired, are identified as being one hundred twenty-three thousand four hundred
fifty-eight (123,458) shares of the $10 Par Value Preferred Stock.
THIRD: That the Certificate of Incorporation of the corporation
prohibits the reissuance of the shares of $10 Par Value Preferred Stock when so
retired; and, pursuant to the provisions of Section 243 of the General
Corporation Law of the State of Delaware, upon the effective date of the filing
of this Certificate as therein provided the Certificate of Incorporation of
said corporation shall be amended so as to effect a reduction in the authorized
number of shares of the $10 Par Value Preferred Stock to the extent of one
hundred twenty-three thousand four hundred fifty-eight (123,458) shares, being
the total number of shares retired with a par value of ten dollars ($10) per
share and an aggregate par value of one million two hundred thirty-four
thousand five hundred eighty dollars ($1,234,580).
IN WITNESS WHEREIN, said Burlington Northern Inc. has caused this
certificate to be signed by Edmund W. Burke, its Executive Vice President, Law
and Secretary and attested by Beverly A. Edwards, its Assistant Secretary, this
19 day of January, 1993.
BURLINGTON NORTHERN INC.
(CORPORATE SEAL)
By: /s/ EDMUND W. BURKE,
------------------------
Edmund W. Burke,
Executive Vice President,
Law and Secretary
ATTEST:
By: /s/ BEVERLY A. EDWARDS
----------------------
Beverly A. Edwards,
Assistant Secretary
<PAGE> 86
CERTIFICATE OF RETIREMENT OF STOCK
Burlington Northern Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Burlington
Northern Inc., held on December 17, 1992, a resolution was duly adopted which
allowed for the redemption on July 15, 1993, of all the outstanding $10 Par
Value Preferred Stock of said corporation at a redemption price of $10.00 per
share plus accrued dividends in the amount of $0.067222 per share for the
period from June 2, 1993, to the Redemption Date, or an aggregate of $10.067222
per share.
SECOND: That on July 15, 1993, all of the said outstanding shares
of the stock were redeemed. Pursuant to the provisions of Section 243 of the
General Corporation Law of the State of Delaware, upon the effective date of
the filing of this Certificate as therein provided the Certificate of
Incorporation of said corporation shall be amended so as to reflect the full
retirement of this Stock.
IN WITNESS WHEREIN, said Burlington Northern Inc. has caused this
certificate to be signed by Edmund W. Burke, its Executive Vice President, Law
and Secretary and attested by Beverly A. Edwards, its Assistant Secretary, this
12 day of October 1993.
BURLINGTON NORTHERN INC.
By: /s/ EDMUND W. BURKE
-------------------
Edmund W. Burke
Executive Vice President,
Law and Secretary
ATTEST:
By: /s/ BEVERLY A. EDWARDS
----------------------
Beverly A. Edwards
Assistant Secretary
<PAGE> 1
{BURLINGTON NORTHERN INC. LOGO}
BURLINGTON
NORTHERN
INC.
BY-LAWS
of
BURLINGTON NORTHERN INC.
AS AMENDED THROUGH JULY 17, 1991
<PAGE> 2
BY-LAWS
OF
BURLINGTON NORTHERN INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. OFFICES.................................................................... 1
Section 1 -- Registered Office and Agent........................................... 1
Section 2 -- Other Offices......................................................... 1
ARTICLE II. MEETINGS OF STOCKHOLDERS.................................................. 1
Section 1 -- Annual Meetings....................................................... 1
Section 2 -- Special Meetings...................................................... 1
Section 3 -- Place of Meetings..................................................... 1
Section 4 -- Notice of Meetings.................................................... 1
Section 5 -- Quorum................................................................ 2
Section 6 -- Organization.......................................................... 2
Section 7 -- Voting................................................................ 2
Section 8 -- Inspectors............................................................ 2
Section 9 -- List of Stockholders.................................................. 3
ARTICLE III. BOARD OF DIRECTORS....................................................... 3
Section 1 -- Number, Qualification and Term of Office.............................. 3
Section 2 -- Vacancies............................................................. 3
Section 3 -- Resignations.......................................................... 3
Section 4 -- Removals.............................................................. 3
Section 5 -- Place of Meetings; Books and Records.................................. 4
Section 6 -- Annual Meeting of the Board........................................... 4
Section 7 -- Regular Meetings...................................................... 4
Section 8 -- Special Meetings...................................................... 4
Section 9 -- Quorum and Manner of Acting........................................... 4
Section 10 -- Organization.......................................................... 4
Section 11 -- Consent of Directors in Lieu of Meeting............................... 5
Section 12 -- Telephonic Meetings................................................... 5
Section 13 -- Compensation.......................................................... 5
ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS...................................... 5
Section 1 -- Executive Committee................................................... 5
Section 2 -- Finance Committee..................................................... 5
Section 3 -- Audit Committee....................................................... 6
Section 4 -- Compensation and Nominating Committee................................. 6
Section 5 -- Committee Chairman, Books and Records................................. 7
Section 6 -- Alternates............................................................ 7
Section 7 -- Other Committees...................................................... 7
Section 8 -- Quorum and Manner of Acting........................................... 7
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V. OFFICERS................................................................... 7
Section 1 -- Number................................................................ 7
Section 2 -- Election, Term of Office and Qualifications........................... 8
Section 3 -- Resignations.......................................................... 8
Section 4 -- Removals.............................................................. 8
Section 5 -- Vacancies............................................................. 8
Section 6 -- Compensation of Officers.............................................. 8
Section 7 -- Chairman of the Board................................................. 8
Section 8 -- President and Chief Executive Officer................................. 9
Section 9 -- Senior Vice President, Finance........................................ 9
Section 10 -- Senior Vice President, Law............................................ 9
Section 11 -- Secretary............................................................. 9
Section 12 -- Treasurer............................................................. 10
Section 13 -- Absence or Disability of Officers..................................... 10
ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF................................... 10
Section 1 -- Stock Certificates.................................................... 10
Section 2 -- Transfer of Stock..................................................... 10
Section 3 -- Transfer Agent and Registrar.......................................... 10
Section 4 -- Additional Regulations................................................ 11
Section 5 -- Lost, Destroyed or Mutilated Certificates............................. 11
Section 6 -- Record Date........................................................... 11
ARTICLE VII. DIVIDENDS, SURPLUS, ETC.................................................. 11
ARTICLE VIII. SEAL.................................................................... 11
ARTICLE IX. FISCAL YEAR............................................................... 11
ARTICLE X. INDEMNIFICATION............................................................ 12
Section 1 -- Right to Indemnification.............................................. 12
Section 2 -- Right of Indemnitee to Bring Suit..................................... 12
Section 3 -- Nonexclusivity of Rights.............................................. 13
Section 4 -- Insurance, Contracts and Funding...................................... 13
Section 5 -- Definition of Director and Officer.................................... 13
Section 6 -- Indemnification of Employees and Agents of the Corporation............ 13
ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC........................................ 13
Section 1 -- Checks, Drafts, Etc.; Loans........................................... 13
Section 2 -- Deposits.............................................................. 13
ARTICLE XII. AMENDMENTS............................................................... 14
</TABLE>
ii
<PAGE> 4
BY-LAWS
OF
BURLINGTON NORTHERN INC.
ARTICLE I
OFFICES
SECTION 1. Registered Office and Agent.
The registered office of the corporation is located at 100 West 10th Street
in the City of Wilmington, County of New Castle, State of Delaware, and the name
of its registered agent at such address is The Corporation Trust Company.
SECTION 2. Other Offices.
The corporation may have offices at such other places both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings.
A meeting of the stockholders for the purpose of electing directors and for
the transaction of such other business as may properly be brought before the
meeting shall be held annually at 10 A.M. on the third Thursday of April, or at
such other time on such other day as shall be fixed by resolution of the Board
of Directors. If the day fixed for the annual meeting shall be a legal holiday,
such meeting shall be held on the next succeeding business day.
SECTION 2. Special Meetings.
Special meetings of the stockholders for any purpose or purposes may be
called at any time by a majority of the Board of Directors or by the Chairman of
the Board and shall be called by the Secretary at the request of the holders of
not less than fifty-one percent of all issued and outstanding shares of the
corporation entitled to vote at the meeting.
SECTION 3. Place of Meetings.
The annual meeting of the stockholders of the corporation shall be held at
the general offices of the corporation in the City of Ft. Worth, State of Texas,
or at such other place in the United States as may be stated in the notice of
the meeting. All other meetings of the stockholders shall be held at such places
within or without the State of Delaware as shall be stated in the notice of the
meeting.
SECTION 4. Notice of Meetings.
Except as otherwise provided by statute, written notice of each meeting of
the stockholders, whether annual or special, shall be given not less than ten
nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, notice shall be given when
deposited in the United States mails, postage prepaid, directed to such
stockholder at his address as it appears in the stock ledger of the corporation.
Each such notice shall state the place, date and hour of the meeting, and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called.
<PAGE> 5
When a meeting is adjourned to another time and place, notice of the
adjourned meeting need not be given if the time and place thereof are announced
at the meeting at which the adjournment is given. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 5. Quorum.
At any meeting of the stockholders the holders of record of a majority of
the total number of outstanding shares of stock of the corporation entitled to
vote, present in person or represented by proxy, shall constitute a quorum for
all purposes, provided that at any meeting at which the holders of any series of
class of stock shall be entitled, voting as a class, to elect Directors, the
holders of record of a majority of the total number of outstanding shares of
such series or class, present in person or represented by proxy, shall
constitute a quorum for the purpose of such election.
If a quorum is present at any meeting of stockholders, the vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the meeting shall be sufficient for the transaction of
any business, unless otherwise provided by statute or the Certificate of
Incorporation.
In the absence of a quorum at any meeting, the holders of a majority of the
shares of stock entitled to vote thereat, present in person or represented by
proxy at the meeting, may adjourn the meeting, from time to time, until the
holders of the number of shares requisite to constitute a quorum shall be
present in person or represented at the meeting. At any adjourned meeting at
which a quorum is present, any business may be transacted that might have been
transacted at the meeting as originally convened.
SECTION 6. Organization.
At each meeting of the stockholders, the Chairman of the Board, or in his
absence such person as shall have been designated by the Board of Directors, or
in the absence of such designation a person elected by the holders of a majority
in number of shares of stock present in person or represented by proxy and
entitled to vote, shall act as Chairman of the meeting.
The Secretary or, in his absence, an Assistant Secretary or, in the absence
of the Secretary and all of the Assistant Secretaries, any person appointed by
the Chairman of the meeting shall act as Secretary of the meeting.
SECTION 7. Voting.
Unless otherwise provided in the Certificate of Incorporation or a
resolution of the Board of Directors creating a series of stock, at each meeting
of the stockholders, each holder of shares of any series or class of stock
entitled to vote at such meeting shall be entitled to one vote for each share of
stock having voting power in respect of each matter upon which a vote is to be
taken, standing in his name on the stock ledger of the corporation on the record
date fixed as provided in these By-Laws for determining the stockholders
entitled to vote at such meeting or, if no record date be fixed, at the close of
business on the day next preceding the day on which notice of the meeting is
given. Shares of its own capital stock belonging to the corporation, or to
another corporation if a majority of the shares entitled to vote in the election
of directors of such other corporation is held by the corporation, shall neither
be entitled to vote nor counted for quorum purposes.
At each election of Directors the voting shall be by ballot, and the
persons having the greatest number of votes shall be deemed and declared
elected. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all matters shall be decided by a majority of
the votes cast, a quorum being present.
SECTION 8. Inspectors.
Prior to each meeting of stockholders, the Board of Directors shall appoint
two Inspectors who are not directors, candidates for directors or officers of
the corporation, who shall receive and determine the validity of
2
<PAGE> 6
proxies and the qualifications of voters, and receive, inspect, count and report
to the meeting in writing the votes cast on all matters submitted to a vote at
such meeting. In case of failure of the Board of Directors to make such
appointments or in case of failure of any Inspector so appointed to act, the
Chairman of the Board shall make such appointment or fill such vacancies.
Each Inspector, immediately before entering upon his duties, shall
subscribe to an oath or affirmation faithfully to execute the duties of
Inspector at such meeting with strict impartiality and according to the best of
his ability.
SECTION 9. List of Stockholders.
The Secretary or other officer or agent having charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
said meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares of each class and series registered in the
name of each such stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting or, if not so specified, at the place where the
meeting is to be held. Such list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this Section, or the books of the corporation, or to vote in person or by
proxy at any such meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Number, Qualification and Term of Office.
The business, property and affairs of the corporation shall be managed by a
Board consisting of not less than three or more than twenty-one Directors. The
Board of Directors shall from time to time by a vote of a majority of the
Directors then in office fix within the maximum and minimum limits the number of
Directors to constitute the Board. At each annual meeting of stockholders a
Board of Directors shall be elected by the stockholders for a term of one year.
Each Director shall serve until his successor is elected and shall qualify.
SECTION 2. Vacancies.
Vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Directors then in office, although less than a quorum, or
by a sole remaining Director, at any regular or special meeting of the Board of
Directors.
SECTION 3. Resignations.
Any Director may resign at any time upon written notice to the Secretary of
the corporation. Such resignation shall take effect on the date of receipt of
such notice or at any later date specified therein; and the acceptance of such
resignation, unless required by the terms thereof, shall not be necessary to
make it effective. When one or more Directors shall resign effective at a future
date, a majority of the Directors then in office, including those who have
resigned, shall have power to fill such vacancy or vacancies to take effect when
such resignation or resignations shall become effective.
SECTION 4. Removals.
Any Director may be removed, with cause, at any special meeting of the
stockholders called for that purpose, by the affirmative vote of the holders of
a majority in number of shares of the corporation entitled to vote for the
election of Directors, and the vacancy in the Board caused by any such removal
may be filled by the stockholders at such a meeting.
3
<PAGE> 7
SECTION 5. Place of Meetings; Books and Records.
The Board of Directors may hold its meetings, and have an office or
offices, at such place or places within or without the State of Delaware as the
Board from time to time may determine.
The Board of Directors, subject to the provisions of applicable statutes,
may authorize the books and records of the corporation, and offices or agencies
for the issue, transfer and registration of the capital stock of the
corporation, to be kept at such place or places outside of the State of Delaware
as, from time to time, may be designated by the Board of Directors.
SECTION 6. Annual Meeting of the Board.
The first meeting of each newly elected Board of Directors, to be known as
the Annual Meeting of the Board, for the purpose of electing officers,
designating committees and the transaction of such other business as may come
before the Board, shall be held as soon as practicable after the adjournment of
the annual meeting of stockholders, and no notice of such meeting shall be
necessary to the newly elected Directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held due to the absence of a quorum, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors or as shall be specified in a written
waiver signed by all of the newly elected Directors.
SECTION 7. Regular Meetings.
The Board of Directors shall, by resolution, provide for regular meetings
of the Board at such times and at such places as it deems desirable. Notice of
regular meetings need not be given.
SECTION 8. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman of
the Board or the President and shall be called by the Secretary on the written
request of three Directors on such notice as the person or persons calling the
meeting shall deem appropriate in the circumstances. Notice of each such special
meeting shall be mailed to each Director or delivered to him by telephone,
telegraph or any other means of electronic communication, in each case addressed
to his residence or usual place of business, or delivered to him in person or
given to him orally. The notice of meeting shall state the time and place of the
meeting but need not state the purpose thereof. Attendance of a Director at any
meeting shall constitute a waiver of notice of such meeting except when a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting was not lawfully called or
convened.
SECTION 9. Quorum and Manner of Acting.
Except as otherwise provided by statute, the Certificate of Incorporation
or these By-Laws, the presence of a majority of the total number of Directors
shall constitute a quorum for the transaction of business at any regular or
special meeting of the Board of Directors, and the act of a majority of the
Directors present at any such meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum, a majority of the
Directors present may adjourn the meeting, from time to time, until a quorum is
present. Notice of any such adjourned meeting need not be given.
SECTION 10. Organization.
At every meeting of the Board of Directors, the Chairman of the Board or,
in his absence the President or, if both of the said officers are absent, a
Chairman chosen by a majority of the Directors present shall act as Chairman of
the meeting. The Secretary or, in his absence, an Assistant Secretary or, in the
absence of the Secretary and all the Assistant Secretaries, any person appointed
by the Chairman of the meeting shall act as Secretary of the meeting.
4
<PAGE> 8
SECTION 11. Consent of Directors in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or any committee designated by the Board, may be taken
without a meeting if all members of the Board or committee consent thereto in
writing, and such written consent is filed with the minutes of the proceedings
of the Board or committee.
SECTION 12. Telephonic Meetings.
Members of the Board of Directors, or any committee designated by the
Board, may participate in a meeting of the Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such a meeting shall constitute presence in person at such meeting.
SECTION 13. Compensation.
Each Director, who is not a full-time salaried officer of the corporation
or any of its wholly owned subsidiaries, when authorized by resolution of the
Board of Directors may receive as a Director a stated salary or an annual
retainer and in addition may be allowed a fixed fee and his reasonable expenses
for attendance at each regular or special meeting of the Board of any Committee
thereof.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Executive Committee.
The Board of Directors may, in its discretion, designate annually an
Executive Committee consisting of not less than five Directors as it may from
time to time determine. The Committee shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to be
affixed to all papers which may require it, but the Committee shall have no
power or authority to amend the Certificate of Incorporation (except that the
Committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation), adopt an agreement of merger or consolidation,
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommend to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
amend the By-Laws of the corporation, elect officers or fill vacancies on the
Board of Directors or any Committee of the Board, declare a dividend, authorize
the issuance of stock, or such other powers as the Board may from time to time
eliminate.
SECTION 2. Finance Committee.
The Board of Directors may, in its discretion, designate annually a Finance
Committee, consisting of not less than five Directors as it may from time to
time determine. The Committee shall monitor, review, appraise and recommend to
the Board of Directors appropriate action with respect to the corporation's
capital structure, its source of funds and its financial position; review and
recommend appropriate delegations of authority to management on expenditures and
other financial commitments; review terms and conditions of financing plans;
develop and recommend dividend policies and recommend to the Board specific
dividend payments, and such other duties, functions and powers as the Board may
from time to time prescribe.
5
<PAGE> 9
SECTION 3. Audit Committee.
The Board of Directors shall designate annually an Audit Committee
consisting of not less than three directors as it may from time to time
determine, none of whom shall be an officer of the corporation, to assist the
Board in fulfilling its responsibilities with respect to overseeing the
accounting, auditing and financial reporting practices and the internal control
policies and procedures of the corporation.
Specifically, the Audit Committee is authorized and directed on behalf of
the Board to:
(a) Review with the independent accountants the corporation's
financial statements, basic accounting and financial policies and
practices, competency of control personnel, standard and special tests used
in verifying the corporation's statements of account and in determining the
soundness of the corporation's financial condition and report to the Board
the results of such reviews.
(b) Review the policies and practices pertaining to publication of
quarterly and annual statements to assure consistency with audited results
and the implementing of policies and practices recommended by the
independent accountants.
(c) Ensure that suitable independent audits are made of the operations
and results of subsidiary corporations and affiliates.
(d) Review and approve the audit program to be conducted by the
corporation's internal auditors and the results of completed audits.
(e) Review the nature of, and fees charged for, all audit and
non-audit services performed by the corporation's independent auditing
firm.
(f) Retain at its discretion, independent auditors and legal counsel,
at the expense of the corporation, to assist the Committee in performing
the responsibilities delegated to it in this resolution and conduct any
additional reviews, discussions or investigations which in its discretion
would be of assistance in fulfilling its responsibilities under this
resolution.
(g) Monitor compliance with the corporation's code of business
conduct, and such other duties, functions and powers as the Board may from
time to time prescribe.
SECTION 4. Compensation and Nominating Committee.
The Board of Directors may, in its discretion, designate annually a
Compensation and Nominating Committee, consisting of not less than five
Directors as it may from time to time determine. The Committee shall review,
report and make recommendations to the Board of Directors on the following
matters:
(a) The compensation of the Chairman and all senior officers of the
corporation and its principal operating subsidiaries reporting directly to
the Chairman following an annual review of management's recommendations for
the individuals involved. If circumstances involving individuals require a
salary adjustment between such reviews, a recommendation may be made
directly to the Board of Directors by the Chairman or the President without
the necessity of a meeting of the Compensation and Nominating Committee.
(b) The size and composition of the Board and nominees for Directors;
evaluate the performance of the officers of the corporation and, together
with management, select and recommend to the Board appropriate individuals
for election, appointment and promotion as officers of the corporation and
ensure the continuity of able, capable management.
(c) Management recommendations for individual stock options to be
granted under existing stock option plans to key executives of the
corporation and its subsidiary companies.
(d) The performance of the trustee of the corporation's pension trust
fund and any proposed change in the investment policy of the trustee with
respect to such fund.
6
<PAGE> 10
(e) Any proposed stock option plans, stock purchase plans, retirement
plans and any other plans, systems and practices of the corporation
relating to the compensation of any employees of the corporation and any
proposed plans of any subsidiary company involving the issuance or purchase
of capital stock of the corporation.
(f) Such other matters as the Board may from time to time prescribe.
SECTION 5. Committee Chairman, Books and Records.
Each Committee shall elect a Chairman to serve for such term as it may
determine, shall fix its own rules of procedure and shall meet at such times and
places and upon such call or notice as shall be provided by such rules. It shall
keep a record of its acts and proceedings, and all action of the Committee shall
be reported to the Board of Directors at the next meeting of the Board.
SECTION 6. Alternates.
Alternate members of the Committees prescribed by this Article IV may be
designated by the Board of Directors from among the Directors to serve as
occasion may require. Whenever a quorum cannot be secured for any meeting of any
such Committees from among the regular members thereof and designated
alternates, the member or members of such Committee present at such meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of such absent or disqualified member.
Alternative members of such Committees shall receive a reimbursement for
expenses and compensation at the same rate as regular members of such
Committees.
SECTION 7. Other Committees.
The Board of Directors may elect such other Committees, each to consist of
two or more Directors, as it may from time to time determine, and each such
Committee shall serve for such term and shall have and may exercise, during
intervals between meetings of the Board of Directors, such duties, functions and
powers as the Board of Directors may from time to time prescribe.
SECTION 8. Quorum and Manner of Acting.
At each meeting of any Committee the presence of a majority of the members
of such Committee, whether regular or alternate, shall be necessary to
constitute a quorum for the transaction of business, and if a quorum is present
the concurrence of a majority of those present shall be necessary for the taking
of any action; provided, however, that no action may be taken by the Executive
Committee or the Finance Committee when two or more officers of the corporation
are present as members at a meeting of either such Committee unless such action
shall be concurred in by the vote of two or more members of such Committee who
are not officers of the corporation.
ARTICLE V
OFFICERS
SECTION 1. Number.
The officers of the corporation shall be a Chairman of the Board, a Vice
President and Chief Financial Officer, a Vice President, Law, a Secretary, a
Treasurer and such other officers as may be elected or appointed by the Board of
Directors. Any number of offices may be held by the same person. Any officer may
hold such additional title descriptions or qualifiers such as "Chief Executive
Officer", "Chief Operating Officer", "Senior Vice President", "Executive Vice
President" or "Assistant Secretary" or such other title as the Board of
Directors shall determine. In addition, at the discretion of the Chairman and
Board of Directors, a President may be, but need not be, elected or appointed.
7
<PAGE> 11
SECTION 2. Election, Term of Office and Qualifications.
The officers of the corporation shall be elected annually by the Board of
Directors. Each officer elected by the Board of Directors shall hold office
until his successor shall have been duly elected and qualified, or until he
shall have died, resigned or been removed in the manner hereinafter provided.
SECTION 3. Resignations.
Any officer may resign at any time upon written notice to the Secretary of
the corporation. Such resignation shall take effect at the date of its receipt,
or at any later date specified therein; and the acceptance of such resignation,
unless required by the terms thereof, shall not be necessary to make it
effective.
SECTION 4. Removals.
Any officer elected or appointed by the Board of Directors may be removed,
with or without cause, by the Board of Directors at a regular meeting or special
meeting of the Board. Any officer or agent appointed by any officer or committee
may be removed, either with or without cause, by such appointing officer or
committee.
SECTION 5. Vacancies.
Any vacancy occurring in any office of the corporation shall be filled for
the unexpired portion of the term in the same manner as prescribed in these
By-Laws for regular election or appointment to such office.
SECTION 6. Compensation of Officers.
The compensation of all officers elected by the Board of Directors shall be
approved or authorized by the Board of Directors or by the Chairman when so
authorized by the Board of Directors or these By-Laws.
SECTION 7. Chairman of the Board.
The Chairman of the Board shall, when present, preside at all meetings of
the stockholders and of the Board; have authority to call special meetings of
the stockholders and of the Board; have authority to sign and acknowledge in the
name and on behalf of the corporation all stock certificates, contracts or other
documents and instruments except when the signing thereof shall be expressly
delegated to some other officer or agent by the Board or required by law to be
otherwise signed or executed and, unless otherwise provided by law or by the
Board may authorize any officer, employee or agent of the corporation to sign,
execute and acknowledge in his place and stead all such documents and
instruments. He shall have such other powers and perform such other duties as
from time to time may be assigned to him by the Board of Directors or the
Executive Committee.
The Chairman is hereby authorized, without further approval of the Board of
Directors:
(a) To approve any expenditure by the corporation of up to $20 million
for those expenditure categories presented to the Board of Directors in the
annual budget and up to $10 million for any expenditure categories not
presented, including investments, leases, options to purchase or lease
assets, business acquisitions and land purchases.
(b) To approve individual cost overruns of up to 10 percent of any
amounts approved by or presented to the Board of Directors.
(c) To approve disposition of assets and interests in securities of
subsidiaries or related commitments, provided that the aggregate market
value of the assets being disposed of in any one such transaction does not
exceed $10 million.
(d) To enter into leases or extensions thereof and other agreements
with respect to the assets of the corporation, including interests in
minerals and real estate, for a term of not more than ten years or for an
unlimited term if the aggregate initial rentals, over the term of the
lease, including renewal options, do not exceed $3 million.
8
<PAGE> 12
(e) To approve increases in the capital budgets of the corporation's
operating subsidiaries provided such increases in the aggregate do not
exceed 10 percent of the corporation's capital budget for the fiscal year.
(f) To approve in emergency situations commitments in excess of the
above-described limits provided they are in the interests of the
corporation.
(g) To fix the compensation of officers of the corporation other than
his own compensation and that of the senior officers of the corporation and
its principal operating subsidiaries reporting directly to him.
(h) To approve proposed employee compensation and benefit plans of
subsidiary companies not involving the issuance or purchase of capital
stock of the corporation.
The above delegation of authority does not authorize the corporation or its
subsidiaries to make a significant change in its business or to issue the
corporation's capital stock without the specific approval of the Board of
Directors. Notwithstanding these limitations, the Chairman of the Board shall
have such power and authority as is usual, customary and desirable to perform
all the duties of the office.
SECTION 8. President.
When a President is elected or appointed, he shall, in the absence of the
Chairman of the Board, preside at all meetings of the stockholders and of the
Board; have authority to sign and acknowledge in the name and on behalf of the
corporation all stock certificates, contracts or other documents and
instruments, except when the signing thereof shall be expressly delegated to
some other officer or agent by the Board, or the Chairman of the Board, or
required by law to be otherwise signed or executed and, unless otherwise
provided by law or by the Board, may authorize any officer, employee or agent of
the corporation to sign, execute and acknowledge in his place and stead all such
documents and instruments. He shall have such other powers and perform such
other duties as from time to time may be assigned to him by the Board of
Directors, the Executive Committee or the Chairman of the Board.
SECTION 9. Vice President, Finance.
The Vice President, Finance shall have responsibility for development and
administration of the corporation's financial plans and all financial
arrangements, its insurance programs, its cash deposits and short-term
investments, its accounting policies, and its federal and state tax returns.
Such officer shall also be responsible for the corporation's internal control
procedures and for its relationship with the financial community.
SECTION 10. Vice President, Law.
The Vice President, Law shall be the chief legal advisor of the corporation
and shall have charge of the management of the legal affairs and litigation of
the corporation.
SECTION 11. Secretary.
The Secretary shall record the proceedings of the meetings of the
stockholders and directors, in one or more books kept for that purpose; see that
all notices are duly given in accordance with the provisions of the By-Laws or
as required by law; have charge of the corporate records and of the seal of the
corporation; affix the seal of the corporation or a facsimile thereof, or cause
it to be affixed, to all certificates for shares prior to the issue thereof and
to all documents the execution of which on behalf of the corporation under its
seal is duly authorized by the Board of Directors or otherwise in accordance
with the provisions of the By-Laws; keep a register of the post office address
of each stockholder, director or member, sign with the Chairman of the Board or
President, certificates for shares of stock of the corporation, the issuance of
which shall have been duly authorized by resolution of the Board of Directors;
have general charge of the stock transfer books of the corporation; and in
general, perform all duties incident to the office of Secretary and such other
duties as from
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<PAGE> 13
time to time may be assigned to him by the Board of Directors, the Executive
Committee, the Chairman of the Board, the President or the Vice President, Law.
SECTION 12. Treasurer.
The Treasurer shall have the responsibility for the custody and safekeeping
of all funds of the corporation and shall have charge of their collection,
receipt and disbursement; shall receive and have authority to sign receipts for
all monies paid to the corporation and shall deposit the same in the name and to
the credit of the corporation in such banks or depositories as the Board of
Directors shall approve; shall endorse for collection on behalf of the
corporation all checks, drafts, notes and other obligations payable to the
corporation; shall sign or countersign all notes, endorsements, guaranties and
acceptances made on behalf of the corporation when and as directed by the Board
of Directors; shall give bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors may require;
shall have the responsibility for the custody and safekeeping of all securities
of the corporation; and in general shall have such other powers and perform such
other duties as are incident to the office of Treasurer and as from time to time
may be prescribed by the Board of Directors or be delegated to him by the
Chairman, the President or the Vice President, Finance.
SECTION 13. Absence or Disability of Officers.
In the absence or disability of the Chairman of the Board or the President,
the Board of Directors may designate, by resolution, individuals to perform the
duties of those absent or disabled. The Board of Directors may also delegate
this power to a committee or to a senior corporate officer.
ARTICLE VI
STOCK CERTIFICATES AND TRANSFER THEREOF
SECTION 1. Stock Certificates.
Except as otherwise permitted by statute, the Certificate of Incorporation
or resolution or resolutions of the Board of Directors, every holder of stock in
the corporation shall be entitled to have a certificate, signed by or in the
name of the corporation by the Chairman of the Board, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the corporation, certifying the number of shares, and
the class and series thereof, owned by him in the corporation. Any and all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
SECTION 2. Transfer of Stock.
Transfer of shares of the capital stock of the corporation shall be made
only on the books of the corporation by the holder thereof, or by his attorney
there unto duly authorized, and on surrender of the certificate or certificates
for such shares. A person in whose name shares of stock stand on the books of
the corporation shall be deemed the owner thereof as regards the corporation,
and the corporation shall not, except as expressly required by statute, be bound
to recognize any equitable or other claim to, or interest in, such shares on the
part of any other person whether or not it shall have express or other notice
thereof.
SECTION 3. Transfer Agent and Registrar.
The corporation shall at all times maintain a transfer office or agency in
the Borough of Manhattan, The City of New York, in charge of a transfer agent
designated by the Board of Directors (who shall have custody, subject to the
direction of the Secretary, of the original stock ledger and stock records of
the corporation), where the shares of the capital stock of the corporation of
each class shall be transferable, and also a registry
10
<PAGE> 14
office in the Borough of Manhattan, The City of New York, other than its
transfer office or agency in said city, in charge of a registrar designated by
the Board of Directors, where its stock of each class shall be registered. The
corporation may, in addition to the said offices, if and whenever the Board of
Directors shall so determine, maintain in such place or places as the Board
shall determine, one or more additional transfer offices or agencies, each in
charge of a transfer agent designated by the Board, where the shares of capital
stock of the corporation of any class or classes shall be transferable, and also
one or more additional registry offices, each in charge of a registrar
designated by the Board of Directors, where such shares of stock of any class or
classes shall be registered. Except as otherwise provided by resolution of the
Board of Directors in respect of temporary certificates, no certificates for
shares of capital stock of the corporation shall be valid unless countersigned
by a transfer agent and registered by a registrant authorized as aforesaid.
SECTION 4. Additional Regulations.
The Board of Directors may make such additional rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
SECTION 5. Lost, Destroyed or Mutilated Certificates.
The Board of Directors may provide for the issuance of new certificates of
stock to replace certificates of stock lost, stolen, mutilated or destroyed, or
alleged to be lost, stolen, mutilated or destroyed, upon such terms and in
accordance with such procedures as the Board of Directors shall deem proper and
prescribe.
SECTION 6. Record Date.
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
Except as otherwise provided by statute or the Certificate of
Incorporation, the Board of Directors may declare dividends upon the shares of
its capital stock either (1) out of its surplus, or (2) in case there shall be
no surplus, out of its net profits for the fiscal year, whenever, and in such
amounts as, in its opinion, the condition of the affairs of the corporation
shall render it advisable. Dividends may be paid in cash, in property or in
shares of the capital stock of the corporation.
ARTICLE VIII
SEAL
The Board of Directors shall adopt a suitable corporate seal which shall be
in the form imprinted hereon. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January
of each year.
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<PAGE> 15
ARTICLE X
INDEMNIFICATION
SECTION 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is involved (including, without limitation, as a witness) in any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director or officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the full extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), or by other applicable law as then in effect, against all expense,
liability and loss (including attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts to be paid in settlement) actually and reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators, provided, however, that except
as provided in Section 2 of this Article with respect to proceedings seeking to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee while a director or
officer, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined that such indemnitee is not entitled to be indemnified
under this Section 1, or otherwise.
SECTION 2. Right of Indemnitee to Bring Suit.
If a claim under Section 1 of this Article is not paid in full by the
Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, to the extent successful in whole or in part, the indemnitee
shall be entitled to be paid also the expense of prosecuting such suit. The
indemnitee shall be presumed to be entitled to indemnification under this
Article upon submission of a written claim (and, in an action brought to enforce
a claim for an advancement of expenses where the required undertaking, if any is
required, has been tendered to the Corporation), and thereafter the Corporation
shall have the burden of proof to overcome the presumption that the indemnitee
is not so entitled. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances not an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or its
stockholders) that the indemnitee is not entitled to indemnification shall be a
defense to the suit or create a presumption that the indemnitee is not so
entitled.
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<PAGE> 16
SECTION 3. Nonexclusivity of Rights.
The rights to indemnification and to the advancement of expenses conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
SECTION 4. Insurance, Contracts and Funding.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law. The Corporation may enter into contracts with
any indemnitee in furtherance of the provisions of this Article and may create a
trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article.
SECTION 5. Definition of Director and Officer.
Any person who is or was serving as a director of a wholly owned subsidiary
of the Corporation shall be deemed, for purposes of this Article only, to be a
director or officer of the Corporation entitled to indemnification under this
Article.
SECTION 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, by action of its Board of Directors from time to time,
grant rights to indemnification and advancement of expenses to employees and
agents of the Corporation with the same scope and effects as the provisions of
this Article with respect to the indemnification and advancement of expenses of
directors and officers of the Corporation.
ARTICLE XI
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. Checks, Drafts, Etc.; Loans.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall, from time to time, be determined by resolution of the Board of
Directors. No loans shall be contracted on behalf of the corporation unless
authorized by the Board of Directors. Such authority may be general or confined
to specific circumstances.
SECTION 2. Deposits.
All funds of the Corporation shall be deposited, from time to time, to the
Credit of the Corporation in such banks, trust companies or other depositories
as the Board of Directors may select, or as may be selected by any officer or
officers, agent or agents of the corporation to whom such power may, from time
to time, be delegated by the Board of Directors; and for the purpose of such
deposit, the Chairman, the President, any Vice President, the Treasurer or any
Assistant Treasurer, the Secretary or any Assistant Secretary or any other
officer or agent to whom such power may be delegated by the Board of Directors,
may endorse, assign and deliver checks, drafts and other order for the payment
of money which are payable to the order of the corporation.
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<PAGE> 17
ARTICLE XII
AMENDMENTS
These By-Laws may be altered or repealed and new By-Laws may be made by the
affirmative vote, at any meeting of the Board, of a majority of the whole Board
of Directors, subject to the rights of the stockholders of the Corporation to
amend or repeal By-Laws made or amended by the Board of Directors by the
affirmative vote of the holders of record of a majority in number of shares of
the outstanding stock of the Corporation present or represented at any meeting
of the stockholders and entitled to vote thereon, provided that notice of the
proposed action be included in the notice of such meeting.
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<PAGE> 1
EXHIBIT 11
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
Primary:
Net income (loss)............................................ $ 296 $ 278 $ (320)
Convertible and mandatory redeemable preferred stock
dividends................................................... (22) (3) (1)
----- ----- -------
Net income (loss) available for common shareholders.......... $ 274 $ 275 $ (321)
----- ----- -------
----- ----- -------
Fully diluted:
Net income (loss) available for common shareholders.......... $ 274 $ 275 $ (321)
Dividends on convertible preferred stock, assuming
conversion.................................................. 22 2 --
----- ----- -------
$ 296 $ 277 $ (321)
----- ----- -------
----- ----- -------
Weighted average number of shares
Primary:
Average common shares outstanding............................ 88.6 87.8 77.5
Common share equivalents resulting from assumed exercise of
stock
options.................................................... 1.1 .8 --
----- ----- -------
89.7 88.6 77.5
----- ----- -------
----- ----- -------
Fully diluted:
Average common shares outstanding............................ 88.6 87.8 77.5
Common share equivalents resulting from assumed conversion of
convertible preferred stock(2).............................. 7.4 .7 --
Common share equivalents resulting from assumed exercise of
stock options assuming full dilution........................ 1.2 1.0 --
----- ----- -------
97.2 89.5 77.5
----- ----- -------
----- ----- -------
Earnings (loss) per common share:
Primary......................................................... $3.06 $3.11 $(4.14)
Fully diluted................................................... 3.04 3.10 (4.14)
</TABLE>
Primary earnings (loss) per common share are computed by dividing net income
(loss), after deduction of preferred stock dividends, by the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents are computed using the treasury stock method. Under the treasury
stock method, an average market price is used to determine the number of common
share equivalents for primary earnings per common share. The higher of the
average or end of period market price is used to determine common share
equivalents for fully diluted earnings per common share. In addition, the if-
converted method is used for convertible preferred stock when computing fully
diluted earnings (loss) per common share. Redeemable preferred stock dividends
were not significant to any period presented.
Earnings (loss) per common share may not compute due to the level of rounding in
this exhibit.
(1) Including the effect of stock options in the computation of loss per common
share for 1991 would be antidilutive and therefore, no common stock
equivalents are included in the 1991 computation.
(2) Conversion of the preferred stock was based on a November 1992 issuance
date.
<PAGE> 1
EXHIBIT 12
BURLINGTON NORTHERN INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings:
Pre-tax income (loss)................................................ $521 $452 $(490)
Add:
Interest and fixed charges........................................ 145 186 226
Portion of rent under long-term operating leases representative of
an interest factor............................................... 92 100 107
Less:
Equity in undistributed income of 20-50% owned companies.......... 3 -- --
---- ---- -----
Total earnings available for fixed charges...................... $755 $738 $(157)
---- ---- -----
---- ---- -----
Fixed charges:
Interest and fixed charges........................................... $145 $186 $ 226
Portion of rent under long-term operating leases representative of an
interest factor................................................... 92 100 107
---- ---- -----
Total fixed charges............................................. $237 $286 $ 333
---- ---- -----
---- ---- -----
Ratio of earnings to fixed charges..................................... 3.19x 2.58x --
---- ---- -----
---- ---- -----
Deficiency in earnings to cover fixed charges(1)....................... -- -- $ 490
---- ---- -----
---- ---- -----
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges, before the 1991 special charge of
$708 million, was 1.65x. Additional earnings of $490 million for the year
ended December 31, 1991 would have been necessary to cover fixed charges.
<PAGE> 1
EXHIBIT 21
BURLINGTON NORTHERN INC.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries of Burlington Northern Inc.
showing the place of incorporation and the percentage of voting securities
owned.
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED
DIRECTLY OR
JURISDICTION OF INDIRECTLY BY
NAME OF COMPANY INCORPORATION IMMEDIATE PARENT
- ------------------------------------- --------------- --------------------
<S> <C> <C>
Burlington Northern Railroad Company Delaware 100%
</TABLE>
The names of certain subsidiaries are omitted as such subsidiaries, considered
as a single subsidiary, would not constitute a significant subsidiary.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Burlington Northern Inc. and Subsidiaries on Forms S-8 (Registration Nos.
2-80478, 33-25806, 33-33825, 33-40348, 33-47537, 33-55196 and 33-50969) and Form
S-3 (Registration No. 33-42952) of our report dated January 17, 1994 on our
audits of the consolidated financial statements and financial statement
schedules of Burlington Northern Inc. and Subsidiaries as of December 31, 1993,
and 1992, and for each of the three years in the period ended December 31, 1993,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND
Fort Worth, Texas
February 14, 1994
